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<SEC-DOCUMENT>0000950134-04-019245.txt : 20041214
<SEC-HEADER>0000950134-04-019245.hdr.sgml : 20041214
<ACCEPTANCE-DATETIME>20041214161445
ACCESSION NUMBER:		0000950134-04-019245
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041214
DATE AS OF CHANGE:		20041214

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SURMODICS INC
		CENTRAL INDEX KEY:			0000924717
		STANDARD INDUSTRIAL CLASSIFICATION:	PATENT OWNERS & LESSORS [6794]
		IRS NUMBER:				411356149
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23837
		FILM NUMBER:		041201720

	BUSINESS ADDRESS:	
		STREET 1:		9924 W 74TH ST
		CITY:			EDEN PRAIRIE
		STATE:			MN
		ZIP:			55344
		BUSINESS PHONE:		6128292700

	MAIL ADDRESS:	
		STREET 1:		9924 WEST 74TH ST
		CITY:			EDEN PRAIRIE
		STATE:			MN
		ZIP:			55344

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	BSI CORP
		DATE OF NAME CHANGE:	19970506
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c90428e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
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<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 14pt"><B>SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, DC 20549</B>
</DIV>


<P align="center" style="font-size: 16pt"><B>FORM 10-K</B>



<P align="center" style="font-size: 12pt">Annual report pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934<BR>
For the fiscal year ended September&nbsp;30, 2004



<P align="center" style="font-size: 10pt">Commission file number 0-23837


<P align="center" style="font-size: 24pt"><B>SURMODICS, INC.</B>

<DIV align="center" style="font-size: 10pt">(Exact Name of Registrant as Specified in Its Charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Minnesota<BR>
(State of Other Jurisdiction of<BR>
Incorporation or Organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">41-1356149<BR>
(IRS Employer<BR>
Identification No.)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">9924 West 74<SUP>th</SUP> Street<BR>
Eden Prairie, Minnesota 55344<BR>
(Address of Principal Executive Offices) (Zip Code)



<P align="center" style="font-size: 10pt">(952)&nbsp;829-2700<BR>
(Registrant&#146;s Telephone Number, Including Area Code)



<P align="left" style="font-size: 10pt">Securities registered pursuant to Section&nbsp;12(b) of the Act: None



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.05
par value


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant: (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required by file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes &#091; X &#093; No &#091;&nbsp;&nbsp;&nbsp;&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405
of Regulation&nbsp;S-K is not contained herein, and will not be contained, to the
best of registrant&#146;s knowledge, in definitive proxy or information statements
incorporated by reference in Part&nbsp;III of this Form 10-K or any amendment to
this Form 10-K. &#091;&nbsp;&nbsp;&nbsp;&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule&nbsp;12b-2). Yes &#091; X &#093; No &#091;&nbsp;&nbsp;&nbsp;&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The aggregate market value of the Common Stock held by shareholders other than
officers, directors or holders of more than 5% of the outstanding stock of the
registrant as of March&nbsp;31, 2004 was approximately $287&nbsp;million (based upon the
closing sale price of the registrant&#146;s Common Stock on such date).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The number of shares of the registrant&#146;s Common Stock outstanding as of
December&nbsp;10, 2004 was 17,605,796.


<P align="center" style="font-size: 10pt">DOCUMENTS INCORPORATED BY REFERENCE




<P align="left" style="margin-left:3%; font-size: 10pt">Portions of the Registrant&#146;s definitive Proxy Statement for the
Registrant&#146;s 2005 Annual Meeting of Shareholders are incorporated by
reference into Part&nbsp;III.


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Table of Contents</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="11%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="82%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Page No.</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#101"><B>Part I</B></A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#102">Item&nbsp;1.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102">Business</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">21</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#103">Item&nbsp;2.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">Properties</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#104">Item&nbsp;3.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">Legal Proceedings</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">22</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#105">Item&nbsp;4.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">Submission of Matters to a Vote of Security Holders Executive Officers</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">22</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#106"><B>Part II</B></A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#107">Item&nbsp;5.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">Market for Registrant&#146;s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">25</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#108">Item&nbsp;6.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108">Selected Financial Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">25</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#109">Item&nbsp;7.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operation</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">26</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#110">Item&nbsp;7A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110">Quantitative and Qualitative Disclosures About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">34</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#111">Item&nbsp;8.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">Financial Statements and Supplementary Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#112">Item&nbsp;9.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#113">Item&nbsp;9A.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#114">Item&nbsp;9B.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#114">Other Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">35</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115"><B>Part III</B></A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#116">Item&nbsp;10.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">Directors and Executive Officers of the Registrant</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">36</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#117">Item&nbsp;11.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117">Executive Compensation</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">36</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#118">Item&nbsp;12.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">Security Ownership of Certain Beneficial Owners and Management</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">36</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#119">Item&nbsp;13.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">Certain Relationships and Related Transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">36</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#120">Item&nbsp;14.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#120">Principal Accounting Fees and Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">36</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121"><B>Part IV</B></A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><A href="#122">Item&nbsp;15.
</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#122">Exhibits, Financial Statement Schedules</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">37</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv10w12.htm">Form of Officer Acceptance Re: Employment/Compensation.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv23w1.htm">Consent of Deloitte & Touche LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv31w1.htm">Certification of Chief Executive Officer - Section 302</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv31w2.htm">Certification of Chief Financial Officer - Section 302</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv32w1.htm">Certification of Chief Executive Officer - Section 906</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c90428exv32w2.htm">Certification of Chief Financial Officer - Section 906</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We make available, free of charge, copies of our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act on our web site, www.surmodics.com, as soon as
reasonably practicable after filing such material electronically or otherwise
furnishing it to the SEC. We are not including the information on our web site
as a part of, or incorporating it by reference into, our Form 10-K.


<P align="center" style="font-size: 10pt">- 1 -
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>PART I</B>

<DIV align="left">
<A name="102"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 1. BUSINESS.</B>



<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">SurModics, Inc. (referred to as &#147;SurModics,&#148; &#147;the Company,&#148; &#147;we,&#148; &#147;us,&#148; &#147;our&#148;
and other like terms) is a leading provider of surface modification and drug
delivery technologies to the medical device industry. Our technologies modify
and enhance the surface characteristics of medical devices and biomedical
applications, improving performance and, in some cases, enabling development of
new products. SurModics&#146; strategy is to create strong relationships and
coating technology license agreements with the world&#146;s leading medical device
manufacturers as well as emerging companies with promising technology. By
doing so, SurModics leverages its core technologies into high growth, high
value opportunities, including drug delivery coatings, genomics and tissue
engineering.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our surface modification and drug delivery coatings are based upon
versatile underlying technology platforms: our patented drug delivery matrix
technology and our patented PhotoLink&#174; coating technology. Coatings developed
from our drug delivery matrix technology allow for the controlled, site
specific release of drugs from the surface of medical devices. Therapeutic
drugs can be entrapped within the polymer matrix coating to provide controlled,
site-specific release of the drug into the surrounding tissue.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PhotoLink&#174; coating technology is a versatile, easily applied,
light-activated coating technology that modifies medical device surfaces.
PhotoLink&#174; coatings can impart many performance-enhancing characteristics, such
as lubricity and hemocompatibility, by becoming bound onto the surface of a
medical device without materially changing the dimensions or physical
properties of the device.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers currently use our surface modification coatings on a variety
of medical devices. For example, our coating technologies are used on various
guidewires, angiography catheters, IVUS catheters, neuro
microcatheters/infusion catheters, PTCA/PTA laser and balloon angioplasty
catheters, atherectomy systems, chronic total occlusion catheters, stent
delivery catheters, cardiovascular stents, embolic protection devices, vascular
closure devices, EP catheters, pacemaker leads, drug infusion catheters, wound
drains, ureteral stents, urological catheters and implants, hydrocephalic
shunts and ophthalmic implants, among other devices.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that drug delivery has the potential to change the landscape of
the current medical device industry. Drug-eluting stents are simply the first
manifestation of how drugs and devices can be combined to produce outstanding
patient benefits. Significant opportunities exist to deliver drugs from a wide
range of other medical devices. Working with both pharmaceutical and medical
device companies, SurModics is poised to exploit this new market opportunity as
drugs and devices converge to create improved products and therapies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, we extended our drug delivery coating applications beyond the
cardiovascular market, where our drug delivery matrix first gained prominence,
into the ophthalmology market, when we signed an agreement with InnoRx, Inc.
for a novel drug delivery application. In January&nbsp;2004, we announced an
agreement to invest up to $3.5&nbsp;million in InnoRx to support the continued
development of its implantable drug delivery platform. Although
commercialization of products containing InnoRx technology is not expected for
at least several years, we believe the InnoRx technology and the ophthamology
market hold strong promise and offer further evidence that our drug delivery
technology is applicable not just in the vascular market, but across many
medical specialties including ophthalmology. We are seeing


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">heightened activity in a number of other areas as interest in SurModics&#146;
drug delivery technology continues to increase.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2004, SurModics announced four new polymer families for site
specific drug delivery. The Encore&#153; Drug Delivery Polymer Matrix and the
Accolade&#153; Microparticle Drug Eluting System, both developed internally at
SurModics, deliver a wider variety of therapeutic agents, including Rapamycin
analogs, from more types of devices than previously possible. In addition,
SurModics obtained an exclusive license from OctoPlus, a Dutch company, for two
novel classes of biodegradable polymers: PolyActive&#153; and OctoDEX&#153;. Because
biodegradable polymers can deliver proteins and other large molecule
therapeutic agents, they expand the breadth of drug delivery applications
SurModics can pursue. Biodegradable polymers can be combined with one or more
drugs and applied to a medical device, yet naturally degrade in the body over
time. Combined with its existing Bravo&#153; polymer matrix and PhotoLink&#174;
technology, SurModics now offers six drug delivery platforms.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company commercializes its drug delivery and PhotoLink&#174; coating
technologies through licensing and royalty arrangements with medical device
manufacturers who apply coatings to their own products. The Company believes
this approach allows it to focus its resources on further development of its
technology and expansion of its licensing activities into new markets, while
leveraging the established manufacturing, sales and marketing capabilities of
its customers. Revenues from these arrangements include license fees,
development revenue, minimum royalties, and royalties based on a percentage of
licensees&#146; product sales. In addition, the Company manufactures and sells the
chemical reagents used in the coating process. The Company also manufactures
and sells coated glass slides to the genomics market and offers a line of
stabilization products used to extend the shelf life of immunoassay diagnostic
tests.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2004, SurModics completed a corporate reorganization designed to
accelerate its technology development and sharpen its focus on customer needs.
The Company created the following five technology-centered business units:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>Drug Delivery</I></B>, dedicated to creating and supporting site specific
drug delivery coatings and technologies for use in drug/device
combination products in our chosen markets, such as drug eluting stents
for the treatment of vascular disease and ophthalmic implants, among
others.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>Hydrophilic Technologies</I></B>, which specializes in advanced lubricious
coatings that can enhance the function of medical devices, facilitating
and easing their placement and maneuverability in the body.</TD>
</TR>

</TABLE>


<P>
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    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>Regenerative Technologies</I></B>, a business unit encompassing SurModics&#146;
work in hemocompatibility, tissue engineering and cell encapsulation
technologies.</TD>
</TR>

</TABLE>


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    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>Diagnostics and Drug Discovery</I></B>, which combines the Company&#146;s
biosciences group (including the genomics and slide technologies
licensed to GE Healthcare), stabilization business (including
distribution relationships with SeraCare and Diarect) and diagnostic
format intellectual property (currently licensed to Abbott Laboratories
and used in strep, pregnancy and other test kits).</TD>
</TR>

</TABLE>


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    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B><I>SurModics New Ventures</I></B>, which is dedicated to identifying,
researching and developing new technologies outside of research and
development conducted in other business units.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our drug delivery polymer matrix technology is the key coating technology
used in the Drug Delivery business unit, and our PhotoLink&#174; technology is the
key coating technology (though not the exclusive technology) used in the
Hydrophilic Technologies, Regenerative Technologies and Diagnostics and Drug
Discovery business units. The most significant difference between each
business unit is the varying surface properties that each unit&#146;s coatings
impart to the surfaces of medical devices or


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<P align="left" style="font-size: 10pt">biomedical applications. Multiple coatings can be combined to deliver multiple
surface-enhancing characteristics on the same device or biomedical application.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe we have sufficient financial resources available to continue
developing and growing our business. We intend to continue to invest in
research and development to continue to develop new surface modification and
drug delivery technologies and to expand uses for our technology bases. In
addition, we continue to pursue access to technologies developed outside the
Company as appropriate to complement our internal research and development
efforts.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company was organized as a Minnesota corporation in June&nbsp;1979 and
became a public company, with shares of our common stock becoming listed for
trading on the Nasdaq National Market, in 1998.


<P align="left" style="font-size: 10pt"><B>Healthcare Industry</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent trends in healthcare toward improving patient outcomes and reducing
costs have resulted in intense competition for the development of medical
devices that demonstrate superior product performance, reduced procedure times,
improved outcomes and patient comfort and overall cost effectiveness. In an
effort to further differentiate their products through improved product
performance, a growing number of medical device manufacturers are turning to
surface modification technology. Surface modification enables device
manufacturers to develop medical devices with beneficial characteristics
including improved lubricity and hemocompatability, as well as the ability to
deliver drugs site-specifically and promote cell growth and tissue integration.
As the benefits of surface modification become increasingly apparent in
connection with improving the performance of medical devices, surface
modification technologies are contributing to, and in some cases driving,
advances in the commercialization of new medical devices and treatments.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The convergence of the pharmaceutical and medical device industries
presents a powerful opportunity for major advancements in health care. Medical
devices, which have traditionally been considered mechanical solutions for
preventing or repairing physical health problems, can offer a whole new range
of benefits when combined with pharmaceuticals.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dramatic successes of biological products in spine therapies and
drug-eluting stents in interventional cardiology have captured the attention of
the pharmaceutical and medical device industries. We believe the rewards of
combining drugs and biologics with implantable devices are becoming
increasingly apparent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our Drug Delivery and PhotoLink&#174; Coating Technologies</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe SurModics is uniquely positioned to exploit the convergence of
drugs and medical devices and the continuing trend to incorporate coating
technology to create more efficient and effective medical devices and
biomedical applications. SurModics has a growing portfolio of relevant
technologies, market expertise and insight, strong customer relationships and a
collaborative R&#038;D mentality &#150; all key ingredients to bring innovation together
and drive toward success.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our PhotoLink<B>&#174; </B>coating technology is a versatile, easily applied, light
activated coating technology that modifies medical device surfaces by creating
covalent bonds between those surfaces and a variety of chemical agents. The
PhotoLink<B>&#174; </B>technology utilizes proprietary, light sensitive (photochemical)
reagents, which can consist of advanced polymers or active biomolecules having
desired surface characteristics and an attached light reactive chemical
compound (photogroup). When the


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<P align="left" style="font-size: 10pt">reagent is exposed to a direct light source, typically ultraviolet light,
a photochemical reaction creates a covalent bond between the photogroup and the
surface of the medical device, thereby imparting the desired property to the
surface. A covalent bond is a very strong chemical bond which results from the
sharing of electrons between carbon molecules of the substrate and the applied
coating.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary PhotoLink<B>&#174; </B>reagents work directly on most polymer based
(e.g., plastic) and biological substrates (latex rubber, cellulose, tissue and
natural fibers). Metal and glass substrates generally require a pretreatment
to make a hydrocarbon-containing surface for bonding prior to the application
of our reagents. The reagents are easily applied to a clean material surface
by dipping, spraying, roll coating, ink jetting or brushing. SurModics
continues to develop proprietary reagents providing new product features while
expanding the number and type of substrates on which the reagents can be
applied. SurModics also develops coating processes and designs equipment to
ensure proper coating integrity, performance and consistency.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our drug delivery technology differs from our PhotoLink<B>&#174; </B>technology in
that it involves non-photochemical reagents. Therapeutic drugs can be
entrapped within the polymer matrix to provide controlled, site specific
release of the drug into the surrounding tissue. On a wide range of devices,
drug-eluting coatings can help improve device performance, increase patient
safety and enable innovative new treatments. SurModics works with companies in
the pharmaceutical/biotechnology and medical device industries to develop
specialized coatings that allow for the controlled release of drugs from a
device surface. SurModics sees three primary areas with strong future
potential: (1)&nbsp;improving the function of a device which itself is necessary to
treat the problem; (2)&nbsp;enabling drug delivery in cases where the device serves
only as a vehicle to deliver a drug to a specific site in the body; and (3)
enhancing the biocompatibility of a medical device to ensure that it continues
to function over a long period of time.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our patented drug delivery technology utilizes a combination of polymers
which are then mixed with drugs to prepare drug-eluting coatings. Release of
the drug from these coatings can be controlled by the amount of drug loading
and the relative composition of the polymer components, both of which influence
the rate at which the drug diffuses out of the coating. The release of the
drug can be tuned to elute quickly, in a few days, or slowly, ranging from
several months to over a year, illustrating the wide range of release profiles
that can be achieved with our coating system.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Surface Modification Features. </I>The Company believes that its proprietary
coating technologies provide its customers with a number of benefits. The main
features that are most likely to permit broad incorporation of our coating
technologies into customers&#146; product development and manufacturing include:


<P>
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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Flexibility. </I>Coatings can be applied to many different kinds
of surfaces and can immobilize a variety of chemical, pharmaceutical
and biological agents, which allows customers to be innovative in
the design of their products without significantly changing the
dimensions or physical properties of the device.</TD>
</TR>

</TABLE>


<P>
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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Multiple Surface Properties. </I>The surface modification
process can be tailored to provide customers with the ability to
improve the performance of their devices by choosing the specific
coating properties desired for particular applications. Our surface
modification technologies also can be combined to deliver multiple
surface-enhancing characteristics on the same device.</TD>
</TR>

</TABLE>


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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Ease of Use. </I>Unlike other coating processes, the PhotoLink<B>&#174;</B>
coating process is relatively simple and is easily integrated into
the customer&#146;s manufacturing process. In</TD>
</TR>

