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<SEC-DOCUMENT>0001104659-03-009972.txt : 20030515
<SEC-HEADER>0001104659-03-009972.hdr.sgml : 20030515
<ACCEPTANCE-DATETIME>20030514203926
ACCESSION NUMBER:		0001104659-03-009972
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20030331
FILED AS OF DATE:		20030515

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ANIKA THERAPEUTICS INC
		CENTRAL INDEX KEY:			0000898437
		STANDARD INDUSTRIAL CLASSIFICATION:	BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
		IRS NUMBER:				043145961
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-14027
		FILM NUMBER:		03700807

	BUSINESS ADDRESS:	
		STREET 1:		236 WEST CUMMINGS PARK
		CITY:			WOBURN
		STATE:			MA
		ZIP:			01801
		BUSINESS PHONE:		6179326616

	MAIL ADDRESS:	
		STREET 1:		236 WEST CUMMINGS PARK
		CITY:			WOBURN
		STATE:			MA
		ZIP:			01801

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ANIKA RESEARCH INC
		DATE OF NAME CHANGE:	19930309
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>j1085_10q.htm
<DESCRIPTION>10-Q
<TEXT>
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<p style="border:none;margin:0in 0in .0001pt;padding:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



</div>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;letter-spacing:-.1pt;">UNITED STATES<br>

SECURITIES AND EXCHANGE COMMISSION</font></b></p>



<h1 style="letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">WASHINGTON,

D.C. 20549</font></b></h1>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>





<div align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="1" width="25%" noshade color="black" align="center">



</font></b></div>





<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h1 style="letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;">FORM 10-Q</font></b></h1>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="97%" style="border-collapse:collapse;width:97.3%;">

 <tr>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.14%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="3" face="Wingdings" style="font-family:Wingdings;font-size:12.0pt;font-weight:bold;">&#253;</font></b></p>

  </td>

  <td width="92%" valign="top" style="padding:0in .7pt 0in .7pt;width:92.86%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;letter-spacing:-.1pt;">QUARTERLY REPORT PURSUANT TO SECTION

  13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934</font></b></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">For

the quarterly period ended March 31, 2003</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="97%" style="border-collapse:collapse;width:97.3%;">

 <tr>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.14%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="3" face="Wingdings" style="font-family:Wingdings;font-size:12.0pt;font-weight:bold;letter-spacing:-.1pt;">o</font></b></p>

  </td>

  <td width="92%" valign="top" style="padding:0in .7pt 0in .7pt;width:92.86%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="3" face="Times New Roman" style="font-size:12.0pt;font-weight:bold;letter-spacing:-.1pt;">TRANSITION REPORT PURSUANT TO SECTION

  13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934</font></b></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">For the transition period from

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h1 style="letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Commission

File Number 000-21326</font></b></h1>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>





<div align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="1" width="25%" noshade color="black" align="center">



</font></b></div>





<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="5" face="Times New Roman" style="font-size:18.0pt;font-weight:bold;letter-spacing:-.1pt;">Anika Therapeutics,&nbsp;Inc.</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(Exact Name of Registrant as Specified in Its Charter)</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<div align="center">



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">Massachusetts</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">04-3145961</font></b></p>

  </td>

 </tr>

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(State or Other Jurisdiction of Incorporation or Organization)</font></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(I.R.S. Employer Identification No.)</font></p>

  </td>

 </tr>

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">160 New Boston Street, Woburn, Massachusetts</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">01801</font></b></p>

  </td>

 </tr>

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(Address of Principal Executive Offices)</font></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(Zip Code)</font></p>

  </td>

 </tr>

 <tr>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.5%;">

  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.48%;">

  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Registrant&#146;s

  Telephone Number, Including Area Code: <b><font style="font-weight:bold;">(781)&nbsp;932-6616</font></b></font></p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">

  <p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Former Name, Former Address and Former Fiscal Year, if Changed Since

  Last Report.</font></p>

  </td>

 </tr>

</table>



</div>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Indicate by check mark whether the registrant

(1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15

(d)&nbsp;of the Securities Exchange Act of 1934 during the preceding

12&nbsp;months (or for such shorter period that the registrant was required to

file such reports), and (2)&nbsp;has been subject to such filing requirements

for the last 90&nbsp;days.&#160; Yes </font><font face="Wingdings" style="font-family:Wingdings;">&#253;</font>&#160;&#160;&#160; No <font face="Wingdings" style="font-family:Wingdings;">o</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;letter-spacing:-.1pt;">Indicate

by check mark whether the registrant is an accelerated filer (as defined in

Rule 12b-2 of the Exchange Act). </font>Yes </font><font face="Wingdings" style="font-family:Wingdings;">o</font>&#160;&#160;&#160; No <font face="Wingdings" style="font-family:Wingdings;">&#253;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Indicate

the number of shares outstanding of each of the issuer&#146;s classes of common

stock, as of the last practicable date.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">At May 1, 2003 there were 9,941,780 outstanding shares

of Common Stock, par value $.01 per share.</font></p>



<div style="border:none;border-bottom:double windowtext 9.0pt;padding:0in 0in 0in 0in;">



<p style="border:none;margin:0in 0in .0001pt;padding:0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



</div>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">PART I: FINANCIAL INFORMATION</font></b></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">ITEM 1: FINANCIAL STATEMENTS</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Anika Therapeutics, Inc. and Subsidiaries</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">Consolidated Balance Sheets</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">(Unaudited)</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="100%" style="border:none;border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">December 31,<br>

  2002</font></b></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">ASSETS</font></b></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Current

  assets:</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cash and cash equivalents</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">10,490,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">11,002,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Marketable securities</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,500,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,500,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accounts receivable, net of

  reserves of $29,000 and $35,000 at March 31, 2003 and December 31, 2002,

  respectively</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">948,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,198,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Inventories</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,174,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,924,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Prepaid expenses and other

  current assets</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">245,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">320,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total

  current assets</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">17,357,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">17,944,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Property and equipment, at

  cost</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">9,715,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">9,619,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Less:&#160; accumulated depreciation</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(7,927,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(7,679,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,788,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,940,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Long-term deposits</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">143,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">143,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Notes receivable from

  officers</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">59,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">59,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total assets</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">19,347,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">20,086,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p align="center" style="margin:0in 0in .0001pt 10.0pt;text-align:center;text-indent:-10.0pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">LIABILITIES

  AND STOCKHOLDERS&#146; EQUITY</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Current liabilities:</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accounts payable</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">719,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">845,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accrued expenses</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,548,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,703,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Customer deposit</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">327,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Deferred revenue</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">329,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">147,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total current liabilities</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,596,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,022,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Stockholders&#146; equity:</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Preferred stock, $.01 par

  value; 1,250,000 shares authorized, no shares issued and outstanding at March

  31, 2003 and December 31, 2002</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Common stock, $.01 par value;

  30,000,000 shares authorized, 9,991,943 shares issued March 31, 2003 and

  December 31, 2002</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">100,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">100,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Additional paid-in capital</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">31,640,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">31,640,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Treasury stock, at cost,

  57,663 shares at March 31, 2003 and December 31, 2002</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(280,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(280,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accumulated deficit</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(14,709,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(14,396,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total stockholders&#146; equity</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">16,751,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">17,064,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total liabilities and

  stockholders&#146; equity</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">19,347,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">20,086,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The accompanying notes are an integral part of these consolidated

financial statements.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='2',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Anika Therapeutics, Inc. and Subsidiaries</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">Consolidated Statements of Operations</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">For the Three Months Ended</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">(Unaudited)</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="100%" style="border:none;border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2002</font></b></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Product revenue</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,370,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,385,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Licensing revenue</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">14,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">5,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total revenue</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,384,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,390,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cost of product revenue</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,969,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,087,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Gross profit</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,415,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">303,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Operating expenses:</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Research &amp; development</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">809,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,090,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Selling, general &amp; administrative</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,115,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,080,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total operating expenses</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,924,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,170,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Loss from operations</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(509,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(1,867,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Interest income</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">42,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">63,000</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Loss before income tax

  benefit</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(467,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(1,804,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Income tax benefit</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">154,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Net loss</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(313,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(1,804,000</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Basic and diluted net loss

  per common share</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(0.03</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:11.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(0.18</font></p>

  </td>

  <td width="0%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="70%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:70.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Shares used to calculate

  basic and diluted net loss per common share</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">9,934,280</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.06%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">9,934,280</font></p>

  </td>

  <td width="0%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:.88%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The accompanying notes are an integral part of these consolidated

financial statements.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='3',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Anika Therapeutics, Inc. and Subsidiaries</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">Consolidated Statements of Cash Flows</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">For the Three Months Ended</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">(Unaudited)</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="100%" style="border:none;border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cash flows from operating

  activities:</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Net loss</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="10%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:10.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(313,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="10%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:10.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(1,804,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Adjustments to reconcile net

  loss to net cash used by operations:</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Depreciation and amortization</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">248,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">271,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Changes in operating assets

  and liabilities:</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accounts receivable</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">250,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">188,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Inventories</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(250,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">560,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Prepaid expenses and other

  current assets</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">75,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">197,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accounts payable</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(126,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(252,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Accrued expenses</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(155,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(145,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Customer deposit</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(327,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 50.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Deferred revenue</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">182,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">388,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Net cash used in operating

  activities</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(416,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(597,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cash flows from investing

  activities</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Proceeds from the sale of

  marketable securities</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,995,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Purchase of property and

  equipment</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(96,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(15,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Net cash provided by (used

  in) investing activities</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(96,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,980,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Increase (decrease) in cash

  and cash equivalents</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(512,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">)</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,383,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cash and cash equivalents at

  beginning of period</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">11,002,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.0%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">9,065,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="71%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:71.0%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Cash and cash equivalents at

  end of period</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="10%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:10.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">10,490,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.3%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="10%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:10.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">10,448,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The accompanying

notes are an integral part of these consolidated financial statements.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='4',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">ANIKA

THERAPEUTICS, INC.</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Unaudited)</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">1.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Nature of Business</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Anika

Therapeutics, Inc.&#160; (&#147;Anika&#148; or the

&#147;Company&#148;) develops, manufactures and commercializes therapeutic products and

devices intended to promote the protection and healing of bone, cartilage and

soft tissue.&#160; These products are based

on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found

throughout the body.&#160; Due to its unique

biophysical and biochemical properties, HA plays an important role in a number

of physiological functions such as the protection and lubrication of soft

tissues and joints, the maintenance of the structural integrity of tissues, and

the transport of molecules to and within cells.&#160; The Company&#146;s currently marketed products consist of ORTHOVISC</font><sup><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#210;</font></sup><font style="letter-spacing:-.1pt;">, which is an HA product used in the treatment of

some forms of osteoarthritis in humans, CoEase</font><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#212;</font><font style="letter-spacing:-.1pt;">,&#160; </font>STAARVISC&#153;-II<font style="letter-spacing:-.1pt;">, and ShellGel</font><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#212;</font><font style="letter-spacing:-.1pt;">, each an injectable ophthalmic viscoelastic HA

product, and HYVISC</font><sup><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#210;</font></sup><font style="letter-spacing:-.1pt;">, which is an HA product used in the treatment of

equine osteoarthritis.&#160; ORTHOVISC is

currently approved for sale and is being marketed in Canada, parts of Europe,

Turkey, and Israel.&#160; In the U.S.,

ORTHOVISC is currently limited to investigational use.&#160; The Company manufactures AMVISC</font><sup><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#210;</font></sup><font style="letter-spacing:-.1pt;"> and AMVISC</font><sup><font face="Symbol" style="font-family:Symbol;letter-spacing:-.1pt;">&#210;</font></sup><font style="letter-spacing:-.1pt;"> Plus for Bausch &amp; Lomb, which are HA products

used as viscoelastic supplements in ophthalmic surgery.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The

Company is subject to risks common to companies in the biotechnology and

medical device industries including, but not limited to, development by the

Company or its competitors of new technological innovations, dependence on key

personnel, protection of proprietary technology, commercialization of existing

and new products, and compliance with FDA government regulations and approval

requirements as well as the ability to grow the Company&#146;s business.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">2.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Basis of Presentation</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The

accompanying consolidated financial statements have been prepared by the

Company without audit, pursuant to the rules and regulations of the Securities

and Exchange Commission and in accordance with accounting principles generally

accepted in the United States.&#160; In the

opinion of management, these consolidated financial statements contain all

adjustments (consisting only of normal recurring adjustments) necessary to

fairly state the financial position of the Company as of March 31, 2003 and the

results of its operations and its cash flows for the three months ended March

31, 2003 and 2002.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The

accompanying consolidated financial statements and related notes should be read

in conjunction with the Company&#146;s annual financial statements filed with the

Annual Report on Form 10-K for the year ended December 31, 2002.&#160; The results of operations for the quarter

ended March 31, 2003 are not necessarily indicative of the results to be

expected for the year ending December 31, 2003 or any future periods.&#160; See &#147;Risk Factors and Certain Factors

Affecting Future Operating Results.&#148;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">3.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Summary of Significant Accounting

Policies</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Use of Estimates</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">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 and disclosure of

contingent assets and liabilities at the date of the financial statements and

the reported amounts of revenues and expenses during the reporting period.&#160; Actual results could differ from those

estimates.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='5',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
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</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Principles of Consolidation</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The accompanying

consolidated financial statements include the accounts of Anika Therapeutics,

Inc. and its wholly owned subsidiary, Anika Securities, Inc.&#160; All intercompany transactions and balances

have been eliminated in consolidation.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash and Cash Equivalents</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash and cash equivalents

consists of cash and highly liquid investments with original maturities of 90

days or less.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Marketable Securities</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company follows the

provisions of Statement of Financial Accounting Standards (&#147;SFAS&#148;) No. 115,

&#147;Accounting for Certain Investments in Debt and Equity Securities&#148;.&#160; Marketable securities consists of municipal

bonds and commercial paper with initial maturities of twelve months or less

from the date of issuance.&#160; The Company

has the positive intent and ability to hold these marketable securities to

maturity and, accordingly, classifies these marketable securities as

held-to-maturity.&#160; Marketable securities

are carried at amortized cost.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Marketable securities

classified as hold-to-maturity consists of the following:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="85%" style="border:none;border-collapse:collapse;margin-left:.5in;width:85.0%;">

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="48%" colspan="8" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:48.92%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">March 31,

  2003</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amortized<br>

  Cost</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Gross<br>

  Unrealized<br>

  Holding Gains</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Fair Value</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Municipal bond

  (due in one year or less)</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,500,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,502,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:1.22%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr height="0">

  <td width="291" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="7" style="border:none;"></td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="85%" style="border:none;border-collapse:collapse;margin-left:.5in;width:85.0%;">

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="48%" colspan="8" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:48.92%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">December

  31, 2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amortized<br>

  Cost</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Gross<br>

  Unrealized<br>

  Holding Gains</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Fair Value</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:14.68%;">

  <p align="right" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="47%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:47.42%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Municipal bond

  (due in one year or less)</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,500,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:1.52%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.16%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,502,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.22%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr height="0">

