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<SEC-DOCUMENT>0001047469-04-009837.txt : 20040330
<SEC-HEADER>0001047469-04-009837.hdr.sgml : 20040330
<ACCEPTANCE-DATETIME>20040329185721
ACCESSION NUMBER:		0001047469-04-009837
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		8
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040330

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-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-14027
		FILM NUMBER:		04697709

	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
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<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2132242z10-k.htm
<DESCRIPTION>FORM 10-K
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<P><FONT SIZE=2><B> <hr noshade width=100% align=left size=4>
<hr noshade width=100% align=left size=1>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=4><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>WASHINGTON, D.C. 20549  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=4><B>FORM 10-K  </B></FONT></P>

<P><FONT SIZE=2><B>(Mark One)  </B></FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="CENTER"><BR><FONT SIZE=2><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="89%"><BR><FONT SIZE=2><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2><B>For the fiscal year ended December&nbsp;31, 2003  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> or  </B></FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="11%" ALIGN="CENTER"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="89%"><FONT SIZE=2><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)&nbsp;OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>
Commission File Number 000-21326 </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>Anika Therapeutics,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>(Exact Name of Registrant as Specified in Its Charter) </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="60%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="62%" ALIGN="CENTER"><FONT SIZE=2><B>Massachusetts</B></FONT><FONT SIZE=2><BR>
(State or Other Jurisdiction of<BR>
Incorporation or Organization)</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="CENTER"><FONT SIZE=2><B>04-3145961</B></FONT><FONT SIZE=2><BR>
(I.R.S. Employer<BR>
Identification No.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="62%" ALIGN="CENTER"><BR><FONT SIZE=2><B>160 New Boston Street, Woburn, Massachusetts</B></FONT><FONT SIZE=2><BR>
(Address of Principal Executive Offices)</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="CENTER"><BR><FONT SIZE=2><B>01801</B></FONT><FONT SIZE=2><BR>
(Zip Code)</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>(Registrant's
Telephone Number, Including Area Code): </FONT><FONT SIZE=2><B>(781) 932-6616</B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Securities
registered pursuant to Section&nbsp;12(b)&nbsp;of the Act: None </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>Securities
registered pursuant to Section&nbsp;12(g)&nbsp;of the Act:<BR>
Common Stock, par value $.01 per share </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2>Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing
requirements for the past 90&nbsp;days.&nbsp;Yes <FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No <FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation&nbsp;S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part&nbsp;III of this Form&nbsp;10-K or any
amendment to this Form&nbsp;10-K.&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule&nbsp;12b-2 of the Securities Exchange Act of 1934).&nbsp;Yes <FONT FACE="WINGDINGS">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;
No&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>The aggregate market value of voting and non-voting stock held by non-affiliates
of the Registrant as of June&nbsp;30, 2003, the last day of the Registrant's most recently completed second fiscal quarter, was $19,074,000 based on the average bid and ask price per share of Common
Stock of $3.22 as of such date as reported on the NASDAQ National Market. Shares of our Common Stock held by each executive officer, director and each person or entity known to the registrant to be an
affiliate have been excluded in that such persons may be deemed to be affiliates; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the
registrant. At March&nbsp;18, 2004, there were issued and outstanding 9,990,530 shares of Common Stock, par value $.01 per share. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>DOCUMENTS INCORPORATED BY REFERENCE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>Certain information required in response to Items 10, 11, 12, 13 and 14 of Part&nbsp;III are hereby incorporated by
reference from the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on June&nbsp;10, 2004. Such Proxy Statement shall not be deemed to be "filed" as part of this Annual
Report on Form&nbsp;10-K except for the parts therein which have been specifically incorporated by reference herein. </FONT></P>

<P><FONT SIZE=2><hr
noshade width=100% align=left size=1>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="da1390_form_10-k_anika_therapeutics,___for02199"> </A>
<A NAME="toc_da1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>FORM 10-K<BR>  ANIKA THERAPEUTICS,&nbsp;INC.<BR>  For Fiscal Year Ended December&nbsp;31, 2003    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This Annual Report on Form&nbsp;10-K, including the documents incorporated by reference into this Annual Report on
Form&nbsp;10-K, contains forward-looking statements within the meaning of Section&nbsp;27A of the Securities Act of 1933 and Section&nbsp;21E of the Securities Exchange Act of 1934,
including, without limitation, statements regarding:</I></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our future sales and product revenues, including possible retroactive price adjustments and expectations of unit volumes or other offsets to price
reductions;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our efforts to increase sales of ophthalmic viscoelastic products and support of the distribution of ORTHOVISC&reg; in the
U.S.;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our manufacturing capacity and efficiency gains and work-in-process manufacturing operations;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>the timing of, scope of and rate of patient enrollment for clinical trials;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>development of possible new products, including plans to advance cosmetic tissue augmentation and post-surgical adhesion therapies into
human clinical trials;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>FDA or other regulatory approvals and/or reimbursement approvals of new or potential products;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>negotiations with potential and existing customers, including our performance under any of our distribution or supply agreements or our expectations
with respect to sales and milestones pursuant to such agreements;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>the level of our revenue or sales in particular geographic areas and/or for particular products;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>the market share for any of our products;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our profitability and margin improvements resulting from a higher margin product mix;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our expectations of the size of the U.S. and European markets for osteoarthritis of the knee;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our intention to increase market share for ORTHOVISC in international and domestic markets or otherwise penetrate growing markets for osteoarthritis
of the knee;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our current strategy, including our corporate objectives and research and development and collaboration opportunities, including, without limitation,
commencement of cosmetic tissue augmentation product and INCERT&reg; clinical trials;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our ability to achieve performance and sales threshold milestones in our existing and future distribution and supply
agreements;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>our expected tax rate and taxable revenues;</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>the rate at which we use cash, the amounts used, and the utilization of such cash; and</I></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><I>possible negotiations or re-negotiations with existing or new distribution or collaboration partners.</I></FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Furthermore, additional statements identified by words such as "seek", "designed," "believe," "expect," "anticipate," "intend," "will," "develop," "would,"
future," "can," "may," "could," and other expressions that are predictions of, or indicate future events and trends and which do not relate to historical matters identify forward-looking
statements.</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our
control, including those factors described in the section titled "Risk Factors and Certain Factors Affecting Future Operating Results," in this Annual Report on Form&nbsp;10-K. These
risks, uncertainties and other factors may cause our actual results, performance or  </I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<P><FONT SIZE=2><I> achievement to be materially different from the anticipated future results, performance or achievement, expressed or implied by the forward-looking statements. These forward-looking statements are
based upon the current assumptions of our management and are only expectations of future results. You should carefully review all of these factors, and you should be aware that there may be other
factors that could cause these differences, including those factors discussed in the sections titled "Business" and "Management's Discussions and Analysis of Financial Condition and Results of
Operations" elsewhere in this Annual Report on Form&nbsp;10-K. We undertake no obligation to publicly update or revise any forward-looking statement to reflect changes in underlying
assumptions or factors, of new information, future events or other changes.</I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="da1390_part_i"> </A>
<A NAME="toc_da1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>PART I    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="da1390_item_1._business"> </A>
<A NAME="toc_da1390_3"> </A></FONT> <FONT SIZE=2><B>ITEM 1.&nbsp;&nbsp;&nbsp;&nbsp;BUSINESS    <BR>    </B></FONT></P>


<P><FONT SIZE=2><B>Overview  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anika Therapeutics develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. 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. Our currently marketed products consist of ORTHOVISC&reg;, which is an HA product used in the treatment of some forms of osteoarthritis in humans,
and HYVISC&reg;, which is an HA product used in the treatment of equine osteoarthritis. In December&nbsp;2003 we entered into a licensing, distribution, supply and marketing agreement with
Ortho Biotech Products, L.P., a member of the Johnson&nbsp;&amp; Johnson family of companies, for ORTHOVISC covering the U.S. and Mexico, and in February&nbsp;2004 we received marketing approval from
the U.S. Food and Drug Administration (FDA) for ORTHOVISC. ORTHOVISC has been approved for sale and marketed internationally since 1996. HYVISC is marketed in the U.S. through Boehringer Ingelheim
Vetmedica,&nbsp;Inc. We manufacture AMVISC&reg; and AMVISC&reg; Plus, HA viscoelastic supplement products used in ophthalmic surgery, for Bausch&nbsp;&amp; Lomb Incorporated. We also
manufacture CoEase&#153; for Advanced Medical Optics,&nbsp;Inc., STAARVISC&reg;II, for STAAR Surgical Company, and ShellGel&#153; for Cytosol Ophthalmics,&nbsp;Inc., each an
injectable ophthalmic viscoelastic product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
current strategy is to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>support
a successful U.S. launch for ORTHOVISC which became available for sale in the U.S. on March&nbsp;1, 2004;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>drive
our ORTHOVISC brand domestically and internationally;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>advance
our preclinical programs with a pivotal human clinical trial in the U.S. for our cosmetic tissue augmentation (CTA) product currently in development and a pilot
human clinical trial in Europe for INCERT&reg;, our product in development to prevent post-surgical adhesion; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>focus
research and development resources on evaluating potential product applications, including possible collaborations with other parties. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2003, approximately 51% of our revenue was from the sale of ophthalmic viscoelastic products to Bausch&nbsp;&amp; Lomb. Sales to new distributors of our ophthalmic products added in
2001 and 2002 amounted to approximately 18% of our total revenue in 2003. ORTHOVISC contributed approximately 20% of our total revenue in 2003 and HYVISC contributed approximately 11% of our total
revenue in 2003. We continue to seek distributors for ORTHOVISC to expand our international markets. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following sections provide more specific information on our products and related activities: </FONT></P>


<P><FONT SIZE=2><I>ORTHOVISC&reg;  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ORTHOVISC is indicated for the treatment of pain in osteoarthritis of the knee in patients who have failed to respond adequately to conservative
non-pharmacologic therapy and to simple analgesics, such as acetaminophen. It is a sterile, non-pyrogenic, clear, viscoelastic solution of hyaluronan contained in a
single-use syringe. ORTHOVISC consists of high molecular weight, ultra-pure natural hyaluronan dissolved in physiological saline. A natural complex sugar of the
glycosaminoglycan family, hyaluronan is a high molecular weight polysaccharide composed of repeating disaccharide units of sodium glucuronate and N-acetylglucosamine. ORTHOVISC is injected
into the knee joint in a series of three intra-articular injections one week apart. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Osteoarthritis
is a debilitating disease causing pain, inflammation and restricted movement in joints. It occurs when the cartilage in a joint gradually deteriorates due to the effects
of mechanical stress, which can be caused by a variety of factors including the normal aging process. In an osteoarthritic joint, particular regions of articulating surfaces are exposed to irregular
forces, which result in the remodeling of tissue surfaces that disrupt the normal equilibrium or mechanical function. As osteoarthritis advances, the joint gradually loses its ability to regenerate
cartilage tissue and the cartilage layer
attached to the bone deteriorates to the point where eventually the bone becomes exposed. Advanced osteoarthritis often requires surgery and the possible implantation of artificial joints. The current
treatment options for osteoarthritis before joint replacement surgery include viscosupplementation, analgesics, non-steroidal anti-inflammatory drugs and steroid injections. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February&nbsp;2004, we received marketing approval from the FDA for ORTHOVISC based on integrated effectiveness data from two randomized, controlled, double-blind, multi-center,
pivotal U.S. clinical studies encompassing a total of 458 patients suffering from osteoarthritis of the knee. Safety data from a third U.S. trial were also included in the FDA review. Our third
pivotal clinical trial for ORTHOVISC commenced in February&nbsp;2001. In May&nbsp;2002 we completed patient enrollment of our third trial which included 373 patients in 26 centers in the U.S. and
Canada. In accordance with trial protocol, we took six months to complete the follow-up on the final patients and in May&nbsp;2003 we filed a Pre-Market Approval (PMA)
application with the FDA. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
objective of the studies was to assess the effectiveness of ORTHOVISC for the treatment of joint pain. Patients were divided into three and four ORTHOVISC injection regimen groups
and two control groups: arthrocentesis and saline injection. Patients were evaluated for improvement in pain as measured by the Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC)
at four follow-up assessments over weeks 7 through 22 of the studies. The primary effectiveness analysis compared the proportion of ORTHOVISC patients achieving a greater improvement from
baseline in WOMAC pain score versus controls. Patients in both groups experienced a statistically significant improvement as measured by change in WOMAC pain scores. An integrated safety analysis,
which included 562 patients treated with ORTHOVISC, had an extremely low rate of adverse events. There were no serious adverse events associated with ORTHOVISC. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2003 we entered into a ten-year licensing and supply agreement (the OBI Agreement) with Ortho Biotech Products, L.P., a member of the Johnson&nbsp;&amp;
Johnson family of companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement, Ortho Biotech will perform sales, marketing and distribution functions. Additionally, Ortho Biotech
licensed the right to further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on our proprietary viscosupplementation
technology. In support of the license, the OBI Agreement provides that Ortho Biotech will fund post-marketing clinical trials for new indications of ORTHOVISC. We received an initial
payment of $2.0&nbsp;million upon entering into the OBI Agreement and a milestone payment of $20&nbsp;million in February&nbsp;2004, as a result of obtaining FDA approval of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<P><FONT SIZE=2>ORTHOVISC.
Under the OBI Agreement, we will be the exclusive supplier of ORTHOVISC to Ortho Biotech. The OBI Agreement provides for additional performance- and sales-based milestone payments to us
contingent upon planned manufacturing upgrades, insurance reimbursement approval, and achieving specified sales targets, in addition to royalty and transfer fees. The OBI Agreement is subject to early
termination in certain circumstances and is otherwise renewable by Ortho Biotech for consecutive five-year terms. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a number of distribution relationships servicing international markets including Canada, the U.K., Italy, Germany and other European countries, Turkey, and parts of the Middle
East. We are continuing to seek to establish long-term distribution relationships in other regions, but can make no assurances that we will be successful in doing so. See the section
captioned </FONT><FONT SIZE=2><I>"Management's Discussion and Analysis of Financial Condition and Results of Operations Overview"</I></FONT><FONT SIZE=2> and </FONT><FONT SIZE=2><I>"Risk Factors and
Certain Factors Affecting Future Operating Results."</I></FONT></P>

<P><FONT SIZE=2><I>HYVISC&reg;  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HYVISC is a high molecular weight injectable HA product for the treatment of joint dysfunction in horses due to non-infectious synovitis associated
with equine osteoarthritis. HYVISC has viscoelastic properties that lubricate and protect the tissues in horse joints. HYVISC is distributed by Boehringer Ingelheim Vetmedica,&nbsp;Inc. in the
United States. </FONT></P>

<P><FONT SIZE=2><I>OPHTHALMIC PRODUCTS  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ophthalmic products we manufacture include the AMVISC and AMVISC Plus product line, CoEase, STAARVISC-II, and ShellGel. Our injectable ophthalmic
viscoelastic products are high molecular weight HA products used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and intraocular lens implantation. These products
coat, lubricate and protect sensitive tissues such as the endothelium and maintain the space between them, thereby facilitating ophthalmic surgical procedures. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anika
manufactures the AMVISC product line for Bausch&nbsp;&amp; Lomb. We entered into a supply agreement (the B&amp;L Agreement) with Bausch&nbsp;&amp; Lomb Surgical, a unit of Bausch&nbsp;&amp;
Lomb, in July&nbsp;2000. Bausch&nbsp;&amp; Lomb Surgical was subsequently merged into Bausch&nbsp;&amp; Lomb. Under the terms of the B&amp;L Agreement, effective January&nbsp;1, 2001, we became
Bausch&nbsp;&amp; Lomb's exclusive provider of AMVISC and AMVISC Plus in the U.S. and international markets. The B&amp;L Agreement expires December&nbsp;31, 2007 and supersedes the prior supply agreement
with Bausch&nbsp;&amp; Lomb that was set to expire December&nbsp;31, 2001. The B&amp;L Agreement is subject to early termination and/or reversion to a non-exclusive basis under certain
circumstances. The B&amp;L Agreement lifted certain contractual restrictions on our sales of certain ophthalmic products to other companies, subject to the payment of royalties to Bausch&nbsp;&amp; Lomb for
these sales. In exchange, we agreed to a reduction in unit selling prices that was retroactively effective to April&nbsp;1, 2000 and the elimination of minimum unit purchase obligations by
Bausch&nbsp;&amp; Lomb. See also the section captioned </FONT><FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting Future Operating Results&#151;Dependence on Marketing
Partners"</I></FONT><FONT SIZE=2> and </FONT><FONT SIZE=2><I>"&#151;Reliance on a Small Number of Customers."</I></FONT></P>

<P><FONT SIZE=2><B>Research and Development of Potential Products  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed below in the section titled </FONT><FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting Future Operating Results,"</I></FONT><FONT SIZE=2> we
have not obtained FDA approval for the sales and marketing in the U.S. of the potential products described below. </FONT></P>


<P><FONT SIZE=2><I>INCERT&reg;  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INCERT is a family of chemically modified, cross-linked forms of HA designed to prevent surgical adhesions. Surgical adhesions occur when fibrous bands of tissues
form between adjacent tissue layers </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2>during
the wound healing process. Although surgeons attempt to minimize the formation of adhesions, they nevertheless occur quite frequently after surgery. Adhesions in the abdominal and pelvic cavity
can cause particularly serious problems such as intestinal blockage following abdominal surgery, and infertility following pelvic surgery. Fibrosis following spinal surgery can complicate
re-operation and may cause pain. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INCERT-S
is our product designed to reduce post-surgical fibrosis following spinal surgery. We are planning to initiate a pilot human clinical trial in Europe in
the second quarter of 2004 involving patients undergoing spinal surgery. We cannot assure you that: (1)&nbsp;we will begin or successfully complete clinical trials of INCERT-S;
(2)&nbsp;if completed, regulatory approval for sales in the U.S. or internationally will be obtained; or (3)&nbsp;if regulatory approvals are obtained, meaningful sales of INCERT-S
will be achieved. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anika
co-owns issued U.S. patents covering the use of INCERT for adhesion prevention. See the section captioned </FONT><FONT SIZE=2><I>"Patent and Propriety Rights."  </I></FONT></P>

<P><FONT SIZE=2><I> Cosmetic Tissue Augmentation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products for cosmetic tissue augmentation are based on a family of chemically modified, cross-linked forms of HA designed for longer duration in the body.
Cosmetic tissue augmentation is a therapy designed as a soft tissue filler for facial wrinkles, scar remediation and lip augmentation. This
new class of tissue filler technology based on HA is intended to supplant collagen-based products currently on the market. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are evaluating various development options for these products and are assessing a worldwide commercialization strategy which includes seeking to establish a relationship with a
corporate partner. We plan to initiate a pivotal clinical trial in the U.S. in the second quarter of 2004. We cannot assure you that: (1)&nbsp;we will establish a relationship with a corporate
partner; (2)&nbsp;we will begin or successfully complete clinical trials of our products for cosmetic tissue augmentation; (3)&nbsp;if completed, regulatory approval for sales in the U.S. or
internationally will be obtained; or (4)&nbsp;if regulatory approvals are obtained, meaningful sales of our products will be achieved. </FONT></P>


<P><FONT SIZE=2><B>Manufacturing of Hyaluronic Acid  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been manufacturing HA since 1983 in our facility located in Woburn, Massachusetts. This facility is approved by the FDA for the manufacture of medical
devices and drugs. We have developed a proprietary manufacturing process for the extraction and purification of HA from avian combs, a source of high molecular weight HA. We have taken steps to
minimize risks associated with the availability of raw materials by obtaining regulatory approval in 2003 to outsource certain key intermediates for some of our products. We believe that sufficient
supplies of these materials are generally available, or maintained in inventory, to meet anticipated demand. </FONT></P>


<P><FONT SIZE=2><B>Patent and Proprietary Rights  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a policy of seeking patent protection for patentable aspects of our proprietary technology. Our issued patents expire between 2009 and 2022. We
co-own certain U.S. patents and a patent application with claims relating to the chemical modification of HA and certain adhesion prevention uses and certain drug delivery uses of HA. We
also solely own patents covering composition of matter and certain manufacturing processes. We also hold a license from Tufts University to use technologies claimed in a U.S. patent for the
anti-metastasis applications of HA oligosaccharides. The license expires upon expiration of the underlying patent. We intend to seek patent protection for 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 relative to the potential benefits. See also the
section captioned </FONT><FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting Future Operating Results&#151;We may be unable to adequately protect our intellectual
property."</I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. In addition, the products or
processes we develop may infringe the patent rights of others in the future. Any such infringement may have a material adverse effect on our business, financial condition, and results of operations.
See also the section captioned </FONT><FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting Future Operating Results&#151;We may be unable to adequately protect our intellectual
property."</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect such information, we require all
employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. These agreements, however, may not provide adequate protection. See
also the section captioned </FONT><FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting Future Operating Results&#151;We may be unable to adequately protect our intellectual
property."</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have granted Bausch&nbsp;&amp; Lomb a royalty-free, worldwide, exclusive license to our manufacturing inventions which relate to the AMVISC products, effective upon the
earlier of (1)&nbsp;the termination date of the B&amp;L Agreement or (2)&nbsp;the loss of exclusivity there under. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have granted Ortho Biotech an exclusive, non-transferable royalty bearing license to use and sell ORTHOVISC (and other products developed pursuant to the OBI Agreement) in
the U.S. and Mexico, as well as a license to manufacture and have manufactured such products in the event that we are unable to supply Ortho Biotech with products in accordance with the terms of the
OBI Agreement. </FONT></P>

<P><FONT SIZE=2><B>Government Regulation  </B></FONT></P>

<P><FONT SIZE=2><I>United States Regulation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research (including clinical research), development, manufacture, and marketing of products are subject to regulation by numerous governmental authorities in
the U.S. and other countries. In the U.S., medical devices are subject to extensive and rigorous regulation by the FDA and by other federal, state and local authorities. The Federal Food, Drug and
Cosmetic Act (FDC Act) governs the testing, safety, effectiveness, clearance, approval, manufacture, labeling, packaging, distribution, storage, record keeping, reporting, marketing, advertising, and
promotion of our products. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension
of production, failure of the government to grant
premarket clearance or approval of products, withdrawal of clearances and approvals, and criminal prosecution. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Medical
products regulated by the FDA are generally classified as drugs, biologics, and/or medical devices. AMVISC, ShellGel, CoEase and STAARVISC are approved as Class&nbsp;III
medical devices in the U.S. for ophthalmic surgical procedures in intraocular use in humans. ORTHOVISC is approved as a Class&nbsp;III medical device in the U.S. for treatment of pain resulting from
osteoarthritis of the knee in humans. HYVISC is approved as an animal drug for intra-articular injection in horse joints to treat degenerative joint disease associated with synovitis. In the past,
most HA products for human use have been regulated as medical devices. We believe that the our products for CTA and INCERT will have to meet the regulatory requirements of Class&nbsp;III devices,
including premarket approval (PMA). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
a new device is exempted from premarket notification, its manufacturer must obtain marketing clearance from the FDA through a premarket notification (510(k)) or approval through a
PMA before the device can be introduced into the market. Product development and approval within the FDA regulatory framework takes a number of years and involves the expenditure of substantial
resources. This regulatory framework may change or additional regulation may arise at any stage of our product development process and may affect approval of, or delay an application related to, a
product, or require additional expenditures by us. There is no assurance that the FDA review of marketing applications will result in product approval on a timely basis, or at all. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the U.S., medical devices intended for human use are classified into three categories (Class&nbsp;I, II or III), on the basis of the controls deemed reasonably necessary by the FDA
to assure their safety and effectiveness. Class&nbsp;I devices are subject to general controls, for example, labeling and adherence to the FDA's Good Manufacturing Practices/Quality System
Regulation (GMP/QSR). Most Class&nbsp;I devices are exempt from premarket notification. Class&nbsp;II devices are subject to general and special controls (for example, performance standards,
postmarket surveillance, and patient registries). Most Class&nbsp;II devices are subject to premarket notification and may be subject to clinical testing for purposes of premarket notification and
clearance for marketing. Class&nbsp;III is the most stringent regulatory category for medical devices. Most Class&nbsp;III devices require PMA approval from the FDA. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
PMA approval process is lengthy, expensive, and typically requires, among other things, valid scientific evidence which typically includes extensive data such as
pre-clinical and clinical trial data to demonstrate a reasonable assurance of safety and effectiveness. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Human
clinical trials for significant risk devices must be conducted under an Investigational Device Exemption (IDE), which must be submitted to the FDA and either be approved or be
allowed to become effective before the trials may commence. There can be no assurance that submission of an IDE will result in the ability to commence clinical trials. In addition, the IDE approval
process could
result in significant delay. Even if the FDA approves an IDE or allows an IDE for a clinical investigation to become effective, clinical trials may be suspended at any time for a number of reasons,
including, among others, failure to comply with applicable requirements, if there is reason to believe that the risks to clinical subjects are not outweighed by the anticipated benefits to clinical
subjects and the importance of the knowledge to be gained, informed consent is inadequate, the investigation is scientifically unsound, there is reason to believe that the device, as used, is
ineffective. A trial may be terminated if an unanticipated adverse device effect presents an unreasonable risk to subjects. If clinical studies are suspended or terminated, we may be unable to
continue the development of the investigational products affected. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
completion of required clinical trials, for Class&nbsp;III medical devices, results are presented to the FDA in a PMA application. In addition to the results of clinical
investigations, the PMA applicant must submit other information relevant to the safety and effectiveness of the device, including, among other things, the results of non-clinical tests; a
full description of the device and its components; a full description of the methods, facilities and controls used for manufacturing; and proposed labeling. The FDA usually also conducts an
on-site inspection to determine whether an applicant conforms with the FDA's current GMP/QSR. FDA review of the PMA may not result in timely or any PMA approval, and there may be
significant conditions on approval, including limitations on labeling and advertising claims and the imposition of post-market testing, tracking, or surveillance requirements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product
changes after approval where such change affects safety and effectiveness as well as the use of a different facility for manufacturing, could necessitate additional FDA review
and approval by the FDA. Post approval changes in labeling, packaging or promotional materials may also necessitate further FDA review and approval by the FDA. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legally
marketed products are subject to continuing requirements by the FDA relating to manufacturing, quality control and quality assurance, maintenance of records and documentation,
reporting of adverse events, and labeling and promotion. The FDC Act requires device manufacturers to comply with GMP/QSR. The FDA enforces these requirements through periodic inspections of device
manufacturing facilities. In complying with standards set forth in the GMP/QSR regulations, manufacturers must continue to expend time, money and effort in the area of production and quality control
to ensure full technical compliance. Other federal, state, and local agencies may inspect manufacturing establishments as well. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
set of regulations known as the Medical Device Reporting regulations obligates manufacturers to inform FDA whenever information reasonably suggests that one of their devices may have
caused or contributed to a death or serious injury, or when one of their devices malfunctions and if the malfunction </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

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<P><FONT SIZE=2>were
to recur, the device or a similar device would be likely to cause or contribute to a death or serious injury. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to regulations enforced by the FDA, we are subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and other existing and future federal, state and local laws and regulations as well as those of foreign governments. Federal, state and foreign
regulations regarding the manufacture and sale of medical products are subject to change. We cannot predict what impact, if any, such changes might have on our business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
process of obtaining approvals from the FDA and foreign regulatory authorities can be costly, time consuming, and subject to unanticipated delays. Approvals of our products,
processes or facilities may not be granted on a timely basis or at all, and we may not have available resources or be able to obtain the financing needed to develop certain of such products. Any
failure or delay in obtaining such approvals could adversely affect our ability to market our products in the U.S. and in other countries. </FONT></P>


<P><FONT SIZE=2><I>Foreign Regulation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to regulations enforced by the FDA, we and our products are subject to certain foreign regulations. International regulatory bodies often establish
regulations governing product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. ORTHOVISC is approved for sale and is
marketed in Canada, Europe, Turkey, and Israel. In Europe, ORTHOVISC is sold under </FONT><FONT SIZE=2><I>Conformit&eacute; Europ&eacute;ene</I></FONT><FONT SIZE=2> (CE mark)
authorization, a certification required under European Union (EU) medical device regulations. The CE mark allows ORTHOVISC to be marketed without further approvals in most of the EU nations as well as
other countries that recognize EU device regulations. In October&nbsp;1996, we received an EC Design Examination and an EC Quality System Certificate from a European Notified Body, which entitled us
to affix the CE mark to ORTHOVISC as a viscoelastic supplement or a replacement for synovial fluid in human joints. We may not be able to achieve and/or maintain compliance required for CE marking or
other foreign regulatory approvals for any or all of our products. The requirements relating to the conduct of clinical trials, product licensing, marketing, pricing, advertising, promotion and
reimbursement also vary widely from country to country. </FONT></P>