</TABLE>

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    <TD width="6%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>addition, it does not subject the coated products to harsh chemical
or temperature conditions, produces no hazardous byproducts, and
does not require lengthy processing or curing time. Further, the
coatings are compatible with generally accepted sterilization
processes, so the surface attributes are not lost when the medical
device is sterilized prior to packaging.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Surface Properties</I>. Our processes can be tailored to provide medical
device manufacturers with the following surface property characteristics:


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    <TD width="1%">&nbsp;</TD>
    <TD><I>Lubricity. </I>Low friction or lubricious coatings reduce the
force and time required for insertion, navigation and removal of
devices in vascular, neurological and urogenital applications.
Lubricity also reduces tissue irritation and damage caused by
products such as catheters, guidewires and endoscopy devices. Based
on Company and customer testing, when compared to uncoated surfaces,
the PhotoLink<B>&#174; </B>process has reduced the friction on surfaces by more
than 90%, depending on the substrate being coated.</TD>
</TR>

</TABLE>


<P>
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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Hemocompatibility. </I>Hemocompatible coatings help reduce
adverse reactions that may be created when a device is inserted into
the body and comes in contact with blood. Heparin has been used for
decades as an injectable drug to reduce blood clotting in patients.
PhotoLink<B>&#174; </B>can be used to immobilize heparin on the surface of
medical devices, thereby inhibiting blood clotting on the device
surface, minimizing patient risk and enhancing the performance of
the device. PhotoLink<B>&#174; </B>based heparin coatings have been shown in
Company and customer testing to reduce blood clotting by greater
than 90% compared to uncoated surfaces. We have also developed
synthetic, non-biological coatings that provide medical device
surfaces with improved blood compatibility without the use of
heparin.</TD>
</TR>

</TABLE>


<P>
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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Infection Resistance. </I>Anti-adherence coatings are
advantageous for most implantable medical devices where the risk of
infection is a concern. PhotoLink<B>&#174; </B>technology can provide passive
coatings which significantly reduce microbial adhesion to the
device. Testing by the Company has demonstrated that a PhotoLink<B>&#174;</B>
coating can reduce the adherence of microorganisms to biomaterial
surfaces by up to 99% depending on the base material of the device.</TD>
</TR>

</TABLE>


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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Drug Delivery. </I>We provide drug delivery polymer matrix
coating technology to enable site specific delivery of therapeutic
agents. In one application, our coatings address a fundamental
challenge of coronary stents: restenosis, or the progressive
narrowing of vessels due to tissue growth. Our proprietary polymer
coating reagents and application methods do not require light
activation (i.e., they are non-PhotoLink<B>&#174; </B>methods), to create
durable stent coatings which serve as reservoirs for therapeutic
drugs. The drugs can then be released from the coating on a
controlled basis. When a drug-eluting stent is implanted into a
patient, the drug releases from the surface of the stent into the
blood vessel wall where it can act to inhibit unwanted tissue
growth, thereby reducing the occurrence of restenosis. Cordis
Corporation, a division of Johnson &#038; Johnson, is currently selling a
SurModics coated drug-eluting stent in Europe, the U.S. and Japan.
The Company also believes that drug-eluting devices have significant
potential in the orthopedics market, where surface modification
coatings might be used to reduce inflammation and promote tissue
healing in patients that have received knee, hip or other joint
replacements, and in the ophthalmology market where drug-eluting
ophthalmic</TD>
</TR>

</TABLE>

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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>implants may someday be implanted to deliver site specific drugs in
minimally invasive procedures.</TD>
</TR>

</TABLE>


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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Wettability</I>. PhotoLink<B>&#174; </B>hydrophilic coatings have been shown
in tests by the Company and its licensees to accelerate liquid flow
rates on normally hydrophobic (water repelling) materials by up to
75%. For example, some rapid point-of-care diagnostic tests, such as
home monitoring or physician monitoring of glucose levels in
diabetics, are currently done by pricking a patient&#146;s finger and
placing a drop of blood onto a polymer strip which is then inserted
into a blood glucose reader. The Company believes that the time it
takes for the blood to flow up the strip to provide a readout can be
dramatically reduced and the consistency can be greatly improved
with the use of PhotoLink<B>&#174; </B>technology.</TD>
</TR>

</TABLE>


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    <TD width="1%">&nbsp;</TD>
    <TD><I>Tissue Engineering</I>. Studies have shown that attachment of
extracellular matrix proteins and peptides onto surfaces of
implantable medical devices improves host cell attachment, growth
and subsequent tissue integration. Company studies have shown that
biomedical devices (such as vascular grafts and ocular implants)
coated with photoreactive collagen and other proteins have improved
attachment, growth of cells and acceptance by surrounding tissues.
The Company has made an investment in Novocell, Inc., which is
pursuing a treatment for diabetes by implanting encapsulated islet
cells.</TD>
</TR>

</TABLE>


<P>
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    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Biomolecule Immobilization</I>. During a DNA gene analysis,
typically thousands of different probes need to be placed in a
pattern on a surface, called a DNA microarray. These microarrays
are used by the pharmaceutical industry to screen for new drugs, by
genome mappers to sequence human, animal or plant genomes, or by
diagnostic companies to search a patient sample for disease causing
bacteria or viruses. However, DNA does not readily adhere to most
surfaces. The Company has developed a versatile method for
immobilizing biomolecules.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below identifies several market segments where surface
modification is desired to improve and enable both existing and new medical
devices.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Desired Surface Property and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B> Market Segment Served</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Examples of Applications</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Interventional cardiology
and vascular access
Interventional cardiology</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Lubricity</I>: catheters, guidewires<BR>
<I>Hemocompatability</I>: vascular stents, catheters,
distal protection devices<BR>
<I>Therapeutic drug incorporation and release</I>:</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">vascular stents, catheters<BR>
<I>Infection resistance</I>: catheters, implantable ports</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Cardiac rhythm management<BR>
<BR>
<BR>
<BR>
Cardiothoracic surgery</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Lubricity</I>: pacemaker and defibrillator leads,<BR>
electrophysiology devices<BR>
<I>Hemocompatability</I>: electrophysiology devices<BR><BR>
<I>Infection resistance</I>: heart valves<BR>
<I>Hemocompatability</I>: minimally invasive bypass
devices, vascular grafts, ventricular assist
devices<BR>
<I>Cell growth and tissue integration</I>: heart valves,<BR>
vascular grafts<BR><BR></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="61%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Desired Surface Property and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B> Market Segment Served</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Examples of Applications</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Interventional neurology
and neurosurgery<BR>
<BR>
<BR>
Urology and gynecology</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Lubricity</I>: catheters, guidewires<BR>
<I>Infection resistance</I>: catheters, shunts<BR>
<BR>
<I>Lubricity</I>: urinary catheters, incontinence<BR>
devices, ureteral stents, fertility devices<BR>
<I>Infection resistance</I>: urinary catheters,<BR>
incontinence devices, ureteral stents, fertility<BR>
devices, penile implants<BR><BR></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Ophthalmology<BR>
<BR>
Orthopedics</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Site specific drug delivery: </I>drug delivery implants<BR><BR>
<I>Cell growth and tissue integration</I>: bone and<BR>
cartilage growth<BR>
<I>Infection resistance</I>: orthopedic implants</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above identified market segments, the Company&#146;s coating
technologies are also relevant in genomics applications. During fiscal 1999,
we launched our 3D-Link&#174; Activated Slide to the genomics market. These coated
glass slides are used by genomics researchers to prepare microarrays for DNA
analysis. During fiscal 2000, we licensed the genomics technology to Motorola
Life Sciences. In addition to providing exclusive rights to our genomics
technology, the agreement calls for collaborative research on further
technology advances. During fiscal 2002, Motorola&#146;s genomics business,
including our agreement, was purchased by Amersham plc. On April&nbsp;8, 2004,
General Electric Company acquired Amersham plc and today operates as GE
Healthcare using our genomics technology.


<P align="left" style="font-size: 10pt"><B>Current Licensing Arrangements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has commercialized its technologies through licensing
arrangements with medical device manufacturers who apply the coatings to their
products in their own facility. The Company believes this approach allows it
to focus its resources on further developing its technologies and expanding its
licensing activities, while leveraging the established manufacturing, sales and
marketing capabilities of its customers for the marketing of the specific
medical device utilizing the coating technologies. The Company&#146;s licensing
agreements are designed to allow manufacturers to incorporate our coating
technologies into their own manufacturing processes so the customer can control
production and quality without the need to send their products outside their
facility.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The licensing process begins with the customer specifying the product
surface characteristics it desires. Because each surface is unique, the
Company routinely conducts a feasibility study, sometimes at no charge to the
customer, to qualify each new potential product application. Once the
feasibility has been completed in a manner satisfactory to the customer, the
customer funds a development project to optimize the coating formulation to
meet the customer&#146;s specific technical needs. At any time prior to
commercialization and once the customer is satisfied with the performance of
the coating, a license agreement is executed granting the licensee rights to
use our technology. Our technical personnel then transfer the coating
technology into the customer&#146;s manufacturing facility. The Company also
manufactures and sells the chemical reagents used by all licensees in the
coating process, generating another source of recurring revenue. The Company
often supports its customers by providing coating assistance for parts required
in animal tests and human clinical trials. However, the customer generally
performs all coating work internally once the product has been approved and is
being sold on the market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term of a license agreement is generally for a specified period of
years or the life of our patents, whichever is longer, although a license
generally may be terminated by the licensee for any reason upon 90&nbsp;days advance
written notice. The worldwide license can be either exclusive or


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<P align="left" style="font-size: 10pt">nonexclusive, but a significant majority of the Company&#146;s licensed
applications are nonexclusive. We generally require the payment of a
nonrefundable license fee that has historically ranged from $25,000 to
$1,000,000 and quarterly &#147;earned&#148; royalties on the sales of products
incorporating our technologies. The royalty rate on a substantial number of
the agreements has traditionally been in the 2% to 3% range, but there are
certain contracts with lower or higher rates. Royalty rates in certain more
recent agreements have been trending higher, especially where the relevant
SurModics technology is an enabling component of the customer&#146;s device (i.e.,
the device could not perform as desired without our technology). The amount of
the license fee and the royalty rate are based on various factors including
whether the arrangement is exclusive or nonexclusive, the perceived value of
the coating application to the device and the size of the potential market.
Most of our agreements also incorporate a minimum royalty to be paid by the
licensee. In most cases, payment of these minimum royalties will not commence
until several months after the execution of an agreement for a particular
application. On a quarterly basis, a customer will pay the greater of earned
or minimum royalties to us. The earned royalties are generally paid on a
quarter-lag basis, and are based on the customer&#146;s actual sales of coated
products in the prior quarter.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company currently has 77 licensed products (customer products coated
using SurModics technology) already on the market generating royalties to the
Company and 64 licensed products awaiting launch (pending regulatory approval).
These 141 products are being sold or developed by 69 licensed customers. The
Company signed a record 17 new licenses in fiscal 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Licensed customers include Abbott Laboratories, Boston Scientific
Corporation, Cordis Corporation (a Johnson &#038; Johnson company), FoxHollow
Technologies, Inc., GE Healthcare, Guidant Corporation, Medtronic, Inc., St.
Jude Medical, Inc., among others. Under most agreements, the Company is
required to keep confidential the identity of its customers unless they approve
such disclosure.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from Cordis Corporation represented approximately 52% of the
Company&#146;s total revenue for the year ended September&nbsp;30, 2004, which was the
only customer that accounted for 10% or more of our total revenue in fiscal
2004. The loss of one or more of our largest customers could have a material
adverse effect on our business, financial condition, results of operations, and
cash flow as discussed in more detail below.


<P align="left" style="font-size: 10pt"><B>Other Products</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stabilization Products</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the primary focus of the Company is the development and marketing
of its drug delivery and PhotoLink&#174; coating technologies, the Company also
markets stabilization products for use by manufactures of immunoassay
diagnostic tests. Our StabilCoat, StabilGuard and StabilZyme Stabilizers are
designed to maintain the activity of biological components of the immunoassays,
and other bioanalytical techniques, resulting in longer shelf life and improved
performance. These products offer our customers the benefit of product
differentiation and improvement while providing the ultimate end users the
benefit of a faster test with fewer steps and fewer errors. In fiscal 2004,
the Company introduced new reagents to improve the stability and performance of
protein microarrays, and bead-based assays, a rapidly growing area in the
diagnostics and drug discovery.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Diagnostic Royalties</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also licensed patent rights to a third party involving a format
for <I>in vitro </I>diagnostic tests developed during the early years of the Company.
This format has found broad application in the area of rapid point-of-care
diagnostic testing, such as pregnancy and strep tests, pursuant to an exclusive
license agreement with Abbott Laboratories. At the end of fiscal 2004, the
Company expanded its agreement with Abbott by purchasing the future royalty
streams under certain of Abbott&#146;s sublicenses until the expiration of SurModics
patents in fiscal 2009. Prior to such expansion, the Company was receiving only
a portion of the royalties under such sublicenses.


<P align="left" style="font-size: 10pt"><B>Research and Development</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development personnel support the sales staff and
business units in performing feasibility studies, providing technical
assistance to potential customers, optimizing the coating methodologies for
specific customer applications, training customers and integrating the
Company&#146;s technologies and know-how into customer manufacturing operations. In
addition, these personnel work to enhance and expand our technologies through
internal research and development as well as evaluation of external
technologies that we might access via business development activities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SurModics works together with medical device manufacturers to integrate
the best possible coatings with their devices, not only to meet their
performance requirements, but also to perform services quickly so that the
product may reach the market ahead of the competition. To quickly solve
problems that might arise during the development process and optimization of
the coating formulation and process, we have developed comprehensive
capabilities in analytical chemistry and surface characterization. Our
state-of-the-art instrumentation plus extensive experience allow us to test the
purity of coating reagents, to monitor the elution rate of drug from coatings,
to measure coating thickness and smoothness, and to map the distribution of
chemicals at the surface and within the coating. The Company believes its
capabilities far exceed those of its direct competitors, and sometimes even
exceed those of its large-company customers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As medical devices become more sophisticated and complex, the Company
believes the need for surface modification will continue to grow. The Company
intends to continue its development efforts to expand its surface modification
technologies to provide additional optimized surface properties to meet these
needs. In addition, the Company intends to expand its drug delivery and surface
modification technology expertise to capture more of the final product value.
The Company intends to do this by, in selected cases, developing or acquiring
pharmaceuticals or devices to develop from feasibility, up to and including
animal and human clinical tests. There can be no assurance that the Company
will be successful in developing or acquiring such pharmaceuticals or devices.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s technical strategy is to target selected coating
characteristics for further development, to facilitate and shorten the license
cycle. The Company continues to perform research into applications for future
products both on its own and in conjunction with some of its customers. Some
of the research and development projects currently being worked on include
additional coatings for site specific drug delivery, enhanced tissue growth,
long-term blood compatibility and new DNA immobilization methods. The Company
is also working with microparticles that offer similar benefits. In addition
to expanding the number of medical applications that may use the Company&#146;s
technologies, we are working on improving the coating process for metals,
developing a process for coating the interior diameter of medical devices and
developing coatings activated with sources other than UV light.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2004 and 2003, the Company&#146;s research and development expenses
were $12.6&nbsp;million and $12.0&nbsp;million, respectively. A portion of these
expenses is billed to customers for coating


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<P align="left" style="font-size: 10pt">optimization and other development work on customer product applications.
Research and development revenue was approximately $4.4&nbsp;million in fiscal 2004
and $5.6&nbsp;million in fiscal 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since its founding in 1979, the Company has actively participated in the
federal government&#146;s Small Business Innovative Research (&#147;SBIR&#148;) program to
fund a portion of its development efforts. Since 1979, research contracts
resulting in revenues of over $27&nbsp;million have been awarded to SurModics,
including approximately $309,000 in fiscal 2004, $390,000 in fiscal 2003 and
$543,000 in fiscal 2002, primarily under the SBIR program. In fiscal 2004, we
discontinued our research and development activities under SBIR grants because
we do not meet certain ownership eligibility requirements of the SBIR program.
We do not expect that our inability to participate in the SBIR program will
materially affect the scope or amount of our research and development efforts
in the future.


<P align="left" style="font-size: 10pt"><B>Patents and Proprietary Rights</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has taken steps intended to protect its surface modification
and drug delivery technologies and its other technologies through a number of
patents covering a variety of coating methods, reagents and formulations, as
well as particular medical device applications. The Company generally files
international patent applications in the locations matching the major markets
of its customers (primarily in North America, Europe, and Japan) in parallel
with its U.S. applications. Related to its surface modification technologies,
the Company has 39 issued U.S. patents, 29 pending U.S. patent applications, 93
issued foreign patents, and 61 pending foreign patent applications. Within this
list are 3 issued U.S. patents, 19 pending patent applications, 19 foreign
issued patents, and 20 pending foreign patent applications all relating to
various drug delivery matrices. In addition to the patents related to its
surface modification technologies, the Company has significant intellectual
property related to its diagnostic and genomics technologies. For these
applications, there are 11 issued U.S. patents and 9 pending U.S. patent
applications, as well as 2 issued foreign patents and 51 pending foreign patent
applications. There can be no assurance that any of the pending patent
applications will be allowed.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also relies upon trade secrets and other unpatented
proprietary technologies. The Company seeks to maintain the confidentiality of
such information by requiring employees, consultants and other parties to sign
confidentiality agreements and by limiting access by parties outside the
Company to such information. There can be no assurance, however, that these
measures will prevent the unauthorized disclosure or use of this information or
that others will not be able to independently develop such information.
Additionally, there can be no assurance that any agreements regarding
confidentiality and non-disclosure will not be breached, or, in the event of
any breach, that adequate remedies would be available to the Company.