  <td width="291" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="15" style="border:none;"></td>

  <td width="9" style="border:none;"></td>

  <td width="81" style="border:none;"></td>

  <td width="7" style="border:none;"></td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Revenue Recognition</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Product

revenue is recognized upon confirmation of regulatory compliance and shipment

to the customer as long as there is (1) persuasive evidence of an arrangement,

(2) delivery has occurred and risk of loss has passed, (3) the sales price is

fixed or determinable and (4) collection of the related receivable is

probable.&#160; Amounts billed or collected

prior to recognition of revenue are classified as deferred revenue.&#160; When determining whether risk of loss has

transferred to customers on product sales or if the sales price is fixed or

determinable the Company evaluates both the contractual terms and conditions of

its distribution and supply agreements as well as its business practices.&#160; Under our agreement with Bausch and Lomb,

the price for units sold in a calendar year is dependent on total unit volume

of sales of certain ophthalmic products to all of our customers during the

year.&#160; Accordingly, unit prices for

sales occurring in interim quarters are subject to possible retroactive price

adjustments when the actual annual unit volume for the year becomes known.&#160; In accordance with the Company&#146;s revenue

recognition policy, the amount of revenue subject to the potential contracted

price adjustment is recorded as deferred revenue until the annual unit volume

becomes known and the sales price becomes fixed.&#160; ORTHOVISC has been sold through several distribution arrangements

as well as outsource order-processing arrangements&#160; (&#147;logistic agents&#148;).&#160;

Sales of product through third party logistics agents in certain markets

are recognized as revenue upon shipment by the logistics agent to the

customer.&#160; The Company recognizes

non-refundable upfront or milestone payments</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">6</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='6',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">received as part of supply,

distribution, and marketing arrangements, ratably over the terms of the

arrangements to which the payments apply.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stock-Based Compensation</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">SFAS

No. 123, &#147;Accounting for Stock-Based Compensation,&#148; requires that companies

either recognize compensation expense for grants of stock options and other

equity instruments based on fair value, or provide pro forma disclosure of net

income (loss) and net income (loss) per share in the notes to the financial

statements.&#160; At March 31, 2003, the

Company had stock options outstanding pursuant to two stock-based compensation

plans.&#160; The Company accounts for the

awards granted pursuant to the plans under the recognition and measurement

principles of Accounting Principles Board Opinion No. 25, &#147;Accounting for Stock

Issued to Employees,&#148; and related interpretations.&#160; Accordingly, no compensation cost has been recognized under SFAS

123 for the awards granted under the Company&#146;s employee stock option

plans.&#160; Had compensation cost for the

awards under those plans been determined based on the grant date fair values,

consistent with the method required under SFAS 123, the Company&#146;s net loss and

net loss per share would have been increased to the pro forma amounts indicated

below: </font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="80%" style="border:none;border-collapse:collapse;margin-left:1.0in;width:80.0%;">

 <tr>

  <td width="64%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="31%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:31.76%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Quarter Ended March 31,</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Net loss</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As reported</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(313,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,804,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Deduct:&#160; Total stock-based employee compensation

  under the fair-value-based method for all awards</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(172,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(120,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Pro forma net

  loss</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(485,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(1,924,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Basic and

  diluted net loss per share</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="14%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:14.66%;">

  <p align="right" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:right;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As reported</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.03</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.18</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

 </tr>

 <tr>

  <td width="64%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:64.62%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Proforma</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.05</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.46%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.62%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:13.04%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(0.19</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.14%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">)</font></p>

  </td>

 </tr>

</table>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:normal;">&nbsp;</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Comprehensive Income</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">SFAS No.&nbsp;130,

&#147;Reporting Comprehensive Income&#148; establishes standards for reporting and

display of comprehensive income and its components in the financial

statements.&#160; Comprehensive income is the

total of net income and all other non-owner changes in equity including such

items as unrealized holding gains/losses on securities, foreign currency

translation adjustments and minimum pension liability adjustments.&#160; The Company had no such items of

comprehensive income (loss) for the three months ended March 31, 2003 and 2002

and as a result, comprehensive income (loss) is the same as reported net income

(loss) for all periods presented.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Disclosures About Segments of an Enterprise and Related Information</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Operating segments are

identified as components of an enterprise about which separate discrete

financial information is available for evaluation by the chief operating

decision maker, or decision-making group, in making decisions regarding how to

allocate resources and assess performance.&#160;

The Company&#146;s chief decision-making group consists of three

individuals:&#160; the chief executive

officer, the chief financial officer and the vice president, sales and

marketing.&#160; Based on the criteria

established by SFAS No. 131, &#147;Disclosures about Segments of an Enterprise and

Related Information&#148;, the Company has one reportable operating segment, the

results of which are disclosed in the accompanying consolidated financial

statements.&#160; Substantially all of the operations

and assets of the Company have been derived from and are located in the United

States.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='7',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Revenues by geographic

location in total and as a percentage of total revenues are as follows for the

three months ended March 31, 2003 and 2002, respectively:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="90%" style="border:none;border-collapse:collapse;margin-left:.5in;width:90.02%;">

 <tr>

  <td width="40%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="56%" colspan="9" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:56.12%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Three Months Ended March 31,</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="40%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="27%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:27.02%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="27%" colspan="4" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:27.02%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="40%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Revenue</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="12%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Percent of<br>

  Revenue</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Revenue</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="12%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="center" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Percent of<br>

  Revenue</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="40%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="margin:0in 0in .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">United States</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.44%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.04%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,854,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">84.3</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.44%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.04%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,863,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">77.9</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

 </tr>

 <tr>

  <td width="40%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="margin:0in 0in .0001pt 10.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Europe/Other</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">530,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">15.7</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.48%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">527,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">22.1</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="40%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:40.8%;">

  <p style="margin:0in 0in .0001pt 30.0pt;page-break-after:avoid;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.08%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.44%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.04%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,384,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">100.0</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.44%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="11%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:11.04%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,390,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:2.08%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="12%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:12.46%;">

  <p align="right" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">100.0</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:1.0%;">

  <p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt .2in;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Since early 2001, sales

of product for the Turkish market have been made to a European-based entity and

have accordingly been classified in the &#147;Europe/Other&#148; category since that

time.</font></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Product revenue by

significant customer is as follows:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="70%" style="border:none;border-collapse:collapse;margin-left:1.0in;width:70.0%;">

 <tr>

  <td width="54%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="40%" colspan="3" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:40.52%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">Percent of Product Revenue<br>

  Three Months Ended March 31,</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">2003</font></b></p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Bausch &amp; Lomb</font></p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">37.8</font></p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">54.1</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Boehringer Ingelheim</font></p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">25.6</font></p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="18%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">12.9</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Advanced Medical Optics</font></p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">15.3</font></p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#151;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Pharmaren AG</font></p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">12.1</font></p>

  </td>

  <td width="3%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:3.12%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="18%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">5.0</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.5%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

 </tr>

 <tr>

  <td width="54%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:54.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:3.12%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">90.8</font></p>

  </td>

  <td width="3%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:3.12%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

  <td width="18%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:18.7%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">72.0</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in .7pt 0in;width:1.5%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">%</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">4.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Earnings Per Share</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company reports

earnings per share in accordance with SFAS No. 128, &#147;Earnings per Share&#148;, which

establishes standards for computing and presenting earnings (loss) per

share.&#160; Basic earnings per share is computed

by dividing net income (loss) by the weighted average number of common shares

outstanding during the period.&#160; Diluted

earnings per share is computed by dividing net income (loss) by the weighted

average number of common shares outstanding and the number of dilutive

potential common share equivalents during the period.&#160; Under the treasury stock method, unexercised stock options are

assumed to be exercised at the beginning of the period or at issuance, if

later.&#160; The assumed proceeds are then

used to purchase common shares at the average market price during the

period.&#160; For periods where the Company

has incurred a loss, dilutive net loss per share is equal to basic net loss per

share.&#160; Accordingly, outstanding options

of 378,900 and 126,750, at March 31, 2003 and 2002, respectively, are excluded

from the calculation of diluted weighted average shares outstanding because to

include them would have been antidilutive for those periods presented.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">5.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Inventories</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Inventories consist of

the following: </font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="70%" style="border:none;border-collapse:collapse;margin-left:1.0in;width:70.0%;">

 <tr>

  <td width="56%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:56.64%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.96%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">March 31,<br>

  2003</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.92%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;letter-spacing:-.1pt;">December 31,<br>

  2002</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="56%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:56.64%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Raw materials</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="17%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.12%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,561,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="17%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.08%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,239,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="56%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:56.64%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Work-in-process</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:18.96%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">927,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="18%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:18.92%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">1,354,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="56%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:56.64%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Finished goods</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="18%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.96%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">686,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="18%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:18.92%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">331,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="56%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:56.64%;">

  <p style="margin:0in 0in .0001pt 30.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Total</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="17%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.12%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">3,174,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">$</font></p>

  </td>

  <td width="17%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.06%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2,924,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:1.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Inventories are stated at

the lower of cost or market, with cost being determined using the first-in,

first-out (FIFO) method.&#160;

Work-in-process and finished goods inventories include materials, labor,

and manufacturing overhead.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='8',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">6.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Notes Receivable from Officers</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Notes receivable from

officers of $59,000 at March 31, 2003 and December 31, 2002, consists of a loan

made to one officer.&#160; The note

receivable from the officer accrues interest at 6.22%.</font></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">7.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Licensing and Distribution

Agreement</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In July 2000, the Company

entered into a seven-year supply agreement (the &#147;B&amp;L Agreement&#148;) with

Bausch &amp; Lomb Surgical, a unit of Bausch &amp; Lomb, which was subsequently

merged into Bausch &amp; Lomb Incorporated.&#160;

Under the terms of the B&amp;L Agreement the price for units sold in a

calendar year is dependent on total unit volume of sales of certain ophthalmic

products to all customers during the year.&#160;

Accordingly, unit prices for sales occurring in interim quarters are

subject to possible retroactive price adjustments when the actual annual unit

volume for the year becomes known.&#160; In

accordance with the Company&#146;s revenue recognition policy, the amount of revenue

subject to the price adjustment is recorded as deferred revenue until the

annual unit volume becomes known and the sales price becomes fixed.&#160; At March 31, 2003 and 2002, the deferred

revenue under the B&amp;L Agreement amounted to approximately $242,000 and

$358,000, respectively.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">8.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Legal Matters</font></b></p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Securities

and Exchange Commission Investigation</font></i>.&#160; In May 2000, the Securities and Exchange

Commission (SEC) issued a formal order of investigation in connection with

certain revenue recognition matters.&#160; On

January 13, 2003 the Company announced that it had entered into a settlement

with the SEC concluding and resolving this investigation, which pertained to

the company&#146;s historical accounting for and disclosures concerning sales of

ORTHOVISC under a long-term supply and distribution agreement with Zimmer,

Inc.&#160; To conclude this matter, the

Company consented to the entry of an order to comply with sections 13(a),

13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and rules

12b-20, 13a-1 and 13a-13 promulgated thereunder.&#160; The settlement did not impose any monetary sanctions against the

Company, and it is not expected to affect its results of operations or

financial condition. The Company neither admitted nor denied the findings in

the SEC&#146;s administrative cease and desist order resolving the matter.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">9.</font></b><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;letter-spacing:-.1pt;">Guarantor Arrangements</font></b></p>



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<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In November 2002, the

FASB issued FIN No. 45 &#147;Guarantor&#146;s Accounting and Disclosure Requirements for

Guarantees, Including Indirect Guarantees of Indebtedness of Others an

interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB

Interpretation No. 34.&#148;&#160; The

Interpretation requires that a guarantor recognize, at the inception of a

guarantee, a liability for the fair value of the obligation undertaken by

issuing the guarantee.&#160; The

Interpretation also requires additional disclosures to be made by a guarantor

in its interim and annual financial statements about its obligations under

certain guarantees it has issued.&#160; The

accounting requirements for the initial recognition of guarantees are

applicable on a prospective basis for guarantees issued or modified after

December 31, 2002.&#160; The disclosure

requirements are effective for all guarantees outstanding, regardless of when

they were issued or modified, during the first quarter of fiscal 2003.&#160; The adoption of FIN No. 45 did not have a

material effect consolidated financial statements of the Company.&#160; The following is a summary of agreements

that the Company has determined are within the scope of FIN No. 45.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As permitted under

Massachusetts law, the Company&#146;s Amended and Restated Certificate of

Incorporation provides that the Company will indemnify its officers and

Directors for certain claims asserted against them in connection with their

service as an officer or Director of the Company.&#160; No indemnification shall be provided, however, for any person

with respect to any matter as to which such person shall have been adjudicated

in any proceeding not to have acted in good faith in the reasonable belief that

his action was in the best interest of the Company.&#160; Such indemnification may include payment by the Company of

expenses incurred in defending a civil or criminal action or proceeding in

advance of the final disposition of such action or proceeding, including

persons to be indemnified that are no longer</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>





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</font></b></div>



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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">officers or directors of the Company, upon receipt of

an undertaking by the person indemnified to repay such payment if such person

shall be adjudicated to be not entitled to indemnification.&#160; The maximum potential amount of future

payments that the Company could be required to make under these indemnification

provisions is unlimited.&#160; However, the

Company has purchased certain Directors&#146; and Officers&#146; insurance policies that

reduce its monetary exposure and enable it to recover a portion of any future

amounts paid.&#160; As a result of the

Company&#146;s insurance coverage, the Company believes the estimated fair value of

these indemnification arrangements is minimal.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10</font></p>





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</font></b></div>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman"><font style="font-size:10.0pt;font-weight:bold;">ITEM 2. MA</font>NAGEMENT&#146;S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">This

Quarterly Report on Form 10-Q contains forward-looking statements within the

meaning of Section 27A of the Securities Act of 1933 and Section 21E of the

Securities Exchange Act of 1934, including statements regarding:</font></i></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">our future

sales and product revenues, including possible retroactive price adjustments,

anticipated adjustments to deferred revenue, expectations regarding unit

volumes or other offsets to price reductions;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><b><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;font-weight:bold;">&#149;</font></i></b><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">our efforts

to increase sales of ophthalmic viscoelastic products;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><b><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;font-weight:bold;">&#149;</font></i></b><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">our

manufacturing capacity and work-in-process manufacturing;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">the timing,

scope, and rates of patient enrollment in clinical trials and related costs;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">FDA or other

regulatory approvals and/or reimbursement approvals of new or potential

products;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">the development

of possible new products;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">negotiations

with potential and existing customers, including our performance under any of

our distribution or supply agreements or our expectations with respect to sales

pursuant such agreements;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">the rate at

which we use cash and the amounts used;</font></i></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><i><font size="3" face="Times New Roman" style="font-size:12.0pt;font-style:italic;">&#149;</font></i><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><i><font style="font-style:italic;">possible

negotiations or renegotiations with existing or new distribution and

collaboration partners.</font></i></p>



<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Statements

identified by words such as &#147;will,&#148; &#147;likely,&#148; &#147;may,&#148; &#147;believe,&#148; &#147;expect,&#148;