<P><FONT SIZE=2><B>Competition  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete with many companies, including, among others, large pharmaceutical firms and specialized medical products companies. 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. We also compete with academic institutions, governmental agencies and other research organizations, which may be involved in research, development and commercialization of products. Many of our
competitors also compete against us in securing relationships with collaborators for their research and development and commercialization programs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
competition in our industry is based primarily on product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, product pricing and patent protection. Some of the principal factors that may affect our ability to compete in our HA development and commercialization market include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
quality and breadth of our technology and technological advances;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
ability to complete successful clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>our
ability to recruit and retain skilled employees; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

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</UL>
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<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
availability of substantial capital resources to fund discovery, development and commercialization activities or the ability to defray such costs through securing
relationships with collaborators for our research and development and commercialization programs. </FONT></DD></DL>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are aware of several companies that are developing and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have already obtained product
approvals, submitted applications for approval or have commenced human clinical studies, either in the U.S. or in certain foreign countries. There exists major competing products for the use of HA in
ophthalmic surgery. In addition, certain HA products for the treatment of osteoarthritis in the knee have received FDA approval and have been marketed in the U.S. since 1997, as well as select markets
in Canada, Europe and other countries. In December&nbsp;2003, the FDA approved an HA product for the treatment of facial wrinkles which has been marketed internationally since 1996. There is a risk
that we will be unable to compete effectively against our current or future competitors. </FONT></P>


<P><FONT SIZE=2><B>Research and Development  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development efforts primarily consist of the development of new medical applications for our HA-based technology and the management
of clinical trials for certain product candidates and the preparation and processing of applications for regulatory approvals at all relevant stages of development. Our development of new products is
presently accomplished primarily through in-house research and development personnel and resources as well as through collaboration with other companies and scientific researchers. As of
December&nbsp;31, 2003, we had six employees engaged primarily in research and development and engineering and two employees engaged in regulatory matters. For the years ended December&nbsp;31,
2003, 2002 and 2001, research and development expenses were $2.6&nbsp;million, $3.9&nbsp;million, and $4.3&nbsp;million, respectively. We anticipate that we will continue to commit significant
resources to research and development, including clinical trials, in the future. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the OBI Agreement, Ortho Biotech has the right (1)&nbsp;to file for regulatory approval to market ORTHOVISC in Mexico at its sole cost and expense and (2)&nbsp;to further
develop ORTHOVISC by carrying out clinical trials. Under the OBI Agreement, Ortho Biotech has agreed to begin a clinical trial for a new indication for ORTHOVISC or a Phase IV clinical trial within
twelve months of the FDA approval of ORTHOVISC. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the second quarter of 2004 we are planning to initiate a pilot human clinical trial in Europe for INCERT-S, our product designed to reduce post-surgical
fibrosis following spinal surgery. We also are planning to initiate a pivotal clinical trial in the U.S. in the second quarter of 2004 for our product for CTA. We cannot assure you that: (1)&nbsp;we
will begin or successfully complete clinical trials of our INCERT-S or CTA products; (2)&nbsp;if completed, regulatory approval for sales in the U.S. or internationally will be obtained;
or (3)&nbsp;if regulatory approvals are obtained, meaningful sales of our products will be achieved </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is a risk that our efforts will not be successful in (1)&nbsp;developing our existing product candidates, (2)&nbsp;expanding the therapeutic applications of our existing
products, or (3)&nbsp;resulting in new applications for our HA technology. There is also a risk that we may choose not to pursue development of potential product candidates. We may not be able to
obtain regulatory approval for any new applications we develop. Furthermore, even if all regulatory approvals are obtained, there can be no assurances that we will achieve meaningful sales of such
products or applications. </FONT></P>


<P><FONT SIZE=2><B>Employees  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, we had approximately 62 full-time employees. We consider our relations with our employees to be good. None of our
employees are represented by labor unions. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2><B>Environmental Laws  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we are in compliance with all federal, state and local environmental regulations with respect to our manufacturing facilities and that the cost of
ongoing compliance with such regulations does not have a material effect on our operations. Our leased manufacturing facility is located within the Wells G&amp;H Superfund site in Woburn, MA. We have not
been named and are not a party to any such legal proceedings regarding the Wells G&amp;H Superfund site. </FONT></P>

<P><FONT SIZE=2><B>Product Liability  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Although we have not received any material product liability claims to date and have coverage under our insurance policy of
$5,000,000 per occurrence and $5,000,000 in the aggregate, we cannot assure you that if material claims arise in the future, our insurance will be adequate to cover all situations. 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 reasonable terms. Any product liability claim,
if successful, could have a material adverse effect on our business, financial condition, and results of operation. </FONT></P>

<P><FONT SIZE=2><B>Recent Developments  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;5, 2004, we announced that we had received marketing approval from the FDA for ORTHOVISC. We also announced that pursuant to the OBI Agreement
we would receive a milestone payment of $20&nbsp;million from Ortho Biotech related to the FDA approval. </FONT></P>

<P><FONT SIZE=2><B>Available Information  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Annual Reports on Form&nbsp;10-K, including our consolidated financial statements, Quarterly Reports on Form&nbsp;10-Q, Current
Reports on Form&nbsp;8-K and other information, including amendments and exhibits to such reports, filed or furnished pursuant to the Securities Exchange Act of 1934, are available free
of charge in the "SEC Filings" section of our website located at http://www.anikatherapeutics.com, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and
Exchange Commission. </FONT></P>

<P><FONT SIZE=2><A
NAME="da1390_item_2._properties"> </A>
<A NAME="toc_da1390_4"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp;PROPERTIES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our corporate headquarters is located in Woburn, Massachusetts, where we lease approximately 10,000 square feet of administrative and research and development
space. We extended our lease for this facility in 2003 for an initial one-year term ending in October&nbsp;2004. We also lease approximately 37,000 square feet of space at a separate
location in Woburn, Massachusetts, for our manufacturing facility and warehouse. This facility has received all FDA and state regulatory approvals to operate as a sterile device and drug manufacturer.
We extended our lease for this facility in 2003 for an additional five-year term ending in February&nbsp;2009. For the year ended December&nbsp;31, 2003, we had aggregate lease costs
of approximately $685,000. </FONT></P>

<P><FONT SIZE=2><A
NAME="da1390_item_3._legal_proceedings"> </A>
<A NAME="toc_da1390_5"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp;LEGAL PROCEEDINGS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities and Exchange Commission Investigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2000, the Securities and Exchange Commission (SEC) issued a
formal order of investigation in connection with certain revenue recognition matters. On January&nbsp;13, 2003 we announced that we had entered into a settlement with the SEC concluding and
resolving this investigation, which pertained to the company's historical accounting for and disclosures concerning sales of ORTHOVISC under a long-term supply and distribution agreement
with Zimmer,&nbsp;Inc. To conclude this matter, we consented to the entry of an order to comply with sections 13(a), </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
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<A NAME="page_da1390_1_12"> </A>

<P><FONT SIZE=2>13(b)(2)(A)
and 13(b)(2)(B) of the Securities Exchange Act of 1934 and rules&nbsp;12b-20, 13a-1 and 13a-13 promulgated thereunder. The settlement did not impose
any monetary sanctions against us, and it is not expected to affect our results of operations or financial condition. We neither admitted nor denied the findings in the SEC's administrative cease and
desist order resolving the matter. </FONT></P>

<P><FONT SIZE=2><A
NAME="da1390_item_4._submission_of_m__da102391"> </A>
<A NAME="toc_da1390_6"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp;SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No matter was submitted to a vote of the security holders during the fourth quarter of the fiscal year covered by this report. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="da1390_part_ii"> </A>
<A NAME="toc_da1390_7"> </A>
<BR></FONT><FONT SIZE=2><B>PART II    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="da1390_item_5._market_for_registrant___ite03067"> </A>
<A NAME="toc_da1390_8"> </A></FONT> <FONT SIZE=2><B>ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp;MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>COMMON STOCK INFORMATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock has traded on the Nasdaq National Market since November&nbsp;25, 1997, under the symbol "ANIK." The following table sets forth, for the periods
indicated, the high and low bid prices of our common stock on the Nasdaq National Market. These prices represent prices between dealers and do not include retail mark-ups, markdowns, or
commissions and may not necessarily represent actual transactions. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Bid Range</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Year Ended December 31, 2003<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.82</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.97</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.45</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6.75</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.64</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.65</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.67</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Bid Range</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Year Ended December 31, 2002<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.54</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.99</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.42</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.01</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.30</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.83</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1.35</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.88</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2003, the closing price per share of our common stock was $9.74 as reported on the Nasdaq National Market and there were approximately 297 holders of record. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, for use in our business and do not anticipate paying cash dividends
on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, anticipated cash needs, and plans for expansion. </FONT></P>

<P><FONT SIZE=2><B>ITEM 6.&nbsp;&nbsp;&nbsp;&nbsp;SELECTED FINANCIAL DATA  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report. The Balance Sheet Data at December&nbsp;31, 2003 and 2002 and the Statement of
Operations Data for each of the three years ended December&nbsp;31, 2003 have been derived from the audited Consolidated Financial Statements for such years, included elsewhere in this Annual
Report. The Balance Sheet Data at December&nbsp;31, 2001, 2000 and 1999, and the Statement of Operations Data for each of the two years in the period ended </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
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<A NAME="page_da1390_1_13"> </A>
<BR>

<P><FONT SIZE=2>December&nbsp;31,
2000 have been derived from the audited Consolidated Financial Statements for such years, not included in this Annual Report. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Consolidated Financial Statements for fiscal years 1999 through 2001 were audited by Arthur Andersen LLP (Andersen) who has ceased operations. A copy of the report previously issued
by Andersen on our financial statements as of December&nbsp;31, 2001 and for each of the two years in the period ended December&nbsp;31, 2001 is included elsewhere in this Annual Report. Such
report has not been reissued by Andersen. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="da1390_statement_of_operations_data_(__sta02503"> </A>
<A NAME="toc_da1390_9"> </A>
<BR></FONT><FONT SIZE=2><B> Statement of Operations Data<BR>  (In thousands, except per share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Years ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Product revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15,330</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13,129</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11,299</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>12,935</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13,426</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Licensing revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>74</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>58</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,400</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>400</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="39%"><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>15,404</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13,187</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11,312</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16,335</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13,826</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Cost of product revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8,005</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8,109</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8,229</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,871</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6,664</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7,399</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5,078</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6,464</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7,162</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6,804</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8,353</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,494</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7,448</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7,184</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Income (loss) before cumulative effect of change in accounting principle</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>827</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(3,040</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(6,758</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>174</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1,248</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Cumulative effect of change in accounting principle</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(3,625</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>827</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(3,040</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(6,758</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>174</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(2,377</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Diluted income (loss) per common share:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="39%"><FONT SIZE=2>Income (loss) before cumulative effect of change in accounting principle</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.12</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="39%"><FONT SIZE=2>Cumulative effect of change in accounting principle</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.35</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(0.23</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Diluted common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,850</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,934</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,934</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,042</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,221</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="da1390_balance_sheet_data_(in_thousands)"> </A>
<A NAME="toc_da1390_10"> </A>
<BR></FONT><FONT SIZE=2><B>Balance Sheet Data<BR>  (In thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1999</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>14,592</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11,002</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>9,065</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8,266</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6,441</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Marketable securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,500</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3,994</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,040</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13,743</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>18,450</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>14,921</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>16,756</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>23,083</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>18,973</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>21,873</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>20,087</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>22,916</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>28,979</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>32,511</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(13,569</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(14,396</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(11,357</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(4,599</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(4,773</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Treasury stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(27</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(960</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>Stockholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>17,984</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>17,064</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>20,104</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>26,712</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>25,712</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=12,SEQ=13,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=733406,FOLIO='13',FILE='DISK035:[04BOS0.04BOS1390]DA1390A.;5',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_dc1390_1_14"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><A
NAME="dc1390_item_7._management_s_discussio__ite03668"> </A>
<A NAME="toc_dc1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 7.&nbsp;&nbsp;&nbsp;&nbsp;MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The following section of this Annual Report on Form&nbsp;10-K titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains statements that are not statements of historical fact and are forward-looking statements within the meaning of the federal securities laws. These
statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievement to differ materially from anticipated results, performance,
or achievement, expressed or implied in such forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and
uncertainties. We discuss many of these risks and uncertainties at the beginning of this Annual Report on Form&nbsp;10-K and under the heading "Business"</I></FONT><FONT SIZE=2> and </FONT> <FONT SIZE=2><I>"Risk Factors and Certain Factors Affecting
Future Operating Results." The following discussion should also be read in conjunction with the Consolidated Financial Statements of
Anika Therapeutics,&nbsp;Inc. and the Notes thereto appearing elsewhere in this report.</I></FONT></P>

<P><FONT SIZE=2><B>Management Overview  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anika Therapeutics develops, manufactures and commercializes therapeutic products and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. 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. Our marketed products include therapies used in eye surgery and for the treatment of joint diseases such as osteoarthritis. Products in development include
chemically modified, cross-linked forms of HA to prevent surgical adhesions and for cosmetic tissue augmentation (CTA). </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Products</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Since we primarily focus on the development and marketing of our products, we have historically entered into
various agreements for the distribution of our marketed products. ORTHOVISC&reg;, our product for the treatment of osteoarthritis of the knee in humans, has been marketed internationally since
1996. Sales of ORTHOVISC, which to-date have been only to international customers, contributed approximately 20% of our revenue in 2003. In December&nbsp;2003, we entered into the OBI
Agreement with Ortho Biotech for the marketing of ORTHOVISC in the U.S. and Mexico. In February&nbsp;2004 we received marketing approval from the FDA for ORTHOVISC and in March&nbsp;2004 launched
ORTHOVISC in the U.S. We market HYVISC&reg;, our product for the treatment of joint dysfunction in horses associated with equine osteoarthritis, through an exclusive agreement with Boehringer
Ingelheim Vetmedica,&nbsp;Inc. Sales of HYVISC contributed approximately 11% of our revenue in 2003. Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. Our
ophthalmic products included CoEase&reg;, STAARVISC&#153;-II and Shellgel&#153; distributed by Advanced Medical Optics,&nbsp;Inc., STAAR Surgical Company, and
Cytosol Ophthalmics,&nbsp;Inc., respectively. Those three products contributed approximately 18% of revenue in 2003. We also manufacture AMVISC&reg; and AMVISC&reg; Plus, also
ophthalmic products, for Bausch&nbsp;&amp; Lomb under an exclusive supply agreement. These sales to Bausch&nbsp;&amp; Lomb contributed approximately 51% to our revenue in 2003. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<BR>
<UL>

<P><FONT SIZE=2><I> Product revenue by region  </I></FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="29%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Opthalmic products</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>U.S.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>75</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>67</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2><BR>
ORTHOVISC</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2><BR>
Turkey</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
14</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
10</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>Canada</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>Europe</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>Middle East</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>18</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>28</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2><BR>
HYVISC</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="29%"><FONT SIZE=2><BR>
U.S.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
11</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
7</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2><BR>
5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
current pre-clinical products include INCERT&reg;, a product for the prevention of post surgical adhesions, and a product for cosmetic tissue augmentation (CTA).
We plan to begin human clinical trials for both of these products in the second quarter of 2004. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Orthovisc&reg; U.S.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We received marketing approval from the FDA for ORTHOVISC in February&nbsp;2004. ORTHOVISC is
indicated for the treatment of pain in osteoarthritis of the knee in patients who have failed to respond adequately to conservative non-pharmacologic therapy and to simple analgesics, such
as acetaminophen. The current treatment options for osteoarthritis before joint replacement surgery include viscosupplementation, analgesics, non-steroidal anti-inflammatory
drugs and steroid injections. ORTHOVISC, our viscosupplement, is injected into the knee joint in a series of three intra-articular injections one week apart. In May&nbsp;2003 we filed a
Pre-Market Approval (PMA) application for ORTHOVISC with the FDA. In November&nbsp;2003 we received an approvable letter from the FDA for ORTHOVISC and in February&nbsp;2004 we
received marketing approval from the FDA. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the OBI Agreement, Ortho Biotech will perform sales, marketing and distribution functions for ORTHOVISC in the U.S. and Mexico. Additionally, Ortho Biotech licensed the right to
further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on our proprietary viscosupplementation technology. In support
of the license, the OBI Agreement provides that Ortho Biotech is required to fund post-marketing clinical trials for new indications of ORTHOVISC. Under the OBI
Agreement, we will be the exclusive supplier of ORTHOVISC to Ortho Biotech. The OBI Agreement provides for additional performance- and sales-based milestone payments to us contingent upon planned
manufacturing upgrades, insurance reimbursement approval, and achieving specified sales targets in addition to royalty and transfer fees. The OBI Agreement is subject to early termination in certain
circumstances and it otherwise is renewable by Ortho Biotech for consecutive five-year terms. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
received an initial payment of $2.0&nbsp;million in December&nbsp;2003 upon entering into the agreement with Ortho Biotech and a milestone payment of $20&nbsp;million in
February&nbsp;2004 as a result of obtaining FDA approval for ORTHOVISC. In accordance with our revenue recognition policy, these payments will be recognized ratably over the initial
ten-year term of the OBI Agreement beginning with the first quarter of 2004. The OBI Agreement also provides for additional performance-based milestone payments to us contingent upon
planned manufacturing upgrades and insurance reimbursement approval. We expect to recognize these milestone payments, if achieved, ratably over the remaining term of the agreement. Sales-based
milestone payments to us provided for in the OBI Agreement are based on Ortho Biotech achieving specified annual sales levels. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
an on-going and long-term basis, the OBI Agreement also provides for us to receive royalty and transfer fees. Our unit transfer price to Ortho Biotech is
determined based on a fixed percentage of Ortho Biotech's net sales per unit, subject to a minimum. This transfer pricing is fixed each quarter based upon Ortho Biotech's net sales of ORTHOVISC for
the quarter ended two quarters prior. As a result, we expect </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

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<P><FONT SIZE=2>to
experience fluctuating unit pricing of our sales of ORTHOVISC to Ortho Biotech each quarter. Royalties are to be paid to us quarterly based upon a percentage of Ortho Biotech's yearly net sales. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
agreement with Ortho Biotech has provisions for maintaining certain inventory levels affecting raw materials and work-in-process. As a result, we expect to
reflect an increase in these inventory levels in 2004 as compared with 2003. We may also benefit from improved gross profit margins partially due to increased manufacturing volumes as a result of
initial stocking orders by Ortho Biotech required for the launch of ORTHOVISC in addition to the increased overall sales volume. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial Overview</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In 2003, we achieved net income of $827,000, or $.08 per share, and revenue of $15.4&nbsp;million. We
increased sales in each of our product groups primarily due to the full year impact of new distribution agreements or through expanded relationships with existing customers. Sales of AMVISC and AMVISC
Plus to Bausch&nbsp;&amp; Lomb were relatively flat in 2003 compared to 2002 and contributed 51% of total revenue in 2003 compared to 59% in 2002. We expect sales of AMVISC products to Bausch&nbsp;&amp;
Lomb to be relatively level in 2004 compared to 2003 and for their percentage contribution to our total revenue to decline. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of product revenue</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our cost of product revenue includes material, labor and manufacturing overhead costs, obsolescence
charges, packaging and shipping costs. Our costs of product revenue may vary over time based on the mix of products sold. Over the past three years we have experienced a decrease in the cost of
product revenue as a percentage of product revenue primarily due to increased manufacturing efficiencies and product volume combined with cost cutting efforts. We expect to see continued improvement
in 2004 due to further manufacturing efficiencies and increased product volume. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our research and development costs consists primarily of salaries and related expenses for personnel
and fees paid to outside consultants and outside service providers. Our research and development costs decreased in 2003 primarily due to lower fees paid to outside service providers associated with
our clinical trial for ORTHOVISC. We expect to incur costs associated with human clinical trials for our product candidates in 2004 and to increase personnel-related expenses as we expand our research
and development efforts. As a result, we expect an increase in research and development costs in 2004 compared to 2003. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative costs consists primarily of salaries and related
expenses for personnel in executive, finance and accounting, human resources, information technology, and sales and marketing functions. Other costs include professional fees for legal and accounting,
fees for consulting and outside services, and insurance costs. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2004 Strategy</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our strategy for 2004 is to continue to focus on our strengths and to build on our accomplishments. Our focus,
therefore, is to build on our existing products and advance our preclinical programs. The key strategy is to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>support
a successful U.S. launch for ORTHOVISC which became available for sale in the U.S. on March&nbsp;1, 2004;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>drive
our ORTHOVISC brand domestically and internationally;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>advance
our preclinical programs with a pivotal human clinical trial in the U.S. for our cosmetic tissue augmentation (CTA) product in development and a pilot human clinical
trial in Europe for INCERT&reg;, our product in development to prevent post-surgical adhesion; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>focus
research and development resources on evaluating potential product applications, including possible collaborations with other parties. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

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<P><FONT SIZE=2><B>Summary of Critical Accounting Policies; Significant Judgments and Estimates  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and
circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical
experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be
substantially accurate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these
policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and other accounting policies, see Note&nbsp;2 in the Notes to the Consolidated Financial Statements of this Annual Report on
Form&nbsp;10-K for the year ended December&nbsp;31, 2003. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue Recognition and Allowance for Doubtful Accounts.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Product revenue is recognized upon confirmation of regulatory
compliance and shipment to the customer as long as there is (1)&nbsp;persuasive evidence of an arrangement, (2)&nbsp;delivery has occurred and risk of loss has passed, (3)&nbsp;the sales price
is fixed or determinable and (4)&nbsp;collection of the related receivable is probable. Amounts billed or collected prior to recognition of revenue are classified as deferred revenue. When
determining whether risk of loss has transferred to customers on product sales or if the sales price is fixed or determinable we evaluate both the contractual terms and conditions of our distribution
and supply agreements as well as our business practices. Under our agreement with Bausch&nbsp;&amp; Lomb, the price for units sold in a calendar year is dependent on total unit volume of sales of
certain ophthalmic products during the year. 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. In accordance with our revenue recognition policy, the amount of revenue subject to the contracted price adjustment is recorded as deferred revenue until the annual unit
volume becomes known and the sales price becomes fixed. ORTHOVISC has been sold through several distribution arrangements as well as outsource
order-processing arrangements (logistic agents). Sales of product through third party logistics agents in certain markets are recognized as revenue upon shipment by the logistics agent to the
customer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize non-refundable upfront payments received as part of supply, distribution, and marketing arrangements, ratably over the terms of the arrangements to which the
payments apply. Milestone payments received as part of supply, distribution, and marketing arrangements are evaluated under Emerging Issues Task Force No.&nbsp;00-21, "Revenue
Arrangements with Multiple Deliverables," to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the
undelivered item exists. We recognize milestone payments as revenue upon achievement of the milestone only if (1)&nbsp;it represents a separate unit of accounting as defined in EITF
00-21, (2)&nbsp;the milestone payments are non-refundable, (3)&nbsp;substantive effort is involved in achieving the milestone, and (4)&nbsp;the amount of the milestone is
reasonable in relation to the effort expended or the risk associated with achievement of the milestone. If any of these conditions are not met, we defer the milestone payments and recognize them as
revenue over the remaining term of the contract as we complete its performance obligations. In February&nbsp;2004, as part of the OBI agreement, we received a milestone payment of $20&nbsp;million
as a result of obtaining FDA approval for ORTHOVISC. We evaluated the terms of the OBI Agreement and the circumstances under which the milestone was paid and determined that the milestone payment did
not meet all of the conditions to be recognized upon </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

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<P><FONT SIZE=2>achievement,
therefore, we expect to defer the milestone payment of $20&nbsp;million and recognize it ratably over the initial ten-year term of the OBI Agreement beginning with the first
quarter of 2004. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reserve for Obsolete/Excess Inventory.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market. We regularly review our
inventories and record a provision for excess and obsolete inventory based on certain factors that may impact the realizable value of our inventory including, but not limited to, technological
changes, market demand, inventory cycle time, regulatory requirements and significant changes in our cost structure. If ultimate usage varies significantly from expected usage or other factors arise
that are significantly different than those anticipated by management, additional inventory write-down or increases in obsolescence reserves may be required. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
generally produce finished goods based upon specific orders or in anticipation of specific orders. As a result, we generally do not establish reserves against finished goods. Under
certain circumstances we may purchase raw materials or manufacture work-in-process or finished goods inventory in anticipation of receiving regulatory approval for the use of
the raw materials in our manufacturing process or sale of the finished goods inventory. We evaluate the value of inventory on a quarterly basis and may, based on future changes in facts and
circumstances, determine that a write-down of inventory is required in future periods. </FONT></P>

<P><FONT SIZE=2><B>Restatement of Results  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;28, 2003, we announced a restatement of our previously-reported results for the three- and nine-month periods ended
September&nbsp;30, 2002. The restatement involved revenue recognized for the sale in the third quarter of 2002 of certain units of HYVISC. A new "clean room" at our facility that at the time did not
have a required regulatory approval for the manufacture of HYVISC from the FDA was used in the production of these units. Because the product was shipped in the absence of this regulatory approval, we
determined, and our independent accountants concurred, that revenue from that sale should not have been recognized. As a result of the restatement, revenue for the three and nine months ended
September&nbsp;30, 2002 was reduced by $326,000 and the net loss for those periods increased by $170,000, or $0.02 per share. Total HYVISC inventory at September&nbsp;30, 2002, was $173,000, which
included $157,000 in HYVISC inventory from the restated transaction, and $17,000 in HYVISC inventory produced in the new clean room which was previously included in our pre-restatement
inventory. Included in our inventory at December&nbsp;31, 2002 was $293,000 in HYVISC inventory produced in the new clean room. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2003, we received regulatory approval to use the new clean room for the manufacture of HYVISC. In addition, we received regulatory approval for the re-release
of the HYVISC inventory manufactured using the new clean room prior to receipt of the regulatory approval. The re-release of the HYVISC inventory was subject to certain conditions,
including testing of the material and maintenance of certain records, which conditions were met. In June we began shipping the re-released HYVISC inventory and as of December&nbsp;31,
2003 none of the re-released inventory remained in inventory. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
had previously obtained all required regulatory approvals for the use of the new clean room in the manufacture of our products designed for human use: ORTHOVISC (at the time, not
approved for sale in the U.S.), AMVISC, AMVISC Plus, STAARVISC-II, Shellgel, and CoEase. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
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<BR>
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<P><FONT SIZE=2><A
NAME="page_de1390_1_19"> </A> </FONT></P>

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<P><FONT SIZE=2><B><I>Results of Operations  </I></B></FONT></P>

<P><FONT SIZE=2><I>Year ended December&nbsp;31, 2003 compared to year ended December&nbsp;31, 2002  </I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1390_statement_of_operations_detail"> </A>
<A NAME="toc_de1390_1"> </A></FONT> <FONT SIZE=2><B>Statement of Operations Detail    <BR>    </B></FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="57%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="57%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Product revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>15,330,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,129,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Licensing revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>74,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>58,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>15,404,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,187,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Cost of product revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,005,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,109,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>7,399,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,078,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Operating Expenses:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,595,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,928,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Selling, general and administrative</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,209,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,425,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>6,804,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,353,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>595,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,275,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Interest income, net</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>144,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>240,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Income (loss) before provision for income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>739,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,035,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Provision for Income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(88,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Product revenue for the year ended December&nbsp;31, 2003 was $15,330,000, an increase of $2,201,000, or
17%, compared with $13,129,000 for the year ended December&nbsp;31, 2002. </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>Ophthalmic Products</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>10,512,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>9,907,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>ORTHOVISC</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,073,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,307,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>HYVISC</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,745,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>915,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>15,330,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,129,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ophthalmic
products sales increased $605,000, or 6%, to $10,512,000 compared with sales of $9,907,000 in 2002. The increase is primarily attributable to one new distributor added in the
second quarter of 2002 which reflected a full year of sales in 2003. Sales of AMVISC to Bausch and Lomb for 2003 were relatively level with sales for 2002. 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. Accordingly, unit prices for sales occurring in the nine months
ended September&nbsp;30, 2003 and 2002 were subject to possible retroactive price adjustments when the actual annual unit volume became known. In accordance with the Company's revenue recognition
policy, the amount of revenue reasonably subject to the price adjustment is recorded as deferred revenue until the annual unit volume becomes known and the sales price becomes fixed. During the fourth
quarter of each year the actual annual unit volume, and therefore the final sales price, became known and determinable. In the fourth quarter of 2003 and 2002, product revenue included the recognition
of $846,000 and $839,000, respectively, of revenue related to sales of AMVISC to Bausch&nbsp;&amp; Lomb, which had been previously deferred during the first three quarters of the respective years. Our
sales of ORTHOVISC increased $766,000, or 33%, to $3,073,000 in 2003 as compared with $2,307,000 in 2002. The increase was primarily due to increased sales to our Turkey distributor partially offset
by a net decrease in sales among our European distributors. We expect sales of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