<P align="left" style="font-size: 10pt"><B>Marketing and Sales</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company markets its technologies and products throughout the world
using a direct sales force consisting of four sales professionals who focus on
specific markets and companies. These sales professionals work in concert with
business unit personnel to coordinate customer activities. Business unit
general managers are also integrally involved in sales and marketing
activities. The specialization of our sales professionals fosters an in-depth
knowledge of the issues faced by our customers within these markets such as
industry trends, technology changes, biomaterial changes and the regulatory
environment. In fiscal 2004, we signed a marketing agreement with JVS Sales &#038;
Technical Consultants, GmbH to help us pursue customer opportunities in Europe
while also providing increased service and support to existing customers in the
region.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because the sales cycle can take several months from feasibility
demonstration to the execution of a license agreement, the Company generally
focuses its sales efforts on potential customers with established market
positions rather than those with only development stage products that may never
come to market. Generally, the Company&#146;s technologies are licensed on a
non-exclusive basis to medical device manufacturers for use on specific
products. This strategy enables the Company to license its technologies to
multiple customers in the same market. We also target new product applications
with existing customers. We believe the sales cycle is much faster in these
situations because the licensee is already familiar with the technologies and
the general terms of the license have already been negotiated.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of its marketing strategy, the Company publishes technical
literature on each surface capability of its coating technologies (<I>i.e.</I>,
lubricity, hemocompatibility, etc.). In addition, the Company exhibits at
major trade shows and technical meetings, advertises in trade journals and
through its website, and conducts direct mailings to appropriate target
markets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also offers ongoing customer service and technical support
throughout a licensee&#146;s relationship with us. This service and support begins
with a coating feasibility study at no charge to the licensee and includes
additional services such as assistance in the transfer of the technology to the
licensee, further coating optimization, process control and trouble shooting,
coating of product for clinical studies, and assistance with regulatory
submissions for coated product approval. Most of these services are billable
to the customer.


<P align="left" style="font-size: 10pt"><B>Competition</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the medical device industry has resulted in increased
competition in the surface modification market. The Company&#146;s coating
technologies compete with technologies developed by AST, Biocompatibles
International plc, Carmeda, Hydromer, Specialty Coatings Systems, and STS
Biopolymers Inc., a division of Angiotech Pharmaceuticals, Inc., among others.
In addition, many medical device manufacturers have developed or are engaged in
efforts to develop surface modification technologies for use on their own
products. Some of the Company&#146;s existing and potential competitors (especially
medical device manufacturers pursuing coating solutions through their own
research and development efforts) have greater financial, technical and
marketing resources than the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We attempt to differentiate ourselves from our competitors by providing
what we believe is a high value added approach to surface modification. The
Company believes that the primary factors customers consider in choosing a
particular surface modification technology are performance, ease of
manufacturing, ability to produce multiple properties from a single process,
compliance with manufacturing regulations, customer service and pricing. The
Company believes that its surface modification technologies compete favorably
with respect to these factors, enabling it to charge a premium price. The
Company believes that the cost and time required to obtain the necessary
regulatory approvals significantly reduces the likelihood of a manufacturer
changing the coating process it uses once a device has been approved for sale.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because a significant portion of the Company&#146;s revenue is dependent on the
receipt of royalties based on sales of medical devices incorporating the
Company&#146;s technologies, we are also affected by competition within the markets
for such devices. The Company believes that the intense competition within the
medical device market creates opportunities for the Company&#146;s coating
technologies as medical device manufacturers seek to differentiate their
products through new enhancements or to remain competitive with enhancements
offered by other manufacturers. Because the Company seeks to license its
technologies on a non-exclusive basis, the Company may further benefit from
competition within the medical device markets by offering its technologies to
multiple competing manufacturers of a device.


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<P align="left" style="font-size: 10pt">However, competition in the medical device market could also have an
adverse effect on the Company. While the Company seeks to license its products
to established manufacturers, in certain cases the Company&#146;s licensees may
compete directly with larger, dominant manufacturers with extensive product
lines and greater sales, marketing and distribution capabilities. The Company
also is unable to control other factors that may impact commercialization of
coated devices, such as regulatory approval, marketing and sales efforts of its
licensees or competitive pricing pressures within the particular device market.
There can be no assurance that products employing our technologies will be
successfully commercialized by our licensees or that such licensees will
otherwise be able to compete effectively.


<P align="left" style="font-size: 10pt"><B>Manufacturing</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with its licensing strategy, the Company generally does not
coat medical devices to be sold by its licensees following regulatory approval.
However, the Company often supports its customers by coating products for
human clinical trials. The Company also manufactures most of the reagent
chemicals used by its customers in the coating process, allowing it to maintain
the quality of the reagents and their proprietary nature, while providing an
additional source of revenue. Reagents are polymer chemicals that are prepared
using a proprietary formula in relatively small batch processes (as contrasted
with commodity chemicals prepared by large continuous methods). The reagents
are sold in dry form, requiring the licensee, in most cases, to simply add
water, a water and isopropyl alcohol mix, or a solvent to put them into
solution before application. The Company has developed proprietary testing and
quality assurance standards for manufacturing the reagents and does not
disclose the reagent formulas or manufacturing methods. Although licensees may
purchase the requisite chemical reagents from any source, all have elected to
purchase them from the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also manufactures its proprietary line of activated slides for
sale by GE Healthcare under the CodeLink<B>&#174; </B>brand. Standard glass slides are
cleaned and pretreated in a multiple-step process. The Company applies its
proprietary PhotoLink<B>&#174; </B>coating in a clean room environment, tests the slides to
assure they meet quality standards, packages slides in specialized containers
and seals them in moisture-proof packaging. Marketed and sold as either blank
slides or pre-arrayed with up to 40,000 genes, these products are a core
technology of the GE Molecular Diagnostic Group.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also produces stabilization products that are distributed by
others in the United States and internationally. These products are sterile
filtered liquids that generally employ a three-step production process.
Component chemicals are mixed in high purity water, these liquids are
sterile-filtered into specific container sizes under aseptic conditions, and
the resultant finished goods are sealed and labeled.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company attempts to maintain multiple sources of supply for the key
raw materials used to manufacture its products. The Company does, however,
purchase some raw materials from single sources, but it believes that
additional sources of supply are readily available. Further, to the extent
additional sources of supply are not readily available, the Company believes
that it could manufacture such raw materials.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although not regulated by Good Manufacturing Practices (GMP&#146;s), we do
follow quality management procedures in part to respond to requests of
licensees to establish compliance with their individual criteria. In an effort
to better meet our customers&#146; needs in this area, the Company received ISO
13485:2003 and ISO 9001:2000 certification during fiscal 2004.


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<P align="left" style="font-size: 10pt"><B>Government Regulation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the Company&#146;s coating technologies themselves are not directly
regulated by the U.S. Food and Drug Administration (&#147;FDA&#148;), the medical devices
incorporating our technologies are subject to FDA regulation. The burden of
demonstrating safety and efficacy of such medical devices, the ultimate
criteria applied by the FDA, rests with our customers as the medical device
manufacturers. Medical products incorporating the coating technologies may
generally be marketed only after 510(k) or PMA applications have been submitted
to and approved by the FDA, which process can take anywhere from three months
for a 510(k) application, to two or three years or more for a PMA application.
These applications are prepared by the manufacturer and contain results of
extensive biocompatibility and clinical evaluations conducted by the
manufacturer.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains confidential Device Master Files at the FDA
regarding the nature, chemical structure and biocompatibility of its reagents.
Although the Company&#146;s licensees do not have direct access to these files, the
licensees may, with the permission of the Company, reference these files in
their medical device submission to the FDA. This approach allows the FDA to
understand in confidence the details of the coating technologies without the
Company having to share this highly confidential information with its
licensees.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent U.S. legislation allows device manufacturers, prior to obtaining
FDA approval to manufacture the device in the U.S. and export it for sale in
international markets. This generally allows us to realize earned royalties
sooner. However, sales of medical devices outside the U.S. are subject to
international requirements that vary from country to country. The time
required to obtain approval for sale internationally may be longer or shorter
than that required by the FDA.


<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;1, 2004, we had 140 employees, of whom 88 were engaged in
technical and manufacturing positions, with the remainder in sales, marketing,
quality or administrative positions. Twenty nine of our employees hold
post-graduate degrees, 12 of whom hold Ph.D. degrees. The Company is not a
party to any collective bargaining agreements and believes that its employee
relations are good.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that the future success of the Company will depend in
part on its ability to attract and retain qualified technical, management and
marketing personnel. Such experienced personnel are in high demand, and the
Company must compete for their services with other firms which may be able to
offer more favorable benefits.


<P align="left" style="font-size: 10pt"><B>Forward-Looking Statements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain statements contained in this Form 10-K, in the Company&#146;s annual
report to shareholders or in other reports of the Company and other written and
oral statements made from time to time by the Company do not relate strictly to
historical or current facts. As such, they are considered &#147;forward-looking
statements&#148; that provide current expectations or forecasts of future events.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements can be identified by the use of terminology such as &#147;anticipate,&#148;
&#147;believe,&#148; &#147;could,&#148; &#147;estimate,&#148; &#147;expect,&#148; &#147;forecast,&#148; &#147;intend,&#148; &#147;may,&#148; &#147;plan,&#148;
&#147;possible,&#148; &#147;project,&#148; &#147;will&#148; and similar words or expressions. Any statement
that is not an historical fact, including estimates, projections, future trends
and the outcome of events that have not yet occurred, are forward-looking
statements. The Company&#146;s forward-looking statements generally relate to its
growth strategy, financial results, product development programs, sales
efforts, and the impact of the Cordis agreement and other significant customer
agreements. You should carefully consider forward-looking statements and


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<P align="left" style="font-size: 10pt">understand that such statements involve a variety of risks and
uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Consequently, no forward-looking statement can be guaranteed and
actual results may vary materially. The Company undertakes no obligation to
update any forward-looking statement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although it is not possible to create a comprehensive list of all factors
that may cause actual results to differ from the Company&#146;s forward-looking
statements, such factors include, among others:


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s significant dependence upon Cordis, which causes our
financial results and stock price to be subject to factors affecting
Cordis and its Cypher stent program, including among others, the rate
of market penetration by Cordis, the timing of market introduction of
competing products, product safety or efficacy concerns and
intellectual property litigation generally and specifically the
litigation involving Boston Scientific Scimed, Inc. and Cordis
currently pending in U.S. District Court for the District of Delaware
in which each alleges its patent rights are being infringed by the
other&#146;s stent and each has been denied the preliminary injunction it
has requested against the other;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>frequent intellectual property litigation in the medical device
industry that may directly or indirectly adversely affect our
customers&#146; ability to market their products incorporating our
technologies;</TD>
</TR>

</TABLE>


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to protect our own intellectual property;</TD>
</TR>

</TABLE>


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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>healthcare reform efforts and reimbursement rates for medical
device products that may adversely affect our customers&#146; ability to
cost effectively market and sell devices incorporating our
technologies;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s ability to attract new licensees and to enter into
agreements for additional product applications with existing licensees,
the willingness of potential licensees to sign license agreements under
the terms offered by the Company, and the Company&#146;s ability to maintain
satisfactory relationships with its licensees;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s ability to increase the number of market segments and
applications that use its coating technologies through its sales and
marketing and research and development efforts;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s ability to facilitate through strategic investment
and research and development support the creation of new medical device
market segments and applications that incorporate its coating
technologies;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>market acceptance of products sold by customers incorporating our
technologies and the timing of new product introductions by licensees;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>market acceptance of products sold by customers&#146; competitors and
the timing and pricing of new product introductions by customers&#146;
competitors;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the difficulties and uncertainties associated with the lengthy and
costly new product development and foreign and domestic regulatory
approval processes, such as delays, difficulties or failures in
achieving acceptable clinical results or obtaining foreign or FDA
marketing clearances, which</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>may result in lost market opportunities or postpone or preclude product
commercialization by licensees;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>efficacy or safety concerns with respect to products marketed by us
and our licensees, whether scientifically justified or not, that may
lead to product recalls, withdrawals or declining sales;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>product liability claims not covered by insurance;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the development of new products or technologies by competitors,
technological obsolescence and other changes in competitive factors;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the trend of consolidation in the medical device industry,
resulting in more significant, complex and long term contracts than in
the past and potentially greater pricing pressures;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company&#146;s ability to identify suitable businesses to acquire or
with whom to form strategic relationships in order to expand its
technology development and commercialization, its ability to
successfully integrate the operations of companies it may acquire from
time to time and its ability to create synergies from acquisitions and
other strategic relationships;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>economic and other factors over which the Company has no control,
including changes in inflation and consumer confidence;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>acts of God or terrorism which impact the Company&#146;s personnel or facilities;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the ability to secure raw materials for reagents the Company sells; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other factors described below in &#147;Risk Factors.&#148;</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of these factors are outside the control and knowledge of the
Company, and could result in increased volatility in period-to-period results.
Investors are advised not to place undue reliance upon the Company&#146;s
forward-looking statements and to consult any further disclosures by the
Company on this subject in its filings with the Securities and Exchange
Commission. Many of the factors identified above are discussed in more detail
below under &#147;Risk Factors.&#148;


<P align="left" style="font-size: 10pt"><B>Risk Factors</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>The loss of one or more of our major customers could significantly reduce our
revenue and earnings.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from Cordis Corporation represented approximately 52% of our total
revenue for the year ended September&nbsp;30, 2004. There can be no assurance that
revenue from any customer will continue at their historical levels. Loss of one
or more of our current customers, particularly Cordis or other large customers,
could have a material adverse effect on our business, financial condition and
results of operations. If we cannot broaden our customer base, we will
continue to depend on a few customers for the majority of our revenue.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>We rely on third parties to market, distribute and sell the products
incorporating our coating technologies and those third parties may not perform
or agreements with those parties could be terminated.</B>


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal element of our business strategy is to enter into licensing
arrangements with medical device companies that manufacture products
incorporating our technologies. For the fiscal years ended September&nbsp;30, 2004,
2003 and 2002, we derived approximately 70%, 57% and 40% of our revenue,
respectively, from royalties and license fees. We do not currently
manufacture, market or sell our own medical devices nor do we intend to do so
in the foreseeable future. Thus, our prospects are substantially dependent on
the receipt of royalties from licensees of our technologies. The amount and
timing of such royalties are, in turn, dependent on the ability of our
licensees to successfully gain regulatory approval for, market and sell
products incorporating our technologies. Failure of certain licensees to gain
regulatory approval or market acceptance for such products could have a
material adverse effect on our business, financial condition and results of
operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers manufacture, market and sell the products incorporating our
licensed technologies. If one or more of our licensees fails to pursue the
development or marketing of these products as planned, our revenue and profits
may not reach our expectations, or may decline. We do not control the timing
and other aspects of the development or commercialization of products
incorporating our licensed technologies because our customers may have
priorities that differ from ours or their development or marketing efforts may
be unsuccessful, resulting in delayed or discontinued products. Hence, the
amount and timing of royalty payments received by us will fluctuate, and such
fluctuations could have a material adverse effect on our business, financial
condition and results of operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our standard license agreements, licensees can terminate the license
for any reason upon 90&nbsp;days&#146; prior written notice. Existing and potential
licensees have no obligation to deal exclusively with the Company in obtaining
surface modification technologies and may pursue parallel development or
licensing of competing surface modification solutions on their own or with
third parties. A decision by a licensee to terminate its relationship with us
could materially adversely affect our business, financial condition and results
of operations.


<P align="left" style="font-size: 10pt"><B>We need to expand our licensing base to reduce our reliance upon several major
customers.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our revenue is derived from a relatively small
number of customer products. We intend to continue pursuing a strategy of
licensing our technologies to a diversified base of medical device
manufacturers and other customers, thereby expanding the licensing base for our
coating technologies. Success will depend, in part, on our ability to attract
new licensees, to enter into agreements for additional applications with
existing licensees and to develop and market new applications. There can be no
assurance that we will be able to identify, develop and adapt our technologies
for new applications in a timely and cost effective manner; that new license
agreements will be executed on terms favorable to us; that new applications
will be accepted by manufacturers in our target markets; or that products
incorporating newly licensed technology, including new applications, will gain
regulatory approval, be commercialized or gain market acceptance. Delays or
failures in these efforts could have an adverse effect on our business,
financial condition and results of operations.


<P align="left" style="font-size: 10pt"><B>Surface modification is a competitive market and carries the risk of
technological obsolescence.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in a competitive and evolving field and new developments are
expected to continue at a rapid pace. Our success depends, in part, upon our
ability to maintain a competitive position in the development of technologies
and products in the field of surface modification and drug delivery. Our
technologies compete with technologies developed by AST, Biocompatibles
International plc, Carmeda, Hydromer, Specialty Coatings Systems, and STS
Biopolymers Inc. (recently acquired by Angiotech Pharmaceuticals, Inc.), among
others. In addition, many medical device manufacturers have developed


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">or are engaged in efforts to develop surface modification technologies for
use on their own devices. Some of our existing and potential competitors
(especially medical device manufacturers pursuing coating solutions through
their own research and development efforts) have greater financial and
technical resources and production and marketing capabilities than us.
Competitors may succeed in developing competing technologies or obtaining
governmental approval for products before us. Products incorporating our
competitors&#146; technologies may gain market acceptance more rapidly than products
using ours. Developments by competitors may render our current and potential
products noncompetitive or obsolete. Furthermore, there can be no assurance
that new products or technologies developed by others, or the emergence of new
industry standards, will not render our products or technologies or licensees&#146;
products incorporating our technologies noncompetitive or obsolete. Any new
technologies which make our coating technologies less competitive or obsolete
would have a material adverse effect on our business, financial condition and
results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>If we cannot adequately protect our technologies and proprietary information,
we may be unable to sustain a competitive advantage.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends, in large part, on our ability to obtain and maintain
patents, maintain trade secret protection, operate without infringing on the
proprietary rights of third parties and protect our proprietary rights against
infringement by third parties. We have been granted U.S. and foreign patents
and have U.S. and foreign patent applications pending related to our coating
technologies. There can be no assurance that any pending patent application
will be approved; that we will develop additional proprietary technologies that
are patentable, that any patents issued will provide us with competitive
advantages or will not be challenged or invalidated by third parties, or that
the patents of others will not prevent the commercialization of products
incorporating our technologies. Furthermore, there can be no assurance that
others will not independently develop similar technologies, duplicate any of
our technologies or design around our patents. There can be no assurance that
our trade secrets or confidentiality agreements with employees, potential
licensees or other parties will provide meaningful protection for our
unpatented proprietary information.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our commercial success also will depend, in part, on our ability to avoid
infringing patent or other intellectual property rights of third parties.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry, and intellectual property
litigation may be used against us as a means of gaining a competitive
advantage. Intellectual property litigation is complex, time consuming and
expensive, and the outcome of such litigation is difficult to predict. If we
were found to be infringing any third party patent or other intellectual
property right, we could be required to pay significant damages, alter our
products or processes, obtain licenses from others, which we may not be able to
do on commercially reasonable terms, if at all, or cease commercialization of
our products and processes. Any of these outcomes could have a material
adverse effect on our business, financial condition and results of operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Patent litigation or U.S. Patent and Trademark Office interference
proceedings may also be necessary to enforce any patents issued or licensed to
us or to determine the scope and validity of third party proprietary rights.
These activities could result in substantial cost to us, even if the eventual
outcome is favorable to us. An adverse outcome of any such litigation or
interference proceeding could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
us to cease using its technology. Any action to defend or prosecute
intellectual property would be costly and result in significant diversion of
the efforts of our management and technical personnel, regardless of outcome,
and could have a material adverse effect on our business, financial condition
and results of operations.