&#147;anticipate,&#148; &#147;intend,&#148; &#147;seek,&#148; &#147;designed,&#148; &#147;develop,&#148; &#147;would,&#148; &#147;future,&#148;

&#147;can,&#148; &#147;could&#148; and other expressions that are predictions of or indicate future

events and trends and which do not relate to historical matters, also identify

forward-looking statements.&#160; Such

forward looking statements involve known and unknown risks, uncertainties and

other factors, some of which are beyond our control, including those factors

described in the section titled &#147;Risk Factors and Certain Factors Affecting

Future Operating Results&#148; in this Quarterly Report on Form 10-Q.&#160; Our actual results, performance or

achievement could differ materially from anticipated results, performance or

achievement, expressed or implied in such forward-looking statements.&#160; Such forward looking statements are based

upon the current assumptions and beliefs of management and are only

expectations of future results.&#160;

Additional factors that might cause such a difference are set forth

herein and in the &#147;Management&#146;s Discussions and Analysis of Financial Condition

and Results of Operations&#148; beginning on page 11 of this Quarterly Report on

form 10-Q, as well as the risk factors described in our Annual Report on Form

10-K for the year ended December 31, 2002 and in our press releases and other

filings with the Securities and Exchange Commission.&#160; We undertake no obligation to publicly update or revise any

forward-looking statement whether as a result of new information, future events

or otherwise.</font></i></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Restatement of

Results</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On January 28, 2003, we announced a restatement of our

previously-reported results for the three- and nine-month periods ended

September 30, 2002.&#160; The restatement

involves revenue recognized for the sale in the third quarter of 2002 of

certain units of HYVISC</font><sup><font face="Symbol" style="font-family:Symbol;">&#210;</font></sup>.&#160; A new &#147;clean room&#148; at our facility that does

not have a required regulatory approval for the manufacture of HYVISC from the

Food and Drug Administration (FDA) was used in the production of these

units.&#160; Because the product was shipped

in the absence of this regulatory approval, we have determined, and our independent

accountants have concurred, that revenue from that sale should not have been

recognized.&#160; As a result of the

restatement, revenue for the three and nine months ended September 30, 2002 was

reduced by $326,000 and the net loss for those periods increased by $170,000,

or $0.02 per share.&#160; Total HYVISC

inventory at September 30, 2002, was $173,000, which included $157,000 in

HYVISC inventory from the restated transaction, and $17,000 in</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11</font></p>





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<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">HYVISC inventory produced in the new clean room which was previously

included in our pre-restatement inventory.&#160;

At March 31, 2003 our inventory of $3,174,000 includes $325,000 in

HYVISC inventory produced in the new clean room.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have obtained all required regulatory approvals for

the use of the new clean room in the manufacture of our products designed for

human use: ORTHOVISC</font><sup><font face="Symbol" style="font-family:Symbol;">&#210;</font></sup>

(not approved for sale in the U.S.), AMVISC<sup><font face="Symbol" style="font-family:Symbol;">&#210;</font></sup>,

AMVISC<sup><font face="Symbol" style="font-family:Symbol;">&#210;</font></sup> Plus, STAARVISC&#153;-II, Shellgel&#153;, and

CoEase&#153;.</p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Until the required regulatory approval of the new

clean room for use in the production of HYVISC&#160;

is received from the FDA, we are using the clean room previously used in

the production of HYVISC, which has the required regulatory approval.&#160; We have initiated discussions with the FDA

regarding the shipment of HYVISC described above.&#160; The FDA may not respond to our efforts cooperatively or may bring

regulatory or other actions or proceedings against us.&#160; Additionally, in the past, some companies

(including Anika) that have restated their financial information have been

subject to inquiry or investigation by the Securities and Exchange Commission

(SEC) and to private securities litigation.&#160;

Any inquiry, investigation, action or proceeding by a governmental

agency or any private securities litigation could have a material adverse

effect on our business, financial condition or results of operations.&#160; There is a risk that any such inquiry,

investigation, action, proceeding or litigation could result in substantial

costs and divert management&#146;s attention and resources from our business.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Results of

Operations</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;letter-spacing:-.15pt;">Product

revenue</font></i><font style="letter-spacing:-.15pt;">.&#160; Product revenue for the three months ended

March 31, 2003 was $3,370,000, an increase of $985,000, or 41.3%, compared to

$2,385,000 for the three months ended March 31, 2002.&#160; We derive a substantial portion of our revenue from the sale of

AMVISC and AMVISC Plus to Bausch&nbsp;&amp; Lomb Surgical.&#160; For the three months ended March 31, 2003

and 2002, AMVISC product sales accounted for 37.8% and 54.1% of product

revenue, respectively. </font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.15pt;">&nbsp;</font></p>



<table border="1" cellspacing="0" cellpadding="0" width="69%" style="border:none;border-collapse:collapse;margin-left:1.0in;width:69.98%;">

 <tr>

  <td width="58%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="37%" colspan="5" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:37.28%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Three Months Ended March 31,</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="58%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="17%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2002</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="17%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">2001</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="58%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ophthalmic

  Products</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="15%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.38%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,975,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="15%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.38%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1,549,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.36%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="58%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">ORTHOVISC</font><sup><font face="Symbol" style="font-family:Symbol;">&#226;</font></sup></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">530,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="17%" colspan="2" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">527,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:1.36%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="58%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">HYVISC</font><sup><font face="Symbol" style="font-family:Symbol;">&#226;</font></sup></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="17%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">865,000</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:2.86%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

  <td width="17%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:17.22%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">309,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.36%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="58%" valign="bottom" style="border:none;padding:0in 0in 0in 0in;width:58.48%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="15%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.38%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,370,000</font></p>

  </td>

  <td width="2%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:2.86%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="15%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.38%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2,385,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="border:none;padding:0in 0in .7pt 0in;width:1.36%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;letter-spacing:-.15pt;">Ophthalmic product sales increased $426,000 for

the first quarter of 2003 compared to the first quarter of 2002 primarily due

to sales to a new customer added in the second quarter of 2002.&#160; Total ORTHOVISC sales remained constant for

the first quarter of 2003 compared to the first quarter of 2002 primarily due

to increased sales to our Turkish distributor offset primarily by lower sales

in Europe.&#160;&#160; Sales of HYVISC increased

$556,000 for the first quarter of 2003 compared to the first quarter of 2002. </font>&#160;Sales of HYVISC were made to a single

customer under an exclusive agreement<font style="letter-spacing:-.15pt;">.&#160; The increase in sales of HYVISC includes

additional shipments made during the quarter to replace units shipped in the

third quarter of 2002 which units we had subsequently voluntarily withdrawn

from the market pending receipt of regulatory approval.&#160; </font>See the section captioned &#147;Restatement of Results&#148; discussed above.<font style="letter-spacing:-.15pt;">&#160;

Quarterly sales of HYVISC are expected to be lower for the remainder of

2003 compared to the first quarter as a result of the additional units shipped

during the first quarter of 2003 for distributor inventory replenishment

necessary because of the withdrawal of the previously shipped units.</font></font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="background:white;font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;letter-spacing:-.1pt;">Licensing revenue.</font></i><font style="letter-spacing:-.1pt;">&#160; Licensing

revenue for the three months ended March 31, 2003 was $14,000, an increase of

$9,000 compared to $5,000 for the same period last year.&#160; Licensing revenue </font>includes the

ratable recognition of up-front and maintenance payments on certain supply

agreements with purchasers of our ophthalmic products over the related terms of

the applicable agreements.&#160; The increase

is primarily due to a full quarter impact from a new distribution agreement

effective beginning March 2002.</p>



<p align="center" style="background:white;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="background:white;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12</font></p>





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<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
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<p align="center" style="background:white;margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Gross

profit</font></i>.&#160; Gross profit

for the three months ended March 31, 2003 was $1,415,000, or 41.8% of revenue,

an increase of $1,112,000, or 367%, from gross profit of $303,000, or 12.7% of

revenue, for the three months ended March 31, 2002.&#160; Gross profit for 2003, as compared with same period last year,

benefited from improved manufacturing cost performance as a result of cost

cutting initiatives during 2002 combined with overall increased sales volumes

and resulting manufacturing efficiencies.</p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Research

&amp; development</font></i>.&#160;

Research and development expenses for the three months ended March 31,

2003 was $809,000, a decrease of $281,000, or 25.8%, compared to $1,090,000 for

the three months ended March 31, 2002.&#160;

Research and development expenses include those costs associated with

our in-house research and development efforts for the development of new

medical applications for our HA-based technology, the management of clinical

trials, and the preparation and processing of applications for regulatory

approvals at all relevant stages of development.&#160; The decrease in research and development expenses during the

first quarter of 2003 is primarily attributable to a decrease in costs

associated with our Phase III clinical trial for ORTHOVISC of $315,000 combined

with a decrease in personnel-related costs of $133,000 due to lower headcount

partially offset by increases in consulting and other outside services of

$103,000 primarily <font style="letter-spacing:-.15pt;">attributable </font>to

in-house research and development efforts.</p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Selling,

general &amp; administrative</font></i>. Selling, general and

administrative expenses for the three months ended March 31, 2003 was

$1,115,000, an increase of $35,000, or 3.2%, compared to $1,080,000 for the

same period last year.&#160; <font style="letter-spacing:-.15pt;">The increase is attributable to an increase in

professional service fees of $176,000 primarily attributable to our restatement

discussed above in the section captioned &#147;Restatement of Results&#148; and

personnel-related costs of $28,000 partially offset by a decrease in consulting

and other outside services of $130,000.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Net

interest income</font></i>.&#160; Interest

income for the three months ended March 31, 2003 was $42,000, a decrease of

$21,000 from $63,000 for the same period last year.&#160; <font style="letter-spacing:-.15pt;">The decrease is primarily

attributable to lower interest rates.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Income

taxes.</font></i>&#160; In 2002

federal tax law changed to allow for a five year carryback period and a

suspension of certain limitations on the use of alternative minimum tax losses.

&nbsp;We filed an income tax carryback claim to carry our 2001 tax loss back to

prior tax years. &nbsp; As a result of the carryback claim, in the first

quarter of 2003, we received a refund of approximately $154,000 of taxes paid

in prior years.</p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">LIQUIDITY AND CAPITAL RESOURCES</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We require cash to fund our operating expenses and to

make capital expenditures.&#160; We expect

that our requirement for cash to fund these uses will increase as the scope of

our operations expand.&#160; Historically we

have funded our cash requirements from available cash and investments on

hand.&#160; At March 31, 2003, cash, cash

equivalents and marketable securities totaled $13.0 million compared to cash,

cash equivalents and marketable securities of $13.5&nbsp;million at December

31, 2002.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash used in operating activities was $416,000 for the

three months ended March 31, 2003 compared with cash used in operating

activities of $597,000 for the three months ended March 31, 2002.&#160; Cash used in operating activities in the

first quarter of 2003 resulted primarily from our net loss of $313,000, an

increase in inventories of $250,000 and decreases in customer deposit of

$327,000 and other current liabilities of $281,000 partially offset by

depreciation and amortization of $248,000, a decrease in accounts receivable of

$250,000 and an increase in deferred revenue of $182,000.&#160; The increase in deferred revenue largely

relates to unit pricing provisions under our supply agreement with Bausch &amp;

Lomb Surgical.&#160; The reduction in

accounts receivable was primarily due to the application of a single customer

deposit against shipments to that customer during the quarter.&#160; The increase in inventories includes the

HYVISC inventory being held awaiting FDA approval combined with an increase in

raw materials.&#160; The customer deposit of

$327,000 related to the payment from a customer for a sale in the third quarter

of 2002 of certain units of HYVISC which was applied to new shipments of

product during the first quarter of 2003.&#160;

We determined that revenue from a certain third quarter 2002 sale should

not have been recognized and as of December 31,</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13</font></p>





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<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2002 recorded the payment related to the sale as a customer deposit to

be applied against subsequent shipments to the customer.&#160; See the section captioned &#147;Restatement of

Results&#148; discussed above.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cash used in investing activities was $96,000 for the

three months ended March 31, 2003 reflecting capital expenditures primarily for

manufacturing equipment.&#160; Cash provided

by investing activities of $1,980,000 for the three months ended March 31,

2002, includes proceeds from the maturity of marketable securities of $1,995,000.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Contractual Obligations and Other

Commercial Commitments</font></i></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We do not use special purpose entities or other

off-balance sheet financing techniques except for operating leases.&#160; We have no material commitments for

purchases of inventories or property and equipment.&#160; We expect to incur additional investments in our operations

through increased inventory levels and higher balances in accounts receivable

for the remainder of 2003 compared to 2002 in addition to further capital

expenditures in 2003 for small equipment, computers and software, and furniture

and fixtures associated with our business operations.&#160; To the extent that funds generated from our operations, together

with our existing capital resources, are insufficient to meet future

requirements, we will be required to obtain additional funds through equity or

debt financings, strategic alliances with corporate partners and others, or

through other sources.&#160; Any additional

financing may not be made available to us or may not be available on acceptable

terms should such a need arise.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Our future capital requirements and the adequacy of

available funds will depend, on numerous factors, including:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>market

acceptance of our existing and future products;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

successful commercialization of products in development;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>progress

in our product development efforts;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

magnitude and scope of such efforts;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>progress

with pre-clinical studies, clinical trials and product clearances by the FDA

and other agencies;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost of maintaining adequate manufacturing capabilities;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost of filing, prosecuting, defending and enforcing patent claims and other

intellectual property rights;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>competing

technological and market developments;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

development of strategic alliances for the marketing of certain of our products;

and</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost of maintaining adequate inventory levels to meet current and future

product demands.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We cannot assure you that we will record profits in

future periods.&#160; However, we believe

that our cash and investments on hand will be sufficient to meet our cash

requirements through at least the end of 2003.&#160;

See the section captioned <i><font style="font-style:italic;">&#147;Risk

Factors and Certain Other Factors Affecting Future Operating Results &#150; History

of Losses; Uncertainty of Future Profitability.&#148;</font></i></font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The terms of any future equity financings may be

dilutive to our stockholders and the terms of any debt financings may contain

restrictive covenants, which could limit our ability to pursue certain courses

of action.&#160; Our ability to obtain financing

is dependent on the status of our future business prospects as well as

conditions prevailing in the relevant capital markets.&#160; We cannot assure you that any additional

financing may be made available to us or may be available on acceptable terms

should such a need arise.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The

table below summarizes our contractual obligations of non-cancelable operating

leases at March 31, 2003: </font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="70%" style="border-collapse:collapse;margin-left:1.0in;width:70.0%;">

 <tr>

  <td width="81%" valign="bottom" style="padding:0in 0in 0in 0in;width:81.04%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.52%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="15%" colspan="2" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.18%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Amount</font></b></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.26%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="81%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:81.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2003</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.52%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.34%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">497,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.26%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="81%" valign="bottom" style="padding:0in 0in 0in 0in;width:81.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2004</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.52%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="15%" colspan="2" valign="bottom" style="padding:0in 0in 0in 0in;width:15.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">99,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.26%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="81%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:81.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2005</font></p>

  </td>

  <td width="2%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.52%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="15%" colspan="2" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:15.18%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3,000</font></p>

  </td>

  <td width="1%" valign="bottom" bgcolor="#cceeff" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.26%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

 <tr>

  <td width="81%" valign="bottom" style="padding:0in 0in 0in 0in;width:81.04%;">

  <p style="margin:0in 0in .0001pt 10.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Total</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in 0in .7pt 0in;width:2.52%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="1%" valign="bottom" style="border:none;border-bottom:double windowtext 1.5pt;padding:0in 0in 0in 0in;width:1.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>

  </td>

  <td width="13%" valign="bottom" style="border-bottom:double windowtext 1.5pt;border-left:none;border-right:none;border-top:solid windowtext .5pt;padding:0in 0in 0in 0in;width:13.32%;">

  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">599,000</font></p>

  </td>

  <td width="1%" valign="bottom" style="padding:0in 0in .7pt 0in;width:1.26%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">14</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
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</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">New Accounting Pronouncements</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In November 2002, the FASB issued Interpretation No.