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<P><FONT SIZE=2>ORTHOVISC
to grow in 2004 compared to 2003 reflecting the FDA marketing approval of ORTHOVISC and the OBI Agreement partially offset by lower sales in Turkey. We expect to continue to experience
volatility in our international sales of ORTHOVISC including ongoing competitive factors as well as economic and reimbursement issues, and potential regional conflict and political uncertainties.
Sales of HYVISC increased $830,000, or 91%, to $1,745,000 for 2003 as compared with $915,000 for 2002. Sales of HYVISC are made to a single customer under an exclusive agreement which expires in
May&nbsp;2006. The increase in sales of HYVISC included distributor inventory replenishment for certain units shipped without regulatory approval in the third quarter of 2002. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Licensing revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Licensing revenue for the year ended December&nbsp;31, 2003 increased $16,000, or 28%, to $74,000 from
$58,000 in the prior year. Licensing revenue includes up-front and maintenance payments on certain supply agreements with purchasers of our ophthalmic products which are recognized ratably
over the remaining term of the related agreement. The increase relates to a full year impact from a new distribution agreement effective in 2002. Licensing revenue in 2004 is expected to include
partial amortization of each of the $2&nbsp;million received in connection with the signing of the OBI Agreement in December&nbsp;2003 and the $20&nbsp;million milestone payment received in
February&nbsp;2004 as a
result of the FDA approval. These amounts will be recognized in income ratably over the ten-year term of the agreement, or approximately $550,000 per quarter, beginning in the first
quarter of 2004. In addition, the OBI Agreement provides for additional payments to us contingent on achieving certain performance milestones which, if met, the related payment is expected to be
recognized in income ratably over the remaining term, beginning in the period in which the milestones are met. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Gross profit for the year ended December&nbsp;31, 2003 was $7,399,000, or 48% of revenue, compared with
$5,078,000, or 39% of revenue, for the year ended December&nbsp;31, 2002.&nbsp;&nbsp;&nbsp;&nbsp;The increase in gross profit is mainly due to a higher margin product mix combined with efficiency gains in
our manufacturing process. We may experience further improvement in our gross profit margins with further unit volume growth as we continue to reduce cycle times by introducing outsourced
intermediates in our manufacturing process. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses for the year ended December&nbsp;31, 2003 decreased by
$1,333,000, or 34%, to $2,595,000 from $3,928,000 for the prior year. 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 and cost of clinical trials, and the preparation and processing of applications for regulatory
approvals at all relevant stages of development. The decrease in research and development expenses during 2003 is primarily attributable to a decrease in costs associated with the pivotal clinical
trial for ORTHOVISC which was substantially complete in the first quarter of 2003. During 2003 expenditures associated with our pivotal clinical trial for ORTHOVISC decreased approximately $1,500,000
compared to 2002 expenditures. In late May&nbsp;2003 we completed compilation of the clinical data and submitted a PMA application to the FDA as a requirement for seeking U.S. market approval. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
in-house research and development efforts relate to INCERT, a product designed to prevent surgical adhesions and products for the CTA market. Our ongoing focus will
include second-generation versions of our existing ophthalmic and osteoarthritis products, as well as other therapeutics applications of HA. We intend to enter a pilot human clinical trial for INCERT
in the second quarter of 2004 as well as a clinical trial for our product for CTA in the second quarter of 2004. As a result of these ongoing efforts, we expect research and development expenses will
increase in 2004 compared to 2003. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses for the year ended December&nbsp;31, 2003
decreased by $216,000 or 5%, to $4,209,000 from $4,425,000 in the prior year. The decrease in selling, general and administrative expenses during 2003 is primarily due to a decrease in outside
services fees of $121,000 combined with a decrease in professional service fees of $112,000 compared with 2002. These decreases reflect lower consulting and selling expenses in addition to lower </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

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<P><FONT SIZE=2>legal
expenses partially offset by an increase in accounting fees. We expect selling, general and administrative expenses to increase in 2004 compared to 2003 as a result of increased personnel
related costs as well as expanded marketing efforts for ORTHOVISC. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income, net.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest income, net, decreased $96,000, or 40%, to $144,000 for the year ended December&nbsp;31,
2003, from $240,000 in 2002. The decrease is attributable to lower average cash and investment balances and lower interest rates during 2003. Interest income in 2004 is expected to increase as a
result of higher average cash and investment balances primarily due to the $20&nbsp;million milestone payment received in February&nbsp;2004. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We recorded an income tax benefit of $88,000 for the year ended December&nbsp;31, 2003 compared to income tax
expense of $5,000 for the year ended December&nbsp;31, 2002. 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. We filed an income tax carryback claim to carry our 2001 tax loss back to prior tax years. 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. The tax benefit was partially offset by a provision for income taxes in the amount of $64,000 recorded for 2003 federal alternative
minimum tax and $2,000 for state taxes paid on investment income. For federal and state income tax purposes, net operating loss carryforwards offset the taxable income which included the
$2.0&nbsp;million received in December&nbsp;2003. As of December&nbsp;31, 2003, we have federal and state net operating loss carryforwards of approximately $9,686,000, and $9,462,000,
respectively, which may be available to offset future taxable income. As provided in Section&nbsp;382 of the Internal Revenue Code (IRC) the amount of net operating loss and credit carryforwards
that we may utilize in any one year may be restricted in the event of certain changes in ownership. We expect to recognize the $20.0&nbsp;million milestone payment received in February&nbsp;2004
as taxable income in the first quarter of 2004. As a result, we expect that we will be able to utilize the loss carryforwards, in 2004, in their entirety to offset part of our taxable income. As a
result of our expected taxable income in 2004, we will reevaluate the positive and negative evidence regarding the realizability of our deferred tax assets and consider whether a release of the
valuation allowance is appropriate. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><I>Year ended December&nbsp;31, 2002 compared to year ended December&nbsp;31, 2001  </I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de1390_statement_of_operations_detail_1"> </A>
<A NAME="toc_de1390_2"> </A></FONT> <FONT SIZE=2><B>Statement of Operations Detail    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="57%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="57%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Product revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,129,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>11,299,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Licensing revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>58,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,187,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>11,312,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Cost of product revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,109,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,229,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,078,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,083,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Operating Expenses:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,928,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,280,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Selling, general and administrative</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,425,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,263,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Litigation settlement costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>951,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,353,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>10,494,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,275,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(7,411,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Interest income, net</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>240,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>662,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Loss before provision for income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,035,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(6,749,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Provision for Income taxes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="57%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Product revenue for the year ended December&nbsp;31, 2002 was $13,129,000, an increase of $1,830,000, or
16%, compared with $11,299,000 recorded in the prior year. </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>Ophthalmic Products</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>9,907,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>7,604,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>ORTHOVISC&reg;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,307,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,159,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>HYVISC&reg;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>915,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>536,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>13,129,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>11,299,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase was primarily attributable to an increase in ophthalmic products sales and sales of HYVISC and was partially offset by lower ORTHOVISC sales. Ophthalmic product sales
increased $2,303,000, or 30%, compared with 2001 as a result of higher unit sales volume from existing customers, including a full year from customers added during 2001, and a new customer added in
the second quarter of 2002, partially offset by lower unit prices under the B&amp;L Agreement. 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. Accordingly, unit prices for sales occurring in the nine months ended September&nbsp;30, 2002 and 2001, were subject to possible
retroactive price adjustments when the actual annual unit volume became known. 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. In the fourth quarter of 2002 and 2001, product revenue included the recognition of $839,000 and
$401,000, respectively, of revenue related to sales of AMVISC to Bausch&nbsp;&amp; Lomb, which had been previously deferred during the first three quarters of the respective years. During the fourth
quarter of each year the actual annual unit volume became fixed or determinable. Our sales of HYVISC increased by $379,000, or 71%, for 2002 as compared with 2001. Sales of HYVISC were made to a
single customer under an exclusive agreement which we renewed in May&nbsp;2002 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>for
a term of four years. Our sales of ORTHOVISC decreased $852,000, or 27%, in 2002 as compared with 2001 primarily due to erosion in our market share in Turkey and pricing pressures in Spain and
Portugal as well as decreased sales in other parts of Europe. We expect to continue to experience volatility in our international sales of ORTHOVISC including ongoing competitive factors as well as
economic issues, and potential regional conflict and political uncertainties. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Licensing revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Licensing revenue for the year ended December&nbsp;31, 2002 increased $45,000, or 346%, to $58,000 for
the year ended December&nbsp;31, 2002 from $13,000 in the prior year. Licensing revenue includes up-front and maintenance payments on certain supply agreements with purchasers of our
ophthalmic products. The increase relates to a full year impact from new distribution agreements effective in 2001, combined with a new distribution agreement effective in 2002. We expect licensing
revenue in 2003 to be consistent with results for 2002. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Gross profit for the year ended December&nbsp;31, 2002 was $5,078,000, or 39% of revenue, compared with
$3,083,000, or 27% of revenue, for the year ended December&nbsp;31, 2001.&nbsp;&nbsp;&nbsp;&nbsp;Gross profit for 2002, as compared with same period last year, benefited from improved manufacturing cost
performance as a result of cost cutting initiatives we implemented during the latter half of 2001, which continued into 2002, combined with increased sales volumes and our efforts over the past year
to reduce work-in-process inventories. Work-in-process inventory was reduced from $1,971,000 at December&nbsp;31, 2001 to $1,354,000 at
December&nbsp;31, 2002. We had suspended certain manufacturing efforts in 2000 through late in 2001 in an effort to reduce work-in-process inventory levels of HA as a result
of learning of unfavorable results from a clinical trial of ORTHOVISC which we announced on May&nbsp;31, 2000. As a result of the suspended manufacturing activities,
work-in-process inventory was reduced from $3,169,000 at December&nbsp;31, 2000 to $1,971,000 at December&nbsp;31, 2001. During periods of reduced manufacturing activity,
certain fixed costs of manufacturing were not fully absorbed into the cost of product manufactured and sold. Rather, such costs were charged to expense and amounted to approximately
$2.0&nbsp;million during the full
year of 2001. Benefits resulting from manufacturing efficiencies were partially offset by lower prices for our sales of ophthalmic products under the B&amp;L Agreement effective April&nbsp;1, 2001 and
lower prices of ORTHOVISC reflecting competitive market conditions. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses for the year ended December&nbsp;31, 2002 decreased by
$352,000, or 8%, to $3,928,000 from $4,280,000 for the prior year. 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. The decrease in research and development expenses during 2002 is primarily attributable to a decrease in personnel-related costs of $653,000 due to lower headcount
partially offset by increased costs of $348,000 associated with the pivotal clinical trial for ORTHOVISC. We expect that research and development expenses for 2003 will decrease compared to 2002
primarily due to a decrease in costs associated with the clinical trials for ORTHOVISC which we expect will conclude in the first half of 2003, partially offset by an increase in research and
development efforts associated with new medical applications for our HA-based technology. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses for the year ended December&nbsp;31, 2002
decreased by $838,000 or 16%, to $4,425,000 from $5,263,000 in the prior year. The decrease in selling, general and administrative expenses during 2002 is primarily due a decrease in professional
service fees of $552,000 combined with the impact of separation costs of $545,000 related to management changes which were included in the results for 2001. These decreases were partially offset by
increases in personnel-related costs of $178,000 and royalty expenses of $93,000. We expect sales and marketing expenses to increase in 2003 compared to 2002 related to expanded marketing efforts for
ORTHOVISC. We expect general and administrative expenses to decrease in 2003 compared to 2002 as a </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

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<P><FONT SIZE=2>result
of lower professional service fees. As a result, we expect our aggregate selling, general and administrative expenses to remain approximately the same in 2003 compared to 2002. </FONT></P>


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Litigation settlement costs.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Litigation settlement costs for the year ended December&nbsp;31, 2002 was $0. Litigation
settlement costs for the year ended December&nbsp;31, 2001 included a charge of $850,000, which is the portion of the $1.25&nbsp;million settlement amount we contributed and $101,000 in
professional fees related to the putative class action suit. (See Note&nbsp;18 of the financial statements included in Item 8 herein.) </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income, net.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest income, net, decreased $422,000, or 64%, to $240,000 for the year ended December&nbsp;31,
2002, from $662,000 in the prior year. The decrease is attributable to lower average cash and investment balances and lower interest rates during 2002. Interest income in 2003 is also expected to be
adversely affected by lower market interest rates as well as lower average cash and investment balances. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense was $5,000 for the year ended December&nbsp;31, 2002 compared to $9,000 for the year ended
December&nbsp;31, 2001. The tax provisions primarily represent state income taxes paid on investment income. For federal income tax purposes, we have had net operating losses available to offset
otherwise taxable income. As of December&nbsp;31, 2002, we have federal and state net operating loss carryforwards of $12,943,000 and $10,669,000, respectively, which may be available to offset
future taxable income, if any. As provided in Section&nbsp;382 of the Internal Revenue Code (IRC) the amount of net operating loss and credit carryforwards that we may utilize in any one year may be
restricted in the event of certain changes in ownership. </FONT></P>

<P><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We require cash to fund our operating expenses and to make capital expenditures. We expect that our requirement for cash to fund these uses will increase as the
scope of our operations expand. Historically we have funded our cash requirements from available cash and investments on hand. At December&nbsp;31, 2003, cash and cash equivalents totaled
$14.6&nbsp;million compared to cash, cash equivalents and marketable securities of $13.5&nbsp;million at December&nbsp;31, 2002 and $13.1&nbsp;million at December&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
received an initial payment of $2.0&nbsp;million in December&nbsp;2003 upon entering into the OBI Agreement and a milestone payment of $20&nbsp;million in February&nbsp;2004
as a result of obtaining FDA approval for ORTHOVISC. The OBI Agreement also provides for additional performance-based milestone payments to us contingent upon planned manufacturing upgrades and
insurance reimbursement approval. On an on-going and long-term basis, the OBI Agreement also provides for us to receive royalty and transfer fees. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
provided by operating activities was $2,012,000 for the year ended December&nbsp;31, 2003 compared with cash provided by operating activities of $332,000 and cash used in
operating activities of $4,314,000 for the years ended December&nbsp;31, 2002 and 2001, respectively. Cash provided by operating activities in 2003 resulted primarily from net income of $827,000
plus non-cash expenses of $1,000,000 and an increase in deferred revenue of $2,031,000, offset by an increase in inventories of $703,000 and a decreases in customer deposit of $327,000,
accounts payable of $497,000 and accrued expenses of $406,000. The increase in deferred revenue includes the $2.0&nbsp;million upfront payment received in December&nbsp;2003 associated with the
OBI Agreement. The increase in inventories reflects an increase in raw materials of $298,000 primarily to meet manufacturing requirements for 2004, including the launch of ORTHOVISC in the U.S., and
an increase in finished goods of $314,000, primarily due to customer product demand requirements early in the first quarter of 2004. The customer deposit of $327,000 is related to the payment received
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. In connection with our restatement of
results for the three- and nine-month periods ended September&nbsp;30, 2002, we determined that revenue from a certain third quarter 2002 sale should not have been recognized and as of
December&nbsp;31, 2002 recorded </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

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<P><FONT SIZE=2>the
payment related to the sale as a customer deposit to be applied against subsequent shipments to the customer. See the section captioned "Restatement of Results on January&nbsp;28, 2003"
discussed above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
provided by investing activities was $1,485,000, $1,605,000, and $5,113,000 for 2003, 2002 and 2001, respectively. Net cash flows from investing activities for 2003 includes
proceeds from the maturity of marketable securities of $2,500,000 partially offset by an increase in restricted cash of $818,000 and in increase in property and equipment of $256,000. In connection
with the issuance of an irrevocable letter of credit to one of our vendors we had deposited $818,000 with our bank to collateralize the letter of credit which amount is recorded in restricted cash.
These funds are restricted from our use during the term of the letter of credit which is set to expire in April&nbsp;2004. We expect to make additional purchases in 2004 requiring the issuance of
one or more irrevocable letters of credit which may require us to deposit cash as collateral with our bank. The increase in property and equipment of $256,000 is primarily due to expenditures for
manufacturing equipment and computers and software. We expect to increase our capital expenditures in 2004 for upgrading and expanding our manufacturing and packaging equipment as well as our computer
systems. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
provided by financing activities of $93,000 reflects the proceeds from the exercise of stock options. </FONT></P>


<P><FONT SIZE=2><I>Off Balance Sheet Arrangements  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not use special purpose entities or other off-balance sheet financing techniques except for operating leases as disclosed in the contractual
obligations table below that we believe have
or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
resources. </FONT></P>

<P><FONT SIZE=2><I>Contractual Obligations and Other Commercial Commitments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have no material commitments for purchases of inventories or property and equipment. We expect to incur additional investments in our operations through
increased inventory levels and balances in accounts receivable for 2004 compared to 2003 in addition to capital expenditures in 2004 for manufacturing equipment to meet anticipated higher volume
requirements and computers and software and furniture and fixtures associated with normal operations. 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. No assurance can be given 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
future capital requirements and the adequacy of available funds will depend, on numerous factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>market
acceptance of our existing and future products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
successful launch and future sales of ORTHOVISC under the OBI Agreement;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>milestone
payments under to the OBI Agreement;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
successful commercialization of products in development;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>progress
in our product development efforts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
magnitude and scope of such efforts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>progress
with pre-clinical studies, clinical trials and product clearances by the FDA and other agencies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost of maintaining adequate manufacturing capabilities; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>competing
technological and market developments;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
development of strategic alliances for the marketing of certain of our products; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost of maintaining adequate inventory levels to meet current and future product demands. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to recognize the $20.0&nbsp;million milestone payment received in February&nbsp;2004 from Ortho Biotech as taxable income in the first quarter of 2004. As a result, we
expect that we will be able to utilize the loss carryforwards, in 2004, in their entirety to offset part of our taxable income. As a result of our expected taxable income in 2004, we will reevaluate
the positive and negative evidence regarding the realizability of our deferred tax assets and consider whether a release of the valuation allowance is appropriate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
cannot assure you that we will record profits in future periods. However, we believe that based on our current strategy, our cash and investments on hand will be sufficient to meet
our cash flows requirements through the end of 2005 and possibly beyond. See the section captioned </FONT><FONT SIZE=2><I>"Risk Factors and
Certain Other Factors Affecting Future Operating Results&#151;History of Losses; Uncertainty of Future Profitability."</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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. No
assurance can be given 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below summarizes our contractual obligations of non-cancelable operating leases and other commitments at December&nbsp;31, 2003: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="79%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,429,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>602,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>605,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>617,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>617,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>103,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,973,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

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<P><FONT SIZE=2><B>RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS  </B></FONT></P>


<P><FONT SIZE=2><B><I>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.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product
development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance 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. In the event our future products are regulated as human drugs or biologics, the FDA'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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
HA products under development, including a product for the cosmetic tissue augmentation market, INCERT&reg;, a product designed to prevent surgical adhesions, and second-
generation versions of our existing ophthalmic and osteoarthritis products, have not obtained U.S. or foreign regulatory approval for commercial marketing and sale. We believe that these products will
be regulated as Class&nbsp;III medical devices in the U.S. and will require a PMA prior to marketing. We cannot assure you that: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
will begin or successfully complete clinical trials for these products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
clinical data will support the efficacy of these products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
will be able to successfully complete the FDA or foreign regulatory approval process; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>additional
clinical trials will support a PMA application and/or FDA approval or foreign regulatory approval in a timely manner or at all. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also cannot assure you that any delay in receiving FDA approvals will not adversely affect our competitive position. Furthermore, even if we do receive FDA approval: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
approval may include significant limitations on the indications and other claims sought for use for which the products may be marketed;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
approval may include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>meaningful
sales may never be achieved. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once
obtained, marketing approval can be withdrawn by the FDA for a number of reasons, including, among others, the failure to comply with regulatory standards, or the occurrence of
unforeseen problems following initial approval. We may be required to make further filings with the FDA under certain circumstances. The FDA'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. 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. 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. 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. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

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<P><FONT SIZE=2>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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, all FDA approved or cleared products manufactured by us must be manufactured in compliance with the FDA's Good Manufacturing Practices (GMP) regulations and, for medical
devices, the FDA's Quality System Regulations (QSR). Ongoing compliance with QSR and other applicable regulatory requirements is enforced through periodic inspection by state and federal agencies,
including the FDA. 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. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to regulations enforced by the FDA, we are subject to other existing and future federal, state, local and foreign regulations. International regulatory bodies often establish
regulations governing product standards, packing requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. We cannot assure you that we will be able to
achieve and/or maintain compliance required for </FONT><FONT SIZE=2><I>Conformit&eacute; Europ&eacute;enne</I></FONT><FONT SIZE=2> marking (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. Federal, state, local and
foreign regulations regarding the manufacture and sale of medical products are subject to change. We cannot predict what impact, if any, such changes might have on our business. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated delays. 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. Any failure to obtain, or delay in obtaining such approvals or clearances,
could adversely affect our ability to market our products. </FONT></P>

<P><FONT SIZE=2><B><I>We have historically incurred operating losses and we cannot make any assurances about our future profitability.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From our inception through December&nbsp;31, 1996 and 1999 through 2002 we have incurred annual operating losses. For the year ended December&nbsp;31, 2003,
we recorded net income of $827,000 and as of December&nbsp;31, 2003, we had an accumulated deficit of approximately $13.6&nbsp;million. Our ability to maintain profitability is uncertain. The
continued development of our products will require the commitment of substantial resources to conduct research and preclinical and clinical development programs, and the establishment of sales and
marketing capabilities or distribution arrangements either by us or our partners. We cannot assure you that we will be able to develop these products or new medical applications of our existing
products or technology, or that if developed, the necessary regulatory approvals will be obtained, or if obtained, that sales, marketing and distribution capabilities and arrangements will be
established in order to permit us to maintain profitability. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>

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<P><FONT SIZE=2><B><I>Substantial competition could materially affect our financial performance.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete with many companies, including, among others, large pharmaceutical companies and specialized medical products companies. 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. We also compete with academic institutions, governmental agencies and other research organizations that may be
involved in research, development and commercialization of products. Because a number of companies are developing or have developed HA products for similar applications and have received FDA approval,
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, to identify markets for our products that may be sufficient to permit meaningful sales of our products. For example,
several of our competitors obtained FDA and foreign regulatory approvals before us for marketing HA products with applications similar to that of ORTHOVISC. 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. There can be no assurance 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. In the past we have experienced
volatility in our international sales of ORTHOVISC including ongoing competitive factors as well as economic issues, and potential regional conflict and political uncertainties. As a result, we are
uncertain of the extent of our future sales in these markets. </FONT></P>

<P><FONT SIZE=2><B><I>We are uncertain regarding the success of our clinical trials.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several of our products will require clinical trials to determine their safety and efficacy for U.S. and international marketing approval by regulatory bodies,
including the FDA. We plan to begin a pilot human clinical trial in Europe for INCERT-S and a pivotal clinical trial for our product for CTA in the second quarter of 2004. There can be no
assurance that we will successfully complete clinical trials of INCERT-S or our CTA product or that we will be able to successfully complete the FDA approval process for either
INCERT-S or our CTA product. In addition, there can be no assurance that we will not encounter additional problems that will cause us to delay, suspend or terminate the clinical trials. 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><FONT SIZE=2><B><I>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</I></B></FONT><FONT SIZE=2><B>.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
cannot assure you that such marketing partners will not seek to renegotiate their current agreements on terms less favorable to us. Under the terms of the B&amp;L Agreement, effective
January&nbsp;1, 2001, we became Bausch&nbsp;&amp; Lomb's exclusive provider of AMVISC and AMVISC Plus ophthalmic viscoelastic products, in the U.S. and international markets. The B&amp;L Agreement expires
December&nbsp;31, 2007, and superceded an existing supply contract with Bausch&nbsp;&amp; Lomb that was set to expire December&nbsp;31, 2001. The B&amp;L Agreement is subject to early termination and/or
reversion to a non-exclusive basis under certain circumstances. The B&amp;L Agreement lifts contractual restrictions on our ability to sell certain ophthalmic products to other companies,
subject to our payment of royalties. In exchange, we agreed to a reduction in unit selling prices retroactively effective to April&nbsp;1, 2000 and the elimination of minimum unit purchase
obligations by Bausch&nbsp;&amp; Lomb. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not achieved incremental sales of our ophthalmic products to Bausch&nbsp;&amp; Lomb and/or other companies sufficient to offset the effects of the price reduction and royalties to
Bausch&nbsp;&amp; Lomb and there can be no assurances that we will be able to do so in the future. The reduction in unit prices resulted in a decrease in our revenue and gross profit from the sale of
AMVISC to Bausch&nbsp;&amp; Lomb. We expect revenue from Bausch&nbsp;&amp; Lomb in 2004 to be relatively consistent with 2003. In addition, under certain circumstances, Bausch&nbsp;&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. For the years
ended December&nbsp;31, 2003, 2002 and 2001, sales of AMVISC products to Bausch&nbsp;&amp; Lomb accounted for 51%, 59% and 65% of product revenues, respectively. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have entered into various agreements for the distribution of ORTHOVISC internationally which are subject to termination under certain circumstances. We are continuing to seek to
establish long-term distribution relationships in regions not covered by existing agreements, but can make no assurances that we will be successful in doing so. There can be no assurance
that we will be able to identify or engage appropriate distribution or collaboration partners or effectively transition to any such partners. There can be no assurance 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></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2003 we entered into a ten-year licensing and supply agreement with Ortho Biotech Products, L.P., a member of the Johnson&nbsp;&amp; Johnson family of
companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement Ortho Biotech will perform sales, marketing and distribution functions. Additionally, Ortho Biotech licensed the right to
further develop and commercialize ORTHOVISC as well as new products for the treatment of pain associated with osteoarthritis. We cannot assure you that Ortho Biotech will be able to market ORTHOVISC
effectively or to establish sales levels to the extent that us and Ortho Biotech believe are possible in the timeframes expected, or at all, nor can we assure you that we will be able to achieve the
performance-and sales- based milestones provided in the OBI Agreement. Furthermore, we cannot predict whether the license granted to Ortho Biotech in the OBI Agreement to further develop and
commercialize
ORTHOVISC as well as new products for the treatment of pain associated with osteoarthritis based on our proprietary viscosupplementation technology will result in any new products or indications for
use. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
will need to obtain the assistance of additional marketing partners to bring new and existing products to market and to replace certain marketing partners. 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><FONT SIZE=2><B><I>Our future success depends upon market acceptance of our existing and future products</I></B></FONT><FONT SIZE=2><B>.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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. 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. There can be no
assurance that our new products will achieve significant market acceptance on a timely basis, or at all. 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>

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<P><FONT SIZE=2><B><I>We may be unable to adequately protect our intellectual property rights.  </I></B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. The patent positions of pharmaceutical, medical products and biotechnology firms, including ours, can be
uncertain and involve complex legal and factual questions. There can be no assurance 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. 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 United States Patent and Trademark Office (PTO) to determine priority of invention, which could result in failure to
obtain, or the loss of, patent protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to us, such interference
proceedings could result in substantial cost to us, and diversion of management's attention away from our operations. 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. There can be no
assurance 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. An adverse outcome in such litigation could cause us to lose exclusivity covered by the disputed rights. 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. Furthermore, even if our patents are determined to be valid, enforceable, and broad in scope, there can be no
assurance that competitors will not be able to design around such patents and compete with us using the resulting alternative technology. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a policy of seeking patent protection for patentable aspects of our proprietary technology. 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. However, no assurance can be given 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. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. There can be no assurance that
the products or processes developed by us will not infringe on the patent rights of others in the future. Any such infringement may have a material adverse effect on our business, financial condition,
and results of operations. 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. It is unclear whether an interference will be declared. 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. No assurance can be given that we would be successful in any
such interference proceeding. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect such information, we require all
employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