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>We may face product liability claims related to participation in clinical
trials or the use or misuse of our products.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The development and sale of medical devices and component products
involves an inherent risk of product liability claims. Although we expect that
devices incorporating our technologies will be manufactured by others and sold
under their own labels, and in most cases our customer agreements provide
indemnification against such claims, there can be no assurance that product
liability claims will not be filed against us for such devices or that such
manufacturers will not seek indemnification or other relief from us for any
such claims. In addition, there can be no assurance that product liability
claims will not be filed directly against us with respect to our own products.
There can be no assurance that our current product liability insurance will
continue to be available to us on acceptable terms, if at all, or that, if
available, the coverages will be adequate to protect us against any future
product liability claims. Furthermore, we do not expect to be able to obtain
insurance covering our costs and losses as a result of any recall of products
or devices incorporating our technologies due to alleged defects, whether such
recall is instituted by a device manufacturer or us or required by a regulatory
agency. A product liability claim, recall or other claim with respect to
uninsured liabilities or for amounts in excess of insured liabilities could
have a material adverse effect on our business, financial condition and results
of operations.


<P align="left" style="font-size: 10pt"><B>We have a single manufacturing facility and we may lose revenue and be unable
to maintain our customer relationships if we lose our production capacity.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture all of the products we sell in our existing production labs
in our Eden Prairie, Minnesota facility. If our existing production facility
becomes incapable of manufacturing products for any reason, we may be unable to
meet production requirements, we may lose revenue and we may not be able to
maintain our relationships with our licensees. Without our existing production
facility, we would have no other means of manufacturing products incorporating
our coating technologies until we were able to restore the manufacturing
capability at our facility or develop an alternative manufacturing facility.
Although we carry business interruption insurance to cover lost revenue and
profits in an amount we consider adequate, this insurance does not cover all
possible situations. In addition, our business interruption insurance would
not compensate us for the loss of opportunity and potential adverse impact on
relations with our existing licensees resulting from our inability to produce
products for them.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>We are dependent upon key personnel and may not be able to attract qualified
personnel in the future.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success is dependent upon our ability to retain and attract highly
qualified management and technical personnel. We face intense competition for
such qualified personnel. We do not maintain key person insurance nor do we
have employment agreements with any of our employees. Although we have
non-compete agreements with most employees, there can be no assurance that such
agreements will be enforceable. The loss of the services of one or more key
employees or the failure to attract and retain additional qualified personnel
could have a material adverse effect on our business, financial condition and
results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Our products are subject to continuing regulations and we may be subject to
adverse consequences if we fail to comply with applicable regulations.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although coating technologies themselves are not directly regulated by the
FDA, the medical devices incorporating the technologies are subject to FDA
regulation. The burden of securing FDA approval for these medical devices
rests with our licensees (the medical device manufacturers).


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<P align="left" style="font-size: 10pt">However, we have prepared Device Master Files which may be accessed by the
FDA to assist it in its review of the applications filed by our licensees.
Historically, most medical devices incorporating a coating have been subject to
the FDA&#146;s 510(k) marketing approval process, which typically lasts from six to
nine months. Supplemental or full pre-market approval (&#147;PMA&#148;) reviews require a
significantly longer period, delaying commercialization. Furthermore, sales of
medical devices outside the U.S. are subject to international regulatory
requirements that vary from country to country. The time required to obtain
approval for sale internationally may be longer or shorter than that required
for FDA approval. There can be no assurance that our licensees will be able to
obtain regulatory approval for their coated medical devices on a timely basis,
or at all. Regulatory approvals, if granted, may include significant
limitations on the indicated uses for which the product may be marketed. In
addition, product approval could be withdrawn for failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
marketing. Changes in existing regulations or adoption of new governmental
regulations or policies could prevent or delay regulatory approval of products
incorporating our technologies or subject us to additional regulation. Failure
or delay of our licensees in obtaining FDA and other necessary regulatory
approval or clearance or the loss of previously obtained approvals could have a
material adverse effect on our business, financial condition and results of
operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our activities are regulated by federal and state agencies in
addition to the FDA. For example, activities in connection with waste disposal
are subject to regulation by the U.S. Environmental Protection Agency. Some of
our reagent chemicals must be registered with the agency with basic information
filed related to toxicity during the manufacturing process as well as the
toxicity of the final product. Failure to comply with existing or future
regulatory requirements could have a material adverse effect on our business,
financial condition and results of operations.


<P align="left" style="font-size: 10pt"><B>We use hazardous materials in some of our research, development and
manufacturing processes.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research activities sometimes involve the controlled use of various
hazardous materials. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. While we
currently maintain insurance in amounts which we believe are appropriate in
light of the risk of accident, we could be held liable for any damages that
might result from any such event. Any such liability could exceed our insurance
and available resources and could have a material adverse effect on our
business, financial condition and results of operations.


<P align="left" style="font-size: 10pt"><B>Our stock price has been volatile and may continue to be volatile</B>.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading price of our common stock has been, and is likely to continue
to be, highly volatile, in large part attributable to developments and
circumstances related to factors identified in &#147;Forward-looking Statements&#148; and
&#147;Risk Factors<B>.</B>&#148; The market value of your investment in our common stock may
rise or fall sharply at any time because of this volatility, and also because
of significant short positions taken by investors from time to time in our
stock. In the year ended September&nbsp;30, 2004, the closing sale price for our
common stock ranged from $18.60 to $28.30 per share. As of December&nbsp;10, 2004,
the last reported sale price of our stock was $30.22 per share. The market
prices for securities of medical technology, drug delivery and biotechnology
companies historically have been highly volatile, and the market has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies.


<P align="left" style="font-size: 10pt"><B>Failure to identify acquisition opportunities and integrate acquired
businesses into our operations successfully may limit our growth.</B>



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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An important part of our growth in the future may involve the acquisition
of complementary businesses or technologies. Our identification of suitable
acquisition candidates involves risks inherent in assessing the technology,
value, strengths, weaknesses, overall risks and profitability, if any, of
acquisition candidates. We may be unable to identify suitable acquisition
candidates. If we do not make suitable acquisitions, we may find it more
difficult to realize our growth objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The process of integrating new businesses into our operations poses
numerous risks, including:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an inability to assimilate acquired operations,
personnel, technology, information systems, and internal control
systems and products;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of management&#146;s attention;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties and uncertainties in transitioning the business
relationships from the acquired entity to us; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the loss of key employees of acquired companies.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, future acquisitions by us may be dilutive to our
shareholders, and cause large one-time expenses or create goodwill or other
intangible assets that could result in significant asset impairment charges in
the future. In addition, if we acquire entities that have not yet
commercialized products but rather are developing technologies for future
commercialization, our earnings per share may fluctuate as we expend
significant funds for continued research and development efforts for acquired
technology necessary to commercialize such technology. We cannot guarantee
that we will be able to successfully complete any acquisitions or that we will
realize any anticipated benefits from acquisitions that we complete.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Our revenue will be harmed if we cannot purchase sufficient reagent components
we use in our manufacture of reagents.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently purchase some of the components we use to manufacture coating
reagents from sole suppliers. If any of our sole suppliers becomes unwilling
to supply components to us, incurs an interruption in its production or is
otherwise unable to provide us with sufficient material to manufacture our
reagents, we will experience production interruptions. If we lose our sole
supplier of any particular reagent component or are otherwise unable to procure
all components required for our reagent manufacturing for an extended period of
time, we may lose the ability to manufacture the reagents our customers require
to commercialize our coating technology. This could result in lost royalties
and product sales, which would harm our financial results. Adding suppliers to
our approved vendor list may require significant time and resources since we
typically thoroughly review a supplier&#146;s business and operations to become
comfortable with the quality and integrity of the materials we purchase for use
with our technology, including reviewing a supplier&#146;s manufacturing processes
and evaluating the suitability of materials and packaging procedures the
supplier uses. We routinely attempt to maintain multiple suppliers of each of
our significant materials, so we have alternative suppliers if necessary.
However, if the number of suppliers of a material is reduced, or if we are
otherwise unable to obtain our material requirements on a timely basis and on
favorable terms, our operations may be harmed.

<DIV align="left">
<A name="103"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 2. PROPERTIES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SurModics conducts its operations in two facilities located in suburban
Minneapolis-St. Paul, Minnesota. In October&nbsp;2001, we purchased a facility in
Bloomington, Minnesota, situated on 27 acres of land. In May&nbsp;1999, we
purchased the land and building we currently occupy in Eden Prairie, Minnesota.


<P align="center" style="font-size: 10pt">- 21 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">The building has approximately 64,000 square feet of space. Most of the
Company&#146;s operations take place at the Eden Prairie location. As part of a
recent reorganization, the Company announced that after careful examination of
its redefined business goals, the Company believes that the Bloomington
contract manufacturing facility is not necessary for the execution of its
strategic plan. Accordingly, results in the third quarter of fiscal 2004
included a non-cash asset impairment charge of $16.5&nbsp;million. The Company is
seeking to sell or lease the Bloomington facility and will consolidate
operations at its Eden Prairie, Minnesota headquarters. The purchases of these
two properties were internally funded and remain unencumbered. The Company
believes that projected capacity of the Eden Prairie facility is adequate to
service the needs of its customers for the foreseeable future and is in the
process of consolidating to one facility which it expects to complete in fiscal
2005,

<DIV align="left">
<A name="104"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 3. LEGAL PROCEEDINGS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is not a party to nor is any of its property subject to any
material pending legal proceedings.

<DIV align="left">
<A name="105"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2004.


<P align="left" style="font-size: 10pt"><B>EXECUTIVE OFFICERS OF THE REGISTRANT</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The names, ages and positions of the Company&#146;s executive officers are as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Age</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Dale R. Olseth</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">74</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman and Chief Executive Officer</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Bruce J Barclay</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Chief Operating Officer</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Philip D. Ankeny</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">41</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Vice President,</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Business Development</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Douglas P. Astry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">52</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">General Manager, Diagnostics and Drug Discovery</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Lise W. Duran, Ph.D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and General Manager, Regenerative</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">49</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technologies</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Steven J. Keough </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">49</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and General Manager, New Ventures,</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">and Chief Intellectual Property Counsel</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loren R. Miller
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">39</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and Controller</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Charles W. Olson</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">40</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and General Manager, Hydrophilic</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Technologies</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Marie J. Versen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">43</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President, Quality, Regulatory and Facilities</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">David S. Wood</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and General Manager, Drug Delivery</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gregory T. Yung</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">55</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President, Sales and Marketing</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dale R. Olseth </I>joined the Company in 1986 as its President, Chief
Executive Officer and a director of the Company and has served as Chairman
since 1988. Mr.&nbsp;Olseth also serves on the Board of Directors of The Toro
Company and the boards of Otologics LLC and the University of Minnesota
Foundation. He served as Chairman or President and Chief Executive Officer of
Medtronic, Inc. from 1976 to 1986. From 1971 to 1976, Mr.&nbsp;Olseth served as
President and Chief Executive Officer of Tonka Corporation. Mr.&nbsp;Olseth
received a B.B.A. degree from the University of Minnesota in 1952 and an M.B.A.
degree from Dartmouth College in 1956.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Bruce J Barclay </I>joined the Company as its President and Chief Operating
Officer in December&nbsp;2003 and became a director of the Company in July&nbsp;2004.
Prior to joining SurModics, he served as President and Chief Executive Officer
of Vascular Architects, Inc., a medical device company that develops,
manufactures and sells products to treat peripheral vascular disease, from 2000
to 2003. Mr.&nbsp;Barclay has more than 25&nbsp;years of experience in the health care
industry. Prior to Vascular Architects, he served at Guidant Corporation, most
recently as an officer and Senior Vice President from 1998 to 2000. Previously,
he was a Vice President of Guidant&#146;s Interventional Cardiology division with
responsibility for the law division, a new therapies technical development team
and business development, charged with the acquisition of new products and
technologies for the division. Mr.&nbsp;Barclay also has considerable experience in
the pharmaceutical area serving in several positions at Eli Lilly and Company.
Mr.&nbsp;Barclay also serves on the Board of Directors of Cardiac Science, Inc.,
which develops, manufactures and markets automatic external defibrillators.
Mr.&nbsp;Barclay received a B.S. in chemistry and a B.A. in biology from Purdue
University in 1980 and a J.D. from the Indiana University School of Law in
1984. He is also a registered patent attorney.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Philip D. Ankeny </I>joined the Company as its Vice President and Chief
Financial Officer in April&nbsp;2003 with the additional responsibilities of Vice
President, Business Development added in April&nbsp;2004. Prior to joining
SurModics, he served as Chief Financial Officer for Cognicity, Inc. from 1999
to 2002. Prior to that, Mr.&nbsp;Ankeny served as a Partner at Sherpa Partners, LLC,
a venture capital and venture development firm, from 1998 to 1999. He also
spent five years in investment banking with Robertson Stephens and Morgan
Stanley. In addition, his operating experience includes over five years with
IBM and Shiva in sales, marketing and business development roles. Mr.&nbsp;Ankeny
received an A.B. degree in economics and engineering from Dartmouth College in
1985 and an M.B.A. from Harvard Business School in 1989.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Douglas P. Astry </I>joined SurModics in June&nbsp;2003 as Manager, Array Business,
and was promoted to General Manager, Diagnostics and Drug Discovery in April
2004. Prior to joining SurModics, from 2002 to 2003, he was Vice President of
Marketing and Business Development at HTS Biosystems, and from 1980 through
2001, he held various research and business management positions at 3M, most
recently Business Development manager of 3M&#146;s Bioanalytical Technologies Group.
Mr.&nbsp;Astry received his B.A. degree in Biology from Williams College, an M.S.
in Physiology from the University of Connecticut, and an M.B. A. from the
University of Minnesota.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lise W. Duran, Ph.D.</I>, became Vice President and General Manager of the
Regenerative Technologies business unit in April&nbsp;2004. Dr.&nbsp;Duran came to
SurModics in 1990, serving as Director of Microbiology until she was promoted
to Vice President of Product Development in 1998. From 1988 to 1990, Dr.&nbsp;Duran
served as a Study Director for Microbiological Associates, Inc., in the
Biotechnology Services Division. She also did a research fellowship in
Immunology at the Mayo Clinic and was a postdoctoral associate in Laboratory
Medicine and Pathology at the University of Minnesota. Dr.&nbsp;Duran received her
B.S. in microbiology from the University of Maryland and a Ph.D. in
microbiology from the Uniformed Services University of the Health Sciences.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Steven J. Keough </I>joined SurModics as its Vice President and Chief
Intellectual Property Counsel in January&nbsp;2004 and added the duties of Vice
President and General Manager of the SurModics New Ventures business unit in
April of that year. Before joining SurModics, Mr.&nbsp;Keough practiced law at
Minneapolis-based Fredrikson &#038; Byron, P.A. from 2000-2003, where he was a
senior member and past chairman of the intellectual property department. He
previously served as president and co-founder of the intellectual property law
firm Patterson &#038; Keough, P.A. from 1991-2000. He was also Manager of
Asia-Pacific at the Minneapolis law firm of Merchant &#038; Gould, from 1987-1991.
Mr.&nbsp;Keough has extensive business and legal experience involving medical
technologies, technology transfer, strategic planning, licensing and high
technology business management. Mr.&nbsp;Keough earned a J.D. from Boston College,
an M.A. from the Catholic University of America, and a Bachelor of Science
degree from the United States Naval Academy.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loren R. Miller </I>joined the Company in 1999 and served as Controller before
being promoted to Vice President and Controller in March&nbsp;2003. Prior to coming
to SurModics, Mr.&nbsp;Miller served as Controller of Northwest Athletic Clubs
(owned by The Wellbridge Company). From 1996 to 1998 he was the Controller for
Executive Aviation Inc. In addition he held various positions at Mesaba
Aviation Inc. from 1988 until 1995, most recently as Controller. Mr.&nbsp;Miller is
a CPA and received a B.S. degree in Business Administration &#038; Finance and a
B.S. degree in Accounting from Minnesota State University in 1988.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Charles W. Olson </I>joined the Company in 2001 as Market Development Manager,
was promoted in December&nbsp;2002 to Director, Business Development, named General
Manager of the Hydrophilic Technologies business unit in April&nbsp;2004, and
promoted to Vice President and General Manager, Hydrophilic Technologies in
October&nbsp;2004. Prior to joining SurModics, Mr.&nbsp;Olson was employed as General
Manager at Minnesota Extrusion from 1998 to 2001 and at Lake Region
Manufacturing in project management and technical sales from 1993 to 1998. Mr.
Olson received a BS degree in Marketing from Winona State University in 1987.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Marie J. Versen </I>joined the Company in 1987, and in 1996 became its Vice
President of Quality Management and Regulatory Compliance. She was previously
employed at Precision-Cosmet Company, Inc. from 1983 to 1986. Ms.&nbsp;Versen
received a B.S. degree in chemical engineering from the University of Minnesota
in 1983.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>David S. Wood </I>joined the Company as its Vice President and General Manager
of the Drug Delivery business unit in November&nbsp;2004. Prior to joining
SurModics, he was a Director of Product Development at Guidant Corporation&#146;s
Cardiac Rhythm Management Division from 1994 to 2004. Prior to Guidant&#146;s
formation in 1994 as a spin off from Eli Lilly and Company, Mr.&nbsp;Wood held
several management positions between 1989 and 1994 in marketing and product
development at Lilly&#146;s Cardiac Pacemakers, Inc. subsidiary. Mr.&nbsp;Wood joined
Eli Lilly and Company in 1978 as a Chemical Engineer. Between 1978 and 1980
and again from 1982 to 1989 he served in a variety of engineering, financial
and medical device business development positions at Lilly. Mr.&nbsp;Wood received
his undergraduate degree in Chemical Engineering from Vanderbilt University in
1978 and an M.B.A. from The Wharton School at the University of Pennsylvania in
1981.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gregory T. Yung </I>joined SurModics in 2000 as Director of Sales and Market
Development, was named Vice President, Sales and Business Development in 2002
and Vice President, Sales and Marketing in April&nbsp;2004. Mr.&nbsp;Yung has over 20
years of experience in the medical device industry, having held management
positions at Medtronic, Inc. from 1988 to 2000 and at Boston Scientific, Inc.
from 1984 to


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">1988. Mr.&nbsp;Yung received a B.S. degree in business administration and
marketing from the University of Akron in 1979.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The executive officers of the Company are elected by and serve at the
discretion of the Board of Directors.