(FIN)&nbsp;45, &#147;Guarantor&#146;s Accounting and Disclosure Requirements for

Guarantees, Including Indirect Guarantees of Indebtedness of Others, an

interpretation of FASB Statements No. 5, 57, and&nbsp;107 and Rescission of

FASB Interpretation No. 34.&#148; FIN&nbsp;45 elaborates on the existing disclosure

requirements for most guarantees, including loan guarantees such as standby

letters of credit and warranty obligations.&#160;

It also clarifies that at the time a company issues a guarantee, a

company must recognize an initial liability for the fair value of the

obligations it assumes under that guarantee and must disclose that information

in its interim and annual financial statements.&#160; The provisions of FIN 45 relating to initial recognition and

measurement must be applied on a prospective basis to guarantees issued or

modified after December&nbsp;31, 2002.&#160;

The adoption of the provisions of FIN 45 did not have a material effect

on our financial condition or results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RISK

FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS</font></b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">Our business is

subject to comprehensive and varied government regulation and, as a result,

failure to obtain FDA or other governmental approvals for our products may

materially adversely affect our business, results of operations and financial

condition.</font></i></b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Product development and approval

within the FDA framework takes a number of years and involves the expenditure

of substantial resources.&#160; We cannot

assure you that the FDA will grant approval for our new products on a timely

basis if at all, or that FDA review will not involve delays that will adversely

affect our ability to commercialize additional products or expand permitted

uses of existing products, or that the regulatory framework will not change, or

that additional regulation will not arise at any stage of our product

development process which may adversely affect approval of or delay an

application or require additional expenditures by us.&#160; In the event our future products are regulated as human drugs or

biologics, the FDA&#146;s review process of such products typically would be

substantially longer and more expensive than the review process to which they

are currently subject as devices.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;letter-spacing:-.1pt;">In order to sell ORTHOVISC in the

U.S., we will have to meet regulatory requirements for a Class III device as

determined by the FDA.&#160; Class III

devices are those that generally must receive pre-market approval from the FDA

(e.g.&#160; life-sustaining, life-supporting

and implantable or new devices which have not been found to be substantially

equivalent to legally marketed devices) and require clinical testing to ensure

safety and effectiveness and FDA approval prior to marketing and

distribution.&#160; In order for us to commercially

distribute ORTHOVISC in the U.S., we must obtain a PMA.&#160; The PMA process can be expensive, uncertain

and lengthy.&#160; A number of devices for

which PMAs have been sought have never been approved for marketing.&#160; The review of an application often occurs

over a protracted time period, potentially taking two years or more from the

filing date to complete.&#160; We submitted a

PMA application for ORTHOVISC in December 1997.&#160; In October 1998, we were notified by the FDA that our PMA

application for ORTHOVISC was not approvable and that additional clinical data

would be required to demonstrate the effectiveness of ORTHOVISC.&#160; We submitted an Investigational Device

Exemption (IDE) to the FDA in February 1999 and received approval in late March

1999 to commence a second Phase III clinical study.&#160; We received initial results from the Phase III clinical trial in

late May 2000 that we determined did not show sufficient efficacy to support

the filing of a PMA application.&#160; In

February 2001, we commenced another Phase III clinical trial of ORTHOVISC.&#160; </font>We completed patient enrollment in

May 2002, which included 373 patients in 24 centers in the U.S. and Canada<font style="letter-spacing:-.1pt;"> and, in accordance with trial protocol, took six

months to complete the follow-up on the final patients.&#160; All of the patients completed the study in

2002.&#160; We expect to compile the data and

prepare a submission to the FDA during the second quarter of 2003 as a

requirement for seeking U.S. market approval.&#160;

We cannot assure you that:</font></font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any

additional clinical data will support the efficacy of ORTHOVISC;</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">15</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
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</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will complete any additional clinical trials of ORTHOVISC;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will be able to successfully complete the FDA approval process;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>additional

clinical trials will support a PMA application and/or FDA approval in a timely

manner or at all.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We also cannot assure you that

any delay in receiving FDA approvals will not continue to adversely affect our

competitive position.&#160; Furthermore, even

if we were to receive a PMA approval:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

approval may include significant limitations on the indications and other

claims sought for use for which the product may be marketed;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

approval may include other significant conditions to approval such as

post-market testing, tracking, or surveillance requirements;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

may not be able to achieve meaningful sales of ORTHOVISC in the U.S.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our HA product under development,

INCERT-S, has not obtained regulatory approval in the U.S.&#160; for commercial marketing and sale.&#160; We believe that INCERT-S will be regulated

as a Class III medical device and will require a PMA prior to marketing.&#160; We cannot assure you that:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will begin or successfully complete clinical trials of INCERT<font face="Symbol" style="font-family:Symbol;">&#226;</font>-S;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

clinical data will support the efficacy of INCERT-S;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will be able to successfully complete the FDA approval process;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>additional

clinical trials will support a PMA application and/or FDA approval in a timely

manner or at all.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We also cannot assure you that

any delay in receiving FDA approvals will not adversely affect our competitive

position.&#160; Furthermore, even if we do

receive FDA approval:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

approval may include significant limitations on the indications and other

claims sought for use for which the product may be marketed;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

approval may include other significant conditions of approval such as

post-market testing, tracking, or surveillance requirements;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>meaningful

sales of INCERT-S may never be achieved.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Once obtained, marketing approval

can be withdrawn by the FDA for a number of reasons, including, among other

things, the failure to comply with regulatory standards, or the occurrence of

unforeseen problems following initial approval.&#160; We may be required to make further filings with the FDA under

certain circumstances.&#160; The FDA&#146;s

regulations require a PMA supplement for certain changes if they affect the

safety and effectiveness of an approved device, including, but not limited to,

new indications for use, labeling changes, the use of a different facility to

manufacture, process or package the device, and changes in performance or

design specifications.&#160; Changes in

manufacturing procedures or methods of manufacturing that may affect safety and

effectiveness may be deemed approved after a 30-day notice unless the FDA

requests a 135-day supplement.&#160; Our

failure to receive approval of a PMA supplement regarding the use of a

different manufacturing facility or any other change affecting the safety or

effectiveness of an approved device on a timely basis, or at all, may have a

material adverse effect on our business, financial condition, and results of

operations.&#160; The FDA could also limit or

prevent the manufacture or distribution of our products and has the power to

require the recall of such products.&#160;

Significant delay or cost in obtaining, or failure to obtain FDA

approval to market products, any FDA limitations on the use of our products, or

any withdrawal or suspension of approval or rescission of approval by the FDA

could have a material adverse effect on our business, financial condition, and

results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">In addition, all FDA approved or

cleared products manufactured by us must be manufactured in compliance with the

FDA&#146;s Good Manufacturing Practices (GMP) regulations and, for medical devices,

the FDA&#146;s Good Manufacturing Practices/Quality System Regulations (GMP/QSR).&#160; Ongoing compliance with GMP/QSR and other

applicable regulatory requirements is enforced through periodic inspection by

state</font></p>



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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">and federal agencies, including the FDA.&#160; The FDA may inspect us and our facilities

from time to time to determine whether we are in compliance with regulations

relating to medical device and manufacturing companies, including regulations

concerning manufacturing, testing, quality control and product labeling

practices.&#160; We cannot assure you that we

will be able to comply with current or future FDA requirements applicable to

the manufacture of products.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">FDA regulations depend heavily on

administrative interpretation and we cannot assure you that the future

interpretations made by the FDA or other regulatory bodies, with possible

retroactive effect, will not adversely affect us.&#160; In addition, changes in the existing regulations or adoption of

new governmental regulations or policies could prevent or delay regulatory

approval of our products.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Failure to comply with applicable

regulatory requirements could result in, among other things, warning letters,

fines, injunctions, civil penalties, recall or seizure of products, total or

partial suspension of production, refusal of the FDA to grant pre-market

clearance or pre-market approval for devices, withdrawal of approvals and

criminal prosecution.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">In addition to regulations

enforced by the FDA, we are subject to other existing and future federal,

state, local and foreign regulations.&#160;

International regulatory bodies often establish regulations governing

product standards, packing requirements, labeling requirements, import

restrictions, tariff regulations, duties and tax requirements.&#160; We cannot assure you that we will be able to

achieve and/or maintain compliance required for CE marking or other foreign

regulatory approvals for any or all of our products or that we will be able to

produce our products in a timely and profitable manner while complying with

applicable requirements. &#160;Federal,

state, local and foreign regulations regarding the manufacture and sale of

medical products are subject to change.&#160;

We cannot predict what impact, if any, such changes might have on our

business.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The process of obtaining

approvals from the FDA and other regulatory authorities can be costly, time

consuming, and subject to unanticipated delays.&#160; We cannot assure you that approvals or clearances of our products

will be granted or that we will have the necessary funds to develop certain of

our products.&#160; Any failure to obtain, or

delay in obtaining such approvals or clearances, could adversely affect our

ability to market our products.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">We have historically

incurred operating losses and we cannot make any assurances about our future

profitability.</font></i></b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">From our inception through

December&nbsp;31, 1996 and 1999 through 2002 we have incurred annual operating

losses.&#160; As of March 31, 2003, we had an

accumulated deficit of approximately $14.7 million.&#160; The continued development of our products will require the commitment

of substantial resources to conduct research and preclinical and clinical

development programs, and to establish sales and marketing capabilities or

distribution arrangements.&#160; Our ability

to reach profitability is highly uncertain.&#160;

To achieve profitability, we must, among other things, successfully

complete development of certain of our products, obtain regulatory approvals

and establish sales and marketing capabilities or distribution arrangements for

certain of our products.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Substantial competition could materially affect our

financial performance.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We compete with many companies,

including, among others, large pharmaceutical companies and specialized medical

products companies.&#160; Many of these

companies have substantially greater financial and other resources, larger

research and development staffs, more extensive marketing and manufacturing

organizations and more experience in the regulatory process than us.&#160; We also compete with academic institutions,

governmental agencies and other research organizations that may be involved in

research, development and commercialization of products.&#160; Because a number of companies are developing

or have developed HA products for similar applications, the successful commercialization

of a particular product will depend in part upon our ability to complete

clinical studies and obtain FDA marketing and foreign regulatory approvals

prior to our competitors, or, if regulatory approval is not obtained prior to

competitors,</font></p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;letter-spacing:-.1pt;">to identify markets for our products that may be

sufficient to permit meaningful sales of our products.&#160; For example, several of our competitors have

already obtained FDA and foreign regulatory approvals for marketing HA products

with applications similar to that of ORTHOVISC.&#160; Thus, the successful commercialization of ORTHOVISC will depend

in part on our ability to effectively market ORTHOVISC against more established

products with a longer sales history.&#160;

We cannot assure you that we will be able to compete against current or

future competitors or that competition will not have a material adverse effect

on our business, financial condition and results of operations.&#160; </font>We are currently&#160; experiencing volatility in our international

sales of ORTHOVISC including ongoing competitive factors&#160; as well as economic issues, and potential

regional conflict and political uncertainties.&#160;

<font style="letter-spacing:-.1pt;">As a result, we are uncertain of the

extent of our future sales in these markets.</font></font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We are uncertain regarding the success of our clinical

trials</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Several of our products,

including ORTHOVISC, will require clinical trials to determine their safety and

efficacy for U.S. and international marketing approval by regulatory bodies,

including the FDA.&#160; In late May 2000,

our initial analysis of the results of our second Phase III clinical trial of

ORTHOVISC did not show sufficient efficacy to support the filing of a PMA

application to obtain FDA approval.&#160; We

cannot assure you that:</font></p>



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<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any

additional clinical data will support the efficacy of ORTHOVISC,</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will begin or complete clinical trials of INCERT&#151;S or complete any additional

clinical trials of ORTHOVISC,</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>we

will be able to successfully complete the FDA approval process for either

ORTHOVISC or INCERT&#151;S,</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>additional

ORTHOVISC or INCERT&#151;S clinical trials will support a PMA application and/or FDA

approval in a timely manner, or at all.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We cannot assure you that we will

not encounter additional problems that will cause us to delay, suspend or

terminate the clinical trials.&#160; In addition,

we cannot make any assurance that such clinical trials, if completed, will

ultimately demonstrate these products to be safe and efficacious.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We are dependent upon marketing and distribution partners

and the failure to maintain strategic alliances on acceptable terms will have a

material adverse effect on our business, financial condition and results of

operations</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our success will be dependent, in

part, upon the efforts of our marketing partners and the terms and conditions

of our relationships with such marketing partners.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We cannot assure you that such

marketing partners will not seek to renegotiate their current agreements on

terms less favorable to us.&#160; Under the

terms of the B&amp;L Agreement, effective January 1, 2001, we became Bausch

&amp; Lomb&#146;s exclusive provider of AMVISC and AMVISC Plus ophthalmic

viscoelastic products, in the U.S. and international markets.&#160; The B&amp;L Agreement expires December 31,

2007, and superceded an existing supply contract with Bausch &amp; Lomb that

was set to expire December 31, 2001.&#160;

The B&amp;L Agreement is subject to early termination and/or reversion

to a non-exclusive basis under certain circumstances.&#160; The B&amp;L Agreement lifted contractual restrictions on our

ability to sell certain ophthalmic products to other companies, subject to our

payment of royalties.&#160; In exchange, we

agreed to a reduction in unit selling prices retroactively effective to April

1, 2000 and the elimination of minimum unit purchase obligations by Bausch

&amp; Lomb.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We have not yet achieved

incremental sales of our ophthalmic products to Bausch &amp; Lomb and/or other

companies sufficient to offset the effects of the price reduction and royalties

to Bausch &amp; Lomb and we cannot assure you that we will be able to do so in

the future.&#160; The reduction in unit

prices resulted in a decrease in our revenue and gross profit from Bausch &amp;