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<P><FONT SIZE=2>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. In addition, there can be no assurance that, despite precautions taken by us, others have not and will
not obtain access to our proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the B&amp;L Agreement, we have agreed to transfer to Bausch&nbsp;&amp; Lomb, upon expiration of the term of the B&amp;L agreement on December&nbsp;31, 2007, or in connection with
earlier termination in certain circumstances, our manufacturing process, know-how and technical information, which relate to only AMVISC products. Upon expiration of the B&amp;L Agreement,
there can be no assurance that Bausch&nbsp;&amp; Lomb will continue to use us to manufacture AMVISC and AMVISC Plus. If Bausch&nbsp;&amp; Lomb discontinues the use of us as a manufacturer after such time,
our business, financial condition, and results of operations would likely be materially and adversely affected. </FONT></P>

<P><FONT SIZE=2><B><I>Our manufacturing processes involve inherent risks and disruption could materially adversely affect our business, financial condition and results of
operations.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations are dependent upon the continued operation of our manufacturing facility in Woburn, Massachusetts. 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. 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. Although we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing
processes are available, any supply interruption could harm our ability to manufacture our products until a new source of supply is identified and qualified. We may not be able to find a sufficient
alternative supplier in a reasonable time period, or on commercially reasonable terms, if at all, and our ability to produce and supply our products could be impaired. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
our manufacturing processes and research and development efforts involve animals and products derived from animals. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
utilization of animals in research and development and product commercialization is subject to increasing focus by animal rights activists. 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. 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><FONT SIZE=2><B><I>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  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success depends on substantial growth in product sales. There can be no assurance that such growth can be achieved or, if achieved, can be sustained.
We expect sales of ORTHOVISC to grow in 2004 as a result of FDA approval and the entering into of the OBI Agreement with Ortho Biotech. There </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

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<P><FONT SIZE=2>can
be no assurance that even if substantial growth in product sales and the demand for our products is achieved, we will be able to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>develop
the necessary manufacturing capabilities;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>obtain
the assistance of additional marketing partners;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>attract,
retain and integrate the required key personnel;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>implement
the financial, accounting and management systems needed to manage growing demand for our products. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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><FONT SIZE=2><B><I>If we engage in any acquisition as a part our growth strategy, we will incur a variety of costs, and may never realize the anticipated benefits of the
acquisition.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business strategy may include the future acquisition of businesses, technologies, services or products that we believe are a strategic fit with our business.
&nbsp;&nbsp;&nbsp;&nbsp;If we undertake any acquisition, the process of integrating an acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may
absorb significant management attention that would otherwise be available for ongoing development of our business. Moreover, we may fail to realize the anticipated benefits of any acquisition as
rapidly as expected or at all. Future acquisitions could reduce stockholders' ownership, cause us to incur debt, expose us to future liabilities and result in amortization expenses related to
intangible assets with definite lives. In addition, acquisitions involve other risks, including diversion of management resources otherwise available for ongoing development of our business and risks
associated with entering new markets with which we have limited experience or where experienced distribution alliances are not available. Our future profitability may depend in part upon our ability
to develop further our resources to adapt to these new products or business areas and to identify and enter into satisfactory distribution networks. We may not be able to identify suitable acquisition
candidates in the future or consummate future acquisitions. </FONT></P>

<P><FONT SIZE=2><B><I>Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by health care cost containment
initiatives.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the U.S. and other 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. We depend upon the distributors
for our products to secure reimbursement and reimbursement approvals. Reimbursement by third party payers may depend on a number of factors, including the payer's determination that the use of our
products is clinically useful and cost-effective, medically necessary and not experimental or investigational. 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-effectiveness data for the use of our products to each payer separately. 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. 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.
There can be no assurance that third party reimbursement coverage will be available or adequate for any products or services developed by us. Outside the U.S., the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>

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<P><FONT SIZE=2>success
of our products is also dependent in part upon the availability of reimbursement and health care payment systems. 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><FONT SIZE=2><B><I>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.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had cash and cash equivalents of approximately $14.6&nbsp;million as of December&nbsp;31, 2003 and received an additional $20.0&nbsp;million milestone
payment in February&nbsp;2004 in connection with the OBI Agreement. Our future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>market
acceptance of our existing and future products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
successful commercialization of products in development;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>progress
in our product development efforts;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
magnitude and scope of such product development efforts,
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>progress
with preclinical studies, clinical trials and product clearances by the FDA and other agencies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost and timing of our efforts to manage our manufacturing capabilities and related costs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>competing
technological and market developments;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
development of strategic alliances for the marketing of certain of our products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide upfront and/or milestone payments to us; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
cost of maintaining adequate inventory levels to meet current and future product demands. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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. 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. No assurance can be given 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><FONT SIZE=2><B><I>We could become subject to product liability claims, which, if successful, could materially adversely affect our business, financial condition and
results of operations.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product
liability claims will not be asserted against us. 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, there can be no assurance that material claims will not arise in the future or that our insurance will be adequate to cover all situations.
Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on </FONT></P>

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<P><FONT SIZE=2>commercially
reasonable terms. Any product liability claim, if successful, could have a material adverse effect on our business, financial condition and results of operations. </FONT></P>

<P><FONT SIZE=2><B><I>Our business is dependent upon hiring and retaining qualified management and scientific personnel.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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. We face significant competition for
such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that we will be successful in hiring or retaining the
personnel we require. 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><FONT SIZE=2><B><I>We are subject to environmental regulation and any failure to comply with applicable laws could subject us to significant liabilities and harm our
business</I></B></FONT><FONT SIZE=2><B>.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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><FONT SIZE=2><B><I>Our future operating results may be harmed by economic, political and other risks relating to international sales.  </I></B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2003 and 2002, approximately, 20% and 18%, respectively, of our product sales were to international distributors. 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. A number of risks are inherent in international sales and operations. 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. 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><FONT SIZE=2><B><I>Our stock price has been and may remain highly volatile, and we cannot assure you that market making in our common stock will continue.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market price of shares of our common stock may be highly volatile. 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, 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. 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. 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. Our operating results in future quarters may be below the expectations of equity research analysts and investors. In such event, the price of our common stock would likely decline,
perhaps substantially. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. There can be no assurance that an active public market in our common stock will be sustained. </FONT></P>

<P><FONT SIZE=2><B><I>Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of us.  </I></B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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. In addition, the Board of Directors adopted a Shareholders Rights Plan in April&nbsp;1998. 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 "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. 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 our Board of Directors. </FONT></P>

<P><FONT SIZE=2><B><I>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</I></B></FONT><FONT SIZE=2><B>.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. For the year ended December&nbsp;31, 2003, Bausch&nbsp;&amp; Lomb accounted for 51% of product revenues and 65% of our accounts receivable balance and three
other customers, combined, accounted for 39% of product revenues and 20% of our accounts receivable balance. While it is expected that our ability to market ORTHOVISC in the U.S. as a result of the
receipt of FDA approval in February&nbsp;2004, and our entering into the OBI Agreement, will reduce our dependence on Bausch&nbsp;&amp; Lomb for revenues we will still be dependent on a small number
of large customers for the majority of our revenues. 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. 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. 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. 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. Any termination, change, reduction or delay in orders could seriously harm our business, financial condition, and
results of operations. 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. 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><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We,
through our international distributors, distribute ORTHOVISC in Canada, Turkey and certain countries in Europe and the Middle East. Due to unfavorable results of the U.S. ORTHOVISC
pivotal clinical trial announced on May&nbsp;31, 2000, marketing efforts in these countries have been negatively </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

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<P><FONT SIZE=2>affected.
There can be no assurance that as a result receiving FDA marketing approval for ORTHOVISC in the U.S. marketing efforts will improve or that international sales levels for ORTHOVISC will
improve, maintain historical levels or that sales will occur at all in these countries. </FONT></P>

<P><FONT SIZE=2><B><I>Additional costs for complying with recent and proposed future changes in Securities and Exchange Commission, Nasdaq Stock Market and accounting rules
could adversely affect our profits.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent and proposed future changes in the Securities and Exchange Commission and Nasdaq rules, as well as changes in accounting rules, will cause us to incur
additional costs including professional fees, as well as additional personnel costs, in order to keep informed of the changes and operate in a compliant manner. In addition, we expect to incur
additional general and administrative expense as we implement Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, which requires management to report on, and our independent auditors to attest to,
our internal controls. These additional costs may be significant enough to cause our financial position and results of operation to be negatively impacted. In addition, compliance with these new rules
could also result in continued diversion of management's time and attention, which could prove to be disruptive to our normal business operations. Failure to comply with any of the new laws and
regulations could adversely impact market perception of our company, which could make it difficult to access the capital markets or otherwise finance our operations in the future. </FONT></P>


<P><FONT SIZE=2><B><I>With new rules, including the Sarbanes-Oxley Act of 2002, we may have difficulty in retaining or attracting directors for the board and various
sub-committees thereof or officers.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The recent and proposed changes in SEC and Nasdaq rules, including those resulting from the Sarbanes-Oxley Act of 2002, may result in our being unable to attract
and retain the necessary board directors and members of sub-committees thereof or officers, to effectively provide for our management. The perceived increased personal risk associated with
these recent changes, may deter qualified individuals from wanting to participate in these roles. </FONT></P>

<P><FONT SIZE=2><B><I>We may have difficulty obtaining adequate directors and officers insurance and the cost for coverage may significantly increase.  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may have difficulty in obtaining adequate directors' and officers' insurance to protect us and our directors and officers from claims made against them.
Additionally, even if adequate coverage is available, the costs for such coverage may be significantly greater than current costs. This additional cost may have a significant effect on our profits and
as a consequence our results of operations may be adversely affected. </FONT></P>

<P><FONT SIZE=2><A
NAME="dg1390_item_7a._quantitative_and_qual__ite02669"> </A>
<A NAME="toc_dg1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, we did not utilize any derivative financial instruments, market risk sensitive instruments or other financial and commodity
instruments for which fair value disclosure would be required under SFAS No.&nbsp;107. All of our investments consist of money market funds, commercial paper and municipal bonds that are carried on
our books at amortized cost, which approximates fair market value. </FONT></P>


<P><FONT SIZE=2><I>Primary Market Risk Exposures  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. Our investment portfolio of cash equivalent and
short-term investments is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments. Our exposure to
currency exchange rate fluctuations is specific to the extent that certain sales were effected through logistics agents in foreign currencies. The impact of currency exchange rate movements on sales
through logistics agents was immaterial for the year ended December&nbsp;31, 2003. Currently, we do not engage in foreign currency hedging activities. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

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<P><FONT SIZE=2><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fa1390_anika_therapeutics,_inc._and_s__ani03271"> </A>
<A NAME="toc_fa1390_1"> </A></FONT> <FONT SIZE=2><B>ANIKA THERAPEUTICS,&nbsp;INC. AND SUBSIDIARIES<BR>  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

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<TD WIDTH="94%"><FONT SIZE=2>Report of Independent Auditors</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="94%"><FONT SIZE=2><BR>
Consolidated Balance Sheets as of December&nbsp;31, 2003 and 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
41</FONT></TD>
</TR>
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<TD WIDTH="94%"><FONT SIZE=2><BR>
Consolidated Statements of Operations for the Years Ended December&nbsp;31, 2003, 2002 and 2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
42</FONT></TD>
</TR>
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<TD WIDTH="94%"><FONT SIZE=2><BR>
Consolidated Statements of Stockholders' Equity for the Years Ended December&nbsp;31, 2003, 2002 and 2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
43</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="94%"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows for the Years Ended December&nbsp;31, 2003, 2002 and 2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
44</FONT></TD>
</TR>
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<TD WIDTH="94%"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=2><BR>
45</FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

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NAME="fc1390_report_of_independent_auditors"> </A>
<A NAME="toc_fc1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>Report of Independent Auditors    <BR>    </B></FONT></P>

<P><FONT SIZE=2>The
Board of Directors and Shareholders of<BR>
Anika Therapeutics,&nbsp;Inc.: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Anika Therapeutics,&nbsp;Inc. and subsidiaries at December&nbsp;31, 2003 and 2002, and the results of operations and cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consolidated financial statements of Anika Therapeutics,&nbsp;Inc. and subsidiaries as of December&nbsp;31, 2001, and for the year then ended, were audited by other independent
accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated February&nbsp;12, 2002. </FONT></P>

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<TD WIDTH="50%"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>PRICEWATERHOUSECOOPERS LLP</FONT></TD>
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<P><FONT SIZE=2>Boston, Massachusetts<BR>
February&nbsp;20, 2004 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>

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<A NAME="toc_fc1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>Report of Independent Accountants    <BR>    </B></FONT></P>


<P><FONT SIZE=2>THE
FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. </FONT></P>

<P><FONT SIZE=2>The
Board of Directors and Shareholders of<BR>
Anika Therapeutics,&nbsp;Inc.: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Anika Therapeutics,&nbsp;Inc. (the "Company") and subsidiaries as of December&nbsp;31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December&nbsp;31, 2001. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Anika Therapeutics,&nbsp;Inc.
and subsidiaries as of December&nbsp;31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December&nbsp;31, 2001, in
conformity with accounting principles generally accepted in the United States. </FONT></P>

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<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>/s/ ARTHUR ANDERSEN LLP</FONT></TD>
</TR>
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<P><FONT SIZE=2>Boston, Massachusetts<BR>
February&nbsp;12, 2002 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

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NAME="fe1390_anika_therapeutics,_inc._and_s__ani02626"> </A>
<A NAME="toc_fe1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>Anika Therapeutics, Inc. and Subsidiaries<BR>  Consolidated Balance Sheets    <BR>    </B></FONT></P>

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<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=9 ALIGN="CENTER"><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>14,592,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>11,002,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Restricted cash</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>818,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Marketable securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,500,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts receivable, net of reserves of $29,000 and $35,000 at December 31, 2003 and 2002, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,421,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,198,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,627,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,924,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Prepaid expenses and other receivables</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>81,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>320,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="58%"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,539,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,944,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Property and equipment, at cost</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,875,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,619,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Less: accumulated depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(8,684,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(7,678,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,191,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,941,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Long-term deposits</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>143,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>143,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Notes receivable from officers</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>59,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Total Assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21,873,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,087,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=9 ALIGN="CENTER"><FONT SIZE=2><B>LIABILITIES AND STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>349,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>846,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>65,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,297,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,703,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Customer deposit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>327,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>378,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>147,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="58%"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,089,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,023,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Long-term deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,800,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Commitments and contingencies (Note 11)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Stockholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and outstanding at December 31, 2003 and 2002</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Common stock, $.01 par value: 30,000,000 shares authorized, 9,991,943 shares issued at December 31, 2003 and 2002, 9,986,405 and 9,934,280 shares outstanding at December 31, 2003 and 2002, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Additional paid-in-capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>31,480,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>31,640,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Treasury stock, at cost, 5,538 and 57,663 shares at December 31, 2003 and 2002, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(27,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(280,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(13,569,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(14,396,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="58%"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,984,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>17,064,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Total Liabilities and Stockholders' Equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21,873,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>20,087,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>The
accompanying notes are an integral part of these consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>41</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=41,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=370914,FOLIO='41',FILE='DISK035:[04BOS0.04BOS1390]FE1390A.;5',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fg1390_1_42"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fg1390_anika_therapeutics,_inc._and_s__ani04210"> </A>
<A NAME="toc_fg1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>Anika Therapeutics, Inc. and Subsidiaries<BR>  Consolidated Statements of Operations<BR>  For the Years Ended December 31,    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Product revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>15,330,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,129,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11,299,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Licensing revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>74,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>58,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>15,404,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,187,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11,312,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Cost of product revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,005,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,109,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,229,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,399,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,078,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,083,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Operating expenses:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Research &amp; development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,595,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,928,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,280,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Selling, general &amp; administrative</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,209,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,425,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,263,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Litigation settlement costs (Note 19)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>951,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,804,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,353,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,494,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>595,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,275,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(7,411,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>144,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>240,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>662,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Income (loss) before provision for income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>739,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,035,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(6,749,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Provision for income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(88,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Basic net income (loss) per share:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Basic weighted average common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,953,733</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Diluted net income (loss) per share:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="47%"><FONT SIZE=2>Diluted weighted average common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,849,610</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>The
accompanying notes are an integral part of these consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>42</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=42,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=641896,FOLIO='42',FILE='DISK035:[04BOS0.04BOS1390]FG1390A.;5',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fi1390_1_43"> </A> </FONT> <FONT SIZE=2><B>Anika Therapeutics, Inc. and Subsidiaries<BR>
Consolidated Statements of Stockholders' Equity  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Treasury Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="25%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>$.01 Par<BR>
Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Additional<BR>
Paid-in<BR>
Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Deferred<BR>
Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Accumulated<BR>
Deficit</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total<BR>
Stockholders'<BR>
Equity</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Balance, December 31, 2000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,991,943</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>31,735,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(244,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57,663</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(280,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(4,598,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>26,713,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Amortization of deferred compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>149,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>149,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Reversal of deferred compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(95,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>95,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Balance, December 31, 2001</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,991,943</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>31,640,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57,663</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(280,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(11,356,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>20,104,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Balance, December 31, 2002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,991,943</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>31,640,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57,663</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(280,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(14,396,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>17,064,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Exercise of common stock options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(160,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(52,125</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>253,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>93,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Net income</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>Balance, December 31, 2003</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9,991,943</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>100,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>31,480,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5,538</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(27,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(13,569,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>17,984,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="25%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>The
accompanying notes are an integral part of these consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>43</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=43,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=1013355,FOLIO='43',FILE='DISK035:[04BOS0.04BOS1390]FI1390A.;5',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fk1390_1_44"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fk1390_anika_therapeutics,_inc._and_s__ani03083"> </A>
<A NAME="toc_fk1390_1"> </A>
<BR></FONT><FONT SIZE=2><B> Anika Therapeutics, Inc. and Subsidiaries<BR>  Consolidated Statements of Cash Flows    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>For the Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Cash flows from operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,006,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,095,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,085,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Amortization of deferred compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>149,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Forgiveness of note receivable from officer</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>129,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Provision for doubtful accounts</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(6,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(217,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,033,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(548,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(703,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>802,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,011,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>239,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>221,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>72,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(497,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(109,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>84,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Customer deposit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(327,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>327,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(406,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(139,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>447,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,031,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>132,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>15,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>65,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash provided by (used in) operating activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,012,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>332,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(4,314,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Cash flows from investing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Proceeds from the redemption of marketable securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,500,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,995,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>19,423,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Purchase of marketable securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(7,500,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(13,378,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Restricted cash</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(818,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Purchase of property and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(256,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(89,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(908,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Proceeds from repayment of notes receivable from officers</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>59,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>194,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Long-term deposits</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(24,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash provided by investing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,485,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,605,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,113,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Cash flows from financing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Proceeds from exercise of stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>93,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>93,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Increase in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,590,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,937,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>799,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Cash and cash equivalents at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11,002,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,065,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>8,266,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Cash and cash equivalents at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>14,592,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11,002,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,065,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Supplemental disclosure of cash flow information:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=2>Cash paid for income taxes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>The
accompanying notes are an integral part of these consolidated financial statements. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>44</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fm1390_1_45"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fm1390_anika_therapeutics,_inc._notes__ani02609"> </A>
<A NAME="toc_fm1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>ANIKA THERAPEUTICS,&nbsp;INC.    <BR>    <BR>    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>


<P><FONT SIZE=2><B>1. NATURE OF BUSINESS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anika Therapeutics,&nbsp;Inc. ("Anika" or the "Company") develops, manufactures and commercializes therapeutic products and devices intended to promote the
protection and healing of bone, cartilage and soft tissue. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. 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. The Company's currently marketed products consist of ORTHOVISC&reg;, which is an HA product used in the
treatment of some forms of osteoarthritis in humans, and HYVISC&reg;, which is an HA product used in the treatment of equine osteoarthritis. In December&nbsp;2003 the Company entered into a
licensing, distribution, supply and marketing agreement with Ortho Biotech Products, L.P., a member of the Johnson&nbsp;&amp; Johnson family of companies, for ORTHOVISC covering the U.S. and Mexico, and
in February&nbsp;2004 the Company received marketing approval from the U.S. Food and Drug Administration (FDA) for ORTHOVISC. ORTHOVISC has been approved for sale and marketed internationally since
1996. HYVISC is marketed in the U.S. through Boehringer Ingelheim Vetmedica,&nbsp;Inc. The Company manufactures AMVISC&reg; and AMVISC&reg; Plus, HA viscoelastic supplement products
used in ophthalmic surgery, for Bausch&nbsp;&amp; Lomb Incorporated. The Company also manufactures CoEase&#153; for Advanced Medical Optics,&nbsp;Inc., STAARVISC&reg;II, for STAAR
Surgical Company, and ShellGel&#153; for Cytosol Ophthalmics,&nbsp;Inc., each an injectable ophthalmic viscoelastic product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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's business. </FONT></P>

<P><FONT SIZE=2><B>2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  </B></FONT></P>

<P><FONT SIZE=2><I>Use of Estimates  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. </FONT></P>

<P><FONT SIZE=2><I>Principles of Consolidation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements include the accounts of Anika Therapeutics,&nbsp;Inc. and its wholly owned subsidiaries, Anika
Securities,&nbsp;Inc. (a Massachusetts Securities Corporation) and Anika Therapeutics UK,&nbsp;Ltd. All intercompany balances and transactions have been eliminated in consolidation. There was no
activity by the UK subsidiary during the years ended December&nbsp;31, 2003, 2002 and 2001. As of March&nbsp;2003 the UK subsidiary was dissolved. </FONT></P>


<P><FONT SIZE=2><I>Cash and Cash Equivalents  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents consists of cash and highly liquid investments with original maturities of 90&nbsp;days or less. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>45</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm1390_1_46"> </A>
<BR>

<P><FONT SIZE=2><I>Marketable Securities  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No.&nbsp;115, "Accounting for Certain Investments in Debt and Equity
Securities". Marketable securities consists of municipal bonds and commercial paper with initial maturities of twelve months or less from date of issuance. 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. Marketable securities are carried at
amortized cost. </FONT></P>

<P><FONT SIZE=2><I>Financial Instruments  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;107, "Disclosures About Fair Value of Financial Instruments", requires disclosure about fair value of financial instruments. Financial instruments
consist of cash equivalents, marketable securities, accounts receivable, notes receivable from officers and accounts payable. The estimated fair value of the Company's financial instruments
approximate their carrying values. </FONT></P>

<P><FONT SIZE=2><I>Revenue Recognition  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product revenue is recognized upon confirmation of regulatory compliance and shipment to the customer as long as there is (1)&nbsp;persuasive evidence of an
arrangement, (2)&nbsp;delivery has occurred and risk of loss has passed, (3)&nbsp;the sales price is fixed or determinable and (4)&nbsp;collection of the related receivable is probable. Amounts
billed or collected prior to recognition of revenue are classified as deferred revenue. 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. 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 during the year. 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. In accordance with the Company's revenue recognition policy, the amount of
revenue subject to the contracted price adjustment is recorded as deferred revenue until the annual unit volume becomes known and the sales price becomes fixed. ORTHOVISC has been sold through several
distribution arrangements as well as outsource order-processing arrangements ("logistic agents"). Sales of product through third party logistics agents in certain markets are recognized as revenue
upon shipment by the logistics agent to the customer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recognizes non-refundable upfront payments received as part of supply, distribution, and marketing arrangements, ratably over the terms of the arrangements to
which the payments apply. Milestone payments received as part of supply, distribution, and marketing arrangements are evaluated under Emerging Issues Task Force No.&nbsp;00-21, "Revenue
Arrangements with Multiple Deliverables," to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the
undelivered item exists. The Company recognizes milestone payments as revenue upon achievement of the milestone only if (1)&nbsp;it represents a separate unit of accounting as defined in EITF
00-21, (2)&nbsp;the milestone payments are non-refundable, (3)&nbsp;substantive effort is involved in achieving the milestone, and (4)&nbsp;the amount of the milestone is
reasonable in relation to the effort expended or the risk associated with achievement of the milestone. If any of these conditions are not met, the Company will defer the milestone payments and
recognize them as revenue over the remaining term of the contract as it completes its performance obligations. In February&nbsp;2004, as part of the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>46</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm1390_1_47"> </A>
<BR>

<P><FONT SIZE=2>OBI
agreement, the Company received a milestone payment of $20&nbsp;million as a result of obtaining FDA approval for ORTHOVISC. The Company evaluated the terms of the OBI Agreement and the
circumstances under which the milestone was paid and determined that the milestone payment did not meet all of the conditions to be recognized upon achievement, therefore, the Company expects to defer
the milestone payment of $20&nbsp;million and recognize it ratably over the initial ten-year term of the OBI Agreement beginning with the first quarter of 2004. </FONT></P>

<P><FONT SIZE=2><I>Property and Equipment  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are carried at cost less accumulated depreciation. Costs of major additions and betterments are capitalized; maintenance and repairs that
do not improve or extend the life of the respective assets are charged to operations. On disposal, the related accumulated depreciation or amortization is removed from the accounts and any resulting
gain or loss is included in results of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="63%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Machinery and equipment</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%"><FONT SIZE=2>3-7 years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%"><FONT SIZE=2>3-5 years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%"><FONT SIZE=2>Shorter of lease term or estimated useful life</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company accounts for impairment of long-lived assets in accordance with SFAS No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No.&nbsp;144 establishes a uniform accounting model for long-lived assets to be disposed of. This Statement also requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the
carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. As of December&nbsp;31, 2003 and 2002, long-lived assets
consisted of property and equipment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the years ended December&nbsp;31, 2003, 2002, and 2001 the Company did not record losses on impairment. </FONT></P>

<P><FONT SIZE=2><I>Research and Development  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs consists primarily of salaries and related expenses for personnel and fees paid to outside consultants and outside service
providers. Research and development costs are expensed as incurred. </FONT></P>


<P><FONT SIZE=2><I>Income Taxes  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides for income taxes in accordance with SFAS No.&nbsp;109, "Accounting for Income Taxes". SFAS No.&nbsp;109 requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>47</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm1390_1_48"> </A>
<BR>

<P><FONT SIZE=2><I>Stock-Based Compensation  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement of Financial Accounting Standards No.&nbsp;123, "Accounting for Stock-Based Compensation," 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. At December&nbsp;31, 2003, the Company has stock options outstanding under three stock-based compensation plans, which are described more fully in Note&nbsp;11. The Company accounts
for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No.&nbsp;25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation cost has been recognized under SFAS&nbsp;123 for the Company's employee stock option plans. 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&nbsp;123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated below: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>Add: Stock-based employee compensation expense included in reported net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>149,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>Deduct: Total stock-based employee compensation under the fair-value-based method for all awards</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(439,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(356,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(509,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>Pro forma net income (loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>388,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,396,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(7,118,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>Proforma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.34</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.72</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.68</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="50%"><FONT SIZE=2>Proforma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.34</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(0.72</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has determined that it will continue to account for stock-based compensation for employees under APB Opinion No.&nbsp;25 as modified by FIN 44 and elect the
disclosure-only alternative under SFAS No.&nbsp;123 for stock-based compensation awarded in 2003, 2002, and 2001 using the Black-Scholes option pricing model prescribed by SFAS
No.&nbsp;123. The underlying assumptions used are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="63%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="63%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%"><FONT SIZE=2>Risk-Free interest rate</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2.69</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.13</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="63%"><FONT SIZE=2>Expected dividend yield</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%"><FONT SIZE=2>Expected lives</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="63%"><FONT SIZE=2>Expected volatility</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>101.66</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>86.52</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>71.40</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>48</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm1390_1_49"> </A>

<P><FONT SIZE=2><I>Concentration of Credit Risk and Significant Customers  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet-Risk and Financial Instruments with
Concentrations of Credit Risk", requires disclosure of any significant off-balance-sheet-risk, or concentrations of credit risk. The Company has no significant
off-balance sheet or concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company, by policy, limits the amount of
credit exposure to any one financial institution, and routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is
limited and has not experienced significant write-downs in its accounts receivable balances. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains allowance for doubtful accounts for estimated losses resulting from the inability of its customers to pay amounts due. If the financial condition of the Company's
customers was to deteriorate, resulting in an impairment in their ability to make payments, additional allowances may be required which could affect future earnings. </FONT></P>

<P><FONT SIZE=2><I>Reporting Comprehensive Income  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;130, "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components in the financial
statements. 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. The Company had no such items for the years ended December&nbsp;31, 2003, 2002, and 2001 and as a result, comprehensive
income (loss) is the same as reported net income (loss) for all periods presented. </FONT></P>

<P><FONT SIZE=2><I>Disclosures About Segments of an Enterprise and Related Information  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. The Company's chief decision-making group consists of its four
officers including the chief executive officer and the chief financial officer. Based on the criteria established by SFAS No.&nbsp;131, "Disclosures about Segments of an Enterprise and Related
Information," the Company has one reportable operating segment, the results of which are disclosed in the accompanying consolidated financial statements. Substantially all of the operations and assets
of the Company have been derived from and are located in the United States. </FONT></P>