<DIV align="left">
<A name="106"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>


<DIV align="left">
<A name="107"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD nowrap><B>ITEM 5.</B>&nbsp;</TD>
    <TD><B>MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.</B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our stock is traded on the Nasdaq National Market under the symbol &#147;SRDX.&#148;
The table below sets forth the range of high and low closing sale prices, by
quarter, for our Common Stock, as reported by Nasdaq, in each of the last two
fiscal years.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Fiscal Quarter ended:</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.32</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">June&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.60</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">September&nbsp;30, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.15</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">June&nbsp;30, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.52</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">March&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.68</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our transfer agent is:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>American Stock Transfer &#038; Trust Company<BR>
59 Maiden Lane, Plaza Level<BR>
New York, New York 10038<BR>
(800)&nbsp;937-5449</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the records of our transfer agent, as of November&nbsp;16, 2004,
there were 268 holders of record of our Common Stock and approximately 9,800
beneficial owners of shares registered in nominee or street name.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never paid any cash dividends on our Common Stock and do not
anticipate doing so in the foreseeable future.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We made no sales of unregistered securities, and made no repurchases of
our equity securities, during the quarter ended September&nbsp;30, 2004.

<DIV align="left">
<A name="108"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 6. SELECTED FINANCIAL DATA.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The data presented below as of and for the years ended September&nbsp;30, 2004,
2003, and 2002 are derived from our audited financial statements included
elsewhere in this report. The financial data as of and for the years ended
September&nbsp;31, 2001 and 2000 are derived from our audited financial statements
that are not included in this report. The information set forth below should
be read in conjunction with


<P align="center" style="font-size: 10pt">- 25 -
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">the Company&#146;s consolidated financial statements and &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations&#148;
contained in Item&nbsp;7 of this report and our financial statements and related
notes beginning in page F-1 and other financial information included in this
report.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Fiscal Year</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Dollars in thousands, except per share data)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income Statement Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,279</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,333</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma amounts assuming the accounting change* was applied
retroactively:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,669</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Diluted net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Sheet Data:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,357</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings (accumulated deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,077</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,303</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma amounts assuming the accounting change* was applied
retroactively:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings (accumulated deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">372</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,598</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">* Effective October&nbsp;1, 2000, we adopted Staff Accounting Bulletin No.&nbsp;101 (&#147;SAB
101&#148;), &#147;Revenue Recognition in Financial Statements.&#148; As a result of adopting
SAB 101, we recorded a cumulative effect of a change in accounting principle
related to license fees recognized in prior years in the amount of $1,705,000,
net of tax of $1,000,000, or $.09 per diluted share.

<DIV align="left">
<A name="109"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD nowrap><B>ITEM 7.</B>&nbsp;</TD>
    <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.</B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis of our financial condition, results
of operations and trends for the future should be read together with Selected
Financial Data and our audited financial statements and related notes appearing
elsewhere in this report. This discussion and analysis regarding trends in our
future financial condition and results of operations contains forward-looking
statements that involve risks, uncertainties and assumptions, as more fully
identified in &#147;Forward-looking Statements&#148; and &#147;Risk Factors<B>.</B>&#148; Our actual
future financial condition and results of operations may differ materially from
those anticipated in the forward-looking statements.


<P align="center" style="font-size: 10pt">- 26 -
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SurModics is a leading provider of surface modification and drug delivery
technologies to the medical device industry. The Company is organized into
five technology-centered business units. The operating results from three of
the business units are combined into one operating segment, &#147;Hydrophilic and
Other&#148; as explained below. Each of the two remaining business units
constitutes an operating segment. The &#147;Drug Delivery&#148; operating segment
contains the Drug Delivery business unit, which is responsible for technologies
dedicated to site specific delivery of drugs. The &#147;Hydrophilic and Other&#148;
operating segment consists of three business units: (1)&nbsp;Hydrophilic
Technologies unit which focuses on enhancing medical devices with advanced
lubricious coatings that facilitate their placement and maneuverability in the
body; (2)&nbsp;Regenerative Technologies unit which encompasses the Company&#146;s
hemocompatibility, tissue engineering and cell encapsulation technologies; and
(3)&nbsp;SurModics New Ventures unit which is dedicated to the identification,
research and development of new technologies outside the research conducted in
the other business units. The &#147;Diagnostics&#148; operating segment contains the
Diagnostics and Drug Discovery business unit which includes the Company&#146;s
genomics and slide technologies, the Company&#146;s stabilization products for
immunoassay diagnostics test, and its in vitro diagnostic format technology.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue in each of our operating segments is derived from three primary
sources: (1)&nbsp;royalties and license fees from licensing our patented surface
modification technologies to customers; (2)&nbsp;the sale of reagent chemicals to
licensees of our coating technologies, stabilization products to the
diagnostics industry and coated glass slides to the genomics market; and (3)
research and development fees generated on projects for commercial customers.
Revenue should be expected to fluctuate from quarter to quarter depending on,
among other factors: our customers&#146; success in selling products incorporating
our coating technologies; the timing of introductions of coated products by
customers; the timing of introductions of products that compete with our
customers; the number and size of development projects that are entered into;
the number of new license agreements that are finalized; and the value of
reagent chemicals and other products sold to licensees.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For financial accounting and reporting purposes, we treat our three
operating segments as one reportable segment. We made this determination
because each of our operating segments use the same facilities, a significant
percentage of our employees provide support services (including research and
development) to each operating segment, technology and products from each
operating segment are marketed to the same or similar customers, each operating
segment uses the same sales and marketing resources and each operating segment
operates in the same regulatory environment.


<P align="left" style="font-size: 10pt"><B>Critical Accounting Policies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our financial statements are based in part on the application of
significant accounting policies, many of which require management to make
estimates and assumptions (see Note 2 to the consolidated financial
statements). Management believes the following are the critical areas in the
application of our accounting policies that currently affect our financial
condition and results of operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenue recognition. </I></B>Royalty revenue is generated when a licensed customer
sells products incorporating our technologies. Royalty revenue is recognized
as our licensees report it to us, and payment is typically submitted
concurrently with the report. We recognize initial license fees over the term
of the related agreement. Revenue related to a performance milestone is
recognized upon the achievement of the milestone, as defined in the respective
agreements. Revenue on sales of the Company&#146;s products is recognized when
persuasive evidence of an agreement exists, delivery has occurred, the fee is
fixed and determinable and collectibility is probable. Generally, these
criteria are met


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">at the time our product is shipped. Revenue for research and development
is recorded as performance progresses under the applicable contract.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Valuation of long-lived assets. </I></B>We periodically evaluate whether events
and circumstances have occurred that may affect the estimated useful life or
the recoverability of the remaining balance of long-lived assets, such as
property and equipment. If such events or circumstances were to indicate that
the carrying amount of these assets would not be recoverable, we would estimate
the future cash flows expected to result from the use of the assets and their
eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) or other measure of fair value was
less than the carrying amount of the assets, we would recognize an impairment
loss. On June&nbsp;23, 2004, the Company announced that it expected to record an
asset impairment charge against its Bloomington, Minnesota contract
manufacturing facility. Results in the third quarter of fiscal 2004 include a
non-cash asset impairment charge of $16.5&nbsp;million. The Company engaged several
commercial real estate brokerage firms to assess the market valuation of
similar types of commercial property. Management determined the fair value
using this real estate market data. The Company is seeking to sell or lease
the Bloomington facility and will consolidate operations of all business units
at its Eden Prairie, Minnesota headquarters.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Investments. </I></B>Investments consist principally of U.S. government and
government agency obligations and mortgage-backed securities. The Company&#146;s
policy calls for no more than 5% of investments be held in any one credit
issue, excluding U.S. government and government agency obligations.
Investments are classified as available-for-sale, that is, investments are
reported at fair value with unrealized gains and losses excluded from
operations and reported as a separate component of stockholders&#146; equity, except
for other-than-temporary impairments, which are reported as a charge to current
operations and result in a new cost basis for the investment.


<P align="left" style="font-size: 10pt"><B>Results of Operations</B>



<P align="center" style="font-size: 10pt"><B><I>Years Ended September&nbsp;30, 2004 and 2003</I></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Increase</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Dollars in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fiscal 2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fiscal 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Decrease)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Decrease)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Drug Delivery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">27</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Hydrophilic and Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diagnostics</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,163</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>%)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenue. </I></B>Fiscal 2004 revenue was $49.7&nbsp;million, an increase of 15% over
fiscal 2003. The growth in total revenue was attributable to growth in our
Drug Delivery and Hydrophilic and Other segments as detailed in the table
above. We provide a narrative of revenue for each of our three operating
segments in the paragraphs that follow.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Drug Delivery. </I>Drug Delivery revenue increased 27% to $25.7&nbsp;million in
fiscal 2004. Drug Delivery derives a substantial majority of its revenue from
all three primary sources (royalties and license fees, product sales and
research and development fees) from Cordis Corporation (a Johnson &#038; Johnson
company) on its Cypher stent. The Cypher stent incorporates a proprietary
SurModics coating that delivers a therapeutic drug designed to reduce the
occurrence of restenosis in coronary artery lesions.


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<P align="left" style="font-size: 10pt">Fiscal 2004 Drug Delivery revenue growth was attributable to a significant
increase in royalties and license fees compared with the prior year. Cordis&#146;
Cypher stent received U.S. FDA approval in April&nbsp;2003 (our prior year third
fiscal quarter). Accordingly, 2004 results reflect a full year of Cypher sales
in the United States, whereas fiscal 2003 results include U.S. sales of Cypher
for slightly less than 6&nbsp;months. This increase in royalties and license fees
more than offset a significant reduction in research and development revenue
and a decrease in sales of reagent chemicals (chemicals that we manufacture and
sell to licensees for coating their medical devices). Research and development
revenue decreased in 2004 principally as a result of the lower level of
clinical coating work following FDA approval of Cypher. We continue to provide
development services to Cordis and other drug delivery customers, but on a
smaller scale than that provided to Cordis in 2003. Although Cordis purchased
a substantial majority of reagents sold in fiscal 2004, reagent chemical sales
to Cordis decreased in 2004 as both volume and unit prices decreased. In
fiscal 2005, we expect a significant decrease in reagent chemical sales to
Cordis as a result of a contractual reduction in reagent pricing and as Cordis
continues to become more efficient in its manufacturing, and possibly lower
Cypher sales as a result of Boston Scientific Corporation having its Taxus
drug-eluting stent available for sale in the U.S. for our full 2005 fiscal year
as opposed to only a portion of our 2004 fiscal year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Boston Scientific was granted approval by the FDA to begin marketing in
the U.S. its Taxus drug-eluting stent in our 2004 second fiscal quarter. The
Boston Scientific stent competes directly with the Cypher stent and gained
market share leadership during the year. The market for all drug-eluting stents
in the United States grew substantially in fiscal 2004. We anticipate that
while the overall market for drug-eluting stents will continue to grow,
quarterly royalty revenue from the current generation Cypher stent will be
volatile as the two sole U.S. marketers of drug-eluting stents compete in the
marketplace. Management expects royalties from the Cypher stent to constitute
a significant portion of our revenue throughout fiscal 2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cordis&#146; Cypher stent was approved for sale in Japan in fiscal 2004, and
was launched in our fourth fiscal quarter. Increased reimbursement for
Japanese Cypher sales went into effect in October&nbsp;2004 (our fiscal 2005).
Cypher is expected to be the sole drug-eluting stent available for sale in
Japan until the second half of calendar 2006 (based on public disclosure by
Boston Scientific that approval for sale of Taxus stent in Japan is not
expected until such time).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is currently pending litigation involving Boston Scientific Scimed,
Inc. and Cordis in U.S. District Court for the District of Delaware in which
each alleges its patent rights are being infringed by the other&#146;s drug-eluting
stent, and each has been denied the preliminary injunction it has requested
against the other. The companies are scheduled for trial in June&nbsp;2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hydrophilic and Other. </I>In fiscal 2004, overall Hydrophilic and Other
revenue increased 25% to $15.5&nbsp;million, with growth contributed from all three
primary revenue sources. Royalties and license fees increased modestly
compared with fiscal 2003. While a significant percentage of revenue in Drug
Delivery is attributable to Cordis, in Hydrophilic and Other there are several
dozen licensees and even more coated products generating royalties. Sales of
reagent chemicals for Hydrophilic and Other increased substantially from fiscal
2003. Management expects continued growth in Hydrophilic and Other but growth
in fiscal 2005 is unlikely to be as strong as it was in 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Diagnostics. </I>Diagnostics derives a significant percentage of its revenue
from GE Healthcare and Abbott Laboratories. Overall fiscal 2004 revenue
decreased about 20% to $8.5&nbsp;million with nearly all of the decrease caused by
lower royalties from GE Healthcare stemming from scheduled contractual royalty
decreases. In addition, fiscal 2003 results include a $500,000 payment related
to the achievement of a