Lomb.&#160; Under the terms of the B&amp;L

Agreement, the price for units sold in a calendar year is dependent on the

total unit volume of sales of certain ophthalmic products during the year.&#160; Accordingly, unit prices for sales occurring

in the three months ended March 31,</font></p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">18</font></p>





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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">2003 are subject to possible retroactive price

adjustments when the actual annual unit volume becomes known.&#160; In accordance with our revenue recognition

policy, revenue is not recognized if the sale price is not fixed or

determinable, and any amounts received in excess of revenue recognized is

recorded as deferred revenue.&#160; In the

fourth quarter of 2002 product revenue included the recognition of $839,000 of

revenue related to sales of AMVISC to Bausch &amp; Lomb, which had been

previously deferred during the first three quarters of the year.&#160; During the fourth quarter the actual annual

unit volume becomes fixed or determinable.&#160;

For the first quarter of 2003 we have deferred revenue of $242,000

related to sales of AMVISC to Bausch &amp; Lomb.&#160; Due to the currently anticipated 2003 annual sales volume of

relevant ophthalmic products, under the terms of the B&amp;L Agreement, we do

not expect to recognize this deferred revenue in the fourth quarter of 2003 and

as a result expect that total revenue from B&amp;L to be less in 2003 compared

with 2002. In addition, under certain circumstances, Bausch &amp; Lomb has the

right to terminate the agreement, and/or the agreement may revert to a

non-exclusive basis; in each case, we cannot make any assurances that such

circumstances will not occur.&#160; For the

three months ended March 31, 2003 and 2002, sales of AMVISC products to Bausch

&amp; Lomb accounted for 37.8% and 54.1% of product revenues,

respectively.&#160; Although we intend to

continue to seek new ophthalmic product customers, there can be no assurances

that we will be successful in obtaining new customers or to achieve meaningful

sales to such new customers.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We have established marketing and distribution

relationships for ORTHOVISC in Canada, Turkey and other Middle-Eastern

countries as well as certain European countries.&#160; We are continuing to seek to establish long-term distribution

relationships in those other regions not currently covered, but can give no

assurances that we will be successful in doing so.<font style="letter-spacing:-.1pt;">&#160; We cannot assure you that we

will be able to identify or engage appropriate distribution or collaboration

partners in the U.S., should we receive marketing approval for ORTHOVISC, or

elsewhere in the world or effectively transition to any such partners.&#160; We cannot assure you that we will obtain

European or other reimbursement approvals or, if such approvals are obtained,

they will be obtained on a timely basis or at a satisfactory level of

reimbursement.</font></font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We will need to obtain the

assistance of additional marketing partners to bring new and existing products

to market.&#160; The failure to establish

strategic partnerships for the marketing and distribution of our products on

acceptable terms will have a material adverse effect on our business, financial

condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our future success depends upon market acceptance of our

existing and future products</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our success will depend in part

upon the acceptance of our existing and future products by the medical

community, hospitals and physicians and other health care providers, and

third-party payers.&#160; Such acceptance may

depend upon the extent to which the medical community perceives our products as

safer, more effective or cost-competitive than other similar products.&#160; Ultimately, for our new products to gain

general market acceptance, it will also be necessary for us to develop

marketing partners for the distribution of our products.&#160; We cannot assure you that our new products

will achieve significant market acceptance on a timely basis, or at all.&#160; Failure of some or all of our future

products to achieve significant market acceptance could have a material adverse

effect on our business, financial condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We may be unable to adequately protect our intellectual

property rights</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our success will depend, in part,

on our ability to obtain and enforce patents, protect trade secrets, obtain

licenses to technology owned by third parties when necessary, and conduct our

business without infringing on the proprietary rights of others.&#160; The patent positions of pharmaceutical,

medical products and biotechnology firms, including ours, can be uncertain and

involve complex legal and factual questions.&#160;

We cannot assure you that any patent applications will result in the

issuance of patents or, if any patents are issued, whether they will provide

significant proprietary protection or commercial advantage, or will not be

circumvented by others.&#160; In the event a

third party has also filed one or more patent applications for any of its

inventions, we may have to participate in interference proceedings declared by

the PTO to determine priority of invention, which could result in failure to

obtain, or the loss of, patent protection for the</font></p>



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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">inventions and the loss of any right to use the

inventions.&#160; Even if the eventual

outcome is favorable to us, such interference proceedings could result in

substantial cost to us, and diversion of management&#146;s attention away from our

operations.&#160; Filing and prosecution of

patent applications, litigation to establish the validity and scope of patents,

assertion of patent infringement claims against others and the defense of

patent infringement claims by others can be expensive and time consuming.&#160; We cannot assure you that in the event that

any claims with respect to any of our patents, if issued, are challenged by one

or more third parties, that any court or patent authority ruling on such

challenge will determine that such patent claims are valid and

enforceable.&#160; An adverse outcome in such

litigation could cause us to lose exclusivity covered by the disputed rights.&#160; If a third party is found to have rights

covering products or processes used by us, we could be forced to cease using

the technologies or marketing the products covered by such rights, could be

subject to significant liabilities to such third party, and could be required

to license technologies from such third party.&#160;

Furthermore, even if our patents are determined to be valid,

enforceable, and broad in scope, we cannot assure you that competitors will not

be able to design around such patents and compete with us using the resulting

alternative technology.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We have a policy of seeking

patent protection for patentable aspects of our proprietary technology.&#160; We intend to seek patent protection with

respect to products and processes developed in the course of our activities

when we believe such protection is in our best interest and when the cost of

seeking such protection is not inordinate.&#160;

However, we cannot assure you that any patent application will be filed,

that any filed applications will result in issued patents or that any issued

patents will provide us with a competitive advantage or will not be

successfully challenged by third parties.&#160;

The protections afforded by patents will depend upon their scope and

validity, and others may be able to design around our patents.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Other entities have filed patent

applications for or have been issued patents concerning various aspects of

HA-related products or processes.&#160; We

cannot assure you that the products or processes developed by us will not

infringe on the patent rights of others in the future.&#160; Any such infringement may have a material

adverse effect on our business, financial condition, and results of

operations.&#160; In particular, we received

notice from the PTO in 1995 that a third party was attempting to provoke a

patent interference with respect to one of our co-owned patents covering the

use of INCERT for post-surgical adhesion prevention.&#160; It is unclear whether an interference will be declared.&#160; If an interference is declared it is not

possible at this time to determine the merits of the interference or the

effect, if any, the interference will have on our marketing of INCERT for this

use.&#160; We cannot assure you that we would

be successful in any such interference proceeding.&#160; If the third-party interference were to be decided adversely to

us, involved claims of our patent would be cancelled, our marketing of the

INCERT product may be materially and adversely affected and the third party may

enforce patent rights against us which could prohibit the sale and use of

INCERT products, which could have a material adverse effect on our future

operating results.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We also rely upon trade secrets

and proprietary know-how for certain non-patented aspects of our

technology.&#160; To protect such

information, we require all employees, consultants and licensees to enter into

confidentiality agreements limiting the disclosure and use of such

information.&#160; We cannot assure you that

these agreements provide meaningful protection or that they will not be

breached, that we would have adequate remedies for any such breach, or that our

trade secrets, proprietary know-how, and our technological advances will not

otherwise become known to others.&#160; In

addition, we cannot assure you that, despite precautions taken by us, others

have not and will not obtain access to our proprietary technology.&#160; Further, we cannot assure you that third

parties will not independently develop substantially equivalent or better

technology.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Pursuant to the B&amp;L

Agreement, we have agreed to transfer to Bausch &amp; Lomb, upon expiration of

the term of the B&amp;L agreement on December 31, 2007, or in connection with

earlier termination in certain circumstances, our manufacturing process,

know-how and technical information, which relate to AMVISC products.&#160; Upon expiration of the B&amp;L Agreement, we

cannot assure you that Bausch &amp; Lomb will continue to use us to manufacture

AMVISC and AMVISC Plus.&#160; If Bausch &amp;

Lomb discontinues the use of us as a</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">manufacturer after such time, our business,

financial condition, and results of operations would likely be materially and

adversely affected.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our manufacturing processes involve inherent risks and

disruption could materially adversely affect our business, financial condition

and results of operations.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman"><font style="font-size:10.0pt;letter-spacing:-.1pt;">Our results of operations are

dependent upon the continued operation of our manufacturing facility in Woburn,

Massachusetts.&#160; The operation of

biomedical manufacturing plants involves many risks, including the risks of

breakdown, failure or substandard performance of equipment, the occurrence of

natural and other disasters, and the need to comply with the requirements of

directives of government agencies, including the FDA.&#160; In addition, we rely on a single supplier for syringes and a

small number of suppliers for a number of other materials required for the

manufacturing and delivery of our HA products.&#160;

Furthermore, our manufacturing processes and research and development

efforts involve animals and products derived from animals.&#160; </font>We procure our animal-derived raw

materials from qualified vendors, control for contamination and have processes

that effectively inactivate infectious agents; however, we cannot assure you

that we can completely eliminate the risk of transmission of infectious agents

and in the future regulatory authorities could impose restrictions on the use

of animal-derived raw materials that could impact our business.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The utilization of animals in

research and development and product commercialization is subject to increasing

focus by animal rights activists.&#160; The

activities of animal rights groups and other organizations that have protested

animal based research and development programs or boycotted the products

resulting from such programs could cause an interruption in our manufacturing

processes and research and development efforts.&#160; The occurrence of material operational problems, including but

not limited to the events described above, could have a material adverse effect

on our business, financial condition, and results of operations during the

period of such operational difficulties.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our financial performance depends on the continued growth

and demand for our products and we may not be able to successfully manage the

expansion of our operations</font></i></b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our future success depends on

substantial growth in product sales.&#160; We

cannot assure you that such growth can be achieved or, if achieved, can be

sustained.&#160; We cannot assure you that

even if substantial growth in product sales and the demand for our products is

achieved, we will be able to:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>develop

the necessary manufacturing capabilities;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>obtain

the assistance of additional marketing partners;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>attract,

retain and integrate the required key personnel;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>implement

the financial, accounting and management systems needed to manage growing

demand for our products.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our failure to successfully

manage future growth could have a material adverse effect on our business,

financial condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Sales of our

products are largely dependent upon third party reimbursement and our

performance may be harmed by health care cost containment initiatives.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">In the U.S.&#160; and foreign markets, health care providers,

such as hospitals and physicians, that purchase health care products, such as

our products, generally rely on third party payers, including Medicare,

Medicaid and other health insurance and managed care plans, to reimburse all or

part of the cost of the health care product.&#160;

We depend upon the distributors for our products to secure reimbursement

and reimbursement approvals.&#160;

Reimbursement by third party payers may depend on a number of factors,

including the payer&#146;s determination that the use of our products is clinically

useful and cost-effective, medically necessary and not experimental or

investigational.&#160; Since reimbursement

approval is required from each payer individually, seeking such approvals can

be a time consuming and costly process which, in the future, could require us

or our marketing partners to provide supporting scientific, clinical and cost-</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">21</font></p>





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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">effectiveness data for the use of our products to

each payer separately.&#160; Significant

uncertainty exists as to the reimbursement status of newly approved health care

products, and third party payers are increasingly attempting to contain the

costs of health care products and services by limiting both coverage and the

level of reimbursement for new therapeutic products and by refusing in some

cases to provide coverage for uses of approved products for disease indications

for which the FDA has not granted marketing approval.&#160; In addition, Congress and certain state legislatures have

considered reforms that may affect current reimbursement practices, including

controls on health care spending through limitations on the growth of Medicare

and Medicaid spending.&#160; We cannot assure

you that third party reimbursement coverage will be available or adequate for

any products or services developed by us.&#160;

Outside the U.S., the success of our products is also dependent in part

upon the availability of reimbursement and health care payment systems.&#160; Lack of adequate coverage and reimbursement

provided by governments and other third party payers for our products and

services could have a material adverse effect on our business, financial

condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">We may seek financing

in the future, which could be difficult to obtain and which could dilute your

ownership interest or the value of your shares.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We had cash, cash equivalents and

marketable securities of approximately $13.0&nbsp;million as of March 31,

2003.&#160; Our future capital requirements

and the adequacy of available funds will depend, however, on numerous factors,

including:</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>market

acceptance of our existing and future products;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

successful commercialization of products in development;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>progress

in our product development efforts;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

magnitude and scope of such product development efforts,</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>progress

with preclinical studies, clinical trials and product clearances by the FDA and

other agencies;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost and timing of our efforts to manage our manufacturing capabilities and

related costs;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost of filing, prosecuting, defending and enforcing patent claims and other

intellectual property rights;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>competing

technological and market developments;</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

development of strategic alliances for the marketing of certain of our

products; and</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>the

cost of maintaining adequate inventory levels to meet current and future

product demands.</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">To the extent that funds

generated from our operations, together with our existing capital resources are

insufficient to meet future requirements, we will be required to obtain

additional funds through equity or debt financings, strategic alliances with

corporate partners and others, or through other sources.&#160; The terms of any future equity financings

may be dilutive to you and the terms of any debt financings may contain

restrictive covenants, which limit our ability to pursue certain courses of

action.&#160; Our ability to obtain financing

is dependent on the status of our future business prospects as well as

conditions prevailing in the relevant capital markets.&#160; We cannot assure you that any additional

financing will be made available to us or will be available on acceptable terms

should such a need arise.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">We could become

subject to product liability claims, which, if successful, could materially

adversely affect our business, financial condition and results of operations.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The testing, marketing and sale

of human health care products entail an inherent risk of allegations of product

liability, and we cannot assure you that substantial product liability claims

will not be asserted against us.&#160;

Although we have not received any material product liability claims to

date and have an insurance policy of $5,000,000 per occurrence and $5,000,000

in the aggregate to cover such claims should they arise, we cannot assure you

that material claims will not arise in the future or that our insurance will be

adequate to cover all situations.&#160;

Moreover, we cannot assure you that such insurance, or additional insurance,

if required, will be available in the future or, if available, will be

available on commercially</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">22</font></p>





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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">reasonable terms.&#160;

Any product liability claim, if successful, could have a material

adverse effect on our business, financial condition and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">Our business is

dependent upon hiring and retaining qualified management and scientific

personnel.</font></i></b></p>



<p style="margin:0in 0in .0001pt;page-break-after:avoid;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We are highly dependent on the

members of our management and scientific staff, the loss of one or more of whom

could have a material adverse effect on us.&#160;

We experienced a number of management changes in 2001 and as of April 2,

2002, Dr. Sherwood, previously President and Chief Operating Officer was appointed

our company&#146;s Chief Executive Officer.&#160;

As of July 8, 2002, we appointed a new Chief Financial Officer.&#160; As of October 25, 2002, the Senior Vice