<P><FONT SIZE=2><I>New Accounting Pronouncements  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective July&nbsp;1, 2003, the Company adopted EITF 00-21, Accounting For Revenue Arrangements with Multiple Deliverables, which establishes
criteria for whether revenue on a deliverable can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria considers whether the delivered item has
stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the customer's right of return for the delivered item. The adoption of EITF
00-21 did not have a material impact on the Company's financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;17, 2003, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued SAB 104, Revenue Recognition, which amends SAB 101, Revenue Recognition in
Financial Statements. SAB 104's primary purpose is to rescind accounting guidance contained in SAB 101 related to </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>49</FONT></P>

<HR NOSHADE>
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<A NAME="page_fm1390_1_50"> </A>
<BR>

<P><FONT SIZE=2>multiple
element revenue arrangements, superseded as a result of the issuance of EITF 00-21. Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial Statements Frequently
Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the
wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB
104 did not have a material impact on the Company's financial statements. </FONT></P>


<P><FONT SIZE=2><B>3. NET INCOME (LOSS) PER COMMON SHARE  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reports earnings per share in accordance with SFAS No.&nbsp;128, "Earnings per Share," which establishes standards for computing and presenting
earnings (loss) per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. 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. Under the
treasury stock method, unexercised "in-the-money" stock options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are
then used to purchase common shares at the average market price during the period. For periods where the Company has incurred a loss, dilutive net loss per share is equal to basic net loss per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
used in calculating basic and diluted earnings per share for each of the years ended December&nbsp;31, 2003, 2002 and 2001, are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="42%"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>827,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(3,040,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(6,758,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="42%"><FONT SIZE=2>Basic weighted average common shares outstanding</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9,953,733</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="42%"><FONT SIZE=2>Dilutive effect of assumed exercised of stock options and warrants</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>895,877</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="42%"><FONT SIZE=2>Diluted weighted average common and potential common shares outstanding</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>10,849,610</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outstanding
stock options to purchase approximately 233,000 shares at December&nbsp;31, 2002 and 61,000 shares at December&nbsp;31, 2001, are excluded from the calculation of diluted
weighted average shares outstanding because the Company incurred a loss for each of these years and to include them would have been anitdilutive. Options to purchase approximately 728,000, 1,115,000
and 1,378,000 shares were outstanding at December&nbsp;31, 2003, 2002, and 2001, respectively, but not included in the computation of diluted earnings per share because the options' exercise prices
were greater than the average market price during the period. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>50</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=50,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=1027235,FOLIO='50',FILE='DISK035:[04BOS0.04BOS1390]FM1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fm1390_1_51"> </A>
<BR>

<P><FONT SIZE=2><B>4. MARKETABLE SECURITIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had no marketable securities at December&nbsp;31, 2003. Marketable securities classified as hold-to-maturity consists of the
following at December&nbsp;31, 2002: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="40%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amortized Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Gross Unrealized<BR>
Holding Gains</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="40%"><FONT SIZE=2>Municipal bond (due in one year or less)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,500,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>2,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,502,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="40%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2002, marketable securities classified as held-to-maturity, with an amortized cost aggregating $8,994,000, including interest and realized gains of
$115,000, matured. </FONT></P>

<P><FONT SIZE=2><B>5. RESTRICTED CASH  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;19, 2003, in connection with the issuance of an irrevocable letter of credit to one of the Company's vendors the Company had deposited $818,000
with its bank to collateralize the letter of credit. These funds are restricted from the Company's use during the term of the letter of credit, which by its terms is to expire in April&nbsp;2004,
although the Company is entitled to all interest earned on the funds. A portion of the letter of credit was drawn upon by the Company's vendor in January&nbsp;2004 and the restriction on the funds
equivalent to the amount drawn was released. The remainder of the letter of credit is expected to be drawn upon by the Company's vendor prior to its expiration at which time the remainder of the
restricted funds will be released. </FONT></P>

<P><FONT SIZE=2><B>6. ALLOWANCE FOR DOUBTFUL ACCOUNTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the allowance for doubtful account activity is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Balance, beginning of the year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>35,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>25,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>124,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Amounts provided</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>10,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Amounts written off</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(6,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(99,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Balance, end of the year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>29,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>35,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>25,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>7. INVENTORIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories consists of the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Raw Materials</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,537,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,239,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Work-in-Process</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,445,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,354,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Finished Goods</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>645,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>331,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="59%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,627,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,924,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>51</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=7,SEQ=51,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=848674,FOLIO='51',FILE='DISK035:[04BOS0.04BOS1390]FM1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fm1390_1_52"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories
are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method.
Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead. </FONT></P>


<P><FONT SIZE=2><B>8. PROPERTY&nbsp;&amp; EQUIPMENT  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment is stated at cost and consists of the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="59%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="59%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>Machinery and equipment</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,802,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,546,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>699,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>699,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,374,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,374,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9,875,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9,619,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>Less accumulated depreciation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(8,684,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(7,678,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,191,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,941,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="59%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
expense was $1,006,000, $1,095,000 and $1,085,000 for the years ended December&nbsp;31, 2003, 2002 and 2001, respectively. </FONT></P>

<P><FONT SIZE=2><B>9. NOTES RECEIVABLE FROM OFFICERS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes receivable from officers of $59,000 at December&nbsp;31, 2002, consisted of a loan made to one officer and was repaid in full in July&nbsp;2003. The
note receivable from the officer accrued interest at 6.22%. </FONT></P>

<P><FONT SIZE=2><B>10. ACCRUED EXPENSES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued expenses consists of the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Payroll and benefits</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>939,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>682,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Professional fees</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>218,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>112,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Clinical trial</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>621,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>140,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>288,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="59%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,297,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,703,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>52</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=8,SEQ=52,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=655221,FOLIO='52',FILE='DISK035:[04BOS0.04BOS1390]FM1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fo1390_1_53"> </A> </FONT></P>

<P><FONT SIZE=2><B>11. COMMITMENTS AND CONTINGENCIES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's corporate headquarters is located in Woburn, Massachusetts, where it leases approximately 10,000 square feet of administrative and research and
development space. The lease on this facility terminates in October&nbsp;2004. The Company also leases approximately 37,000 square feet of space at a separate location in Woburn, Massachusetts, for
its manufacturing facility and warehouse. The lease for this facility terminates in February&nbsp;2009. Net rental expense in connection with the leases, totaled $685,000, $657,000, and $647,000,
for the years ended December&nbsp;31, 2003, 2002, and 2001, respectively. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
minimum lease payments under noncancelable operating leases at December&nbsp;31, 2003 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="79%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>685,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>602,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>605,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>617,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>617,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>103,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,229,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="79%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Guarantor Arrangements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In certain of its contracts, the Company warrants to its customers that the products it manufactures
conform to the product specifications as in effect at the time of delivery of the product. The Company may also warrant that the products it manufactures do not infringe, violate or breach any U.S.
patent or intellectual property rights, trade secret or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses
arising out of or in any way connected with any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligence or acts or omissions of the Company.
The Company maintains a products liability insurance policy that limits its exposure. Based on the Company's historical activity in combination with its insurance policy coverage, the Company believes
the estimated fair value of these indemnification agreements is minimal. The Company has no accrued warranties and has no history of claims. </FONT></P>

<P><FONT SIZE=2><B>12. STOCK OPTION PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company had reserved 3,485,000 shares of common stock for the grant of stock options to employees, directors, consultants and advisors under the Anika
Therapeutics,&nbsp;Inc. 1993 Stock Option Plan, as amended (the "1993 Plan"). In addition, the Company also established the Directors' Stock Option Plan (the "Directors' Plan") and reserved 40,000
shares of the Company's common stock for issuance to the Board of Directors. On October&nbsp;28, 1997, the Board of Directors granted to certain executive officers and employees of the Company
options to acquire 269,000 shares of common stock at an exercise price of $7.625 per share, vesting over a four-year period. Such grants received stockholder approval upon the amendment to
the Plan on June&nbsp;3, 1998. When the amendment was approved by the shareholders, the Company recorded deferred compensation of $1,490,000, which represented the difference between the exercise
price of the option and the fair market value of the common stock at the time of such approval. During 2001 the remaining deferred compensation balance of $149,000 was amortized to expense. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>53</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=53,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=606792,FOLIO='53',FILE='DISK035:[04BOS0.04BOS1390]FO1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fo1390_1_54"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;3, 2003, the 1993 Plan expired in accordance with its terms and approximately 662,000 shares reserved under the plan were released. On April&nbsp;4, 2003 the Board of
Directors approved the 2003 Anika Therapeutics,&nbsp;Inc. Stock Option and Incentive Plan (the "2003 Plan"). The Company has reserved 1,500,000 shares of common stock for grant of stock options to
employees, directors, consultants and advisors under the 2003 Plan, which was approved by stockholders on June&nbsp;4, 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Combined
stock option activity under the three plans is summarized as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price per<BR>
Share</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price per<BR>
Share</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price per<BR>
Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at beginning of period</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,347,647</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2.48</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,439,722</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.37</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,721,122</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.77</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="30%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>811,400</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.99</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>472,400</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>489,800</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.12</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="30%"><FONT SIZE=2>Canceled</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(39,625</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.34</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(563,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.61</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(771,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5.07</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="30%"><FONT SIZE=2>Expired</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,275</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.47</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="30%"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(52,125</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.78</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at end of period</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,067,297</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.51</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,347,647</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2.48</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,439,722</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.37</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Options exercisable at end of period</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>969,473</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2.91</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>785,947</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.11</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>574,039</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.41</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Weighted average fair value of options granted at fair value</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>3.53</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>0.82</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.96</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
options vest in equal, annual installments up to four years after the date of grant and have an expiration date no later than ten years after the date of grant. There are
1,001,600 options available for future grant at December&nbsp;31, 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes significant ranges of outstanding options under both Plans at December&nbsp;31, 2003: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="CENTER"><FONT SIZE=1><B>Ranges of<BR>
Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER"><FONT SIZE=1><B>Number<BR>
Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Remaining<BR>
Contractual Life</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number<BR>
Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted<BR>
Average<BR>
Exercise<BR>
Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>$0.90&#151;$1.19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>905,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>8.02</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.07</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>407,688</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.06</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>1.23&#151;3.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>400,833</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1.80</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>209,071</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2.13</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>3.13&#151;6.94</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>310,334</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4.42</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.84</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>281,084</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.87</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>$7.63&#151;$9.75</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>450,380</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9.22</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>71,630</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8.05</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,067,297</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>7.37</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3.51</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>969,473</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2.91</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2><B>13. SHAREHOLDER RIGHTS PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;6, 1998, the Board of Directors adopted a shareholder rights agreement (the "Rights Plan") which was subsequently amended as of November&nbsp;5,
2002. In connection with the adoption of the Rights Plan, the Board of Directors declared a dividend distribution of one preferred stock purchase right (a </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>54</FONT></P>

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<P><FONT SIZE=2>"Right")
for each outstanding share of common stock to stockholders of record as of the close of business on April&nbsp;23, 1998. Currently, these Rights are not exercisable and trade with the
shares of the Company's Common Stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Rights Plan, the Rights generally become exercisable if: (1)&nbsp;a person becomes an "Acquiring Person" by acquiring 15% or more of the Company's Common Stock, (2)&nbsp;a
person commences a tender offer that would result in that person owning 15% or more of the Company's Common Stock, or (3)&nbsp;the Board of Directors deems a person to be an "Adverse Person," as
defined under the Rights Plan. In the event that a person becomes an "Acquiring Person," or an "Adverse Person," each holder of a Right (other than the Acquiring Person or Adverse Person) would be
entitled to acquire such number of units of preferred stock (which are equivalent to shares of the Company's Common Stock) having a value of twice the exercise price of the Right. If, after any such
event, the Company enters into a merger or other business combination transaction with another entity, each holder of a Right would then be entitled to purchase, at the then-current
exercise price, shares of the acquiring company's common stock having a value of twice the exercise price of the Right. The current exercise price per Right is $45.00. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Rights will expire at the close of business on April&nbsp;6, 2008 (the "Expiration Date"), unless previously redeemed or exchanged by the Company as described below. The Rights may
be redeemed in whole, but not in part, at a price of $0.01 per Right (payable in cash, shares of the Company's Common Stock or other consideration deemed appropriate by the Board of Directors) by the
Board of Directors only until the earlier of (1)&nbsp;the time at which any person becomes an "Acquiring Person" or an "Adverse Person", or (2)&nbsp;the Expiration Date. At any time after any
person becomes an "Acquiring Person" or an "Adverse Person", the Board of Directors may, at its option, exchange all or any part of the then outstanding and exercisable Rights for shares of the
Company's Common Stock at an exchange ratio specified in the Rights Plan. Notwithstanding the foregoing, the Board of Directors generally will not be empowered to affect such exchange at any time
after any person becomes the beneficial owner of 50% or more of the Company's Common Stock. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until
a Right is exercised, the holder will have no rights as a stockholder of the Company (beyond those as an existing stockholder), including the right to vote or to receive dividends. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the establishment of the Rights Plan, the Board of Directors approved the creation of Preferred Stock of the Company designated as Series&nbsp;B Junior Participating
Cumulative Preferred Stock with a par value of $0.01 per share. The Board also reserved 150,000 shares of preferred stock for issuance upon exercise of the Rights. </FONT></P>


<P><FONT SIZE=2><B>14. STOCK REPURCHASE PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;1998, the Board of Directors approved a stock repurchase plan under which the Company is authorized to purchase up to $4,000,000 of the
Company's Common Stock, with the total number of shares repurchased not to exceed 9.9% of the total number of shares issued and outstanding. Under the plan, shares may be repurchased from time to time
and in such amounts as market conditions warrant, subject to regulatory considerations. As of December&nbsp;31, 2003, the Company had repurchased a total of 762,100 shares at a net cost of
approximately $3,873,000 and has reissued 756,562 shares upon exercise of employee stock options. No shares were purchased in 2003 or 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>55</FONT></P>

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<BR>

<P><FONT SIZE=2><B>15. EMPLOYEE BENEFIT PLAN  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees are eligible to participate in the Company's 401(k) savings plan. Employees may elect to contribute a percentage of their compensation to the plan, and
the Company will make matching contributions up to a limit of 5% of an employee's compensation. In addition, the Company may make annual discretionary contributions. For the years ended
December&nbsp;31, 2003, 2002, and 2001, the Company made matching contributions of $157,000, $150,000, and $187,000 respectively. </FONT></P>

<P><FONT SIZE=2><B>16. LICENSING AND DISTRIBUTION AGREEMENTS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003 the Company entered into a ten-year licensing and supply agreement (the OBI Agreement) with Ortho Biotech Products, L.P., a
member of the Johnson&nbsp;&amp; Johnson family of companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement, Ortho Biotech will perform sales, marketing and distribution functions
and licensed the right to further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on the Company's proprietary
viscosupplementation technology. In support of the license, the OBI Agreement provides that Ortho Biotech will fund post-marketing clinical trials for new indications of ORTHOVISC. The
Company
received an initial payment of $2.0&nbsp;million upon entering into the OBI Agreement and a milestone payment of $20&nbsp;million in February&nbsp;2004, as a result of obtaining FDA approval of
ORTHOVISC. Under the OBI Agreement, the Company will be the exclusive supplier of ORTHOVISC to Ortho Biotech. The OBI Agreement provides for additional performance- and sales-based milestone payments
to the Company contingent upon planned manufacturing upgrades, insurance reimbursement approval, and achieving specified sales targets, in addition to royalty and transfer fees. The OBI Agreement is
subject to early termination in certain circumstances and is otherwise renewable by Ortho Biotech for consecutive five-year terms. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July&nbsp;2000, the Company entered into a seven-year supply agreement (the "B&amp;L Agreement") with Bausch&nbsp;&amp; Lomb Surgical, a unit of Bausch&nbsp;&amp; Lomb.
Bausch&nbsp;&amp; Lomb Surgical was subsequently merged into Bausch&nbsp;&amp; Lomb Incorporated. Under the terms of the B&amp;L Agreement, effective January&nbsp;1, 2001, the Company became Bausch&nbsp;&amp;
Lomb's exclusive provider of AMVISC and AMVISC Plus, ophthalmic viscoelastic products, in the U.S. and international markets. The B&amp;L Agreement is subject to early termination and/or reversion to a
non-exclusive basis under certain circumstances. The B&amp;L Agreement lifts contractual restrictions on the Company's ability to sell certain ophthalmic products to other companies, subject
to payment of royalties to Bausch&nbsp;&amp; Lomb by the Company. In exchange, the Company agreed to a reduction in unit selling prices effective April&nbsp;1, 2000, and the elimination of minimum
unit purchase obligations by B&amp;L. Under the new 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
during the year. 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.
In accordance with the Company's revenue recognition policy, the amount of revenue reasonably subject to the price adjustment is recorded as deferred revenue until the annual unit volume becomes known
and the sales price becomes fixed. In the fourth quarters of 2003, 2002 and 2001, product revenue included the recognition of $846,000, $839,000 and $401,000, respectively, of revenue related to sales
of AMVISC and AMVISC Plus to Bausch&nbsp;&amp; Lomb, which had been previously deferred during the first three quarters of the respective years until the actual annual unit volume became fixed or
determinable. During the years ended December&nbsp;31, 2003, 2002, and 2001, the Company recognized revenues of $7,801,000, $7,811,000, and $7,389,000, respectively, under this agreement and the
prior Bausch&nbsp;&amp; Lomb agreement. Additionally, during the years </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>56</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2>ended
December&nbsp;31, 2003, 2002 and 2001, the Company incurred royalties of $52,000, $109,000 and $13,000, respectively, to Bausch&nbsp;&amp; Lomb under this agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;2001, the Company entered into a five-year supply agreement with Cytosol Ophthalmics,&nbsp;Inc. Under the terms of the agreement, effective April&nbsp;11,
2001, the Company became Cytosol Ophthalmic's exclusive provider of sterile sodium hyaluronate ophthalmic viscoelastic products, in the U.S. and international markets. Under the agreement, in lieu of
an up-front payment, the Company is entitled to an increase in the price per unit of $2 per unit for the initial 50,000 units purchased. As a result, the Company will recognize $100,000 of
revenue under this agreement ratably over the term of the agreement or as units are shipped, if longer. The agreement expires April&nbsp;11, 2006. For the years ended December&nbsp;31, 2003, 2002
and 2001, the Company has recognized $23,000, $16,000 and $8,000, respectively, of the $100,000 price adjustment as license revenue. </FONT></P>

<P><FONT SIZE=2><B>17. REVENUE BY SIGNIFICANT CUSTOMER AND BY GEOGRAPHIC REGION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product revenue by significant customers as a percent of total revenues is as follows </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="65%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Percent of Product Revenue<BR>
Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Bausch &amp; Lomb Incorporated</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>59.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>65.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Pharmaren AG/Biomeks</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>14.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>15.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Advanced Medical Optics</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>13.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>8.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Boehringer Ingelheim Vetmedica</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>89.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>84.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>85.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2003, two customers represented 85% of the Company's accounts receivable balance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
by geographic location in total and as a percentage of total revenues are as follows: </FONT></P>

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<TABLE WIDTH="101%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Percent of<BR>
Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Percent of<BR>
Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER"><FONT SIZE=1><B>Percent of<BR>
Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2><B>Geographic location:</B></FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>United States</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>12,331,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>80.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>10,880,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>82.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>8,152,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>72.1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Turkey</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,208,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>14.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,320,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>10.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,772,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>15.7</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Middle East</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>169,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>171,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>134,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Other/Europe</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>696,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>816,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,254,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>11.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>15,404,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>13,187,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>11,312,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>57</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=57,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=193505,FOLIO='57',FILE='DISK035:[04BOS0.04BOS1390]FO1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fo1390_1_58"> </A>

<P><FONT SIZE=2><B>18. INCOME TAXES  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company records a deferred tax asset or liability based on the difference between the financial statement and tax bases of assets and liabilities, as measured
by the enacted tax rates assumed to be in effect when these differences reverse. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2003, the Company had net operating loss carryforwards for federal and state tax purposes of approximately $9,686,000, and $9,462,000, respectively. These
carryforwards begin to expire in 2012 and 2005, respectively, and are subject to review and possible adjustment. As of December&nbsp;31, 2003, the Company has tax credit carryforwards for federal
and state tax purposes of approximately $965,000 and $640,000, respectively. These credit carryforwards begin to expire in 2009. The Internal Revenue Code (IRC) contains provisions that may limit the
amount of net operating loss and tax credit carryforwards that the Company may utilize in any one year in the event of certain cumulative changes in ownership over a three-year period. In
the event that the Company has had a change of ownership, as defined in IRC Section&nbsp;382, utilization of the carryforwards may be restricted. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
approximate income tax effect of each type of temporary difference and carryforward is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Years ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>584,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>436,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Accrued expenses and other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>292,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>245,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Inventory reserves</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>66,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>92,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,878,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,070,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>832,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Credit carryforwards</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,387,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,399,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Gross deferred tax assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,039,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,242,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%">&nbsp;</TD>
<TD WIDTH="57%"><FONT SIZE=2>Less: valuation allowance</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(7,039,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(7,242,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Net deferred tax asset</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2003, management determined that it is more likely than not that the deferred tax assets will not be realized and, therefore, a valuation allowance has reduced
all of the deferred tax assets to zero. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February&nbsp;2004, the Company achieved a milestone under the OBI Agreement and received payment of $20.0&nbsp;million which it expects will be recognized as taxable income in
the first quarter of 2004. As a result, the Company expects that it will be able to utilize the loss carryforwards, in 2004, in their entirety to offset part of its taxable income. As a result of the
Company's expected taxable income in 2004, it will reevaluate the positive and negative evidence regarding the realizability of its deferred tax assets and consider whether a release of the valuation
allowance is appropriate. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>58</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=58,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=112575,FOLIO='58',FILE='DISK035:[04BOS0.04BOS1390]FO1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fo1390_1_59"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax (benefit) expense was ($88,000), $5,000, and $9,000 for the years ended December&nbsp;31, 2003, 2002, and 2001, respectively. The provision for income taxes differs from the
amounts computed by applying the U.S. Federal income tax rate to pretax income as a result of the following: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Years ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Computed expected tax (benefit) expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>251,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(1,032,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(2,295,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>State tax expense (net of federal benefit)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>48,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Nondeductible expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>3,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>4,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Federal and state research and development credits</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(224,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(263,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Alternative minimum tax benefit from carryback</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(154,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Alternative minimum tax liability</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>64,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Alternative minimum tax credit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(64,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(34,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(5,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Change in valuation allowance related to income tax (benefit) expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(203,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,254,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,559,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="44%"><FONT SIZE=2>Tax (benefit) expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(88,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>19. LEGAL MATTERS  </B></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities and Exchange Commission Investigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2000, the Securities and Exchange Commission (SEC) issued a
formal order of investigation in connection with certain revenue recognition matters. On January&nbsp;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's historical accounting for and disclosures concerning sales of ORTHOVISC&reg; under a long-term supply and
distribution agreement with Zimmer,&nbsp;Inc. 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&nbsp;12b-20, 13a-1 and 13a-13 promulgated thereunder. 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's administrative cease and desist order resolving the
matter. </FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Settled Class Action Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Between April&nbsp;15, 1998 and August&nbsp;2, 1998, three putative class action
complaints were filed against the Company, J. Melville Engle, the Company's former chief executive officer, and Sean Moran, the Company's former chief financial officer, in the United States District
Court for the District of Massachusetts (the "Court") on behalf of all purchasers of the Company's shares between April&nbsp;15, 1998 and May&nbsp;30, 2000 (the "Class"). On or about
September&nbsp;13, 2000, the Court appointed lead plaintiffs, and consolidated and recaptioned the cases In re Anika Therapeutics,&nbsp;Inc. Securities Litig., Civil Action
No.&nbsp;00-11127-WGY. On or about October&nbsp;30, 2000, lead plaintiffs filed a consolidated amended complaint, which alleged that the Company and the individual
defendants violated the federal securities laws by, among other things, making material misrepresentations and omissions in certain public disclosures relating to the Company's historical revenue
recognition policies and its restatement of revenues for 1998 and the first three quarters of 1999. On December&nbsp;14, 2000, the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>59</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=7,SEQ=59,EFW="2132242",CP="ANIKA THERAPEUTICS,INC.",DN="1",CHK=807514,FOLIO='59',FILE='DISK035:[04BOS0.04BOS1390]FO1390A.;6',USER='CDESORM',CD='29-MAR-2004;16:40' -->
<A NAME="page_fo1390_1_60"> </A>
<BR>

<P><FONT SIZE=2>Company,
Mr.&nbsp;Engle and Mr.&nbsp;Moran each filed motions to dismiss the consolidated amended complaint, and plaintiffs opposed those motions. Before the Court decided the motions to dismiss,
the parties reached agreement on the terms of a settlement of the action. Accordingly, the parties negotiated and entered into a Stipulation and Agreement of Settlement, Compromise and Release
("Stipulation") dated May&nbsp;25, 2001, which contained those terms, conditioned on Court approval. In the Stipulation, the parties requested, among other things, that the Court (1)&nbsp;certify,
for purposes of settlement, the Class and the action as a class action; (2)&nbsp;finally approve the settlement as provided for in the Stipulation, including the release of all claims by Class
members against the Defendants; and (3)&nbsp;enter final judgment dismissing with prejudice all claims of the plaintiffs and the Class against the Defendants. The Court preliminarily approved the
settlement on May&nbsp;31, 2001. Thereafter, plaintiff's counsel sent notice of the proposed settlement to the Class, and the Company, pursuant to the Stipulation, paid $1.25&nbsp;million into a
settlement fund that was to be used, among other things, to pay authorized members of the Class. The Court held a Final Settlement Hearing on October&nbsp;22, 2001 during which the Court finally
approved the Settlement. In addition, the Company entered into an agreement with the insurance company that issued the Company's directors and officers liability policy for the period from
December&nbsp;1, 1999 to November&nbsp;30, 2000. Under that agreement, the insurer paid the Company $400,000 in exchange for a release of the insurer's obligations under the policy. The Company
applied the $400,000 to the settlement amount in the shareholder class action lawsuit. </FONT></P>

<P><FONT SIZE=2><B>20. QUARTERLY FINANCIAL DATA (Unaudited)  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="97%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Year 2003<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
September 30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
June 30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>5,014,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3,688,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,318,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,384,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Cost of Product Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,260,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,930,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,846,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,969,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Gross Profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,754,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,758,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,472,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,415,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Net Income (Loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>801,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>420,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(81,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(313,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Per common share information</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Basic common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,979,068</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,959,904</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,941,121</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.07</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Diluted common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>11,188,042</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>10,422,066</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,941,121</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="98%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Year 2002<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
September 30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
June 30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Quarter<BR>
ended<BR>
March 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Total Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4,471,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>2,905,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,421,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,390,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Cost of Product Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,845,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>1,975,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,202,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>2,087,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Gross Profit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,626,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>930,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,219,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>303,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Net Income (Loss)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>829,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(908,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1,157,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1,804,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Per common share information</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Basic net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.18</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Basic common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>0.08</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(0.18</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="34%"><FONT SIZE=2>Diluted common shares outstanding</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,948,072</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>9,934,280</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>60</FONT></P>

<HR NOSHADE>
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<A NAME="page_fo1390_1_61"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the fourth quarters of 2003 and 2002 product revenue included the recognition of $846,000 and $839,000, respectively, of revenue related to sales of AMVISC&reg; and
AMVISC&reg; Plus to Bausch&nbsp;&amp; Lomb, which had been previously deferred during the first three quarters of the respective years until the actual annual unit volume became fixed or
determinable. See Note&nbsp;16. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>61</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><A
NAME="page_fq1390_1_62"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><B>ITEM 9.&nbsp;&nbsp;&nbsp;&nbsp;CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, we changed our independent accountants as reported in our Current Report on Form&nbsp;8-K dated July&nbsp;2, 2002. </FONT></P>

<P><FONT SIZE=2><B>ITEM 9A CONTROLS AND PROCEDURES  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Evaluation
of disclosure controls and procedures. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
required by Rule&nbsp;13a-15 under the Securities Exchange Act of 1934 (Exchange Act), the Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure
controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that they believe that
the Company's disclosure controls and procedures are reasonably effective to ensure that material information relating to the Company required to be disclosed by us in reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In designing and evaluating the disclosure
controls and procedures, the Company's management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired
control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. The Company currently is in the process of further reviewing
and documenting its disclosure controls and procedures, and its internal control over 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>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Changes
in internal controls. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2003 that have materially affected, or that are reasonably likely to
materially affect, our internal controls over financial reporting. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fq1390_part_iii"> </A>
<A NAME="toc_fq1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART III    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>ITEM 10.&nbsp;&nbsp;&nbsp;&nbsp;DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item 10 is hereby incorporated by reference to the Registrant's Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Stockholders to be held on June&nbsp;10, 2004 under the heading "Election of Directors." </FONT></P>