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">technical milestone while 2004 results include a similar milestone payment
of $250,000. Historical growth in Diagnostics may not be indicative of future
results in light of discussions concerning possible renegotiation of certain
agreements. Offsetting this uncertainty is an expected increase in royalty
revenue resulting from the Company&#146;s purchase at the end of fiscal 2004 of the
future royalty stream under certain sublicenses for which the Company
previously has been receiving only a portion of the sublicense royalties.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Product costs. </I></B>The Company&#146;s product costs were $3.0&nbsp;million for fiscal
2004, an increase of 15%, from the $2.6&nbsp;million recorded in fiscal 2003.
Overall product margins averaged 71%, a decrease from the 78% margins in fiscal
2003. Higher cost non-Cordis reagents made up a higher percentage of total
product sales in fiscal 2004. Management continues to expect downward pressure
on margins in fiscal 2005 resulting from the SeraCare stabilization product
distribution agreement signed in the second quarter of fiscal 2004 and a
contractual reduction in reagent prices for Cordis.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Research and development expense</I></B>. Research and development expense for
fiscal 2004 was $12.6&nbsp;million, an increase of $633,000, or 5%, compared with
the same period in fiscal 2003. Management believes research and development
expense will increase modestly in 2005 as the Company makes increased
investments in research and development and resulting from the amortization
cost associated with the recently purchased sublicense royalty stream discussed
above in <I>Diagnostics</I>. Some of this increased spending will be partially offset
by lower depreciation expense on the Bloomington facility.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sales and marketing expense. </I></B>Sales and marketing expense was $1.7&nbsp;million
for fiscal 2004, a decrease of $331,000, or 16%, from fiscal 2003. A
substantial portion of the decrease resulted from lower payroll costs related
to a reduction in senior marketing personnel in connection with a company-wide
reorganization. Management anticipates increased sales and marketing expense in
fiscal 2005 as the Company expands the size of its sales force.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General and administrative expense. </I></B>General and administrative expense was
$5.4&nbsp;million for fiscal 2004, a decrease of $513,000, or 9%, compared with
fiscal 2003. The decrease reflects efficiencies gained in the reorganization
as well as lower legal costs. Management anticipates general and
administrative expense will increase modestly in fiscal 2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Asset impairment charge</I></B>. Results in fiscal 2004 included a non-cash asset
impairment charge of $16.5&nbsp;million against our Bloomington, Minnesota contract
manufacturing facility. In order to determine the fair value of the facility,
the Company engaged several commercial real estate brokerage firms to assess
the market valuation of similar types of commercial property among other data
and factors. The Company is seeking to sell or lease the Bloomington facility
and plans to consolidate operations at its Eden Prairie, Minnesota
headquarters.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other income, net. </I></B>The Company&#146;s other income was $1.4&nbsp;million for fiscal
2004, a decrease of $487,000, or 26%, from fiscal 2003. Investment income
decreased as a result of lower investment yields and the early payoff of a $1.9
million note receivable. In addition, much of the decrease reflects lower
capital gains generated from our investment portfolio. In fiscal 2003, the
Company&#146;s investment advisor sold and reinvested a portion of the Company&#146;s
bond portfolio generating gains of $461,000. Results in fiscal 2004 reflect
approximately $187,000 in gains from such sales.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income tax expense. </I></B>The Company&#146;s income tax provision was $4.4&nbsp;million in
fiscal year 2004 compared to $8.6&nbsp;million in fiscal 2003. The effective tax
rate was 37.2% in fiscal 2004, a decrease from 38% in fiscal 2003.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B><I>Years Ended September&nbsp;30, 2003 and 2002</I></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% Increase</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Dollars in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fiscal 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fiscal 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Decrease)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Decrease)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Drug Delivery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">86</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Hydrophilic and Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diagnostics</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">37</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">47</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenue. </I></B>The Company&#146;s total revenue was $43.2&nbsp;million in fiscal 2003, an
increase of 47% over fiscal 2002. The majority of the overall growth came from
our Drug Delivery segment as detailed in the table above. We provide a
narrative of revenue for each of our three operating segments in the paragraphs
that follow.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Drug Delivery. </I>In fiscal 2003, Drug Delivery revenue increased 86% to
$20.2&nbsp;million. Substantially all of this total revenue increase in fiscal 2003
reflects the growth in royalties and license fees resulting primarily from the
royalty obligations of Cordis on its Cypher stent. In April&nbsp;2003 (the third
quarter of our 2003 fiscal year), Cordis received U.S. Food and Drug
Administration (FDA)&nbsp;approval to begin marketing its Cypher stent in the U.S.
Sales of reagent chemicals increased significantly as a result of increased
demand by Cordis in support of their Cypher stent manufacturing. The third
source of Drug Delivery revenue, research and development fees, decreased
principally reflecting the lower level of clinical coating work following FDA
approval of Cypher.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hydrophilic and Other. </I>Overall revenue for this segment increased 15% to
$12.4&nbsp;million in fiscal 2003. The increase includes a royalty back-payment of
$1.1&nbsp;million on product sales by a single licensee recorded in the third
quarter of 2003 and a non-performing license we cancelled in the first quarter
of fiscal 2003 that resulted in the recognition of approximately $340,000 of
deferred license fee revenue.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Diagnostics. </I>Overall revenue for this segment increased 37% to $10.7
million in fiscal 2003. All three revenue sources contributed to the growth,
which included an increase in minimum royalties from Amersham plc (now GE
Healthcare) on its coated glass slide and a $500,000 milestone payment from
Amersham plc for a product that it introduced to the market during the third
quarter of 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Product costs. </I></B>The Company&#146;s product costs were $2.6&nbsp;million for fiscal
2003, a decrease of 1%, from the $2.7&nbsp;million recorded in fiscal 2002. Overall
product margins averaged 78%, a significant increase from the 70% margins in
fiscal 2002 attributable in part to reduced scrap costs but mostly to the fact
that higher margin reagent product sales constituted an even greater percentage
of total product sales than in fiscal 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Research and development expense</I></B>. Research and development expense for
fiscal 2003 was $12.0&nbsp;million, an increase of $2.3&nbsp;million, or 24%, compared
with the same period in fiscal 2002. The increase primarily reflects
compensation and benefits associated with technical personnel we added during
fiscal 2003 and increased depreciation and facilities expenses. We moved
segments of our research and development activities to a portion of the
Bloomington contract manufacturing facility early in fiscal year 2003, which
increased depreciation expense attributable to research and development.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sales and marketing expense. </I></B>Sales and marketing expense was $2.0&nbsp;million
for fiscal 2003, an increase of $446,000, or 28%, from fiscal 2002. The
increase reflects higher promotional costs, increased compensation, benefits,
and business travel related to marketing personnel added in fiscal 2003 and
licensing costs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General and administrative expense. </I></B>General and administrative expense was
$5.9&nbsp;million for fiscal 2003, an increase of $1.1&nbsp;million, or 23%, over fiscal
2002. The increase was primarily a result of costs associated with contract
negotiations and a 156% increase in directors and officers insurance.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other income, net. </I></B>The Company&#146;s other income was $1.9&nbsp;million for fiscal
2003, an increase of $171,000, or 10%, from fiscal 2002. Interest earned on our
investments decreased 13% to $1.4&nbsp;million mostly because of lower yields.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income tax expense. </I></B>The Company&#146;s income tax provision was $8.6&nbsp;million in
fiscal year 2003 compared to $4.6&nbsp;million in fiscal 2002. The effective tax
rate was 38% in fiscal 2003, a slight increase from 37% in fiscal 2002.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2004, the Company had working capital of $17.8&nbsp;million
and cash, cash equivalents and investments (marketable securities) totaling
$63.3&nbsp;million. The Company&#146;s investments principally consist of U.S. government
and government agency obligations and investment grade, interest-bearing
corporate debt securities with varying maturity dates, the majority of which
are three years or less. The Company&#146;s policy requires that no more than 5% of
investments be held in any one credit issue, excluding U.S. government and
government agency obligations. The primary investment objective of the
portfolio is to provide for the safety of principal and appropriate liquidity
while generating an above benchmark (Lehman Brothers 1-3 Year Government Index)
total rate of return. Management plans to continue to direct its investment
advisor to manage the Company&#146;s investments primarily for the safety of
principal for the foreseeable future as it assesses other investment
opportunities and uses of its investments. The Company generated positive cash
flows from operating activities of $19.5&nbsp;million in fiscal 2004, $19.3&nbsp;million
in fiscal 2003, and $14.3&nbsp;million in fiscal 2002. The increase in cash flows in
fiscal 2004 primarily reflects the increased net income generated during the
year, net of the asset impairment charge and the related deferred taxes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2001, the Company purchased a facility in Bloomington,
Minnesota, situated on 27 acres of land. As part of a reorganization, we
announced in June&nbsp;2004 that after careful examination of our redefined business
goals, we determined that the Bloomington contract manufacturing facility was
not necessary for the execution of our strategic plan. Management believes the
Company has adequate office space and manufacturing capacity in its Eden
Prairie headquarters to support its business and strategic plan. Accordingly,
results in the third quarter of fiscal 2004 included a non-cash asset
impairment charge of $16.5&nbsp;million. The Company is seeking to sell or lease the
Bloomington facility and plans to consolidate operations at its Eden Prairie,
Minnesota headquarters.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2003, the Company received prepayment of approximately $1.9
million due on a note receivable related to property the Company sold in June
2002. With this payment, the note was paid in its entirety.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, the Company invested $2.1&nbsp;million in InnoRx, Inc., an
Alabama-based, early-stage company developing unique drug delivery devices and
therapies for the ophthalmology market. The


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Company invested an additional $0.7&nbsp;million in October&nbsp;2004 (our fiscal
2005) and has agreed to invest a total of $3.5&nbsp;million, the remaining $0.7
million of which will be invested subject to InnoRx completing a regulatory
milestone. We expect that such milestone investment will be made in December
2004. In collaboration with the Company, InnoRx is developing a patented,
implantable coil to deliver therapeutic agents in the eye to treat various
retinal diseases. This product utilizes SurModics&#146; site-specific drug delivery
technology. While the Company anticipates that its investment in InnoRx will
help facilitate the commercialization of its technology and result in revenue
for the Company in the future, there can be no assurance that this will occur.
InnoRx&#146;s primary technology is in its development stage, and we anticipate that
it will be years before commercialization may be realized. The Company&#146;s
investment in InnoRx is accounted for under the cost method and the total $3.5
million to be invested represents an ownership interest of less than 20%.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, the Company loaned $285,000 to Novocell, Inc., a
privately-held Irvine, California-based biotech firm that is developing a
unique treatment for diabetes using cell-encapsulation. In August&nbsp;2004, the
loan was converted into equity. To date, the Company has invested a total of
$5.2&nbsp;million in Novocell. Working with Novocell, the Company&#146;s researchers have
created a coating that encapsulates pancreatic islet cells &#151; the cells that
produce insulin in the human body. If successful, this treatment using coated
islet cells could dramatically change the treatment of diabetes. While the
Company anticipates that its investment in Novocell will help facilitate the
commercialization of its technology and result in revenue for the Company in
the future, there can be no assurance that this will occur. Novocell&#146;s primary
technology is in its development stage, and we anticipate that it will be years
before commercialization may be realized. The $5.2&nbsp;million investment, which is
accounted for under the cost method, is included in other assets and represents
an ownership interest of less than 5%.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risks and uncertainties surrounding a development-stage company&#146;s ability
to obtain on a timely and frequent basis financing needed to continue its
development activities currently affect, and will continually affect, the
prospects of the Company&#146;s investments in Novocell and InnoRx and the revenue
they may ultimately generate. Neither of these companies has full funding for
its development activities. There is no assurance that Novocell&#146;s current
efforts to meet its immediate financing needs will be successful or that future
financing needs of Novocell or InnoRx will be met when required. If adverse
results occur in Novocell&#146;s or InnoRx&#146;s development of its respective
technology or if its financing needs are not continually met, the viability of
such company and its efforts in providing a future revenue source for the
Company will be in jeopardy and the Company&#146;s investment in such company would
likely be considered impaired and charged against the Company&#146;s earnings at
such time.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2004, we made a commitment to purchase for $7&nbsp;million certain
additional sublicense rights and the accompanying future royalty revenue
streams under certain sublicenses through an amendment to our diagnostic format
patent license with Abbott Laboratories. Prior to such amendment, we were
receiving only a portion of the royalties under such sublicenses. The first $5
million installment was paid in November&nbsp;2004 (our fiscal 2005). The remaining
installments are reflected in Other Long-Term Liabilities in the September&nbsp;30,
2004 balance sheets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2004, the Company had no debt, nor did it have any
credit agreements. The Company believes that its existing capital resources
will be adequate to fund its operations into the foreseeable future.


<P align="left" style="font-size: 10pt"><B>Off-Balance Sheet Arrangements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company did not have any material off-balance sheet arrangements at
September&nbsp;30, 2004 or during the year then ended.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Contractual Obligations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Presented below is a summary of contractual obligations and other minimum
commercial commitments. We do not have any long-term debt or any capital or
operating leases. See Notes to Financial Statements for additional information
regarding the below obligations and commitments.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27"><B>Maturity by Fiscal Year</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>obligations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2006</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2007</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2009</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Thereafter</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="27"><B>(in millions)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term
liabilities
reflected on
balance sheet under
GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>New Accounting Pronouncements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, the Emerging Issues Task Force (EITF)&nbsp;reached a consensus
on the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, with an effective date
of June&nbsp;15, 2004. EITF 03-01 provides new disclosure requirements for
other-than-temporary impairments on debt and equity investments. Investors are
required to disclose quantitative information about: (i)&nbsp;the aggregate amount
of unrealized losses, and (ii)&nbsp;the aggregate related fair values of investments
with unrealized losses, segregated into time periods during which the
investment has been in an unrealized loss position of less than 12&nbsp;months and
greater than 12&nbsp;months. In addition, investors are required to disclose the
qualitative information that supports their conclusion that the impairments
noted in the qualitative disclosure are not other-than temporary. The adoption
of EITF Issue No.&nbsp;03-01 did not have an impact on our results of operations or
financial condition.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB
Staff Position (FSP)&nbsp;No.&nbsp;106-2, &#147;Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003&#148;
(FSP 106-2), which provides guidance on the accounting for the effects of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 for
employers that sponsor postretirement healthcare plans that provide
prescription drug benefits. FSP 106-2 supersedes FSP 106-1 that was issued in
January&nbsp;2004 under the same title. FSP 106-2 is effective for the first interim
period beginning after June&nbsp;15, 2004. The Company does not sponsor a
postretirement healthcare plan so FSP 106-2 did not have an impact on our
results of operations or financial condition.

<DIV align="left">
<A name="110"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s investment policy requires investments with high credit
quality issuers and limits the amount of credit exposure to any one issuer. The
Company&#146;s investments principally consist of U.S. government and government
agency obligations and investment-grade, interest-bearing corporate debt
securities with varying maturity dates, the majority of which are five years or
less. Because of the credit criteria of the Company&#146;s investment policies, the
primary market risk associated with these investments is interest rate risk.
SurModics does not use derivative financial instruments to manage


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">interest rate risk or to speculate on future changes in interest rates. A
one percentage point increase in interest rates would result in an approximate
$910,000 decrease in the fair value of the Company&#146;s available-for-sale
securities as of September&nbsp;30, 2004, but no material impact on the results of
operations or cash flows. Management believes that a reasonable change in raw
material prices would not have a material impact on future earnings or cash
flows because the Company&#146;s inventory exposure is not material.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we conduct business in foreign countries, our international
operations consist primarily of sales of reagent and stabilization chemicals.
Additionally, all sales transactions are denominated in U.S. dollars.
Accordingly, we do not expect to be subject to material foreign currency risk
with respect to future costs or cash flows from our foreign sales. To date, we
have not entered into any foreign currency forward exchange contracts or other
derivative financial instruments to hedge the effects of adverse fluctuations
in foreign currency exchange.

<DIV align="left">
<A name="111"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The balance sheets as of September&nbsp;30, 2004 and 2003 and the statements of
income, stockholders&#146; equity and cash flows for each of the three years in the
period ended September&nbsp;30, 2004, together with the independent auditors&#146; report
thereon and related footnotes (including selected unaudited quarterly financial
data), begin on page F-1 of this Form 10-K.

<DIV align="left">
<A name="112"></A>
</DIV>

<P>
<TABLE width="100%" border="0" cellpadding="2" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>
<TR valign="top">
    <TD nowrap><B>ITEM 9.</B>&nbsp;</TD>
    <TD><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.</B></TD>
</TR>
</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="113"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9A. CONTROLS AND PROCEDURES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Evaluation of Disclosure Controls and Procedures. </B>As of the end of the
period covered by this report, the Company conducted an evaluation under the
supervision and with the participation of the Company&#146;s management, including
the Company&#146;s Chief Executive Officer and Chief Financial Officer regarding the
effectiveness of the design and operation of the Company&#146;s disclosure controls
and procedures pursuant to Rule&nbsp;13a-15(b) of the Securities Exchange Act of
1934 (the &#147;Exchange Act&#148;). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company&#146;s disclosure
controls and procedures are effective to ensure that information that is
required to be disclosed by the Company in reports that it files under the
Exchange Act is recorded, processed, summarized and reported within the time
period specified in the rules of the Securities Exchange Commission.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Changes in Internal Controls</B>. There were no changes in the Company&#146;s
internal control over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the Company&#146;s internal control over financial reporting.

<DIV align="left">
<A name="114"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9B. OTHER INFORMATION.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All information required to be disclosed in a report on Form 8-K during
the fourth quarter of the year covered by this Form 10-K has been reported.


<P align="center" style="font-size: 10pt">- 35 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="115"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART III</B>


<DIV align="left">
<A name="116"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item&nbsp;10 relating to directors, our audit
committee, the nature of changes, if any, to procedures by which our
shareholders may recommend nominees for directors, codes of ethics and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the sections entitled &#147;Election of
Directors,&#148; &#147;Section&nbsp;16(a) Beneficial Ownership Reporting Compliance&#148; and &#147;Code
of Ethics and Business Conduct&#148; that appear in the Company&#146;s definitive Proxy
Statement for its 2005 Annual Meeting of Shareholders.

<DIV align="left">
<A name="117"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 11. EXECUTIVE COMPENSATION.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item&nbsp;11 is incorporated herein by reference to
the section entitled &#147;Executive Compensation and Other Information&#148; that
appears in the Company&#146;s definitive Proxy Statement for its 2005 Annual Meeting
of Shareholders.

<DIV align="left">
<A name="118"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item&nbsp;12 is incorporated herein by reference to
the sections entitled &#147;Principal Shareholders,&#148; &#147;Management Shareholdings&#148; and
&#147;Equity Compensation Plan Information&#148; which appear in the Company&#146;s definitive
Proxy Statement for its 2005 Annual Meeting of Shareholders.

<DIV align="left">
<A name="119"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="120"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item&nbsp;14 is incorporated herein by reference to
the section entitled &#147;Independent Registered Public Accounting Firm&#148; which
appears in the Company&#146;s definitive Proxy Statement for its 2005 Annual Meeting
of Shareholders.


<P align="center" style="font-size: 10pt">- 36 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="121"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART IV</B>


<DIV align="left">
<A name="122"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>1. <I>Financial statements</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following statements are included in
this report on the pages indicated:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page (s)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Sheets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Statements of Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Statements of Stockholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4 &#150; F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Statements of Cash Flows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Notes to Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7 &#150; F-17</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="left" style="margin-left:6%; font-size: 10pt">2. <I>Financial Statement Schedules. </I>All schedules for which
provision is made in the applicable accounting regulations of
the Securities and Exchange Commission other than the ones
listed above are not required under the related instructions
or are not applicable, and, therefore, have been omitted.



<P align="left" style="margin-left:6%; font-size: 10pt">3. <I>Listing of Exhibits. </I>The exhibits which are filed with this report or
which are incorporated herein by reference are set forth in the Exhibit&nbsp;Index
following the signature page.


<P align="center" style="font-size: 10pt">- 37 -
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="123"></A>
</DIV>

<P align="center" style="font-size: 10pt">SIGNATURES



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">SURMODICS, INC.<BR>
(&#147;Registrant&#148;)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dated: December&nbsp;14, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Dale R. Olseth</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dale R. Olseth</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman and Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant, in the capacities, and on the dates indicated.


<P align="center" style="font-size: 10pt">(Power of Attorney)



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each person whose signature appears below authorizes DALE R. OLSETH and
PHILIP D. ANKENY, and constitutes and appoints said persons as his true and
lawful attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission,
authorizing said persons and granting unto said attorneys-in-fact and agents,
each acting alone, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorneys-in-fact and agents, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B> Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Dale R. Olseth
<HR size="1" noshade>
Dale R. Olseth
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman, Chief
Executive Officer
and Director
(principal
executive officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;14, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Philip D. Ankeny
<HR size="1" noshade>
Philip D. Ankeny
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and
Chief Financial
Officer (principal
financial officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;14, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Loren R. Miller
<HR size="1" noshade>
Loren R. Miller
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President and
Controller
(principal
accounting officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;14, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Bruce J Barclay<BR>
<HR size="1" noshade>
Bruce J Barclay
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Chief
Operating Officer
and Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;14, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Jose H. Bedoya
<HR size="1" noshade>
Jose H. Bedoya
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">- 38 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B> Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ John W. Benson
<HR size="1" noshade>
John W. Benson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Gerald B. Fischer
<HR size="1" noshade>
Gerald B. Fischer
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/&nbsp;Kenneth H. Keller<HR size="1" noshade>
Kenneth H. Keller
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December 13, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ David A. Koch
<HR size="1" noshade>
David A. Koch
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Kendrick B. Melrose
<HR size="1" noshade>
Kendrick B. Melrose
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ John A. Meslow
<HR size="1" noshade>
John A. Meslow
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">December&nbsp;10, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">- 39 -
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>



<P align="left" style="font-size: 10pt">Board of Directors and Shareholders<BR>
SurModics, Inc.<BR>
Eden Prairie, Minnesota

<P align="left" style="font-size: 10pt">We have audited the consolidated balance sheets of SurModics, Inc. (the &#147;Company&#148;) as of September
30, 2004 and 2003 and the related statements of income, cash flows, and changes in stockholders&#146;
equity for each of the three years in the period ended September&nbsp;30, 2004. These consolidated
financial statements are the responsibility of the Company&#146;s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.