President of Sales and Marketing&#146;s employment with our company was terminated

and on March 17, 2003, we appointed a new Vice President of Sales and

Marketing.&#160; There can be no assurances

that such management changes will not adversely affect our business.&#160; In addition, we believe that our future

success will depend in large part upon our ability to attract and retain highly

skilled, scientific, managerial and manufacturing personnel.&#160; We face significant competition for such

personnel from other companies, research and academic institutions, government

entities and other organizations.&#160; We

cannot assure you that we will be successful in hiring or retaining the

personnel we require.&#160; The failure to

hire and retain such personnel could have a material adverse effect on our

business, financial condition and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">We are subject to environmental regulation and any failure

to comply with applicable laws could subject us to significant liabilities and

harm our business</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We are subject to a variety of

local, state and federal government regulations relating to the storage,

discharge, handling, emission, generation, manufacture and disposal of toxic,

or other hazardous substances used in the manufacture of our products.&#160; Any failure by us to control the use,

disposal, removal or storage of hazardous chemicals or toxic substances could

subject us to significant liabilities, which could have a material adverse

effect on our business, financial condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">Our

future operating results may be harmed by economic, political and other risks

relating to international sales.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">During the years ended December

31, 2002 and 2001, approximately, 18% and 28%, respectively, of our product

sales were sold to international distributors.&#160;

During the three months ended March 31, 2003 and 2002 approximately 16%

and 22%, respectively, of our product sales were sold to international distributors.&#160; Our representatives, agents and distributors

who sell products in international markets are subject to the laws and

regulations of the foreign jurisdictions in which they operate and in which our

products are sold.&#160; A number of risks

are inherent in international sales and operations.&#160; For example, the volume of international sales may be limited by

the imposition of government controls, export license requirements, political

and/or economic instability, trade restrictions, changes in tariffs, difficulties

in managing international operations, import restrictions and fluctuations in

foreign currency exchange rates.&#160; We

sell our ORTHOVISC product to a European sales and marketing company for supply

of the Turkish market.&#160; The Turkish

economic situation has been volatile and the impacts of this volatility on

future sales of ORTHOVISC are uncertain.&#160;

Such changes in the volume of sales may have a material adverse effect

on our business, financial condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our stock price has been and may remain highly volatile, and

we cannot assure you that market making in our common stock will continue</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The market price of shares of our

common stock may be highly volatile.&#160;

Factors such as announcements of new commercial products or technological

innovations by us or our competitors, disclosure of results of clinical testing

or regulatory proceedings, governmental regulation and approvals, filings with

governmental agencies, developments in patent or other proprietary rights,

public concern as to the safety of products developed by us and general market

conditions may have a significant effect on the market price of our common

stock.&#160; In particular, our stock price

declined significantly in October 1998 following our announcement that the FDA

had notified us that its PMA for ORTHOVISC was not</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



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<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">approvable and that additional clinical data would

be required to demonstrate the effectiveness of ORTHOVISC.&#160; The stock price declined again in May 2000

following our announcements that initial analysis of results from the Phase III

clinical trial of ORTHOVISC did not show sufficient efficacy to support the

filing of a PMA application to obtain FDA approval, and that the SEC had issued

a formal order of investigation and required us to provide information in

connection with certain revenue recognition matters.&#160; In recent months, our stock price has increased by as much as

200% with relatively high trading volume, notwithstanding the absence of any

material public announcements by us.&#160;

The trading price of our common stock could be subject to wide

fluctuations in response to quarter-to-quarter variations in our operating

results, material announcements by us or our competitors, governmental

regulatory action, conditions in the health care industry generally or in the

medical products industry specifically, or other events or factors, many of

which are beyond our control.&#160; In

addition, the stock market has experienced extreme price and volume

fluctuations which have particularly affected the market prices of many medical

products companies and which often have been unrelated to the operating

performance of such companies.&#160; Our

operating results in future quarters may be below the expectations of equity

research analysts and investors.&#160; In

such event, the price of our common stock would likely decline, perhaps

substantially.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">No person is under any obligation

to make a market in the common stock or to publish research reports on us, and

any person making a market in the common stock or publishing research reports

on us may discontinue market making or publishing such reports at any time

without notice.&#160; We cannot assure you

that an active public market in our common stock will be sustained.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">There is a risk that we may be unable

to maintain our listing on the Nasdaq National Market.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Our common stock is currently

traded on the Nasdaq National Market.&#160;

Under NASDAQ&#146;s listing maintenance standards, if the minimum bid price

of our common stock is under $1.00 per share for 30 consecutive trading days,

NASDAQ may choose to notify us that it is delisting our common stock from

NASDAQ.&#160; If the minimum bid price of our

common stock does not thereafter regain compliance for a minimum of 10

consecutive trading days during the 90 days following notification by NASDAQ,

our common stock may be delisted from trading on NASDAQ.&#160; During the last twelve months our common

stock traded at or near $1.00 per share.&#160;

There is a risk that our common stock will not meet NASDAQ&#146;s listing maintenance

standards and fail to remain eligible for trading on the NASDAQ.&#160; If our common stock is delisted, the

delisting would most likely have a material adverse effect on the price of our

common stock and your ability to sell any of our common stock at all would be

severely limited.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;letter-spacing:-.1pt;">Our

charter documents contain anti-takeover provisions that may prevent or delay an

acquisition of us.</font></i></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Certain provisions of our

Restated Articles of Organization and Amended and Restated By-laws could have

the effect of discouraging a third party from pursuing a non-negotiated

takeover of us and preventing certain changes in control.&#160; These provisions include a classified Board

of Directors, advance notice to the Board of Directors of stockholder

proposals, limitations on the ability of stockholders to remove directors and

to call stockholder meetings, the provision that vacancies on the Board of

Directors be filled by a majority of the remaining directors.&#160; In addition, the Board of Directors adopted

a Shareholders Rights Plan in April 1998.&#160;

We are also subject to Chapter 110F of the Massachusetts General Laws

which, subject to certain exceptions, prohibits a Massachusetts corporation

from engaging in any of a broad range of business combinations with any

&#147;interested stockholder&#148; for a period of three years following the date that

such stockholder became an interested stockholder.&#160; These provisions could discourage a third party from pursuing a

takeover of us at a price considered attractive by many stockholders, since such

provisions could have the effect of preventing or delaying a potential acquirer

from acquiring control of us and its Board of Directors.</font></p>



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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">24</font></p>





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<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;font-weight:bold;">Our revenues are derived from a small number of customers,

the loss of which could materially adversely affect our business, financial

condition and results of operations</font></i>.</b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We have historically derived the

majority of our revenues from a small number of customers, most of whom resell

our products to end users and most of whom are significantly larger companies

than us.&#160; For the year ended December

31, 2002, Bausch &amp; Lomb accounted for 59% of product revenues and 67% of

our accounts receivable balance and Pharmaren (an affiliate of Biomeks), our

distributor in Turkey, accounted for 10% of product revenues and 0% of our

accounts receivable balance.&#160; For the

three months ended March 31, 2003, four customers accounted for 90.8% of

product revenues and 85.4% of our accounts receivable balance.&#160; Our failure to generate as much revenue as

expected from these customers or the failure of these customers to purchase our

products would seriously harm our business.&#160;

On March 11, 2002, Bausch &amp; Lomb&#146;s senior debt and short-term debt

ratings were downgraded.&#160; Although

Bausch &amp; Lomb emphasized at that time it was not facing any issues with

respect to liquidity, any such issues that impact their ability to pay their

accounts with us could adversely impact future revenues.&#160; In addition, if present and future customers

terminate their purchasing arrangements with us, significantly reduce or delay

their orders, or seek to renegotiate their agreements on terms less favorable

to us, our business, financial condition, and results of operations will be

adversely affected.&#160; If we accept terms

less favorable than the terms of the current agreement, such renegotiations may

have a material adverse effect on our business, financial condition, and/or

results of operations.&#160; Furthermore, we

may be subject to the perceived or actual leverage the customers may have given

their relative size and importance to us in any future negotiations.&#160; Any termination, change, reduction or delay

in orders could seriously harm our business, financial condition, and results

of operations.&#160; Accordingly, unless and

until we diversify and expand our customer base, our future success will

significantly depend upon the timing and size of future purchases by our

largest customers and the financial and operational success of these

customers.&#160; Product revenue in the

future may continue to be adversely impacted by economic uncertainties

associated with the Turkish market.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The loss of any one of our major

customers or the delay of significant orders from such customers, even if only

temporary, could reduce or delay our recognition of revenues, harm our

reputation in the industry, and reduce our ability to accurately predict cash

flow, and, as a consequence, could seriously harm our business, financial

condition, and results of operations.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We, through our distributors,

distribute ORTHOVISC in territories such as Canada, U.K., Spain, Portugal,

Turkey, Israel and Greece.&#160; Due to the

result of the unfavorable results of the U.S.&#160;

ORTHOVISC Phase III clinical trial announced on May 31, 2000, marketing

efforts in these countries have been and may continue to be negatively

affected.&#160; We cannot assure you that

past ORTHOVISC sales levels will be maintained or that sales will occur at all

in these countries.</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">25</font></p>





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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-autospace:none;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ITEM

3.&#160; QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK</font></b></p>



<p style="margin:0in 0in .0001pt;text-autospace:none;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">As of March 31, 2003, the Company

did not participate in any derivative financial instruments or other financial

and commodity instruments for which fair value disclosure would be required

under SFAS No. 107. All of the Company&#146;s investments consist of money market

funds and commercial paper that are carried on the Company&#146;s books at amortized

cost, which approximates fair market value. Accordingly, the Company has no

quantitative information concerning the market risk of participating in such

investments.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;text-autospace:none;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">Primary Market Risk

Exposures</font></i></h6>



<h6 align="left" style="font-style:italic;font-weight:normal;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;text-autospace:none;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></i></h6>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">The Company&#146;s primary market risk

exposures are in the areas of interest rate risk and foreign currency exchange

rate risk. The Company&#146;s investment portfolio of cash equivalent and short-term

investments is subject to interest rate fluctuations, but the Company believes

this risk is immaterial due to the short-term nature of these investments.&#160; The Company&#146;s exposure to currency exchange

rate fluctuations is specific to certain sales to a foreign customer and is

expected to continue to be modest. The impact of currency exchange rate

movements on sales to this foreign customer was immaterial for the quarter

ended March 31, 2003.&#160; Currently, the

Company does not engage in foreign currency hedging activities.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">ITEM 4.&#160; CONTROLS AND PROCEDURES</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(a)</font><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="letter-spacing:-.1pt;">Evaluation of disclosure controls and procedures.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">As required by Securities

Exchange Act Rule 13a-15, the Company carried out 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, of the

effectiveness of the design and operation of the Company&#146;s disclosure controls

and procedures, as of a date within 90 days prior to the filing of this report

(&#147;Evaluation Date&#148;).</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Based upon their evaluation, the

Chief Executive Officer and Chief Financial Officer concluded that the

Company&#146;s disclosure controls and procedures are effective to ensure that

material information relating to the Company required to be included in this

Quarterly Report on Form 10-Q is made known to them by others within the

Company on a timely basis.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">We currently are in the process

of further reviewing and documenting our disclosure controls and procedures,

including our internal controls and procedures for financial reporting, and may

from time to time make changes aimed at enhancing their effectiveness and to

ensure that our systems evolve with our business.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&#160;(b)</font><font size="1" style="font-size:3.0pt;letter-spacing:-.1pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="letter-spacing:-.1pt;">Changes in internal controls.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Subsequent to the Evaluation Date,

there were no significant changes in internal controls or in other factors that

could significantly affect internal controls.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">PART II:

OTHER INFORMATION</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 1.&#160; Legal Proceedings</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">See Note 8, &#147;Legal Matters&#148; of

the consolidated financial statements.&#160;

The description of such matters is incorporated herein by reference to

such financial statements.</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 4.&#160; Submission of Matters to a Vote of Security Holders</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">None</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">26</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='26',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Item 6.</font></b><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><b><font style="font-weight:bold;">Exhibits and Reports on Form 8-K</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">(a)</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p align="center" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Exhibit No.</font></b></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p align="center" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:79.84%;">

  <p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="1" face="Times New Roman" style="font-size:8.0pt;font-weight:bold;">Description</font></b></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(3)</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Articles of Incorporation and Bylaws:</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.1</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amended and Restated Articles of Organization of the

  Company, (incorporated herein by reference to Exhibit 3.1 to the Company&#146;s

  Registration Statement on Form 10 (File no. 000-21326), filed with the

  Securities and Exchange Commission on March 5, 1993).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.2</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Certificate of Vote of Directors Establishing a

  Series of Convertible Preferred Stock, (incorporated herein by reference to

  Exhibits to the Company&#146;s Registration Statement on Form 10 (File no.

  000-21326), filed with the Securities and Exchange Commission on March 5,

  1993).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.3</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amendment to the Amended and Restated Articles of

  Organization of the Company, (incorporated herein by reference to Exhibit 3.1

  to the Company&#146;s quarterly report on Form 10-QSB for the period ended

  November 30, 1996, (File no. 000-21326), filed with the Securities and

  Exchange Commission on January 14, 1997).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.4</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Certificate of Vote of Directors Establishing a

  Series of a Class of Stock, (incorporated herein by reference to Exhibit 3.1

  of the Company&#146;s Registration Statement on Form 8-AB12 (File no. 001-14027),

  filed with the Securities and Exchange Commission on April 7, 1998).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.5</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amendment to the Amended and Restated Articles of

  Organization of the Company, (incorporated herein by reference to the

  Company&#146;s quarterly report on Form 10-QSB for the quarterly period ending

  June 30, 1998 (File no. 001-14027), filed with the Securities and Exchange

  Commission on August 14, 1998).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.6</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amended and Restated Bylaws of the Company,

  (incorporated herein by reference to Exhibit 3.4 to the Company&#146;s quarterly

  report on Form 10-QSB for the period ended November 30, 1996 (File no.

  000-21326), filed with the Securities and Exchange Commission on January 14,

  1997).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.7</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amendment to the Amended and Restated Articles of

  Organization of the Company, (incorporated herein by reference to Exhibit 3.3

  of the Company&#146;s quarterly report on Form 10-Q for the quarterly period

  ending June 30, 2002 (File no. 000-21326), filed with the Securities and

  Exchange Commission on August 14, 2002).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.8</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amended and Restated Bylaws of the Company,

  (incorporated herein by reference to Exhibit 3.6 to the Company&#146;s quarterly

  report on Form 10-Q for the quarterly period ended June 30, 2002 (File no.