<P><FONT SIZE=2><B>ITEM 11.&nbsp;&nbsp;&nbsp;&nbsp;EXECUTIVE COMPENSATION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item 11 is hereby incorporated by reference to the Proxy Statement under the heading "Executive Compensation." </FONT></P>

<P><FONT SIZE=2><B>ITEM 12.&nbsp;&nbsp;&nbsp;&nbsp;SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item 12 is hereby incorporated by reference to the Proxy Statement under the headings "Beneficial Ownership of Common Stock" and
"Equity Compensation Plan Information." </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>62</FONT></P>

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<A NAME="page_fq1390_1_63"> </A>
<BR>

<P><FONT SIZE=2><B>ITEM 13.&nbsp;&nbsp;&nbsp;&nbsp;CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item 13 is hereby incorporated by reference to the Proxy Statement under the headings "Agreements with Named Executive Officers" and
"Certain Relationships and Related Transactions." </FONT></P>

<P><FONT SIZE=2><B>ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;PRINCIPAL ACCOUNTING FEES AND SERVICES  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required by Item 14 is hereby incorporated by reference to the Proxy Statement under the headings "Principal Accounting Fees and Services." </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fq1390_part_iv"> </A>
<A NAME="toc_fq1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>PART IV    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Documents
filed as part of Form&nbsp;10-K.
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Financial
Statements </FONT></DD></DL>
</DD></DL>
<BR>

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<DIV ALIGN="CENTER"><TABLE WIDTH="65%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Report of Independent Public Accountant</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Consolidated Balance Sheets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>41</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Consolidated Statements of Operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>42</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Consolidated Statements of Stockholder's Equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>43</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Consolidated Statements of Cash Flows</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>44</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>45-61</FONT></TD>
</TR>
</TABLE></DIV>
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<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Schedules
</FONT></DD></DL>
</UL>
<UL>
<UL>

<P><FONT SIZE=2>Schedules
other than those listed above have been omitted since they are either not required or the information required is included in the consolidated financial statements or the notes thereto. </FONT></P>

<P><FONT SIZE=2>PricewaterhouseCoopers
LLP's Report with respect to the above listed financial statements is included herein on Item 8 and Exhibit&nbsp;23.1. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Exhibits </FONT></DD></DL>
<UL>

<P><FONT SIZE=2>The
list of Exhibits filed as a part of this Annual Report on Form&nbsp;10-K are set forth on the Exhibit Index at (c)&nbsp;below. </FONT></P>

</UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Reports
on Form&nbsp;8-K
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>Form&nbsp;8-K
filed November&nbsp;7, 2003&#151;furnishing of press release of Anika Therapeutics issued on November&nbsp;6, 2003, announcing its financial
results for the quarter ended September&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Form&nbsp;8-K
filed December&nbsp;3, 2003&#151;announcing that Anika Therapeutics had received an approvable letter from the U.S. Food and Drug Administration
regarding its ORTHOVISC&reg; osteoarthritis product.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Form&nbsp;8-K
filed December&nbsp;24, 2003&#151;announcing the signing of an exclusive, multi-year U.S. licensing and supply agreement with Ortho
Biotech Products, L.P., a subsidiary of Johnson&nbsp;&amp; Johnson, for Anika Thereapeutic's ORTHOVISC&reg; osteoarthritis product. </FONT></DD></DL>
</DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>63</FONT></P>

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<UL>
<UL>
</UL>
</UL>

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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit No.</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="87%" ALIGN="CENTER"><FONT SIZE=1><B>Description</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Articles of Incorporation and Bylaws:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>The Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit&nbsp;3.1 to the Company's Registration Statement on Form&nbsp;10 (File no.&nbsp;000-21326), filed with the
Securities and Exchange Commission on March&nbsp;5, 1993.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Certificate of Vote of Directors Establishing a Series of Convertible Preferred Stock, incorporated herein by reference to Exhibits to the Company's Registration Statement on Form&nbsp;10 (File no.&nbsp;000-21326), filed
with the Securities and Exchange Commission on March&nbsp;5, 1993.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit&nbsp;3.1 to the Company's quarterly report on Form&nbsp;10-QSB for the period ended
November&nbsp;30, 1996, (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on January&nbsp;14, 1997.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Certificate of Vote of Directors Establishing a Series of a Class of Stock, incorporated herein by reference to Exhibit&nbsp;3.1 of the Company's Registration Statement on Form&nbsp;8-AB12 (File no.&nbsp;001-14027), filed
with the Securities and Exchange Commission on April&nbsp;7, 1998.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Intentionally Omitted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Intentionally Omitted.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit&nbsp;3.3 of the Company's report on Form&nbsp;10-Q for the quarterly period ending June&nbsp;30,
2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange n on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>The Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit&nbsp;3.6 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2002 (File
no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(4)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Instruments Defining the Rights of Security Holders</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Shareholder Rights Agreement dated as of April&nbsp;6, 1998 between the Company and Firstar Trust Company, incorporated herein by reference to Exhibit&nbsp;4.1 to the Company's Registration Statement on Form&nbsp;8-A12B
(File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on April&nbsp;7, 1998.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Amendment to Shareholder Rights Agreement dated as of November&nbsp;5, 2002 between the Company and American Stock Transfer and Trust Company, as successor to Firstar Trust Company incorporated hering by reference to
Exhibit&nbsp;4.2 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly period ended September&nbsp;30, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on November&nbsp;13, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(10)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Material Contracts</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Supply Agreement dated as of July&nbsp;25, 2000 by and between the Company and Bausch&nbsp;&amp; Lomb,&nbsp;Inc., incorporated herein by reference to Exhibit&nbsp;10.1 to the Company's quarterly report on Form&nbsp;10-Q
for the quarterly period ended September&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on November&nbsp;14, 2000. Confidential treatment was granted to certain portions of this Exhibit.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>64</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>1993 Stock Option Plan, as amended, incorporated herein by reference to Annex A of the Company's Proxy Statement (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on April&nbsp;28,
2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>License Agreement dated as of July&nbsp;22, 1992 between the Company and Tufts University, incorporated herein by reference to Exhibit&nbsp;10.4 to the Company's Registration Statement on Form&nbsp;10 (File
no.&nbsp;000-21326), filed with the Securities and Exchange Commission on March&nbsp;5, 1993.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Lease dated March&nbsp;10, 1995 between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.8 to the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended
December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>First Amendment to Lease dated December&nbsp;11, 1997 between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.9 to the Company's Annual Report on Form&nbsp;10-K for the fiscal year
ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Extension of Lease dated November&nbsp;23, 1999 between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.10 to the Company's Annual Report on Form&nbsp;10-K for the fiscal year
ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Second Amendment to Lease dated November&nbsp;23, 1998 between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.11 to the Company's Annual Report on Form&nbsp;10-K for the fiscal
year ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Lease dated September&nbsp;23, 1999 between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.12 to the Company's Annual Report on Form&nbsp;10-K for the fiscal year ended
December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Termination Agreement and Mutual Release dated as of November&nbsp;10, 2000 by and between the Company and Zimmer,&nbsp;Inc., incorporated herein by reference to Exhibit&nbsp;10.2 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended September&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on November&nbsp;14, 2000. Confidential treatment was granted to certain portions of this
Exhibit.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Promissory Note for $75,000 dated as of March&nbsp;17, 1997 between the Company and J. Melville Engle, incorporated herein by reference to Exhibit&nbsp;10.25 to the Company's Registration Statement on Form SB-2 (File
no.&nbsp;333-38993), filed with the Securities and Exchange Commission on October&nbsp;29, 1997.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Letter Agreement dated April&nbsp;15, 1998 between the Company and Charles H. Sherwood, incorporated herein by reference to Exhibit&nbsp;10.3 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly period
ended June&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Non-Disclosure and Non-Competition Agreement dated May&nbsp;5, 1998 between the Company and Charles H. Sherwood, incorporated herein by reference to Exhibit&nbsp;10.26 to the Company's Annual Report on Form&nbsp;10-K for
the fiscal year ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER"><FONT SIZE=2>65</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Promissory Note for $59,000 dated May&nbsp;26, 2000 between the Company and Charles H. Sherwood, incorporated herein by reference to Exhibit&nbsp;10.27 to the Company's Annual Report on Form&nbsp;10-K for the fiscal year
ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Letter Agreement dated March&nbsp;30, 2000 by and between the Company and Douglas R. Potter, incorporated herein by reference to Exhibit&nbsp;10.5 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly
period ended June&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Non-Disclosure and Non-Competition Agreement dated April&nbsp;3, 2000 by and between the Company and Douglas R. Potter, incorporated herein by reference to Exhibit&nbsp;10.6 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Change in Control, Bonus and Severance Agreement dated April&nbsp;26, 2000 by and between the Company and Douglas R. Potter, incorporated herein by reference to Exhibit&nbsp;10.7 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Non-Disclosure and Non-Competition Agreement dated December&nbsp;2, 1996 by and between the Company and Edward Ross, Jr., incorporated herein by reference to Exhibit&nbsp;10.31 to the Company's Annual Report on
Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2000 (File no.&nbsp;001-14027), filed with the Securities Exchange Commission on April&nbsp;2, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Change in Control, Bonus and Severance Agreement dated April&nbsp;26, 2000 by and between the Company and Edward Ross, Jr., incorporated herein by reference to Exhibit&nbsp;10.8 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2000 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2000.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.25</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Stipulation and Agreement of Compromise, Settlement and Release dated May&nbsp;25, 2001 in connection with In Re Anika Therapeutics,&nbsp;Inc. Securities Litigation, incorporated herein by reference to Exhibit&nbsp;10.2
to the Company's quarterly report on Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2001 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on August&nbsp;14, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.26</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Amendment to Lease #3 dated November&nbsp;1, 2001 by and between the Company and Cummings Properties, incorporated herein by reference to Exhibit&nbsp;10.1 to the Company's quarterly report on Form&nbsp;10-Q for the
quarterly period ended September&nbsp;30, 2001 (File no.&nbsp;001-14027), filed with the Securities and Exchange Commission on November&nbsp;14, 2001.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.28</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Sublease effective as of November&nbsp;2001, between MedChem Products,&nbsp;Inc. and the Company, incorporated herein by reference to Exhibit&nbsp;10.1 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly
period ended March&nbsp;31, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on May&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.29</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Separation Agreement dated April&nbsp;2, 2002 by and between the Company and Edward Ross, Jr., incorporated herein by reference to Exhibit&nbsp;10.1 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly
period ended June&nbsp;30, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>66</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.30</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Letter Agreement dated June&nbsp;25, 2002 by and between the Company and William J. Knight incorporated herein by reference to Exhibit&nbsp;10.2 to the Company's quarterly report on Form&nbsp;10-Q for the quarterly period
ended June&nbsp;30, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.31</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Change in Control, Bonus and Severance Agreement dated July&nbsp;8, 2002 by and between the Company and William J. Knight incorporated herein by reference to Exhibit&nbsp;10.3 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.32</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Amended and Restated Change in Control, Bonus and Severance Agreement dated July&nbsp;8, 2002 by and between the Company and Charles H. Sherwood incorporated herein by reference to Exhibit&nbsp;10.4 to the Company's
quarterly report on Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2002 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.33</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Letter Agreement dated February&nbsp;21, 2003 by and between the Company and Roger C. Stikeleather, incorporated herein by reference to Exhibit&nbsp;10.33 to the Company's quarterly report on Form&nbsp;10-Q for the
quarterly period ended March&nbsp;31, 2003 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on May&nbsp;15, 2003.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.34</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Change in Control, Bonus and Severance Agreement dated March&nbsp;17, 2003 by and between the Company and Roger C. Stikeleather, incorporated herein by reference to Exhibit&nbsp;10.34 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended March&nbsp;31, 2003 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on May&nbsp;15, 2003.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.35</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Change in Control, Bonus and Severance Agreement dated June&nbsp;9, 2003 by and between the Company and Francesco J. Luppino, incorporated herein by reference to Exhibit&nbsp;10.35 to the Company's quarterly report on
Form&nbsp;10-Q for the quarterly period ended June&nbsp;30, 2003 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on August&nbsp;14, 2003.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.36</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Lease Extension dated October&nbsp;8, 2003 by and between the Company and Cummings Properties, LLC, incorporated herein by reference to Exhibit&nbsp;10.36 to the Company's quarterly report on Form&nbsp;10-Q for the
quarterly period ended September&nbsp;30, 2003 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on November&nbsp;14, 2003.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>10.37</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Lease Amendment dated October&nbsp;8, 2003 by and between the Company and MedChem Products,&nbsp;Inc., incorporated herein by reference to Exhibit&nbsp;10.36 to the Company's quarterly report on Form&nbsp;10-Q for the
quarterly period ended September&nbsp;30, 2003 (File no.&nbsp;000-21326), filed with the Securities and Exchange Commission on November&nbsp;14, 2003.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>**10.38</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>License Agreement dated as of December&nbsp;20, 2003 by and between the Company and Ortho Biotech Products, L.P.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>*10.39</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Separation Agreement dated January&nbsp;19, 2004 by and between the Company and Roger C. Stikeleather.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(11)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Statement Regarding the Computation of Per Share Earnings</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>11.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>See Note&nbsp;2 to the Financial Statements included herewith.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(21)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Subsidiaries of the Registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
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<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>*21.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>List of Subsidiaries of the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(23)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Consent of Experts</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>*23.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Consent of PricewaterhouseCoopers llp.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>*31.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Certification of Chief Financial Officer of Anika Therapeutics,&nbsp;Inc., pursuant to Rules&nbsp;13a-15(e) and 15d-15(e), as adopted pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>*31.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Certification of Chief Executive Officer of Anika Therapeutics,&nbsp;Inc., pursuant to Rules&nbsp;13a-15(e) and 15d-15(e), as adopted pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>***32.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Certification of Chief Executive Officer and Chief Financial Officer of Anika Therapeutics,&nbsp;Inc., pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>(99)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>Additional Exhibits</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>None</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="87%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Filed
herewith.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>**</FONT></DT><DD><FONT SIZE=2>Certain
portions of this document have been omitted pursuant to a confidential treatment request filed with the Commission. The omitted portions have been filed separately with the
Commission.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>***</FONT></DT><DD><FONT SIZE=2>Furnished
herewith. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ja1390_signatures"> </A>
<A NAME="toc_ja1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in Woburn, Massachusetts on March&nbsp;29, 2004. </FONT></P>

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<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>ANIKA THERAPEUTICS, INC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Date: March 29, 2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CHARLES H. SHERWOOD, PH.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Charles H. Sherwood, Ph.D.<BR>
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ja1390_signatures_1"> </A>
<A NAME="toc_ja1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated. </FONT></P>

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<TH WIDTH="39%" ALIGN="CENTER"><FONT SIZE=1><B>Signature</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CHARLES H. SHERWOOD, PH.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Charles H. Sherwood, Ph.D.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2>Chief Executive Officer and Director<BR></FONT> <FONT SIZE=2><I>(Principal Executive Officer)</I></FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2>March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>WILLIAM J. KNIGHT</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> William J. Knight</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Chief Financial Officer<BR></FONT> <FONT SIZE=2><I>(Principal Accounting Officer)</I></FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JOSEPH L. BOWER</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Joseph L. Bower</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>EUGENE A. DAVIDSON, PH.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Eugene A. Davidson, Ph.D.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>SAMUEL F. MCKAY</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Samuel F. McKay</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>HARVEY S. SADOW, PH.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Harvey S. Sadow, Ph.D.</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>STEVEN E. WHEELER</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Steven E. Wheeler</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="20%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 29, 2004</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>69</FONT></P>

<HR NOSHADE>
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<BR>
<P><br><A NAME="04BOS1390_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_da1390_1">FORM 10-K ANIKA THERAPEUTICS, INC. For Fiscal Year Ended December 31, 2003</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_da1390_2">PART I</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_da1390_3">ITEM 1. BUSINESS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_da1390_4">ITEM 2. PROPERTIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_da1390_5">ITEM 3. LEGAL PROCEEDINGS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_da1390_6">ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_da1390_7">PART II</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_da1390_8">ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_da1390_9">Statement of Operations Data (In thousands, except per share data)</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_da1390_10">Balance Sheet Data (In thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_dc1390_1">ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_de1390_1">Statement of Operations Detail</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_de1390_2">Statement of Operations Detail</A></FONT><BR>

<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_dg1390_1">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fa1390_1">ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fc1390_1">Report of Independent Auditors</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_fc1390_2">Report of Independent Accountants</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fe1390_1">Anika Therapeutics, Inc. and Subsidiaries Consolidated Balance Sheets</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fg1390_1">Anika Therapeutics, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended December 31,</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fk1390_1">Anika Therapeutics, Inc. and Subsidiaries Consolidated Statements of Cash Flows</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fm1390_1">ANIKA THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fq1390_1">PART III</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_fq1390_2">PART IV</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ja1390_1">SIGNATURES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ja1390_2">SIGNATURES</A></FONT><BR>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.38
<SEQUENCE>3
<FILENAME>a2132242zex-10_38.txt
<DESCRIPTION>EXHIBIT 10.38
<TEXT>
<Page>

                                                                   EXHIBIT 10.38
                                                       Confidential Treatment(1)


                                     LICENSE
                                    AGREEMENT
                                     BETWEEN
                            ANIKA THERAPEUTICS, INC.
                                       AND
                          ORTHO BIOTECH PRODUCTS, L.P.


- ----------
(1)  Redacted portions have been marked with brackets containing asterisks
([***]). The redacted portions are subject to a request for confidential
treatment and have been filed seperately with the Securities and Exchange
Commission.

<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                              PAGE
                                                                              ----
<S>                                                                             <C>
ARTICLE I - DEFINITIONS..........................................................2

ARTICLE II - PRODUCT DEVELOPMENT.................................................8

ARTICLE III - COMMERCIALIZATION.................................................10

ARTICLE IV - INTELLECTUAL PROPERTY LICENSE GRANTS...............................13

ARTICLE V - PAYMENTS............................................................13

ARTICLE VI - MANUFACTURE........................................................18

ARTICLE VII - PUBLICATIONS; TRANSFER OF DATA; CONFIDENTIALITY...................27

ARTICLE VIII - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS.............29

ARTICLE IX - REPRESENTATIONS AND WARRANTIES.....................................32

ARTICLE X - ANIKA'S GENERAL OBLIGATIONS AND COVENANTS...........................34

ARTICLE XI - OBI's GENERAL OBLIGATIONS..........................................36

ARTICLE XII - TERM AND TERMINATION..............................................37

ARTICLE XIII - INDEMNIFICATION..................................................40

ARTICLE XIV - ADDITIONAL APPLICATIONS AND INDICATIONS...........................43

ARTICLE XV - STEERING COMMITTEE.................................................45

ARTICLE XVI - DISPUTE RESOLUTION................................................46

ARTICLE XVII - HSR FILING.......................................................46

ARTICLE XVIII - MISCELLANEOUS...................................................48
</Table>

                                       (i)
<Page>

This License Agreement (this "Agreement") is made effective as of December 20,
2003 by and between Anika Therapeutics, Inc., a Massachusetts corporation,
having a place of business at 160 New Boston Street, Woburn, Massachusetts 01801
("ANIKA"), and Ortho Biotech Products, L.P., a New Jersey limited partnership,
having a place of business at Route 22 East, P.O. Box 6914, Bridgewater, New
Jersey, 08807-0914 ("OBI"). ANIKA and OBI are each referred to by name or as a
"Party" or, collectively, as the "Parties." References to "ANIKA" and "OBI"
shall include their respective Affiliates (hereinafter defined), where
appropriate under the terms of this Agreement.

                                    RECITALS

        1.      ANIKA develops, manufactures and commercializes therapeutic
products and devices intended to promote the repair, protection and healing of
bone, cartilage and soft tissue.

        2.      On May 30, 2003, ANIKA submitted the third and final module of a
PMA to the FDA for HA for the treatment of pain associated with osteoarthritis
of the knee by intra-articular injection of such preparation.

        3.      OBI possesses research, development and commercialization
capabilities, as well as proprietary technology in a broad range of therapeutic
fields.

        4.      ANIKA desires to license its hyaluronic acid preparation
marketed as Orthovisc(R) to OBI so that OBI may develop, commercialize,
distribute and sell such preparation for indications and applications within the
Field and in the Territory as provided herein.

        5.      ANIKA also desires to supply Orthovisc(R) to OBI on an exclusive
basis for use by OBI in the commercialization of Orthovisc(R) pursuant to the
terms of this Agreement.

        6.      ANIKA and Pharmaceutical Sourcing Group Americas, an affiliate
of OBI, are entering into the Quality Agreement, in the form attached hereto as
Exhibit E, as of the date hereof.

        7.      Unless defined elsewhere in this Agreement, capitalized terms
used in this Agreement shall have the meanings set forth in Article I.

        NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

<Page>

                             ARTICLE I - DEFINITIONS

When used in this Agreement, each of the following terms, when capitalized in
their initials, shall have the meaning set forth below. The term shall have the
same meaning whether the singular or plural form is used.

"Active Ingredient" shall have the meaning set forth in Section 6.10(ii) of this
Agreement.

"Adverse Knowledge" shall have the meaning set forth in Section 6.10(iv) of this
Agreement.

"Affiliate" of a Party means any company or entity which controls, is controlled
by or is under common control with such Party, where control, for purposes of
this definition, means (i) the possession, directly or indirectly, of the power
to direct the management or policies of a Person or to veto any material
decision relating to the management or policies of a Person or a majority of the
composition of the board of directors (or similar governing body), in each case,
whether through the ownership of voting securities, by contract or otherwise, or
(ii) the Beneficial Ownership, directly or indirectly, of at least 50% of the
voting securities of a Person. "Beneficial Ownership" shall be determined in
compliance with Rule 13d-3 of the Securities Exchange Act of 1934.

"Agreement" shall have the meaning set forth in the first paragraph hereto.

"Alternative Supplier" shall have the meaning set forth in Section 6.10(i) of
this Agreement.

"Alternative Supplier Agreement" shall have the meaning set forth in Section
6.10(i) of this Agreement.

"ANIKA Area" shall have the meaning set forth in Section 3.3 of this Agreement.

"ANIKA Disclosure Date" shall have the meaning set forth in Section 14.1(b) of
this Agreement.

"ANIKA Know-How" means Information in ANIKA's Control, which is developed or
acquired by ANIKA, either as of the Effective Date or at any time during the
Term of this Agreement, which relates to the use of a Licensed Product in the
Field. Notwithstanding anything herein to the contrary, ANIKA Know-How excludes
ANIKA Patents.

"ANIKA Patents" means any patent granted by any governmental authority in any
jurisdiction within the Territory relating to a Licensed Product, which Patent
is Controlled by ANIKA during the term of this Agreement.

"ANIKA Potential Product" shall have the meaning set forth in Section 14.1(a) of
this Agreement.

"ANS" or "Annual Net Sales" means the Net Sales in a Calendar Year excluding
sales between Affiliates, and to distributors outside the United States.

                                        2
<Page>

"Audit" has the meaning set forth in Section 5.6(d) of this Agreement.

"Average Sales Price" shall have the meaning set forth in Section 6.2(a)(iii) of
this Agreement.

"Bankruptcy Code" has the meaning set forth in Section 18.16 of this Agreement.

"Branding Materials" has the meaning set forth in Section 3.2(j) of this
Agreement.

"Business Day" means a day on which banking institutions in New York, New York
are open for business.

"Calendar Quarter" means a quarter in a Calendar Year and as defined by the J&J
Universal Calendar.

"Calendar Year" means those twelve months as defined by the J&J Universal
Calendar.

"Claiming Party" shall have the meaning set forth in Section 13.6 of this
Agreement.

"CMS" means Center for Medicare Services.

"Competing Product" has the meaning set forth in Article XI (i) of this
Agreement.

"Confidential Information" shall have the meaning set forth in Section 7.1 of
this Agreement.

"Control" or "Controlling" means owned by or possesses the right to grant a
license or sublicense without violating the terms of any agreement with any
Third Party.

"Customers" has the meaning set forth in the definition of Net Sales in this
Article I.

"Date of First Sale" means the date on which OBI (or an Affiliate or any of
their distributors) first sells a Licensed Product to an unaffiliated Third
Party in an arms length commercial transaction.

"Develop" or "Development" means all activities relating to obtaining Regulatory
Approval of Licensed Products within the Field and Territory, including, but not
limited to, preclinical testing, toxicology, formulation, manufacturing process
development, quality assurance and quality control, pharmacokinetics, clinical
studies, Phase IV, development of kits and/or development of indications,
applications and/or formulations to the extent formulation development is
limited to optimization of the Licensed Product formulation such as formulation
modifications to reduce specific adverse events, to reduce volume of Licensed
Product per injection and to reduce the total number of injections by for
example increasing the concentration of HA or viscosity of HA solution; provided
that "Development" shall also mean any developments, inventions, processes,
methods or works of authorship which is created, developed, invented or reduced
to practice in connection with performing the foregoing described activities.

"Development Invention" shall have the meaning set forth in Section 8.1 of this
Agreement.

                                        3
<Page>

"Dispute" shall have the meaning set forth in Section 16.2 of this Agreement.

"Diverted Product" has the meaning set forth in Article X(a)(iii) of this
Agreement.

"DOJ" shall have the meaning set forth in Section 17.1 of this Agreement.

"Dollars" or "$" means lawful money of the United States in immediately
available funds.

"Domain Name Marks" shall have the meaning set forth in Section 3.3 of this
Agreement.

"Drug Approval Application" means an application for Regulatory Approval
required before commercial sale or use of a Licensed Product as a drug in a
regulatory jurisdiction.

"Effective Date" means the last date of execution of this Agreement referred to
above.

"Failure to Supply" shall have the meaning set forth in Section 6.10(i) of this
Agreement.

"FDA" means the United States Food and Drug Administration or any successor
agency.

"Field" means the treatment of pain in humans associated with osteoarthritis by
intra-articular injection.

"Filing Party" shall have the meaning set forth in Section 8.4(b) of this
Agreement.

"FTC" shall have the meaning set forth in Section 17.1 of this Agreement.

"GMP" means Good Manufacturing Practices as such term is generally understood in
the medical device industry.

"Governmental Antitrust Authority" shall have the meaning set forth in Section
17.1 of this Agreement.

"Gray Market Product" has the meaning set forth in Article X (a)(ii) in this
Agreement.

"HA" means a hyaluronic acid whether as an acid, a pharmaceutically acceptable
salt, or a mixture thereof, in any solid or solution phase form thereof,
including, but not limited to, a sterile, nonpyrogenic solution of sodium
hyaluronate in physiologic saline solution.

"HSR Act" shall have the meaning set forth in Section 17.4(a) of this Agreement.

"HSR Clearance Date" shall have the meaning set forth in Section 17.4(c) of this
Agreement.

"HSR Filing" shall have the meaning set forth in Section 17.4(b) of this
Agreement.

"Information" means technical information, techniques and data, whether in
writing or not, generally not known to the public, relating to the use of
Licensed Product in the Field and including techniques and data, including, but
not limited to, screens, models, inventions,

                                        4
<Page>

practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, marketing, pricing, distribution, sales, manufacturing data, and
patent and legal data or descriptions.

"Initial Estimated Transfer Price" shall have the meaning set forth in Section
6.2(a)(i) of this Agreement.

"Initial Period" shall have the meaning set forth in Section 6.2(a)(i) of this
Agreement.

"Initial Report" shall have the meaning set forth in Section 6.2(a)(i) of this
Agreement.

"J Code" means a code issued pursuant to the HCFA Command Procedure Coding
System (HCPCS) recognized by Medicare carriers and Medicare agencies.

"J&J Universal Calendar means the annual calendar put forth by Johnson & Johnson
describing scheduled monthly, quarterly and yearly accounting periods for the
purposes of calculating net sales, royalty payments and sales based milestone
payments.

"Joint Patents" shall have the meaning set forth in Section 8.4(a) of this
Agreement.

"Licensed Product(s)" means products covered by ANIKA's PMA No. P030019 (i.e.
Orthovisc(R)), or products whose characteristics satisfy the Specifications. For
purposes of this Agreement, Licensed Product shall also include any product
Developed pursuant to Section 2.1(c).