<P align="left" style="font-size: 10pt">We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

<P align="left" style="font-size: 10pt">In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of September&nbsp;30, 2004 and 2003 and the results of its
operations and its cash flows for each of the three years in the period ended September&nbsp;30, 2004 in
conformity with accounting principles generally accepted in the United States of America.


<P align="left" style="font-size: 10pt">Deloitte &#038; Touche LLP<BR>
Minneapolis, Minnesota<BR>
December&nbsp;10, 2004


<P align="center" style="font-size: 10pt">F-1
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc<I>.</I><BR>
Balance Sheets<BR>
As of September&nbsp;30<BR>
<I>(thousands, except share data)</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Current Assets</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,007</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable, net of allowance for doubtful
accounts of $40 as of September&nbsp;30, 2004 and 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,145</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">863</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Prepaids and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Property and Equipment, net</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,936</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Long-Term Investments</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,164</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Deferred Tax Asset</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Other Assets, net</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,949</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">109,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97,808</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Current Liabilities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,118</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued liabilities-
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">
Compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,635</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Accrued income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,558</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Accrued other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,677</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,039</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Deferred Revenue, less current portion</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Deferred Tax Liability</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Other Long-Term Liabilities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,694</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Commitments and Contingencies (Note 6)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Stockholders&#146; Equity</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Series&nbsp;A preferred stock- $.05 par value, 450,000 shares
authorized, no shares issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock- $.05 par value, 45,000,000 shares authorized
17,536,656 and 17,439,435 shares issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,453</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(632</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(466</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">337</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">109,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97,808</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these balance sheets.</I>



<P align="center" style="font-size: 10pt">F-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc.<BR>
Statements of Income<BR>
For the Years Ended September&nbsp;30<BR>
<I>(thousands, except net income per share)</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Revenue</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Royalties and license fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,833</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,493</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Product sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,004</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,991</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Operating Costs and Expenses</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Product</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,683</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Sales and marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">General and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,814</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Asset impairment charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Total operating costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,779</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Income from Operations</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,709</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Other Income</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,609</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Gain on sale of investments and real property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Income Before Income Taxes</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,397</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Income Tax Provision</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,601</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Net income</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><I>Basic net income per share</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><I>Diluted net income per share</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">.44</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Weighted Average Shares Outstanding</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,016</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Dilutive effect of outstanding stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">806</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,822</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these financial statements.</I>



<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc.<BR>
Statements of Stockholders&#146; Equity<BR>
For the Years Ended September&nbsp;30, 2004, 2003 and 2002<BR>
<I>(in thousands)</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unearned</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid-In Capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2001</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(376</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding gains on available-for-sale securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(218</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2002</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(460</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding losses on available-for-sale
securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2003</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(466</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding losses on available-for-sale
securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(378</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2004</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(632</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these financial statements.</I>



<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc.<BR>
Statements of Stockholders&#146; Equity<BR>
For the Years Ended September&nbsp;30, 2004, 2003 and 2002<BR>
<I>(in thousands)</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other Comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total Stockholders'</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Income (Loss)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earnings</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Equity</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2001</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">55,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding gains on available-for-sale securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(113</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(113</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,194</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">336</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">953</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,784</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(106</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2002</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,995</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding losses on available-for-sale
securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(285</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,186</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2003</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">86,114</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Components of comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Unrealized holding losses on available-for-sale
securities
arising during the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Less reclassification for gains included in net income,
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(117</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock options exercised, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">353</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restricted stock activity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Balance, September&nbsp;30, 2004</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,504</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these financial statements.</I>



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc.<BR>
Statements of Cash Flows<BR>
For the Years Ended September&nbsp;30<BR>
<I>(in thousands)</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Operating Activities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Adjustments to reconcile net income to net cash provided
by operating activities-</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,867</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Gain on sale of investments and real property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(461</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Asset impairment charge</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Tax benefit from exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,784</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Deferred tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,640</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(214</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Change in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,639</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,261</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(177</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,016</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,907</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(842</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(663</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(181</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Prepaids and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">424</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,313</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Investing Activities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,402</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,660</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13,004</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of available-for-sale investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(62,575</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,513</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sales/maturities of available-for-sale investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,683</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase of equity in InnoRx, Inc. and Novocell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,633</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(935</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from sale of real property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase of license</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Repayment of notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,488</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25,636</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,333</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Financing Activities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,183</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,183</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net increase (decrease)&nbsp;in cash and cash
equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,298</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Cash and Cash Equivalents</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,044</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Supplemental Information</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash paid for taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,075</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Noncash transaction-purchase Abbott Laboratories
sublicense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Noncash transaction-note receivable from sale of real
property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these financial statements.</I>



<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">SurModics, Inc<I>.</I><BR>
Notes to Financial Statements<BR>
September&nbsp;30, 2004 and 2003


<P align="left" style="font-size: 10pt"><B><I>1. Description</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SurModics, Inc. (the Company) develops, manufactures and markets innovative surface
modification and drug delivery technologies to the medical device industry. The Company&#146;s revenue
is derived from three primary sources: (1)&nbsp;royalties and license fees from licensing its patented
surface modification technologies to customers; (2)&nbsp;the sale of reagent chemicals to licensees of
our technologies, stabilization products to the diagnostics industry, and coated slides to the
genomics market; and (3)&nbsp;research and development fees generated on projects for commercial
customers. The Company markets its products through a direct sales force primarily in the United
States and certain international markets.


<P align="left" style="font-size: 10pt"><B><I>2. Summary of Significant Accounting Policies</I></B>



<P align="left" style="font-size: 10pt"><B><I>Cash and Cash Equivalents</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents consist principally of money market instruments with original
maturities of three months or less and are stated at cost which approximates fair value.


<P align="left" style="font-size: 10pt"><B><I>Investments</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments consist principally of U.S. government and government agency obligations and
mortgage-backed securities and are classified as available-for-sale as of September&nbsp;30, 2004 and
2003. Available-for-sale investments are reported at fair value with unrealized gains and losses
excluded from operations and reported as a separate component of stockholders&#146; equity, except for
other-than-temporary impairments, which are reported as a charge to current operations and result
in a new cost basis for the investment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The original cost, unrealized holding gains and losses, and fair value of investments as of
September&nbsp;30 were as follows <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Original Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gains</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Losses</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">U.S. government obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,061</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mortgage-backed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,203</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Asset-backed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,005</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(31</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(167</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,594</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B></B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Original Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gains</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Losses</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mortgage-backed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,402</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">U.S. government obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,012</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Asset-backed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,430</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Municipal bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,804</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The original cost and fair value of investments by contractual maturity at September&nbsp;30,
2004, were as follows (<I>in thousands</I>):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Original Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Debt securities due within:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,506</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One to five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,794</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Five years or more</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes sales of available-for-sale securities for the years ended
September&nbsp;30, 2004, 2003, and 2002(<I>in thousands</I>):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proceeds from sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">53,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,227</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross realized gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">194</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross realized losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(45</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Inventories</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market using the specific identification method
and include direct labor, materials and overhead. Inventories consisted of the following
components as of September&nbsp;30 <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">413</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Finished products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Property and Equipment</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost and are depreciated using the straight-line method
over 3 to 30&nbsp;years, the estimated useful lives of the assets. The 2004 and 2003 balances in
construction-in-progress include the cost of construction for the contract manufacturing facility
at the Bloomington, Minnesota site.


<P align="center" style="font-size: 10pt">F-8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">Once placed in service, construction-in-progress is transferred
to the specific property and equipment categories and depreciated over the estimated useful lives
of the assets.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recorded depreciation expense of approximately $3.1&nbsp;million in 2004, $2.6&nbsp;million
in 2003, and $1.8&nbsp;million in 2002. Property and equipment consisted of the following components as
of September&nbsp;30 <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Useful life (in years)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Laboratory fixtures and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">3 to 5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Building and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">5 to 30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Office furniture and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">3 to 5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Construction-in-progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less-accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13,861</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,956</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Other Assets</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets consist principally of investments and acquired patents. The cost of patents is
amortized over 4 to 19&nbsp;years. The Company recorded amortization expense of $22,000 and $23,000 in
2004 and 2003, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, the Company invested $4.0&nbsp;million in Novocell, Inc., a privately held
Irvine, California-based biotech firm that is developing a potential cure for diabetes. In April
2003, the Company invested an additional $925,000 in Novocell. On February&nbsp;10, 2004, the Company
loaned $285,000 to Novocell. This note was converted into Novocell equity in August&nbsp;2004. The $5.2
million investment, which is accounted for under the cost basis, is included in other assets and
represents an ownership interest of less than 5%.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, the Company sold real property for approximately $2.4&nbsp;million. The terms of the
sale agreement included a $500,000 cash down payment and a note receivable for $1.9&nbsp;million, which
was collateralized by the assets and was paid in full in October&nbsp;2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;3, 2004, the Company invested $2.1&nbsp;million in InnoRx, Inc., an Alabama-based,
early-stage company developing unique drug delivery devices and therapies for the ophthalmology
market. The Company invested an additional $0.7&nbsp;million in October&nbsp;2004 (the Company&#146;s fiscal year
2005) and has agreed to invest a total of $3.5&nbsp;million, the remaining $0.7&nbsp;million of which will be
invested subject to InnoRx completing a regulatory milestone. It is expected that such milestone
investment will be made in December&nbsp;2004. The Company&#146;s investment in InnoRx is accounted for
under the cost method and the total $3.5&nbsp;million to be invested represents an ownership interest of
less than 20%.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;30, 2004, the Company amended its license agreement with Abbott Laboratories.
Pursuant to such amendment, the Company acquired the future royalty streams under certain
sublicenses under such license agreement. Prior to such amendment, the Company was receiving only
a portion of the royalties under such sublicenses. The terms of such amendment include a $5.0
million cash payment by the Company in November&nbsp;2004 and two $1.0&nbsp;million cash payments by it in 2007 and 2008. The $7.0
million cost of the license is recorded in other assets as of September&nbsp;30, 2004. The two $1.0
million future cash payments are recorded in other long-term liabilities as of September&nbsp;30, 2004.
The cost will be amortized over the approximate four year life of the agreement.


<P align="center" style="font-size: 10pt">F-9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company expects to incur approximately $1.7&nbsp;million of amortization expense in fiscal 2005
through 2008 and $425,000 in fiscal 2009 related to all of its licenses and patents. Other assets
consisted of the following components as of September&nbsp;30 <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment in Novocell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,925</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment in InnoRx</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Abbott license</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,020</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Patents and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Note receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,836</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less-accumulated amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(162</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,949</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Stock-Based Compensation</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for stock options under the intrinsic value method as described in APB
Opinion No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148;, under which no compensation expense has
been recognized. Had compensation expense for the options been determined using the fair value
method described in SFAS No.&nbsp;123, &#147;Accounting for Stock-Based Compensation,&#148; as amended by SFAS No.
148, &#147;Accounting for Stock-Based Compensation-Transition and Disclosure&#148;, the Company&#146;s net income
and earnings per share would have changed to the following pro forma amounts for the years ended
September&nbsp;30 <I>(in thousands, except per share data)</I>:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,796</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fair value compensation expense, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,062</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,524</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,183</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,613</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fair value compensation expense, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.09</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.07</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.31</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.71</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.44</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fair value compensation expense, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.07</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value of each option is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for grants in 2004, 2003,
and 2002 respectively: risk-free interest rates of 3.56%, 3.05%, and 3.69%; expected lives of 7.4,
7.4, and 7.1; and expected volatility of 66%, 69%, and 73%. See Note 4 for a detailed description of the Company&#146;s 2003
Equity Incentive Plan.


<P align="left" style="font-size: 10pt"><B><I>Impairment of Long-Lived Assets</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company periodically evaluates whether events and circumstances have occurred that may
affect the estimated useful life or the recoverability of the remaining balance of long-lived
assets, such as property and equipment. If such events or circumstances were to indicate that the
carrying amount of these assets would not be recoverable, the Company would estimate the future
cash flows expected to result from the use of the


<P align="center" style="font-size: 10pt">F-10
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">assets and their eventual disposition. If the sum
of the expected future cash flows (undiscounted and without interest charges) or other measure of
fair value was less than the carrying amount of the assets, the Company would recognize an
impairment loss. On June&nbsp;23, 2004, the Company announced in a press release that it would record
an asset impairment charge against its Bloomington, Minnesota contract manufacturing facility.
Fiscal 2004 results include a non-cash asset impairment charge of $16.5&nbsp;million. The Company is
seeking to sell or lease the Bloomington facility and plans to consolidate operations at its Eden
Prairie, Minnesota headquarters. No such impairment losses were required to be recorded in the
years ended September&nbsp;30, 2003 and 2002.


<P align="left" style="font-size: 10pt"><B><I>Revenue Recognition</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Royalty revenue is generated when a licensed customer sells products incorporating the
Company&#146;s technologies. Royalty revenue is recognized as the Company&#146;s licensees report it to the
Company, and payment is typically submitted concurrently with the report. The Company recognizes
initial license fees over the term of the related agreement. Revenue related to a performance
milestone is recognized upon the achievement of the milestone, as defined in the respective
agreements. Revenue on sales of the Company&#146;s products is recognized when persuasive evidence of
an agreement exists, delivery has occurred, the fee is fixed and determinable and collectibility is
probable. Generally, these criteria are met at the time our product is shipped. Revenue for
research and development is recorded as performance progresses under the applicable contract.


<P align="left" style="font-size: 10pt"><B><I>Use of Estimates</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Ultimate results could differ from those estimates.


<P align="left" style="font-size: 10pt"><B><I>Reclassifications</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain reclassifications have been made to prior year&#146;s financial statements in order to
conform to the 2004 presentation. Such reclassifications had no effect on stockholders&#146; equity,
net income, or income per share as previously reported.


<P align="left" style="font-size: 10pt"><B><I>New Accounting Pronouncements</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, the Emerging Issues Task Force (EITF)&nbsp;reached a consensus on the remaining
portions of EITF 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments, with an effective date of June&nbsp;15, 2004. EITF 03-01 provides new disclosure
requirements for other-than-temporary impairments on debt and equity investments. Investors are
required to disclose quantitative information about: (i)&nbsp;the aggregate amount of unrealized losses,
and (ii)&nbsp;the aggregate related fair values of investments with unrealized losses, segregated into
time periods during which the investment has been in an unrealized loss position of less than 12
months and greater than 12&nbsp;months. In addition, investors are required to disclose the qualitative
information that supports their conclusion that the impairments noted in the qualitative disclosure
are not other-than temporary. The adoption of EITF Issue No.&nbsp;03-01 did not have an impact on our
results of operations or financial condition.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, the Financial Accounting Standards Board (FASB)&nbsp;issued FASB Staff Position (FSP)
No.&nbsp;106-2, &#147;Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,


<P align="center" style="font-size: 10pt">F-11
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">Improvement and Modernization Act of 2003&#148; (FSP 106-2), which provides guidance on the accounting
for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 for
employers that sponsor postretirement healthcare plans that provide prescription drug benefits. FSP
106-2 supersedes FSP 106-1 that was issued in January&nbsp;2004 under the same title. FSP 106-2 is
effective for the first interim period beginning after June&nbsp;15, 2004. The Company does not sponsor
a postretirement healthcare plan so FSP 106-2 did not have an impact on our results of operations
or financial condition.


<P align="left" style="font-size: 10pt"><B><I>3. Stockholders&#146; Equity</I></B>



<P align="left" style="font-size: 10pt"><B><I>1999 Employee Stock Purchase Plan</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the 1999 Employee Stock Purchase Plan (&#147;Stock Purchase Plan&#148;) the Company is authorized
to issue up to 200,000 shares of Common Stock. All full-time and part-time employees can choose to
have up to 10% of their annual compensation withheld to purchase the Company&#146;s Common Stock at
purchase prices defined within the provisions of the Stock Purchase Plan. The Company issued 19,169
and 17,179 shares under the Stock Purchase Plan during fiscal 2004 and 2003, respectively. As of
September&nbsp;30, 2004 and 2003, there was approximately $255,000 and $251,000, respectively, of
employee contributions included in accrued liabilities in the accompanying balance sheets.


<P align="left" style="font-size: 10pt"><B><I>Restricted Stock Awards</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has entered into restricted stock agreements with certain key employees, covering
the issuance of Common Stock (&#147;Restricted Stock&#148;). The Restricted Stock will be released to the key
employees if they are employed by the Company at the end of a five-year waiting period. Unearned
compensation has been recognized for the estimated fair value of the applicable common shares,
reflected as a reduction of stockholders&#146; equity, and is being charged to income over the five-year
term.


<P align="left" style="font-size: 10pt">Transactions in restricted stock were as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at September&nbsp;30, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(52,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at September&nbsp;30, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at September&nbsp;30, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,500</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>4. Stock-Based Compensation Plan</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2003, the Company adopted and shareholders approved the SurModics, Inc. 2003 Equity
Incentive Plan (the &#147;2003 Plan&#148;).