  000-21326), filed with the Securities and Exchange Commission on August 14,

  2002).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(4)</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Instruments Defining the Rights of Security Holders</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="9%" valign="top" style="padding:0in .7pt 0in .7pt;width:9.2%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.1</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.02%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="79%" valign="top" style="padding:0in .7pt 0in .7pt;width:79.84%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Shareholder Rights Agreement dated as of April 6,

  1998 between the Company and Firstar Trust Company, (incorporated herein by

  reference to Exhibit 4.1 to the Company&#146;s Registration Statement on Form

  8-A12B (File no. 001-14027), filed with the Securities and Exchange

  Commission on April 7, 1998).</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">27</font></p>





<div style="margin:0in 0in .0001pt;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></b></div>



<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;letter-spacing:-.1pt;">
<!-- SEQ.=1,FOLIO='27',FILE='C:\C2\rhults\1085_1\t_1532593\j1085_10q.htm',USER='clebour',CD='May 14 13:53 2003' -->
<br clear="all" style="page-break-before:always;">

</font></b>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.2</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Amendment to Shareholder Rights Agreement dated as

  of November 5, 2002 between the Company and American Stock Transfer and Trust

  Company, as successor to Firstar Trust Company, (incorporated herein by

  reference to Exhibit 4.2 to the Company&#146;s quarterly report on Form 10-Q for

  the quarterly period ended September 30, 2002 (File no. 000-21326), filed

  with the Securities and Exchange Commission on November 13, 2002).</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(10)</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Material Contracts</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">*10.33</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Letter Agreement dated February 21, 2003 by and

  between the Company and Roger C. Stikeleather.</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">*10.34</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Change in Control, Bonus and Severance Agreement

  dated March 17, 2003 by and between the Company and Roger C. Stikeleather.</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(11)</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Statement Regarding the Computation of Per Share

  Earnings</font></p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.94%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11.1</font></p>

  </td>

  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.06%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="81%" valign="top" style="padding:0in .7pt 0in .7pt;width:81.24%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">See Note 4 to the Financial Statements included

  herewith.</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="1" width="25%" noshade color="black" align="left">



</font></div>





<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">*</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Filed

herewith</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Reports

on Form 8-K:</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Registrant filed the following Current Report on

Form 8-K during the quarter ended March 31, 2003:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Current Report on

Form 8-K filed January 30, 2003, attaching a press release announcing that the

Company had restated previously-reported financial results for the three- and

nine-month periods ended September 30, 2002.</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">28</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>



<p style="font-weight:bold;letter-spacing:-.1pt;margin:0in 0in .0001pt;page-break-after:auto;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">SIGNATURES</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">Pursuant

to the requirements of the Securities Exchange Act of 1934, the registrant has

duly caused this report to be signed on its behalf by the undersigned,

thereunto duly authorized.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="56%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:56.64%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">ANIKA

  THERAPEUTICS, INC.</font></p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="51%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:51.42%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="51%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:51.42%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">May

  14, 2003</font></p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">By:</font></p>

  </td>

  <td width="33%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:33.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">/s/&#160; William J. Knight</font></p>

  </td>

  <td width="18%" valign="top" style="padding:0in .7pt 0in .7pt;width:18.42%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="51%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:51.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">William

  J. Knight</font></p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="51%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:51.42%;">

  <p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;letter-spacing:-.1pt;">Chief Financial Officer and Treasurer</font></i></p>

  </td>

 </tr>

 <tr>

  <td width="43%" valign="top" style="padding:0in .7pt 0in .7pt;width:43.36%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.22%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="51%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:51.42%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:-.1pt;">(Principal

  Financial Officer and Accounting Officer)</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">29</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CERTIFICATION

PURSUANT TO SECTION 302(a)<br>

OF THE SARBANES-OXLEY ACT OF 2002</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">I, Charles H. Sherwood, Ph.D, certify that:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>I have reviewed

this quarterly report on Form 10-Q of Anika Therapeutics, Inc.;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Based on my

knowledge, this quarterly 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 quarterly report;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Based on my

knowledge, the financial statements, and other financial information included

in this quarterly 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 quarterly report;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act

Rules 13a-14 and 15d-14) for the registrant and we have:</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>designed such

disclosure controls and procedures 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

quarterly report is being prepared;</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>evaluated the

effectiveness of the registrant&#146;s disclosure controls and procedures as of a

date within 90 days prior to the filing date of this quarterly report (the

&#147;Evaluation Date&#148;); and</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>presented in this

quarterly report our conclusions about the effectiveness of the disclosure

controls and procedures based on our evaluation as of the Evaluation Date;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I have disclosed, based on our most recent

evaluation, to the registrant&#146;s auditors and the audit committee of

registrant&#146;s board of directors (or persons performing the equivalent

function):</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>all significant

deficiencies in the design or operation of internal controls which could

adversely affect the registrant&#146;s ability to record, process, summarize and

report financial data and have identified for the registrant&#146;s auditors any

material weaknesses in internal controls; and</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any fraud, whether or

not material, that involves management or other employees who have a

significant role in the registrant&#146;s internal controls; and</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I have indicated in this quarterly report whether

or not there were significant changes in internal controls or in other factors

that could significantly affect internal controls subsequent to the date of our

most recent evaluation, including any corrective actions with regard to

significant deficiencies and material weaknesses.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date:&nbsp;&nbsp;&nbsp;May 14, 2003</font></p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="31%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:31.44%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Charles H. Sherwood</font></p>

  </td>

  <td width="18%" valign="top" style="padding:0in 0in 0in 0in;width:18.56%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Charles H.

  Sherwood, Ph.D.</font></p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Executive

  Officer and President</font></p>

  </td>

 </tr>

</table>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">30</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>



<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CERTIFICATION

PURSUANT TO SECTION 302(a)<br>

OF THE SARBANES-OXLEY ACT OF 2002</font></b></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">I, William J. Knight, certify that:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>I have reviewed

this quarterly report on Form 10-Q of Anika Therapeutics, Inc.;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Based on my

knowledge, this quarterly 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 quarterly report;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Based on my

knowledge, the financial statements, and other financial information included

in this quarterly 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 quarterly report;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I are responsible for establishing and

maintaining disclosure controls and procedures (as defined in Exchange Act

Rules 13a-14 and 15d-14) for the registrant and we have:</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>designed such

disclosure controls and procedures 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

quarterly report is being prepared;</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>evaluated the

effectiveness of the registrant&#146;s disclosure controls and procedures as of a

date within 90 days prior to the filing date of this quarterly report (the

&#147;Evaluation Date&#148;); and</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>presented in this

quarterly report our conclusions about the effectiveness of the disclosure

controls and procedures based on our evaluation as of the Evaluation Date;</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I have disclosed, based on our most recent

evaluation, to the registrant&#146;s auditors and the audit committee of

registrant&#146;s board of directors (or persons performing the equivalent

function):</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>all significant

deficiencies in the design or operation of internal controls which could

adversely affect the registrant&#146;s ability to record, process, summarize and report

financial data and have identified for the registrant&#146;s auditors any material

weaknesses in internal controls; and</p>



<p style="margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>any fraud, whether or

not material, that involves management or other employees who have a

significant role in the registrant&#146;s internal controls; and</p>



<p style="margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt .25in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The registrant&#146;s

other certifying officers and I have indicated in this quarterly report whether

or not there were significant changes in internal controls or in other factors

that could significantly affect internal controls subsequent to the date of our

most recent evaluation, including any corrective actions with regard to

significant deficiencies and material weaknesses.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date:&nbsp;&nbsp;&nbsp;May 14, 2003</font></p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="28%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:28.66%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ William J. Knight</font></p>

  </td>

  <td width="21%" valign="top" style="padding:0in 0in 0in 0in;width:21.34%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">William J.

  Knight</font></p>

  </td>

 </tr>

 <tr>

  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">

  <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Financial

  Officer</font></p>

  </td>

 </tr>

</table>



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<p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 10.33</font></b></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">[Anika Therapeutics, Inc. Letterhead]</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">February 21, 2003</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Mr. Roger C. Stikeleather</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6166 Stover&#146;s Mill Road</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Doylestown, PA 18901</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dear Roger:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">I am pleased to present our

offer to you to join Anika Therapeutics, Inc. as an employee. The terms of our

offer are outlined below:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Position</font></u>:

Vice President Sales and Marketing.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Description of

duties</font></u>: You will have responsibility for the sales and

marketing activities of the Company including the design and direction of all

commercial and product line strategies. You will be responsible for attaining

the sales and market share objectives as defined by the Company&#146;s annual

operating budget. You will have total responsibility for all commercialization

activities including product management, marketing services, business

development, market research, sales and sales management, national accounts,

distributor relationships, contract administration, and customer service.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Reporting to</font></u>:

Charles H. Sherwood, Ph.D., President and Chief Executive Officer.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Employment

date</font></u>: Your anticipated start date is no later than

March 17, 2003.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Rate of pay</font></u>:

$7,115.39 per bi-weekly payroll (annualized $185,000).</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Management

bonus plan</font></u>:&#160;

Target 20% of salary at plan. Bonus is payable shortly after year-end

based on Company performance and personal performance against key objectives.

In accordance with the Management Bonus Plan, your bonus for 2003 will be

prorated based on the number of months of your employment.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Stock options</font></u>:

You will be granted an option on 75,000 shares of common stock of the Company,

subject to approval by the Compensation Committee of the Board of Directors.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Benefits</font></u>:

You will be eligible to participate in the Anika employee benefit programs upon

commencement of employment. This program currently covers comprehensive medical

and dental benefits, life and disability insurance, supplemental disability

insurance, and a Section 125 Plan. You will be eligible to participate in our

401(k) Savings and Investment Plan at the first enrollment date following your

date of hire. Under the current terms, the 401(k) plan entitles you to

contribute up to the maximum limit established by the IRS. The Company will

match 100% of your contribution up to 5% of your salary. Your participation in

the benefit plans will be governed by and subject to the plan terms as

described in the official documents and Summary Plan Descriptions.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



<hr size="2" width="100%" noshade color="gray" align="left">



</font></div>



<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Roger C. Stikeleather</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Vacation</font></u>:

You will accrue three weeks of vacation during your first year of employment

and are subject to the terms of accrual and use set forth in Anika&#146;s policies.</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Relocation</font></u>:

Anika will pay you a lump-sum relocation of $50,000 to be used in any manner

that you choose. You will be responsible for paying all necessary taxes.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Severance in

the event of termination</font></u>:</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt 39.0pt;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Termination

without cause (non-performance related): If Anika terminates your employment

without &#147;cause&#148; (as construed under Massachusetts common law for employment

contracts), Anika will continue your base salary at its then current rate for

six months, subject to your compliance with your obligations under your other

agreements with the Company and your cooperation with any other reasonable

requests by Anika for assistance during that period. In addition, in such

circumstances the Company will also pay the premiums for continuation of

medical and dental benefits under COBRA for you and your family for six months

after termination of your employment (or until the end of COBRA eligibility, if

earlier), subject to your premium payment of the active employee share of

premium payments for such coverage.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt 39.0pt;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2)</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Termination

for cause: Anika may terminate your employment at any time for cause by

delivering to you a certified copy of a resolution of the Board of Directors of

Anika finding that you committed an act of omission constituting cause

hereunder and specifying the particulars thereof in detail, adopted at a

meeting called and held for that purpose and of which you were provided not

less than seven days advance notice, including notice of the agenda of such meeting.

As used herein, the term &#147;cause&#148; shall mean :</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">i.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>conviction

of a felony involving the Company,</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">ii.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>acting

in a manner which is materially detrimental or materially damaging to the

Company&#146;s reputation or business operations other than actions which involve

your bad judgment or a decision which was taken in good faith, provided that

you shall have failed to remedy such action within ten days after receiving

written notice of the Company&#146;s position with respect to such action; or</p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">iii.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>committing

any material breach of this agreement, provided that, if such breach is capable

of being remedied, you shall have failed to remedy such breach within ten days

after your receipt of written notice requesting that you remedy such breach.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Change in

Control, Bonus, and Severance Agreement</font></u>: Subject to

the approval of the Compensation Committee of the Board of Directors, an

Agreement (attached) between you and Anika Therapeutics, Inc. shall be executed

providing terms pertaining to a Change in Control. The purpose of this

Agreement is to reinforce and encourage your continued attention and dedication

to your assigned duties without distraction in the face of potentially

disturbing circumstances arising from the possibility of a Change in Control.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Arbitration</font></u>:

In the event of any controversy or claim arising out of or relating to this

letter agreement or otherwise arising out of your employment or the termination

of that employment (including, without limitation, any claims of unlawful

employment discrimination whether based </p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>





<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">



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<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">on age or otherwise), that

controversy or claim shall, to the fullest extent permitted by law, be settled

by arbitration under the auspices of the American Arbitration Association

(&#147;AAA&#148;) in Boston, Massachusetts in accordance with the Employment Dispute

Resolution Rules of the AAA, including, but not limited to, the rules and

procedures applicable to the selection of arbitrators (or alternatively, in any

other forum or in any other form agreed upon by the parties). In the event that

any person or entity other than you or Anika may be a party with regard to any

such controversy or claim, such controversy or claim shall be submitted to

arbitration subject to such other person or entity&#146;s agreement. Judgment upon

the award rendered by the arbitrator may be entered in any court having

jurisdiction thereof. This provision shall be specifically enforceable.

Notwithstanding the foregoing, this provision shall not preclude either party

from pursuing a court action for the sole purpose of obtaining a temporary

restraining order or a preliminary injunction in circumstances in which such

relief is appropriate; provided that any other relief shall be pursued through

an arbitration proceeding pursuant to this provision.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="font-size:10.0pt;margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Contingency</font></u>:

This offer is contingent upon your execution of the <i><font style="font-style:italic;">Anika Non-Disclosure and Non-Competition Agreement</font></i> as an

employee of Anika Therapeutics. In addition, all employees are subject to a

background check including verification of education.</p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">You, like everyone else at

Anika, will be an at-will employee. The terms of your employment will be

interpreted in accordance with and governed by the laws of the Commonwealth of

Massachusetts.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Finally, this offer is

conditioned on your representation that you are not subject to any

confidentiality or non-competition agreement or any other similar type of

restriction that would affect your ability to devote full time and attention to

your work at Anika Therapeutics, Inc. Upon commencement of your employment, you

will be required to provide evidence that you are a U.S. citizen or national, a

lawful permanent resident, or an alien authorized to work in the U.S.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If the terms of this offer are

acceptable, please indicate your acceptance by signing both copies of this

letter and the <i><font style="font-style:italic;">Anika Non-Disclosure and

Non-Competition Agreement </font></i>and return one copy of each to me. I am

enthusiastic about Anika&#146;s future prospects and look forward to your leadership

and contribution to the Anika team.</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sincerely,</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="25%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:25.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Charles

  H. Sherwood</font></p>

  </td>

  <td width="74%" valign="top" style="padding:0in 0in 0in 0in;width:74.96%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">

  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Charles H.

  Sherwood, Ph.D.</font></p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">President

  and Chief Executive Officer</font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Agreed and accepted:</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">

 <tr>

  <td width="25%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:25.04%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Roger C.

  Stikeleather</font></p>

  </td>

  <td width="74%" valign="top" style="padding:0in 0in 0in 0in;width:74.96%;">

  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Roger C.