"License Period" shall have the meaning set forth in Section 6.10(iii) of this
Agreement.

"Modified Licensed Product" shall have the meaning set forth in Section 8.9 of
this Agreement.

"Net Sales" means, consistent with, in the United States, generally accepted
accounting principles and, in the rest of the Territory, OBI worldwide practices
and procedures, and in each such case as consistently applied with respect to
all Licensed Products, the amount invoiced by OBI, its Affiliates, and its
distributors and sub-licensees to Customers for sales of Licensed Product in the
Territory, less accruals estimated, credits taken, and actual payments (to the
extent not previously accrued) made for: (i) discounts, including, but not
limited to, cash discounts, discounts to managed care or similar organizations
or government organizations, rebates paid, credited, accrued or actually taken,
including government rebates such as Medicaid charge backs or rebates, and
retroactive price reductions or allowances actually allowed or granted from the
billed amount, and commercially reasonable and customary fees paid to
wholesalers, buying groups, hospitals or physicians, excluding any distributors
or sub-licensees ("Customers"), (ii) credits or allowances actually granted upon
claims, rejections or returns of such sales of Licensed Products, including
recalls (provided such recalls are in accordance with Section 6.9 of this
Agreement and except to the extent ANIKA has otherwise paid for such recall),
(iii) taxes, duties or other governmental charges levied on or measured by the
billing amount when included in billing, as adjusted for rebates, charge-backs,
and refunds (and similar adjustments), (iv) actual

                                        5
<Page>

write-offs for uncollectable accounts, PROVIDED, HOWEVER, that if collected at a
later date, such amounts will be added to Net Sales, and (v) freight, postage,
shipping and insurance charges paid for delivery of such Licensed Products, to
the extent billed and reflected on the invoices. For purposes of calculating
"Net Sales," a Licensed Product shall be considered "sold" upon the invoicing of
such Licensed Product by OBI to a Third Party (other than to any of its
Affiliates), or upon invoicing of such Licensed Product by any of OBI's
Affiliates or distributors or sub-licensees to a Third Party.

"OBI Area" shall have the meaning set forth in Section 3.3 of this Agreement.

"OBI Disclosure Date" shall have the meaning set forth in Section 14.2(b) of
this Agreement.

"OBI Potential Products" shall have the meaning set forth in Section 14.2(a) of
this Agreement.

"OBI Sellers" means OBI, its Affiliates, sub-licensees and distributors.

"Patent" means (i) valid and enforceable patent, including any extension,
registration, confirmation, reissue, continuation, divisional,
continuation-in-part, re-examination or renewal thereof, and (ii) pending
applications for Letters Patents, in any jurisdiction within the Territory.

"Patent Costs" means the reasonable fees and expenses paid to outside legal
counsel and other Third Parties, and filing and maintenance expenses, incurred
in connection with the establishment and maintenance of rights under Patents.

"Person" shall mean any natural person, corporation, firm, limited liability
corporation, limited liability partnership, business trust, joint venture,
association, organization, company, partnership or other business entity, or any
government or any agency or political subdivision thereof.

"Per Unit Overpayment" shall have the meaning set forth in Section 6.2(a)(i) of
this Agreement.

"Per Unit Underpayment" shall have the meaning set forth in Section 6.2(a)(i) of
this Agreement.

"Phase IV" shall mean product support clinical trials of the Licensed Product
with an approved label claim commenced after receipt of Regulatory Approval in
the country where such trial is being conducted.

"PMA" means a premarket approval application filed with the FDA, or if a PMA is
not the appropriate filing, then the suitable filing required to obtain
Regulatory Approval. "PMA" includes the "Currently Filed PMA", which is ANIKA's
PMA No. P030019 for ORTHOVISC(R) presently under consideration by the FDA, as
may be supplemented, amended or augmented from time to time.

"Quality Agreement" has the meaning set forth in the recitals to this Agreement.

"R&D Pipeline" shall mean the research and development projects developed by
ANIKA.

                                        6
<Page>

"Raw Materials" shall mean the materials, components, and packaging required to
manufacture and package the Licensed Product in accordance with the
Specifications.

"Reference Quarter" shall have the meaning set forth in Section 6.2(a)(iii) of
this document.

"Regulatory Approval" shall mean all regulatory agency registrations and
approvals by government, pricing or health authorities in a country which are
required for first use or sale of a medical device or drug, including,
importation, manufacture (where manufacture is required) or use, in each case,
in the Field in the Territory.

"Replacement Product" shall have the meaning set forth in Section 5.2(a) of this
Agreement.

"Retained Sample" shall have the meaning set forth in Section 6.8 of this
Agreement

"Rolling Annual Forecast" shall have the meaning set forth in Section 6.3(a) of
this Agreement.

"Second Period" shall have the meaning set forth in Section 6.2(a)(ii) of this
Agreement.

"Second Period Per Unit Overpayment" shall have the meaning set forth in Section
6.2(a)(ii) of this Agreement.

"Second Period Per Unit Underpayment" shall have the meaning set forth in
Section 6.2(a)(ii) of this Agreement.

"Second Period Average Sales" shall have the meaning set forth in Section
6.2(a)(ii) of this Agreement.

"Second Report" shall have the meaning set forth in Section 6.2(a)(ii) of this
Agreement.

"Second Source Qualification" shall have the meaning set forth in Section
6.10(ii) of this Agreement.

"Shipping Point" shall have the meaning set forth in Section 6.6(b) of this
Agreement.

"Site" shall have the meaning set forth in Section 3.3 of this Agreement.

"Specifications" shall mean the specifications for the composition, manufacture,
packaging, and/or quality control of all Licensed Product, as set forth on
EXHIBIT A, attached hereto and made a part hereof, as the same may hereafter be
modified by mutual agreement of the Parties in writing and attached hereto as a
replacement for, or as an addition to, EXHIBIT A.

"Steering Committee" has the meaning set forth in Article 15 of this Agreement.

"Supply Year" shall mean Calendar Year.

                                        7
<Page>

"Term" shall mean the period commencing on the Effective Date and terminating on
the latest to expire of the effective periods of this Agreement with respect to
any country in the Territory as may be extended pursuant to Section 12.1 of this
Agreement.

"Territory" means the United States of America ("U.S."), and Mexico.

"Third Party" means any entity other than ANIKA, OBI or any Affiliates of ANIKA
or OBI.

"Total Initial Units" shall have the meaning set forth in Section 6.2(a)(i) of
this Agreement.

"Total Second Period Units" shall have the meaning set forth in Section
6.2(a)(ii) of this Report.

"Trademark" has the meaning set forth in Section 3.2(a)(i) of this Agreement.

"Unit" shall mean each syringe containing Licensed Product.

"Unit Price" shall have the meaning set forth in Section 6.2(a) of this
Agreement.

"Validity Challenge Claim" shall have the meaning set forth in Section 8.6(i) of
this Agreement.

"Vision System" means an automated system that reads information (either
printing or bar codes).


                        ARTICLE II - PRODUCT DEVELOPMENT

2.1.    DEVELOPMENT RESPONSIBILITIES.

        (a)     UNITED STATES. With respect to the Currently Filed PMA for
Licensed Product by ANIKA, ANIKA shall use commercially reasonable efforts
consistent with its normal business practices to obtain Regulatory Approval with
the FDA. ANIKA shall be solely responsible for obtaining such Regulatory
Approval, at its sole cost and expense. ANIKA shall on a regular basis report to
OBI on the progress of its efforts in obtaining such Regulatory Approval.

        (b)     MEXICO. OBI shall have the right but not the obligation to file
a Drug Approval Application in Mexico, at its sole cost and expense. Prior to
making any decision on whether to file for Regulatory Approval in Mexico of
Licensed Product, OBI shall discuss the matter through the Steering Committee. A
decision of whether to file for Regulatory Approval and/or launch Licensed
Product in Mexico is required to be mutually agreed upon by the Parties in
advance of any filing. Subject to the foregoing, should OBI proceed with such
filing of a Drug Approval Application in Mexico, ANIKA shall cooperate with the
preparation and execution of such Drug Approval Application. OBI agrees to name
ANIKA as the approved supplier of the Licensed Product in any such filings.
ANIKA shall have sole ownership rights in any such Drug Approval Application in
Mexico, notwithstanding OBI's participation in the filing thereof. If by the end
of the second quarter of 2005 OBI has failed to commence material and concerted
efforts to market and commercialize Licensed Product in Mexico, and if the
Steering Committee has

                                        8
<Page>

determined that commercialization of Licensed Product will not materially impair
the sales of Licensed Product in the United States, then OBI shall immediately
forfeit its rights and licenses under this Agreement with respect to any
Licensed Product in Mexico, all such rights and licenses (including distribution
rights), with respect to such Licensed Product in Mexico shall revert to or
remain with ANIKA (as the case maybe), and all references to "Territory" herein
will automatically exclude Mexico.

        (c)     GENERAL. OBI shall have the exclusive right to Develop Licensed
Product in the Territory in the Field by carrying out clinical trials in the
Territory. Prior to making any decision on whether to so Develop Licensed
Product, OBI shall discuss the matter through the Steering Committee. OBI agrees
to carry out such Development of any Licensed Product in the Territory and Field
consistent with its normal business practices regarding a product of similar
commercial potential. OBI hereby grants ANIKA the exclusive right to copy,
modify, distribute and use any such new Developments or Information created or
Development in connection with such Development outside the Territory including
the right to cross reference any OBI Regulatory Approvals and use the data and
Information contained therein at a cost equal to half of OBI's fully allocated
Development costs associated with any such new Development used by ANIKA. OBI
agrees to in good faith begin a clinical trial for a new indication for such
Licensed Product or a Phase IV clinical trial within 12 months from receipt of
approval of the Currently Filed PMA from the FDA unless otherwise mutually
agreed to by the Parties.

2.2.    OWNERSHIP AND OBTAINING OF DRUG APPROVAL APPLICATIONS AND REGULATORY
        APPROVALS.

        With respect to all Regulatory Approvals, including the Currently Filed
PMA and supplements thereto directed to new indications and formulations
Developed by OBI hereunder, ANIKA shall have sole ownership rights in any
Regulatory Approval received and all relevant documents associated with the
Regulatory Approval and corresponding Drug Approval Application materials;
provided, however, that ANIKA shall be permitted to assign or license such
ownership rights to OBI in ANIKA's sole discretion. Except to the extent
explicitly provided for in this Agreement, ANIKA will not be required to conduct
any clinical trials and or other studies in connection with any Regulatory
Approval and ANIKA's only obligation in connection herewith is to use
commercially reasonably efforts to prepare and file applicable agency
registrations and approvals. Notwithstanding anything to the contrary contained
herein, upon reasonable request by OBI, ANIKA agrees to set up a meeting or
initiate contact with the FDA in connection with Licensed Product. In such
meeting or contact, OBI shall be permitted to communicate and interact directly
with the FDA in connection with obtaining a Regulatory Approval from the FDA;
provided that (a) OBI shall, notify ANIKA in advance of such desired
communications or interaction (including the probable substance thereof); (b)
ANIKA facilitates and coordinates such communications or interaction; and (c) a
representative of Anika shall be present for and participate during such
communications or interaction.

                                        9
<Page>

                         ARTICLE III - COMMERCIALIZATION

3.1.    OBI'S MARKETING OBLIGATIONS FOR LICENSED PRODUCTS.

        All business decisions related to, the sale, price and promotion of
Licensed Products under this Agreement and the decisions whether to market or
not market any particular Licensed Product shall be within the sole discretion
of OBI. To the extent permitted in Section 15(e), the Steering Committee shall
review and comment on the relevant marketing and sales activities. Any marketing
or commercialization of a Licensed Product in one country within the Territory
shall not obligate OBI to market or commercialize said Licensed Product in any
other country. Furthermore, subject to Article IX and XI of this Agreement, OBI
makes no representation, warranty or covenant that the marketing of a Licensed
Product shall be the exclusive means by which OBI will participate in any
therapeutic field. In commercializing any Licensed Product, OBI will use
reasonable commercial efforts that are consistent with the efforts it uses in
commercializing its own pharmaceutical products.

3.2.    TRADEMARKS.

        (a)

                (i)       ANIKA hereby grants to OBI for the Term of this
        Agreement the exclusive, royalty-free right to use the trademark
        "Orthovisc(R)" (the "Trademark") only in connection with the marketing,
        distribution and sale of Licensed Product in the Territory and only in
        the Field. OBI expressly agrees that it will label all packaging
        containing the Licensed Product with the following designation,
        "Orthovisc(R) is a trademark of ANIKA Therapeutics, Inc.," and will sell
        all Licensed Product only under the trademark "Orthovisc(R)." ANIKA
        agrees that it will not use or give rights to a Third Party to use the
        Trademark in the Territory in connection with any other product. OBI
        agrees that all of its use of the Trademark will inure to the benefit of
        ANIKA.

                (ii)      OBI shall not use any trademark, service mark, trade
        name, logo, internet domain name or design which is the same or
        substantially similar to Trademark as such to cause confusion in the
        mind of a reasonable person.

                (iii)     All costs and expenses incurred with respect to the
        preparation of Trademark applications, and with respect to the filing
        and/or maintenance of Trademark registrations and other documentation
        required by government agencies shall be paid by ANIKA. OBI shall assist
        and cooperate with ANIKA in connection with the filing and/or
        maintenance of any such Trademark registrations and other documentation
        required by government agencies in the Territory as may be reasonably
        requested by ANIKA from time to time.

                (iv)      In the event OBI desires to market the Licensed
        Product under a trademark other than "Orthovisc," utilization of such
        alternative trademark shall be subject to the approval of ANIKA. OBI
        shall be fully responsible at its sole cost for obtaining such

                                       10
<Page>

        alternative trademark and shall own such trademark. ANIKA shall have no
        rights to use such trademark outside the Territory.

        (b)     OBI will supply ANIKA with samples of its use of Trademark upon
ANIKA's request.

        (c)     OBI shall use the Trademark only in a manner and form designed
to maintain the high quality of the Trademark. If ANIKA at any time finds that
OBI's or any of its sublicensee's or distributor's use of the Trademark is not
consistent with standards of quality acceptable to ANIKA, ANIKA may notify OBI
in writing of such deficiencies, and if OBI fails to correct such deficiencies
within sixty days after receipt of such notice, ANIKA, may, at its election,
terminate the license granted in Section 3.2(a)(i) immediately.

        (d)     OBI may not sublicense, other than to an Affiliate of OBI, the
Trademark to any Third Party without ANIKA's prior written consent; provided
that any permitted sublicensee must agree to be bound by the terms and
conditions of this Section 3.2.

        (e)     ANIKA reserves all other rights in and to the Trademark,
including, without limitation, the right to license the Trademark in all
countries outside the Territory.

        (f)     OBI shall never challenge ANIKA's ownership of or right to
license, or the validity of, the Trademark or any application for registration
thereof or any trademark registration thereof. OBI shall never file any
application for a registration for the Trademark in any office or agency
anywhere in the world.

        (g)     Each of the Parties shall promptly notify the other Party of any
infringement of the Trademark by a Third Party in the Territory and cooperate
with each other in deciding how to proceed. If the Trademark is infringed by a
Third Party in the Territory, ANIKA shall either (i) bring an action for
infringement, at its sole expense, against such third party, in which case ANIKA
shall be entitled to any and all proceeds resulting from such action, and shall
keep OBI informed as to the prosecution of the action; or (ii) notify OBI in
writing that it will not pursue an infringement action against the Third Party.
In the event ANIKA exercises option (ii) in the immediately preceding sentence,
OBI shall either (i) bring an action for infringement, at its sole expense,
against such Third Party, in which case OBI shall be entitled to any and all
proceeds resulting from such action, and shall keep ANIKA informed as to the
prosecution of the action; or (ii) notify ANIKA in writing that it will not
pursue an infringement action against the third party. In the event OBI
exercises option (ii) in the immediately preceding sentence, the Steering
Committee shall meet within ten (10) days of OBI's receipt of ANIKA's
notification to determine whether the third party infringement prevents OBI from
competing effectively in the affected market(s) and, if so, how best to proceed.

        (h)     If a Third Party asserts that a trademark owned by it is
infringed by the use of Orthovisc(R) by OBI in the Territory in accordance with
this Agreement, ANIKA a has an obligation under to defend against such assertion
or resulting litigation within thirty (30) days after receiving written notice
thereof, and OBI shall assist and cooperate with ANIKA in the

                                       11
<Page>

defense of such suit. ANIKA shall bear the full costs and expenses of such
defense and shall assume full responsibility for the payment of any award for
damages, or any amount due pursuant to any settlement entered into by ANIKA.
ANIKA shall not enter into any settlement, consent decree or other voluntary
final disposition of the suit without the prior written notice to OBI, and OBI
is not responsible in any way whatsoever for any such settlement or compromise
entered into without such prior written consent.

        (i)     Upon termination of this Agreement for any reason, the license
granted in this Section 3.2 shall immediately terminate, and OBI and all of its
sublicensees shall immediately cease all use of the Trademark.

        (j)     BRANDING MATERIALS. OBI shall bear the costs associated with its
efforts to establish and promote the Orthovisc(R) brand in the Territory, as set
out in any marketing plan(s) reviewed by the Steering Committee. The Parties
agree that the materials and information developed by OBI for this purpose (the
"Branding Materials"), are the sole property of OBI. As used herein, the term
"Branding Materials" includes without limitation promotional, training, and
public relations materials, trademarks, slogans, advertising tag lines, logos
and other trade dress, whether in print, video or other format (including,
without limitation, the content contained in the website referred to in Section
3.3), but expressly excludes the Trademark, any logo, and "trade dress" of the
Licensed Product's package, which is licensed to OBI hereunder, which Trademark,
logo and trade dress shall be the sole property of ANIKA. ANIKA may elect to
purchase from OBI a paid-up perpetual license to sell, sublicense, reproduce,
modify distribute any or all of the Branding Materials for use outside the
Territory, provided ANIKA shall have no right to purchase OBI trademarks and
logos, and other Branding Materials, which Branding Materials are used to
promote other OBI products. If ANIKA so elects, OBI shall provide one copy of
the digital file containing the Branding Materials ANIKA has selected, and ANIKA
shall pay to OBI within 45 days after receipt of the digital file a one-time fee
equal ten percent (10%) of OBI's documented Third Party hard costs for
conceptualization, preproduction, and production of the selected Branding
Materials (excluding printing costs).

3.3.    Subject to the terms and conditions of this Agreement, ANIKA hereby
grants to OBI for the Term of this Agreement the exclusive, non-sublicensable,
royalty-free right to use the domain name orthovisc.com. OBI shall have the sole
authority to create and post content on the Territory portion of any website
identified by the orthovisc.com domain name, and all such content, including
copyrights therein, shall belong to OBI. ANIKA shall maintain the orthovisc.com
domain name registration in good order for the duration of this Agreement and
any extensions thereof. OBI will, at its cost, design, develop, host, operate
and maintain a web site located at www.orthovisc.com, (the "Site") which will,
among other things, market and promote Licensed Product. ANIKA shall have the
right, at its cost, to develop, launch and update an ANIKA branded area on the
Site (the "ANIKA Area") which targets users outside of the Territory. OBI will
cooperate with ANIKA in connection with the development, launch and updating of
the ANIKA Area, including, but not limited to modifying the Site from time to
time to incorporate ANIKA Area content delivered by ANIKA. The orthovisc.com
website will be constructed in a manner so as to allow visitors to be directed
to either the OBI portion of the website, which will relate to the Territory
(the "OBI Area"), and to the ANIKA Area, which will relate to the ANIKA

                                       12
<Page>

regions of the world excluding the Territory. Reference herein to OBI's
authority to create and post content on the orthovisc.com website only relates
to the portion or link relating to the OBI Area. OBI acknowledges and agrees
that (a) OBI has no right, title and/or interest in the orthovisc.com domain
name, or any trademarks, trade names and service marks that may be contained in
the orthovisc.com domain name (collectively, "Domain Name Marks"), other than
the limited license granted in this Section 3.3, (b) all rights arising from
OBI's use of the Domain Name Marks inure to the benefit of ANIKA, (c) OBI will
only use the orthovisc.com domain name and any website identified by such domain
name for lawful purposes only and (d) upon termination of this Agreement, OBI
shall immediately discontinue all use of the orthovisc.com domain name.


                ARTICLE IV - INTELLECTUAL PROPERTY LICENSE GRANTS

4.1.    ANIKA hereby grants to OBI an exclusive, non-transferable royalty
bearing, license under ANIKA Know-How and ANIKA Patents in the Territory solely
to use and sell Licensed Products in the Field in the Territory, with a right to
grant sublicenses (to sublicensees and distributors), provided, however, (a) in
the United States, OBI may only grant sublicenses to Affiliates or, if approved
in advance in writing by ANIKA, to Third Parties and, (b) OBI may grant
sublicenses in Mexico to its Affiliates or to Third Parties who are OBI's
customary historical normal course distributors in accordance with past
practice, without prior notice or approval by ANIKA, and to non-customary
distributors only upon prior written notice or approval by ANIKA, which will not
be unreasonably withheld; provided, however, that any such sublicensee or
distributor shall be responsible for marketing and promotion of such Licensed
Product within the distribution territory. With respect to any such sublicensees
or distributors, OBI shall be responsible for making any payments due under this
Agreement to ANIKA resulting from sales made by such sublicensees or
distributors and the compliance by sublicensees or distributors with all
applicable terms of this Agreement.


                              ARTICLE V - PAYMENTS

        In consideration of the rights and licenses granted under this
Agreement, OBI agrees to pay ANIKA the following non-refundable amounts:

5.1.    UPFRONT PAYMENT.

        OBI agrees to pay to ANIKA a non-refundable upfront payment of two
million dollars ($2,000,000) within 5 Business Days of the Effective Date.

5.2.    PAYMENT EVENTS

        (a)     OBI agrees to make the following non-refundable payments to
ANIKA under this Section 5.2 upon the first occurrence of each event for the
first Licensed Product. If the first Licensed Product is replaced by another
Licensed Product (a "Replacement Product"), OBI shall not be obligated to make
the same event payments for the Replacement Product as it already

                                       13
<Page>

made in connection with the first Licensed Product which was replaced. It is
understood that in no event shall OBI be obligated to make the payment due on
any event more than once with respect to the same Licensed Product (or its
Replacement Product) in connection with any indication, application,
formulation, and/or use, regardless of the number of any of such indications,
applications, formulations and/or uses.

        (b)     Within twenty (20) Business Days following receipt from ANIKA of
a notice and invoice regarding the achievement of each of the following events
in connection with the Currently Filed PMA for Licensed Product as follows:

                (i)       [*****************************************************
        ************************************];

                (ii)      [*****************************************************
        ************************************];

                (iii)     [*****************************************************
        ************************************]

                (iv)      [*****************************************************
        ************************************************************************
        ************************************************************************
        *****************]

        For avoidance of doubt, if each of the items (i)-(iv) above were
        achieved, ANIKA would receive a total of thirty two million five-hundred
        thousand dollars ($32,500,000).

        (c)     Provisions (i)-(iii) in this subsection 5.2(c) as set forth
below refer to Annual Net Sales ("ANS") in the Territory:

                (i)       Referring to the 2005 ANS, either, and only one of,

                (i)(1)    if such 2005 ANS exceed [*****************************
        ****], OBI agrees to pay ANIKA [****************************************
        ****], or

                (i)(2)    if such 2005 ANS exceed [*****************************
        *****], OBI agrees to pay ANIKA [***************************************
        *********** *********],

                within thirty (30) Business Days from the end of the 2005
        Calendar Year;

                (ii)      Referring to the 2006 ANS, either, and only one of,

                (ii)(1)   if such 2006 ANS exceed [*****************************
        ****], OBI agrees to pay ANIKA [****************************************
        ********* ************], or

                                       14
<Page>

                (ii)(2)   if such 2006 ANS exceed [*****************************
        *], OBI agrees to pay ANIKA [*******************************************
        ****],

                within thirty (30) Business Days from the end of the 2006
        Calendar Year; and

                (iii)     Referring to the 2008 ANS, either, and only one of,

                (iii)(1)  if such 2008 ANS exceed [****************************
        **], OBI agrees to pay ANIKA [******************************************
        *], or

                (iii)(2)  if such 2008 ANS exceed [*****************************
        **], OBI agrees to pay ANIKA [******************************************
        ****],

                within thirty (30) Business Days from the end of the 2008
        Calendar Year.

5.3.    EARNED ROYALTIES FOR LICENSED PRODUCTS. In addition to any payments
pursuant to Section 5.2 of this Agreement, ANIKA shall be entitled to the
following royalty payments:

        (a)     With respect to each Calendar Year (including 2004), OBI shall
pay ANIKA a royalty according to the following Net Sales:

                (i)       For the portion of ANS in the Territory up to
        [*****************], a royalty of [******************] on such portion
        of Net Sales during such Calendar Year; PLUS

                (ii)      For the portion of ANS in the Territory that is in
        excess of [***********] up to and including [******************], a
        royalty of [***********************] on such portion of Net Sales during
        such Calendar Year; PROVIDED HOWEVER, if [**********************], such
        royalty shall be [*****************************] on such portion of Net
        Sales during such Calendar Year and each subsequent Calendar Year; PLUS

                (iii)     For the portion of ANS in the Territory that is in
        excess of [**********], a royalty of [**********************] on such
        portion of Net Sales during such Calendar Year.

        (b)     Royalties shall be paid in respect of all Licensed Products in
the Territory for the entire Term of this Agreement, including extensions or
renewals thereof.

5.4.    THIRD PARTY PATENTS.

        If a Patent or Patents of a Third Party should be in force in any
country in the Territory during the term of this Agreement covering the use or
sale of any Licensed Product, and if after receiving such notice from such Third
Party it should prove in OBI's reasonable judgment after consultation with
ANIKA, impractical or impossible for OBI or any OBI Affiliate to continue
performing the activity or activities licensed hereunder without obtaining a
royalty bearing

                                       15
<Page>

license from such Third Party under such Patent or Patents in said country, then
OBI shall promptly notify ANIKA in writing. If ANIKA agrees that a license is
required it shall use commercially reasonable efforts to procure such license
from the Third Party at its cost paying any compensation to such Third Party for
such license. If ANIKA disagrees that such a license is required, the Parties
shall submit the issue to an independent patent attorney selected mutually by
the Parties to determine whether a license is needed. The decision of such
patent attorney shall be final and to the extent that such patent attorney
decides that a license is required, ANIKA will use commercially reasonable
efforts to procure such license from the Third Party at its cost. The cost of
such patent attorney shall be borne by the non-prevailing party in the
disagreement.

5.5.    CURRENCY RESTRICTIONS.

        Except as herein provided in this Section 5.5, all royalties and
milestones shall be paid in Dollars. If, at any time, legal restrictions prevent
the prompt remittance of part of or all royalties and milestones with respect to
any country where Licensed Products are sold, OBI shall document such
restrictions to ANIKA and shall then have the right and option to make such
payments by depositing the amount thereof in local currency to ANIKA's accounts
in a bank or depository designated by ANIKA in such country.

5.6.    REPORTS AND RECORDS.

        (a)     During the Term of this Agreement and commencing with the Date
of First Sale of a Licensed Product, OBI shall furnish, or cause to be furnished
to ANIKA, written reports, including the calculation of royalty payment due,
within thirty (30) Business Days following the end of each Calendar Quarter,
showing:

                (i)       the Net Sales of each Licensed Product sold by each of
        OBI, its Affiliates and its Sublicensees in each country of the
        Territory, during the Calendar Quarter and the total for all quarters of
        the current Calendar Year;

                (ii)      the Units of each Licensed Product sold by each of
        OBI, its Affiliates and its Sublicensees in each country of the
        Territory, during the Calendar Quarter and the total for all quarters of
        the current Calendar Year;

                (iii)     the royalties payable in Dollars, which shall have
        accrued hereunder in respect to such Net Sales for the current Calendar
        Year; and

                (iv)      a detailed calculation of Net Sales for the Calendar
        Quarter and the total amount of Net Sales for the current Calendar Year
        through the most recently completed Calendar Quarter.

        (b)     All royalty payments to be made by OBI to ANIKA under Section
5.3 shall be made in Dollars by same day wire transfer no later than forty (40)
Business Days from the end of the applicable Calendar Quarter.