<P align="center" style="font-size: 10pt">F-12
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2003 Plan replaced the 1997 Incentive Stock Option Plan, which the shareholders previously
approved and the Nonqualified Stock Option Plan and Restricted Stock Plan previously adopted by the
Board (collectively referred to as the &#147;Prior Plans&#148;). Upon shareholder approval of the 2003 Plan,
no further stock options or restricted stock awards were granted under the Prior Plans, it being
the Board&#146;s intention that all future options should be granted under the 2003 Plan; however, any
options and restricted stock awards outstanding under the Prior Plans shall remain subject to their
terms and conditions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Company&#146;s 2003 Plan, the Board or the Compensation Committee may award nonqualified
or incentive stock options and restricted stock awards (collectively referred to as an &#147;Award&#148; or
&#147;Awards&#148;) to those officers, directors, consultants and employees (the &#147;Participants&#148;) of the
Company. The 2003 Plan called for 600,000 shares of the Company&#146;s common stock be made available
for grants of Awards to Participants. If any Awards granted under the Plan expire or terminate
prior to exercise or otherwise lapse, the shares subject to such portion of the Award are available
for subsequent grants of Awards.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2003 Plan requires that the option price of Incentive Stock Options (&#147;ISO&#148;) be at least
100% of the fair market value of the Common Stock on the date of the grant or 110% with respect to
optionees who own more than 10% of the total combined voting power of all classes of stock. Options
expire in seven years or upon termination of employment and are exercisable at a rate of 20% per
year from the date of grant or 20% per year commencing one year after the date of grant.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonqualified stock options issued under the 2003 Plan are granted at fair market value on the
date of grant. Options expire in 7 to 10&nbsp;years and are exercisable at a rate of 20% per year from
the date of grant or 20% per year commencing two years after the date of grant.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2004, there were 141,580 additional shares available for grant under the
2003 Plan. Information regarding stock options under all plans is summarized as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding,
beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">964,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,383,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.41</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(62,052</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(155,418</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(515,655</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.07</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(126,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(66,932</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57,740</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.82</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding, end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,147,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">964,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercisable, end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">493,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8.41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average
fair value of options
granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>at September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Range</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Life (in years)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">$2.50-$3.88</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">$4.75-$8.44</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">179,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">$10.25-$21.82</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.67</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">$22.46-$25.09</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.09</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">$27.00-$29.50</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">$30.13-$53.00</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,147,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.52</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>5. Income Taxes</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company utilizes the liability method to account for income taxes. Deferred taxes are
based on the estimated future tax effects of differences between the financial statement and tax
basis of assets and liabilities given the provisions of the enacted tax laws.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deferred income tax provision reflects the net change during the year in deferred tax
assets and liabilities. Income taxes in the accompanying statements of income for the years ended
September&nbsp;30 were as follows <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current provision:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,611</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">423</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,034</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred provision (benefit):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,827</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(578</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(639</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total deferred provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,466</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(433</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,601</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reconciliation of the difference between amounts calculated at the statutory federal
tax rate and the Company&#146;s effective tax rate was as follows <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amount at statutory federal income tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,339</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Change due to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Rate difference for deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(87</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(166</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,601</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of deferred income taxes consisted of the following as of September&nbsp;30 and
result from differences in the recognition of transactions for income tax and financial reporting
purposes <I>(in thousands):</I>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">760</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accruals and reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Restricted stock amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(207</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(656</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Noncurrent deferred tax asset (liability)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>6. Commitments and Contingencies</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under provisions contained in the government research contracts, representatives of the
government agencies have the right to access and review the Company&#146;s underlying records of
contract costs. The government retains the right to reject expenses considered unallowable under
the terms of the contract. The Defense Contract Audit Agency has reviewed the contracts through
1989. In the opinion of management, future amounts due, if any, with respect to open contract years will not have a material
impact on the financial position or results of operations of the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;30, 2004, the Company amended its license agreement with Abbott Laboratories.
See &#147;Other Assets&#148; under Note 2. In addition to the $5.0&nbsp;million paid by the Company in November
2004 for such amendment, the amendment calls for a $1.0&nbsp;million payment in June&nbsp;2007 and a $1.0
million payment in June&nbsp;2008. The $2.0&nbsp;million obligation of the Company is included in &#147;Other
Long-Term Liabilities&#148; as of September&nbsp;30, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is involved from time to time in routine legal matters and other claims incidental
to the business. The Company believes that the resolution of such routine matters and other
incidental claims, taking into account established reserves and insurance, won&#146;t have a material
adverse impact on its financial position, results of operations, or cash flows.


<P align="left" style="font-size: 10pt"><B><I>7. Defined Contribution Plan</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a 401(k) retirement and savings plan for the benefit of qualified employees.
The Company matches 50% of each dollar of the first 6% of the tax deferral elected by each
employee. Company contributions totaling $210,000, $204,000, and $193,000 have been charged to
income for the years ended September&nbsp;30, 2004, 2003, and 2002.


<P align="center" style="font-size: 10pt">F-15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>8. </B><B><I>Operating Segments (Dollars in thousands)</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing performance.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the end of the second fiscal quarter, the Company announced a corporate reorganization
intended to sharpen its focus on customer needs and accelerate its technology leadership. The
Company is now organized into five technology-centered business units. In addition, management
created a new business development function to support the Company&#146;s increasing interest in
evaluating and gaining rights to new technologies created outside the Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective with the reorganization, the Company currently manages its business on the basis of
the operating segments noted in the table below, which are comprised of the five business units
formed by the reorganization. The three operating segments are aggregated into one reportable
segment. The &#147;Drug Delivery&#148; operating segment contains the Drug Delivery business unit. The
&#147;Hydrophilic and Other&#148; operating segment consists of three business units: (1)&nbsp;Hydrophilic
Technologies, (2)&nbsp;Regenerative Technologies and (3)&nbsp;SurModics New Ventures. The &#147;Diagnostics&#148;
operating segment contains the Diagnostics and Drug Discovery business unit. Each operating segment
has similar economic characteristics, technology, manufacturing processes, customers, regulatory
environments, and shared infrastructures. The Company manages its expenses on a company-wide basis,
as many costs and activities are shared among the business units and a majority of the Company&#146;s
employees reside in shared resource units. The focus of the business units is providing solutions
to customers and maximizing revenue over the long-term. The accounting policies for segment
reporting are the same as for the Company as a whole (see Note 2).

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating segment:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Drug Delivery</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,871</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Hydrophilic and Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,804</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diagnostics</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,813</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Major Customers</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from customers that exceed 10% of total revenue was as follows for the years ended
September&nbsp;30:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cordis Corporation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">52</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">48</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">38</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Abbott Laboratories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">GE Healthcare (formerly Amersham plc)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revenues from each of the customers are derived from all three primary sources.
The results for GE Healthcare include the business acquired from Amersham plc in April&nbsp;2004.


<P align="left" style="font-size: 10pt"><B><I>Geographic Revenue</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Geographic revenues were as follows for the years ended September&nbsp;30:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">79</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">66</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">80</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B><I>9. Quarterly Financial Data</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the unaudited quarterly results for the years ended September
30, 2004, 2003 and 2002 <I>(in thousands, except per share data)</I>.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>First Quarter</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Second Quarter</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Third Quarter</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fourth Quarter</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Fiscal 2004</u></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,469</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,787</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,295</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,491</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,443</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(.37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Fiscal 2003</u></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,623</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,834</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,443</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><u>Fiscal 2002</u></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,719</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,602</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">.15</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Fiscal 2004 third quarter results include an impairment charge recorded against the Company&#146;s
contract manufacturing facility. The $16.5&nbsp;million impairment charge was included in loss from
operations.



<P align="center" style="font-size: 10pt">F-17
</DIV>


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt">SECURITIES AND EXCHANGE COMMISSION<BR>
WASHINGTON, D.C. 20549



<P align="center" style="font-size: 10pt">EXHIBIT INDEX TO FORM 10-K



<P align="center" style="font-size: 10pt">For the Fiscal Year Ended September&nbsp;30, 2004



<P align="center" style="font-size: 10pt">SURMODICS, INC.



<P align="left" style="font-size: 10pt"><U>Exhibit</U>


<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Articles of Incorporation, as amended&#151;incorporated by reference
to Exhibit&nbsp;3.1 to the Company&#146;s Quarterly Report on Form&nbsp;10-QSB for the
quarter ended December&nbsp;31, 1999, SEC. File No.&nbsp;0-23837.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bylaws, as amended to date&#151;incorporated by reference to Exhibit&nbsp;3.1 to
the Company&#146;s Quarterly Report on Form&nbsp;10-QSB for the quarter ended
December&nbsp;31, 1998, SEC. File No.&nbsp;0-23837.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company&#146;s Incentive 1987 Stock Option Plan, including specimen of
Incentive Stock Option Agreement&#151;incorporated by reference to Exhibit&nbsp;10.2
to the Company&#146;s Registration Statement on form SB-2, Reg. No.&nbsp;333-43217.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Company&#146;s Incentive 1997 Stock Option Plan, including specimen of
Incentive Stock Option Agreement&#151;incorporated by reference to Exhibit&nbsp;10.3
to the Company&#146;s Registration Statement on form SB-2, Reg. No.&nbsp;333-43217.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Restricted Stock Agreement&#151;incorporated by reference to Exhibit
10.4 to the Company&#146;s Registration Statement on form SB-2, Reg. No.
333-43217.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-qualified Stock Option Agreement&#151;incorporated by reference
to Exhibit&nbsp;10.5 to the Company&#146;s Registration Statement on form SB-2, Reg.
No.&nbsp;333-43217.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of License Agreement&#151;incorporated by reference to Exhibit&nbsp;10.6 to
the Company&#146;s Registration Statement on form SB-2, Reg. No.&nbsp;333-43217.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">SurModics, Inc. Executive Income Continuation Plan&#151;incorporated by
reference to Exhibit&nbsp;10 to the Company&#146;s Quarterly Report on Form&nbsp;10-QSB
for the quarter ended June&nbsp;30, 1999, SEC. File No.&nbsp;0-23837.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase Agreement dated August&nbsp;15, 2001, between Seagate Technology, LLC
and DRB#10, LLC (a wholly-owned subsidiary entity of the
Company)&#151;incorporated by reference to Exhibit&nbsp;10.1 to the Company&#146;s
Quarterly Report on Form&nbsp;10-Q for the quarter ended December&nbsp;31, 2001, SEC
File No.&nbsp;0-23837.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Adjusted License Agreement by and between the Company and Cordis
Corporation effective as of January&nbsp;1, 2003&#151;incorporated by reference to
Exhibit&nbsp;10.11 to the Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended September&nbsp;30, 2002, SEC File No.&nbsp;0-23837.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reagent Supply Agreement by and between the Company and Cordis
Corporation effective as of January&nbsp;1, 2003&#151;incorporated by reference to
Exhibit&nbsp;10.12 to the Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended September&nbsp;30, 2002, SEC File No.&nbsp;0-23837.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of officer acceptance regarding employment/compensation**</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Deloitte &#038; Touche LLP**</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on signature page of this Form&nbsp;10-K).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer Pursuant to Section&nbsp;302 of
Sarbanes-Oxley Act of 2002.**</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer Pursuant to Section&nbsp;302 of
Sarbanes-Oxley Act of 2002.**</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer Pursuant to Section&nbsp;906 of
Sarbanes-Oxley Act of 2002.**</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer Pursuant to Section&nbsp;906 of
Sarbanes-Oxley Act of 2002.**</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><br>
*Management contract or compensatory plan or arrangement



<P align="left" style="font-size: 10pt">** Filed herewith.




</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>2
<FILENAME>c90428exv10w12.htm
<DESCRIPTION>FORM OF OFFICER ACCEPTANCE RE: EMPLOYMENT/COMPENSATION.
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w12</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>EXHIBIT 10.12</B>



<P align="left" style="font-size: 10pt"><U>&#091;date&#093;</U>___________, 20__



<P align="left" style="font-size: 10pt"><U>&#091;name&#093;</U>_____________________<br>
<U>&#091;address&#093;</U>___________________<br>
___________________________



<P align="left" style="font-size: 10pt">Dear __________________:



<P align="left" style="font-size: 10pt">On behalf of SurModics, it is a pleasure to offer you the full-time position of
_________________________ responsible for the ______________________ activities
of SurModics.



<P align="left" style="font-size: 10pt">Listed below are the terms of our offer:


<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Start Date:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">A mutually agreeable start date to be determined upon
acceptance of this offer.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Division/Department:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Title:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Supervisor or Manager:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Compensation:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> per month, paid semi-monthly on the 15th and last
day of the month. In addition, you will be eligible to
participate in our <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> Incentive Compensation program. We
will guarantee a first year deferred payment or bonus equal to
<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>% of salary.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Stock Sign-on Bonus:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">You will receive <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of Surmodics restricted stock.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Cash Sign-on Bonus:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">You will receive a one-time $<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> sign-on bonus, less
applicable taxes, to be paid within the first <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> days
of the start of your employment. If your employment
terminates voluntarily within <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> years of your start
date, you will be expected to repay <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> % of
the sign-on bonus.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Stock Options</I>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subject to Board approval, you will be granted stock options
for the purchase of <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>shares of SurModics&#146; stock and
you will be granted <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>shares of SurModics restricted
stock.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="left">Page two</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Relocation:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">SurModics will provide up to a maximum of $<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> for
your relocation expenses. The relocation allowance covers
moving costs, expenses incurred in selling your home and the
purchase of a new home, travel expenses, gross-up of taxes
and miscellaneous costs associated with relocation. The
relocation reimbursement will be made at a time mutually
agreeable to you and the Company. If, for any reason, your
relocation expenses exceed the maximum allowance, we will
authorize additional reimbursements on a case-by-case
basis.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Status</I>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exempt</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>Benefits:</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">You will be eligible for all benefits presently provided by
SurModics, in accordance with eligibility and Company policy.
Company policy is subject to change at the discretion of
management, and as such there could be changes in the
benefit policies at some future date. A list of employee
benefit costs is enclosed.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">In addition, you will be eligible for <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> hours of Personal Time Off (PTO)&nbsp;per
year. You will also receive <U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U> paid holidays and will be eligible to
participate in our 401(K) savings plan, including employer matching program,
beginning with the first calendar quarter following employment.



<P align="left" style="font-size: 10pt">SurModics is an Equal Opportunity Employer. Your employment with SurModics is
&#147;at will&#148;, which means that either you or the Company can terminate the
employment relationship at any time for any reason without notice.
Additionally, you will be required to adhere to all company policies, practices
and procedures.



<P align="left" style="font-size: 10pt">Please indicate your acceptance of this offer by signing the enclosed copy and
returning it as soon as possible. If you have any questions, please contact
me.



<P align="left" style="font-size: 10pt">Sincerely,



<P align="left" style="font-size: 10pt"><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>



<P align="left" style="font-size: 10pt">ACKNOWLEDGED AND AGREED:<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>



<P align="left" style="font-size: 10pt">DATE:<U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U>




<P align="center" style="font-size: 10pt">2
</DIV>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>3
<FILENAME>c90428exv23w1.htm
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE LLP
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="right" style="font-size: 10pt"><B>EXHIBIT 23.1</B>



<P align="left" style="font-size: 10pt"><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>



<P align="left" style="font-size: 10pt">We consent to the incorporation by reference in Registration Statement Nos.
333-104258, 333-64171, 333-64173, 333-79741, and 333-54266 of SurModics, Inc.
on Form&nbsp;S-8 of our report dated December&nbsp;10, 2004, appearing in this Annual
Report on Form&nbsp;10-K of SurModics, Inc. for the year ended September&nbsp;30, 2004.



<P align="left" style="font-size: 10pt">/s/ Deloitte &#038; Touche LLP



<P align="left" style="font-size: 10pt">Minneapolis, Minnesota<br>
December&nbsp;10, 2004




</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>c90428exv31w1.htm
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER - SECTION 302
<TEXT>
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.1</B>



<P align="center" style="font-size: 10pt">CERTIFICATION<BR>
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT



<P align="left" style="font-size: 10pt">I, Dale R. Olseth, Chief Executive Officer of SurModics, Inc., certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this report on Form 10-K of SurModics, Inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the
registrant and have:</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:7%; font-size: 10pt">(a)&nbsp;Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;



<P align="left" style="margin-left:7%; font-size: 10pt">(b)&nbsp;Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and



<P align="left" style="margin-left:7%; font-size: 10pt">(c)&nbsp;Disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the
registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:7%; font-size: 10pt">(a)&nbsp;All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to
record, process, summarize and report financial information; and



<P align="left" style="margin-left:7%; font-size: 10pt">(b)&nbsp;Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s
internal control over financial reporting.

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dated: December&nbsp;14, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>/s/ Dale R. Olseth</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dale R. Olseth</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>c90428exv31w2.htm
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER - SECTION 302
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.2</B>



<P align="center" style="font-size: 10pt">CERTIFICATION<BR>
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT



<P align="left" style="font-size: 10pt">I, Philip D. Ankeny, Chief Financial Officer of SurModics, Inc., certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this report on Form 10-K of SurModics, Inc.;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the
registrant and have:</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">(a)&nbsp;Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;



<P align="left" style="margin-left:6%; font-size: 10pt">(b)&nbsp;Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and



<P align="left" style="margin-left:6%; font-size: 10pt">(c)&nbsp;Disclosed in this report any change in the registrant&#146;s internal
control over financial reporting that occurred during the registrant&#146;s
most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant&#146;s internal
control over financial reporting.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the
registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:6%; font-size: 10pt">(a)&nbsp;All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to
record, process, summarize and report financial information; and



<P align="left" style="margin-left:6%; font-size: 10pt">(b)&nbsp;Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant&#146;s
internal control over financial reporting.


<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dated: December&nbsp;14, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Philip D.
Ankeny<HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Philip D. Ankeny</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>c90428exv32w1.htm
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER - SECTION 906
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>EXHIBIT 32.1</B>



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Annual Report of SurModics, Inc. (the &#147;Company&#148;) on
Form 10-K for the year ended September&nbsp;30, 2004 as filed with the Securities
and Exchange Commission (the &#147;Report&#148;), I, Dale R. Olseth, Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. &#167;1350, as adopted
pursuant to &#167;906 of the Sarbanes-Oxley Act of 2002, that:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated: December&nbsp;14, 2004

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><U>/s/ Dale R. Olseth</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U><U>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</U></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dale R. Olseth</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>7
<FILENAME>c90428exv32w2.htm
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER - SECTION 906
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>EXHIBIT 32.2</B>



<P align="center" style="font-size: 10pt">CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Annual Report of SurModics, Inc. (the &#147;Company&#148;) on
Form 10-K for the year ended September&nbsp;30, 2004 as filed with the Securities
and Exchange Commission (the &#147;Report&#148;), I, Philip D. Ankeny, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. &#167;1350, as adopted
pursuant to &#167;906 of the Sarbanes-Oxley Act of 2002, that:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated: December&nbsp;14, 2004

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="0%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Philip D.
Ankeny<HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Philip D. Ankeny</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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