  Stikeleather</font></p>

  </td>

 </tr>

 <tr>

  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

  </font></p>

  </td>

 </tr>

</table>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Enclosures</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>



<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>





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<FILENAME>j1085_ex10d34.htm
<DESCRIPTION>EX-10.34
<TEXT>
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<p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 10.34</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">ANIKA THERAPEUTICS, INC.</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h1 style="margin:0in 0in .0001pt;page-break-after:auto;text-align:center;text-decoration:underline;text-indent:.5in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Form
of Change in Control, Bonus and Severance Agreement</font></u></b></h1>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">AGREEMENT made as
of March 17, 2003 by and among Anika Therapeutics, Inc., a Massachusetts
corporation with its principal place of business in Woburn, Massachusetts (the
&#147;Company&#148;), and Roger C. Stikeleather, of Doylestown, Pennsylvania (the
&#147;Executive&#148;), an individual presently employed as the Vice President Sales and
Marketing of the Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Purpose</u>.&#160; The Company considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel.&#160; The Board of
Directors of the Company (the &#147;Board&#148;) recognizes, however, that, as is the
case with many publicly held corporations, the possibility of a Change in Control
(as defined in Section&nbsp;2 hereof) exists and that such possibility, and the
uncertainty and questions which it may raise among management, may result in
the departure or distraction of management personnel to the detriment of the
Company and its stockholders.&#160;
Therefore, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company&#146;s management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control.&#160; Nothing in this Agreement shall be construed as creating an
express or implied contract of employment and, except as otherwise agreed in
writing between the Executive and the Company, the Executive shall not have any
right to be retained in the employ of the Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Change in Control</u>.&#160; A &#147;Change in Control&#148; shall mean the
occurrence of any one of the following events:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; any &#147;person,&#148; as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the &#147;Act&#148;)
(other than the Company, any of its subsidiaries, any trustee, fiduciary or
other person or entity holding securities under any employee benefit plan or
trust of the Company or any of its subsidiaries), together with all
&#147;affiliates&#148; and &#147;associates&#148; (as such terms are defined in Rule 12b-2 under
the Act) of such person, shall become the &#147;beneficial owner&#148; (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 51% or more of the combined voting power of the
Company&#146;s then outstanding securities having the right to vote in an election
of the Company&#146;s Board of Directors (&#147;Voting Securities&#148;); or</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; persons who, as of the date hereof,
constitute the Company&#146;s Board of Directors (the &#147;Incumbent Directors&#148;) cease
for any reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Change
in Control, Bonus and Severance Agreement &#151; Roger C. Strikeleather</font></i></p>

<p style="margin:0in 0in .0001pt;"><i><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">&nbsp;</font></i></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">least a majority of the Board, provided that any
person becoming a director of the Company subsequent to the date hereof whose
election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors shall, for purposes of this Agreement, be
considered an Incumbent Director; or</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the stockholders of the Company shall
approve (A) any consolidation or merger of the Company where the shareholders
of the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such term
is defined in Rule 13d-3 under the Act), directly or indirectly, shares
representing in the aggregate 51% of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (B) any sale, lease, exchange or other transfer
(in one transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of the
Company or (C) any plan or proposal for the liquidation or dissolution of the
Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Notwithstanding
the foregoing, a &#147;Change in Control&#148; shall not be deemed to have occurred for
purposes of the foregoing clause (a) solely as the result of an acquisition of
securities by the Company which, by reducing the number of shares of Voting
Securities outstanding, increases the proportionate voting power represented by
the Voting Securities beneficially owned by any person to 51% or more of the
combined voting power of all then outstanding Voting Securities; <u>provided</u>,
<u>however</u>, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a share split, stock dividend or similar
transaction or direct purchase from the Company), then a &#147;Change in Control&#148;
shall be deemed to have occurred for purposes of the foregoing clause (a).</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Terminating Event</u>.&#160; A &#147;Terminating Event&#148; shall mean any of the
events provided in this Section&nbsp;3 occurring within twelve (12) months
subsequent to a Change in Control as defined in Section&nbsp;2:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; termination by the Company of the
employment of the Executive with the Company for any reason other than for
Cause or the death of the Executive.&#160;
&#147;Cause&#148; shall mean, and shall be limited to, the occurrence of any one
or more of the following events:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(i)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; a willful act of dishonesty by the
Executive with respect to any matter involving the Company;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(ii)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; conviction of the Executive of a
crime involving moral turpitude; or</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(iii)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the deliberate or willful failure by
the Executive (other than by reason of the Executive&#146;s physical or mental
illness, incapacity or disability) to</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt 1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">substantially
perform the Executive&#146;s duties with the Company and the continuation of such
failure for a period of 30 days after delivery by the Company to the Executive
of written notice specifying the scope and nature of such failure and its
intention to terminate the Executive for Cause.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">A
Terminating Event shall not be deemed to have occurred pursuant to this
Section&nbsp;3(a) solely as a result of the Executive being an employee of any
direct or indirect successor to the business or assets of the Company, rather
than continuing as an employee of the Company following a Change in Control.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; termination by the Executive of the
Executive&#146;s employment with the Company for Good Reason.&#160; &#147;Good Reason&#148; shall mean the occurrence of
any of the following events:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(i)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; a substantial adverse change in the
nature or scope of the Executive&#146;s responsibilities or duties from the
responsibilities or duties exercised by the Executive immediately prior to the
Change in Control, it being understood by the parties hereto, that so long as
the Executive retains primary sales and marketing responsibilities for the
business conducted by Anika immediately prior to the Change in Control, Good
Reason shall not exist under this Section&nbsp;3(b)(i); or</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(ii)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; a reduction in the Executive&#146;s annual
base salary and/or benefits as in effect on the date hereof or as the same may
be increased from time to time except for across-the-board salary and/or
benefits reductions similarly affecting all or substantially all management
employees.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">For purposes of
this Section 3, unless the context otherwise requires, Company shall mean the
Company or any successor thereto or to the business thereof in a transaction
involving a Change in Control.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Special Termination Payments</u>.&#160; In the event a Terminating Event occurs
within twelve (12) months after a Change in Control in lieu of any payments
under the Employment Letter (as hereinafter defined),</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the Company shall pay to the
Executive, in addition to the payment, if any, required by Section&nbsp;5, an
amount equal to 100% of the Executive&#146;s annual salary as in effect immediately
prior to the Change in Control, said amount shall be paid in one lump sum
payment no later than thirty-one (31) days following the Date of Termination
(as such term is defined in Section 9(b)); and</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the Company shall continue to provide
health, dental, long-term disability, life insurance and other fringe benefits
to the Executive, on the same terms and</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">conditions
(including any required co&#173;-payments) as though the Executive had remained an
active employee, for twelve (12)<b><font style="font-weight:bold;">  </font></b>months; and</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; the Company shall provide COBRA
benefits to the Executive following the end of the period referred to in
Section 4(c) above, such benefits to be determined as though the Executive&#146;s
employment had terminated at the end of such period.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Payment Upon Effective Date of
Change in Control</u>.&#160; Upon the
effective date of a Change in Control, regardless of whether a Terminating
Event has occurred, in addition to any other payment required by
Section&nbsp;4, the Company shall pay the Executive an amount in cash
representing fifty percent (50%) of the Executive&#146;s annual salary as in effect
immediately prior to the Change in Control.&#160;
Said amount shall be paid in one lump sum payment no later than
thirty-one (31) days following the effective date of a Change in Control.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Certain Limitations</u>.&#160; It is the intention of the Executive and of
the Company that no payments by the Company to or for the benefit of the
Executive under this Agreement or any other agreement or plan, if any, pursuant
to which the Executive is entitled to receive payments or benefits shall be
nondeductible to the Company by reason of the operation of Section 280G of the
Code relating to parachute payments or any like statutory or regulatory
provision.&#160; Accordingly, and
notwithstanding any other provision of this Agreement or any such agreement or
plan, if by reason of the operation of said Section 280G or any like statutory
or regulatory provision, any such payments exceed the amount which can be
deducted by the Company, such payments shall be reduced to the maximum amount
which can be deducted by the Company.&#160;
To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Executive, such excess payments
shall be refunded to the Company with interest thereon at the applicable
Federal rate determined under Section 1274(d) of the Code, compounded annually,
or at such other rate as may be required in order that no such payments shall
be nondeductible to the Company by reason of the operation of said Section 280G
or any like statutory or regulatory provision.&#160;
To the extent that there is more than one method of reducing the
payments to bring them within the limitations of said Section&nbsp;280G or any
like statutory or regulatory provision, the Executive shall determine which
method shall be followed, provided that if the Executive fails to make such
determination within forty-five (45) days after the Company has given notice of
the need for such reduction, the Company may determine the method of such
reduction in its sole discretion.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Term</u>.&#160; This Agreement shall take effect on the date
first set forth above and shall terminate upon the earliest of (a) the
termination by the Company of the employment of the Executive for Cause; (b)
the cessation of the Executive&#146;s employment with the Company for any reason or
the resignation or termination of the Executive for any reason, in each case,
prior to a Change in Control; or (c) the resignation of the Executive after a
Change in Control for any reason other than for Good Reason.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Withholding</u>.&#160; All payments made by the Company under this
Agreement shall be net of any tax or other amounts required to be withheld by
the Company under applicable law.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Notice and Date of Termination;
Disputes; Etc.</u></font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Notice of Termination</u>.&#160; After a Change in Control and during the
term of this Agreement, any purported termination of the Executive&#146;s employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
this Section&nbsp;9.&#160; For purposes of
this Agreement, a &#147;Notice of Termination&#148; shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
the Date of Termination.&#160; Further, a
Notice of Termination for Cause is required to include a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board (exclusive of the Executive) at a meeting of the Board
(after reasonable notice to the Executive and an opportunity for the Executive,
accompanied by the Executive&#146;s counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the termination met the criteria
for Cause set forth in Section&nbsp;3(a) hereof.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Date of Termination</u>.&#160; &#147;Date of Termination,&#148; with respect to any
purported termination of the Executive&#146;s employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination.&#160; In the case of a
termination by the Company other than a termination for Cause (which may be
effective immediately), the Date of Termination shall not be less than 30 days
after the Notice of Termination is given.&#160;
In the case of a termination by the Executive, the Date of Termination
shall not be less than 15 days from the date such Notice of Termination is
given.&#160; Notwithstanding
Section&nbsp;3(a) of this Agreement, in the event that the Executive gives a
Notice of Termination to the Company, the Company may unilaterally accelerate
the Date of Termination and such acceleration shall not result in a second
Terminating Event for purposes of Section&nbsp;3(a) of this Agreement.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>No Mitigation</u>.&#160; The Company agrees that, if the Executive&#146;s
employment by the Company is terminated during the term of this Agreement, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Sections
4 and 5 hereof.&#160; Further, the amount of
any payment provided for in this Agreement shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Mediation of Disputes</u>.&#160; The parties shall endeavor in good faith to
settle within 90 days any controversy or claim arising out of or relating to
this Agreement or the breach thereof through mediation with J.A.M.S./Endispute
or similar organizations.&#160; If the
controversy or claim is not resolved within 90 days, the parties shall be free
to pursue other legal remedies in law or equity.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Assignment; Prior Agreements; Non-Solicitation</u>.&#160; Except for an assignment by the Company in
connection with a Change in Control in which the successor, if other than the
Company, shall assume and agree to perform this Agreement in writing, neither
the Company nor the Executive may make any assignment of this Agreement or any
interest herein, by operation of law or otherwise, without the prior written
consent of the other party, and without such consent any attempted transfer
shall be null and void and of no effect.&#160;
This Agreement shall inure to the benefit of and be binding upon the
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.&#160;
In the event of the Executive&#146;s death after a Terminating Event but
prior to the completion by the Company of all payments due him under
Sections&nbsp;4 and 5 of this Agreement, the Company shall continue such
payments to the Executive&#146;s beneficiary designated in writing to the Company
prior to his death (or to his estate, if the Executive fails to make such
designation).&#160; This Agreement supercedes
all prior Agreements, whether written or oral with respect to the subject
matter hereof.&#160; Notwithstanding the
foregoing that certain Non-Disclosure and Non-Competition Agreement of March
17, 2003, by and between Executive and the Company shall remain in full force
and effect in accordance with its terms.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Executive
covenants to the Company that during his employment with the Company and until
one (1) year from the date he is no longer employed by the Company, any
affiliate thereof or any successor thereto, he will not in any manner, on his
own behalf, or as a partner, officer, director, employee, agent or entity,
directly or indirectly, induce or attempt to influence any person serving as an
employee of the Company or any successor thereto to leave its employ or hire
any such person.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Enforceability</u>.&#160; If any portion or provision of this
Agreement shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as
to which it is so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Waiver</u>.&#160; No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving party.&#160; The failure of any party to require the
performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Notices</u>.&#160; Any notices, requests, demands, and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Company, or to the Company at its main office, attention of the Board of
Directors.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">14.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Effect on Other Plans</u>.&#160; Except as provided in Section&nbsp;10
hereof, nothing in this Agreement shall be construed to limit the rights of the
Executive under the Company&#146;s benefit plans, programs or policies.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">15.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Amendment</u>.&#160; This Agreement may be amended or modified
only by a written instrument signed by the Executive and by a duly authorized
representative of the Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">16.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Governing Law</u>.&#160; This is a Massachusetts contract and shall
be construed under and be governed in all respects by the laws of the
Commonwealth of Massachusetts.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">17.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Obligations of Successors</u>.&#160; In addition to any obligations imposed by
law upon any successor to the Company, the Company will use its commercially
reasonable efforts to require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
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</font>

<p align="center" style="font-size:10.0pt;margin:0in 0in .0001pt;text-align:center;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">IN WITNESS
WHEREOF, this Agreement has been executed as a sealed instrument by the Company
by their duly authorized officers and by the Executive, as of the date first
above written.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="15%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:15.52%;">
  <p style="margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">COMPANY:</font></u></p>
  </td>
  <td width="38%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:38.92%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">ANIKA THERAPEUTICS,
  INC.</font></p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="3%" valign="top" style="padding:0in 0in 0in 0in;width:3.34%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="25%" colspan="2" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:25.48%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Charles H. Sherwood</font></p>
  </td>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.62%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="3%" valign="top" style="padding:0in 0in 0in 0in;width:3.34%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in 0in 0in 0in;width:51.1%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Charles H. Sherwood,
  Ph.D.</font></p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="3%" valign="top" style="padding:0in 0in 0in 0in;width:3.34%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="51%" colspan="3" valign="top" style="padding:0in 0in 0in 0in;width:51.1%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">President and Chief
  Executive Officer</font></p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="15%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:15.52%;">
  <p style="margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXECUTIVE:</font></u></p>
  </td>
  <td width="38%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:38.92%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="font-size:10.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="28%" colspan="3" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in 0in 0in 0in;width:28.82%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Roger C.
  Stikeleather</font></p>
  </td>
  <td width="25%" valign="top" style="padding:0in 0in 0in 0in;width:25.62%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="45%" valign="top" style="padding:0in 0in 0in 0in;width:45.56%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="54%" colspan="4" valign="top" style="padding:0in 0in 0in 0in;width:54.44%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Roger C. Stikeleather</font></p>
  </td>
 </tr>
 <tr height="0">
  <td width="329" style="border:none;"></td>
  <td width="24" style="border:none;"></td>
  <td width="88" style="border:none;"></td>
  <td width="96" style="border:none;"></td>
  <td width="185" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>


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