                                       16
<Page>

        (c)     In the case of sales outside the United States, for the purpose
of this Article 5, such sales shall be converted to Dollars in accordance with
OBI's current customary and usual procedures for calculating same which are the
following: the rate of currency conversion shall be calculated using a simple
monthly period average of the end "spot rates" provided by Brown Brothers
Harriman, 59 Wall Street, NY, NY 10005, for each Calendar Quarter, or if such
rates are not available, the same computation using the spot rates as published
by a leading United States commercial bank for such accounting period. These
methods of conversion are consistent with OBI's current accounting methods. OBI
shall give ANIKA prompt written notice of any proposed changes to OBI's
customary and usual procedures for currency conversion, which shall only apply
after such notice has been delivered to and approved by ANIKA, provided that
such changes continue to maintain a set methodology for currency conversion.

        (d)     Each report shall be made within thirty (30) Business Days from
the end of each calendar quarter. OBI shall keep accurate records in sufficient
detail to enable royalties and other payments payable hereunder to be
determined. OBI shall be responsible for all royalties and late payments that
are due to ANIKA that have not been paid by OBI, its Affiliates, its
sublicensees and distributors. All costs of enforcing or collecting payment
hereunder, including attorney's fees and court costs, shall be paid by the
non-prevailing Party.

        OBI shall maintain complete and accurate records, in accordance with
U.S. generally accepted accounting practices, which are relevant to costs,
expenses and payments under this Agreement and such records shall be open during
reasonable business hours for a period of five (5) years from creation of
individual records for examination at ANIKA's expense and not more often than
once each year by a certified public accountant or other representative selected
by ANIKA and acceptable to OBI for the sole purpose of verifying the correctness
of calculations or such costs, expenses or payments made under this Agreement
(the "Audit"). If OBI disagrees with the calculation of the Audit, and OBI and
ANIKA cannot resolve their disagreement, the matter shall be submitted to
arbitration in accordance with Article XVI. In the absence of material
discrepancies (in excess of 5% of the disputed amount) in any request for
reimbursement resulting from such audit, the accounting expense shall be paid by
ANIKA. If material discrepancies do result, OBI shall bear the reasonable audit
expense. Any records or accounting information received from OBI shall be
Confidential Information for purposes of Article VII.

5.7.    TAXES.

        (a)     OBI will make all payments to ANIKA under this Agreement without
deduction or withholding for taxes except, solely with respect to sales of
Licensed Product in Mexico, to the extent that any such deduction or withholding
is required by law in effect at the time of payment.

        (b)     Solely with respect to sales of Licensed Product in Mexico, any
tax required to be withheld on amounts payable under this Agreement will
promptly be paid by OBI on behalf of ANIKA to the appropriate governmental
authority, and OBI will furnish ANIKA with proof of

                                       17
<Page>

payment of such tax. Any such tax required to be withheld will be an expense of
and borne by ANIKA.

        (c)     OBI and ANIKA will cooperate with respect to all documentation
required by any taxing authority or reasonably requested by OBI or ANIKA to
secure a reduction in the rate of applicable withholding taxes solely with
respect to sales of Licensed Product in Mexico.

        (d)     If OBI had a duty to withhold taxes in connection with any
payment it made to ANIKA under this Agreement but OBI failed to withhold, and
such taxes were assessed against and paid by OBI, then ANIKA will indemnify and
hold harmless OBI from and against such taxes. If OBI makes a claim under this
Section 5.7(d), it will comply with the obligations imposed by Section 5.7(b) as
if OBI had withheld taxes from a payment to ANIKA.


                            ARTICLE VI - MANUFACTURE

6.1.    SUPPLY OF PRODUCTS.

        Subject to the Terms of this Agreement, during the term of this
Agreement, ANIKA agrees to supply OBI with those quantities of Licensed Product
as ordered by OBI pursuant to this Agreement, and OBI shall purchase from ANIKA
100% of OBI's requirements for Licensed Products to be sold in the Territory
subject to the ordering procedures set forth in Article VI.

6.2.    PRICES FOR PRODUCT.

        (a)     TRANSFER PRICES. The price for each Unit of Licensed Product
sold by ANIKA to OBI shall be set at [***] of the Unit Price (as defined below);
PROVIDED, HOWEVER, in no event shall [***] of the Unit Price be less than [***].
"Unit Price" is hereby defined as follows:

                (i)       FIRST CALENDAR QUARTER. The Unit Price for the period
        from the Date of First Sale until the last day of the first Calendar
        Quarter ended immediately following the Date of First Sale (the "Initial
        Period"), shall be the Initial Average Sales Price for such Initial
        Period where "Initial Average Sales Price" shall mean the fraction the
        NUMERATOR of which is the total Net Sales during such Initial Period and
        the DENOMINATOR of which is the total Units sold by the OBI Sellers
        during such Initial Period (the "Total Initial Units"). As the Unit
        Price for such Initial Period cannot be determined until after the end
        of such Initial Period, ANIKA shall invoice OBI at a transfer price
        equal to [***] of OBI's published list price ("Initial Estimated
        Transfer Price") for Units sold during such Initial Period.

        Within ten (10) days following the end of such Initial Period, OBI will
        provide ANIKA with a report containing the Net Sales for such Initial
        Period and the total Units sold during such Initial Period (the "Initial
        Report"). Within ten (10) days following the receipt of the Initial
        Report, (A) if the Initial Average Sales Price is greater than the
        Initial Estimated Transfer Price (such difference, the "Per Unit
        Underpayment"), OBI shall pay to ANIKA the product of (1) the Per Unit
        Underpayment and (2) the Total Initial Units,

                                       18
<Page>

        and (B) if the Initial Estimated Transfer Price is greater than the
        Initial Average Sales Price (such difference, the "Per Unit
        Overpayment"), ANIKA shall pay to OBI the product of (a) the Per Unit
        Overpayment and (b) the Total Initial Units, but in no event shall ANIKA
        pay any such amount to the extent such payment would result in ANIKA
        retaining a Unit Price of less than [***].

                (ii)      SECOND CALENDAR QUARTER. The Unit Price for the
        Calendar Quarter immediately succeeding the Initial Period (the "Second
        Period") shall be the Second Period Average Sales Price for such Second
        Period where "Second Period Average Sales Price" shall mean the fraction
        the NUMERATOR of which is the total Net Sales during such Second Period
        and the DENOMINATOR of which is the total Units sold by the OBI Sellers
        during such Second Period (the "Total Second Period Units"). As the Unit
        Price for such Second Period cannot be determined until after the end of
        such Second Period, ANIKA shall invoice OBI at a transfer price equal to
        Initial Estimated Transfer Price for Units sold during such Second
        Period.

        Within ten (10) days following the end of such Second Period, OBI will
        provide ANIKA with a report containing the Net Sales for such Second
        Period and the total Units sold during such Second Period (the "Second
        Report"). Within ten (10) days following the receipt of the Second
        Report, (A) if the Second Period Average Sales Price is greater than the
        Initial Estimated Transfer Price (such difference, the "Second Period
        Per Unit Underpayment"), OBI shall pay to ANIKA the product of (1) the
        Second Period Per Unit Underpayment and (2) the Total Second Period
        Units, and (B) if the Initial Estimated Transfer Price is greater than
        the Second Period Average Sales Price (such difference, the "Second
        Period Per Unit Overpayment"), ANIKA shall pay to OBI the product of (a)
        the Second Period Per Unit Overpayment and (b) the Total Second Period
        Units, but in no event shall ANIKA pay any such amount to the extent
        such payment would result in ANIKA retaining a Unit Price of less than
        [***].

                (iii)     SUBSEQUENT CALENDAR QUARTERS. The Unit Price for each
        Calendar Quarter ended after the Second Period shall be the Average
        Sales Price determined from the Calendar Quarter ended two Calendar
        Quarters immediately preceding such Calendar Quarter (the "Reference
        Quarter") (for instance, in the case of Q4, the Calendar Quarter ended
        two Calendar Quarters immediately preceding would be Q2), where "Average
        Sales Price" shall mean the fraction the NUMERATOR of which is the total
        Net Sales during such Reference Quarter and the DENOMINATOR of which is
        the total Units sold by the OBI Sellers during such Reference Quarter.

        Within five (5) Business Days following the end of each Calendar
        Quarter, OBI shall provide ANIKA with a preliminary and unaudited report
        containing the Net Sales for each such Calendar Quarter. These
        preliminary and unaudited reports will be superceded by the reports
        under Section 5.6(a) at the time those reports are required to be
        furnished.

        (b)     PAYMENT TERMS. Payment terms on all orders of Licensed Product
shall be forty-five (45) days net of invoice date. OBI shall keep accurate
records in sufficient detail to enable

                                       19
<Page>

transfer fees and other payments payable hereunder to be determined. OBI shall
be responsible for all transfer prices and late payments that are due to ANIKA.
Any past due amounts will be subject to a late fee of 1% per month, or the
highest rate allowed by law, whichever is less, with such interest accrual
commencing on the thirtieth day after the end of the month such payment was due.
All costs of enforcing or collecting payment hereunder, including attorney's
fees and court costs, shall be paid by the non-prevailing Party. Breach for
non-payment commences on the forty-sixth day following shipment of the Product
by ANIKA, assuming all invoice data from ANIKA is accurate.

6.3.    FORECASTS, ORDERS.

        (a)     Prior to the beginning of each Calendar Quarter during the term
of this Agreement, OBI shall provide ANIKA with a non-binding written forecast
of OBI's expected requirements for Licensed Products during the following twelve
months, designated M1-M12 and broken down by months and which shall include
order dates, quantity and shipping dates ("Rolling Annual Forecasts"). As
pertains for each Rolling Annual Forecast, the forecast for months designated
M7-M9, once set, may only be increased or decreased by up to 50% in the
aggregate from the original forecast for such month as the forecast is rolled
forward at the beginning of the next quarters, unless otherwise agreed to by
ANIKA. By way of example, assume the following four annual rolling forecast.

<Table>
<Caption>
   FORECAST             M1-M3                 M4-M6                  M7-M9               M10-M12
- ----------------------------------------------------------------------------------------------------
      <S>           <C>                    <C>                   <C>                  <C>
      1              Jan - March           April - June           JULY - SEPT          Oct. - Dec.
      2             April - June           July - Sept            OCT. - DEC.          Jan - March
      3              July - Sept           Oct. - Dec.            JAN - MARCH         April - June
      4              Oct. - Dec.           Jan - March           APRIL - JUNE          July - Sept
</Table>

Assume during Forecast 1, the forecast for July - September was 100 Units.
Accordingly, in each of Forecasts 2 and 3, the maximum forecast for
July-September is 150 Units and the minimum forecast for July-September is 50
Units.

The initial Rolling Annual Forecast shall be delivered by OBI within 2 weeks of
the Effective Date of the Agreement.

        (b)     ORDERS. The initial launch and inventory build quantities will
be exempt from this schedule, and determined by mutual agreement between ANIKA
and OBI. OBI shall place any binding orders for Licensed Product by written or
electronic purchase order (or by any other means agreed to by the Parties) to
ANIKA, which shall be placed at least 3 months prior to the desired date of
delivery and shall be consistent with the forecast provided for such Calendar
Quarter in the latest Rolling Annual Forecast. The Parties acknowledge that OBI
is not obligated to buy any specific amount of Licensed Product under this
Agreement, except for the quantities which OBI shall actually order through such
binding purchase orders in compliance with this Section 6.3(b).

                                       20
<Page>

        (c)     CONFLICTS. To the extent of any conflict or inconsistency
between this Agreement and any purchase order, purchase order release,
confirmation, acceptance or any similar document, the terms of this Agreement
shall govern.

6.4.    MOST FAVORED CUSTOMER.

        In consideration of the arrangements provided in this Agreement for the
OBI to purchase Licensed Product exclusively from ANIKA, ANIKA agrees that
during the term of this Agreement OBI shall be treated with "most favored
nation" status in connection with allocation of HA for manufacturing Licensed
Product, and, accordingly, if ANIKA is unable to supply all of the quantities of
Licensed Product ordered by OBI pursuant to binding orders in accordance with
this Agreement, ANIKA shall not provide any other customer (which customer is
similarly situated or purchases equivalent or less volume of products from ANIKA
than OBI in the aggregate) with preferential or more favorable treatment with
respect to allocation of Licensed Product (taking into account reasonable
forecasts, past sales and sales performance against forecast).

6.5.    IMPROVEMENTS.

        (a)     CHANGE IN SPECIFICATIONS. Either Party shall have the right to
request a change to the Specifications or packaging of Licensed Product during
the Term of this Agreement. In such event, the Party wishing to request a change
shall notify the other Party of its request in writing. If the receiving Party
agrees to such request, the Parties shall cooperate with each other to have such
change to the Specifications or packaging of Licensed Product approved by the
FDA, if such approval is necessary. ANIKA shall not be obligated to make any
changes to the Specifications or packaging of Licensed Product requested by OBI.
If the FDA requires a change to the Specifications or packaging of Licensed
Product (other than changes requested by the OBI), ANIKA shall use commercially
reasonable efforts to make such change with respect to the Licensed Product sold
in the Territory, and the costs for making such change as required by such
regulatory agency shall be born by ANIKA. OBI shall reimburse ANIKA for the
actual, documented expenses incurred by ANIKA in connection with changes to the
Specifications or the packaging of product requested by OBI, including, without
limitations, any necessary Regulatory Approval costs. Notwithstanding any other
terms of this paragraph, if the change to the Specifications or packaging of the
Licensed Product creates obsolescence in existing inventory held by ANIKA or OBI
or any other person or entity, the actual costs of such obsolescence, together
with any actual hard disposal costs, shall be the responsibility of OBI. ANIKA
shall have the right to appoint an independent certified accountant mutually
acceptable to both parties to audit and review OBI's financial records
pertaining directly to such costs for obsolescence. Any disputes arising from a
request for cost-sharing or reimbursement of expenses incurred in connection
with a change in Specifications or packaging of the Licensed Product under this
Section 6.5(a) and not resolved informally within 30 days shall be referred to
the Steering Committee for resolution. If the Steering Committee does not
resolve the matter within 60 days, either Party may submit the matter to
arbitration as provided in Article XVI.

                                       21
<Page>

        (b)     RECORDS. ANIKA shall keep complete and accurate records
pertaining to the manufacture, including quality control, of the Licensed
Product. OBI shall keep complete and accurate records pertaining to the use,
sale and other disposition of the Licensed Product, including for each lot
number of Licensed Product, the quantity shipped and where the lot was shipped.
Each party shall keep its respective records for at least five (5) years or for
such longer period if and as required by law. Each party shall make available
such records to the other party for such lawful purpose as such other party may
reasonably request in writing.

6.6.    DELIVERY.

        (a)     All charges for packing, hauling, storage, bar coding and
transportation to the Shipping Point are included in the transfer price as set
forth in Section 6.2 hereunder unless otherwise agreed to by the Parties. OBI
will pay all freight, shipping, insurance, duties, forwarding and handling
charges, taxes, storage and all other charges applicable to Licensed Product
after it is delivered by ANIKA to the Shipping Point. All shipments will be
accompanied by a packing slip which describes the articles, states the purchase
order number and shows the shipment's destination. ANIKA agrees to promptly
forward the original bill of lading or other shipping receipt for each shipment
in accordance with OBI's instructions.

        (b)     SHIPMENT. The risk of loss with respect to Licensed Product
shall remain with ANIKA through production until Licensed Product is delivered
to OBI FOB ANIKA's manufacturing facility (currently located in Woburn,
Massachusetts), or other manufacturing facility that has received Regulatory
Approval from the FDA (the "Shipping Point"). ANIKA will pack all Licensed
Product ordered hereunder in a manner suitable for shipment and sufficient to
enable the Licensed Product to withstand the normal effects of shipping,
including handling during loading and unloading. OBI is responsible for
designating the carrier(s) and negotiating terms for shipment of Licensed
Product, and is responsible for payment of all shipping insurance, handling,
storage and custom duties and fees.

        (c)     INVENTORY. ANIKA and OBI agree to reasonably cooperate to
improve the process for ordering Licensed Product with the mutual objectives of
expediting the supply process to a just-in-time process and reducing inventory
costs.

6.7.    INSPECTIONS.

        (a)     During the Term, OBI shall have the right, upon reasonable
notice to ANIKA and during regular business hours, to inspect and audit the
facilities being used by ANIKA (or any Third Party) for production and storage
of the Licensed Product to assure compliance by ANIKA (and its suppliers) with
GMP and applicable FDA rules and regulations pertaining to Licensed Product and
with other provisions of this Agreement.

        (b)     ANIKA shall have the right to visit OBI's facilities where the
Licensed Product is stored or delivered from time to time during the term of
this Agreement to perform a quality audit of OBI's records concerning storage
and distribution (including shipping and handling) of the Licensed Product. Such
visits shall be conducted during normal business hours upon at least

                                       22
<Page>

ten (10) days prior written notice and each party shall be limited to not more
than one visit per year, except in the event of a recall of the Licensed Product
or governmental action involving the Licensed Product.

6.8.    NON-CONFORMING PRODUCT.

        OBI shall evidence any claims of nonconformity of Licensed Product with
an analysis of the allegedly nonconforming Licensed Product that shall have been
prepared by OBI or its agent. Such report shall be accompanied with a copy of
the records pertaining to such testing and a sample of the Licensed Product from
the batch analyzed. If, after its own analysis of a sample stored by ANIKA from
such lot of Licensed Product (which such sample ANIKA is required to retain)
(the "Retained Sample"), ANIKA confirms such nonconformity, ANIKA shall, at
ANIKA's election, either replace the nonconforming Licensed Product with
conforming Licensed Product as soon as reasonably practicable at ANIKA's expense
or refund to OBI the entire transfer price therefore. The foregoing, and the
rights under this Section 6.8, shall be OBI's sole and exclusive remedy with
respect to such nonconformity. The nonconforming Licensed Product shall either
be returned to ANIKA, at ANIKA's request and its expense, or destroyed, at
ANIKA's expense.

        If, after ANIKA's own analysis, ANIKA does not confirm conformance to
  the Specifications or whether the Licensed Product has such a defect, either
  Party may deliver the Licensed Product to an independent Third-Party
  laboratory, mutually and reasonably acceptable to both Parties, for analytical
  testing to confirm the Licensed Product's conformance to the Specifications or
  the presence or absence of defects. All costs associated with such Third-Party
  testing shall be at OBI's expense unless the tested Licensed Product is deemed
  by such Third-Party to be materially defective or not in compliance with the
  Specifications, in which case all such costs, including reimbursement of
  freight and disposition costs, shall be promptly paid by ANIKA. No inspection
  or testing of or payment for Licensed Product by OBI or any Third-Party agent
  of OBI shall constitute acceptance by OBI thereof, nor shall any such
  inspection or testing be in lieu or substitution of any obligation of ANIKA
  for testing, inspection and quality control as provided in the Specifications
  or under applicable local, state, or federal laws, rules, regulations,
  standards, codes or statutes. In the event that any such shipment or batch
  thereof is ultimately agreed or found to meet the specifications, OBI shall
  retain such shipment or batch, and all the terms and conditions of this
  Agreement shall continue to apply to such Licensed Product.

6.9.    CORRECTIVE ACTION.

        (a)     REPORTABLE EVENTS. ANIKA shall be responsible for notifying all
applicable regulatory authorities of reportable events (including without
limitation complaints) involving the Licensed Product for which ANIKA receives
written notification, as required by applicable laws. OBI shall notify ANIKA of
potentially reportable events promptly but in no event later than twenty-four
(24) hours after the event. In addition, all such notices by OBI shall be
consistent with the requirements of law in the applicable jurisdictions.

                                       23
<Page>

        (b)     LICENSED PRODUCT COMPLAINTS. OBI shall promptly communicate to
ANIKA by facsimile, telephone or email (and confirm any such telephone
communication as instructed at the time) any complaint received from users of
the Licensed Product, in the configuration supplied by ANIKA. Each notification
of a complaint shall contain, but not be limited to, the lot number, dosage
size, expiration date, indication for actual use and description of
circumstances involved in the failure of the Unit(s) in question. Each complaint
notification will contain all the information available to OBI at that time,
including all information then available which is required in the ANIKA
Complaint Form attached hereto as Exhibit F, and a summary of the proposed
action to be taken by OBI to comply with its legal obligations. OBI will provide
additional information promptly as it becomes available. OBI acknowledges that
complaint investigation is the responsibility of ANIKA, but OBI reserves the
right to directly contact its customers.

        (c)     SAFETY OR EFFICACY CONCERNS. Each party agrees to notify the
other party as soon as practicable of any information of which it becomes aware
which relates to the safety or efficacy claims of the Licensed Product. Upon
receipt of any such information, the parties shall consult with each other in an
effort to arrive at a mutually agreeable course of action that is consistent
with the obligations of the parties under this Agreement and constant with
applicable laws.

        (d)     LICENSED PRODUCT RECALLS. If (i) the Licensed Product is
subjected to a recall by any governmental agency, or (ii) ANIKA after
notification to OBI elects to make a Licensed Product recall or (iii) in the
event either Party, after notification to, and consultation with, the other,
elects to make a Licensed Product withdrawal or corrective action, the expense
of such recall, withdrawal or corrective action shall be borne as provided
below. If (i) it is established that the Licensed Product was nonconforming
pursuant to Section 6.8 upon delivery by ANIKA to a common carrier at ANIKA's
Shipping Point, or (ii) such recall, withdrawal or corrective action arises from
any breach by ANIKA of the provisions of this Agreement, then ANIKA, subject to
Article XII, shall hold OBI harmless and shall bear all expenses related to the
recall, withdrawal or corrective action, including the replacement of the
recalled or withdrawn Licensed Product, which shall be replaced as soon as
reasonably practicable. If such recall, withdrawal or corrective action arises
as a result of actions or omissions on the part of OBI or its Affiliates,
distributors or sublicensees, or from any breach by OBI, its Affiliates,
distributors or sublicensees of the provisions of this Agreement, then OBI,
subject to Article XII, shall hold ANIKA harmless and shall bear all costs and
expenses in connection with such recall, withdrawal or corrective action. OBI
shall keep, and will use its reasonable efforts to the extent required by law to
cause its Affiliates, distributors and sublicensees to keep, detailed
distribution records for each lot number detailing the quantity shipped and the
location where the lot was shipped, so that in event of a recall, OBI will be
able to contact all physicians and/or end users.

6.10.   FAILURE TO SUPPLY: LICENSE TO MANUFACTURE.

                (i)       If ANIKA fails, for a period of three consecutive
        months, to deliver eighty percent (80%) of the aggregate cumulative
        quantity of all Licensed Products which ANIKA has agreed to deliver to
        OBI pursuant to binding purchase orders pursuant to Section 6.3(b) of
        this Agreement during that period, without being able to complete the

                                       24
<Page>

        delivery requirements along with any other scheduled delivery
        requirement in the next subsequent two months (including a failure
        caused by a force majeure) (hereinafter referred to as a "Failure to
        Supply"), then during any such License Period (as defined), OBI shall be
        permitted (with no obligation or liability to ANIKA) to obtain such
        Licensed Product from another supplier (an "Alternative Supplier"), to
        use, sell, make and have made Licensed Product pursuant to the license
        granted in this Section 6.10; provided, however, OBI shall use
        commercially reasonable efforts to ensure that the term of any agreement
        with an Alternative Supplier (the "Alternative Supplier Agreement") is
        as short as possible; provided further however, in no event shall the
        term of any Alternative Supplier Agreement extend beyond 30 months
        inclusive of any termination notice requirements under the terms of such
        Alternative Supplier Agreement. Upon the occurrence of any such Failure
        to Supply and through and until the later of such time as ANIKA fully
        resumes its supply obligations hereunder: ANIKA shall make available to
        OBI or its designee access to all Information, ANIKA Patents and ANIKA
        Know-How for OBI to procure required raw materials or product or arrange
        an alternative supplier of Licensed Product and (b) ANIKA shall provide
        reasonable advice and consultation in connection therewith and (c) ANIKA
        will not be entitled to implied royalties or compensation for lost
        profits as a result of Licensed Product obtained from such Alternative
        Supplier and (d) OBI shall bear all costs necessary to relocate
        manufacturing to an Alternative Supplier's facility in accordance with
        this Section 6.10. Notwithstanding anything to the contrary contained in
        this Agreement, in the event that OBI shall manufacture or have
        manufactured the Licensed Product, pursuant to this Section 6.10(i), (1)
        OBI shall be permitted to disclose to any Third Party any Confidential
        Information as is reasonably necessary in connection with such
        activities (subject to such Third Party agreeing in writing to be bound
        by the terms of Article VII hereof), and (2) ANIKA shall supply on
        commercially reasonable terms the Active Ingredient (as defined below)
        if requested by OBI..

                (ii)      From and after the Effective Date ANIKA will use
        commercially reasonable efforts to identify and qualify a second source
        of the hyaluronic acid active ingredient (the "Active Ingredient") in
        Licensed Products (the "Second Source Qualification"). Until such time
        as the Second Source Qualification, ANIKA will maintain a minimum
        inventory of the Active Ingredient for a 12-month period sufficient to
        manufacture Licensed Products as set forth in the Rolling Annual
        Forecast. OBI shall pay all administrative and regulatory fees in
        connection with the Second Source Qualification in an amount not to
        exceed [*****************************].

                (iii)     ANIKA hereby grants to OBI a fully paid up license,
        with the right to grant sub-licenses to its Affiliates, to manufacture
        and have manufactured Licensed Products solely in the Field and
        Territory; PROVIDED, HOWEVER, that the license granted hereunder shall
        be effective only during the period of time commencing upon the
        occurrence of a Failure to Supply and continuing through and until such
        time as ANIKA fully resumes its supply obligations hereunder (such
        period is hereinafter referred to as a "License Period") and OBI shall
        not exercise its rights to make or have made the

                                       25
<Page>

        Licensed Products pursuant to such license other than during such a
        License Period. For the avoidance of doubt, the license granted
        hereunder shall automatically be terminated upon the end of the License
        Period.

                (iv)      In the event that either OBI or ANIKA has actual
        knowledge of any facts or circumstances that are likely to result in a
        material disruption to the manufacture or sale of Licensed Products
        ("Adverse Knowledge"), such Party that has such Actual Knowledge shall
        give prompt notice to the other Party, and such Parties or the Steering
        Committee shall work together in good faith to address such Adverse
        Knowledge.

6.11.   INSURANCE.

     Each Party agrees to procure and maintain in full force and effect during
the term of this Agreement valid and collectible insurance policies in
connection with its activities as contemplated hereby which ANIKA policies shall
be in compliance with Exhibit F attached hereto. Upon the other Party's request,
each Party shall provide the other with a certificate of coverage or other
written evidence reasonably satisfactory to the requesting Party of such
insurance coverage.

6.12.   Packaging.

        OBI shall have the right to determine the appearance and text of any
labeling and packaging consistent with the approved label used in connection
with the Licensed Product in the Territory or any finished product containing or
contained in the Licensed Product in the Territory. OBI shall pay all of the
costs associated with the design of the labeling and packaging for the Licensed
Product. Once the initial labeling and packaging has been decided upon and
confirmed in writing, ANIKA shall not be required to make subsequent changes to
such labeling unless OBI agrees to pay all additional costs associated with the
implementing of changes and to pay ANIKA's out of pocket costs associated with
all packaging inventory rendered obsolete by the change in labeling.
Notwithstanding the foregoing, if any changes are required to be made to the
packaging or labeling as a result of the changes required by ANIKA, ANIKA shall
bear the expenses thereof.

6.13.   CLINICAL TRIAL SUPPLIES

        ANIKA agrees to supply up to 1000 Units of Licensed Product per clinical
trial at no cost only if, and to the extent, both the Steering Committee and
ANIKA have approved such clinical trial. For approved clinical trials requiring
more than 1000 units, ANIKA will provide Licensed Products at a price of [****]
per unit, subject to Section 6.2(b).

                                       26
<Page>

          ARTICLE VII - PUBLICATIONS; TRANSFER OF DATA; CONFIDENTIALITY

7.1.    CONFIDENTIALITY; EXCEPTIONS.

        The Parties acknowledge that discussions between ANIKA and OBI will
necessarily require the exchange of information (including detailed financial
and product information) that is considered confidential and proprietary by the
disclosing Party. The Parties agree that any information relating to the
business of the disclosing Party which such Party discloses to the other Party
pursuant to this Agreement shall be considered "Confidential Information" and
shall include, without limitation, (i) the ANIKA Know-How; (ii) earnings, costs,
and other financial information; (iii) drawings, formulations, samples,
technical data, photographs, specifications, manufacturing methods, testing
procedures; (iv) marketing, sales and customer information relating to the
disclosing Party's business; (v) all clinical studies and data developed by
either party in connection with this Agreement; and (vi) all other Information
related to Licensed Product in the Field. Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing, the Parties agree
that, for the time royalties are due and for five (5) years thereafter, subject
to and except as permitted by Section 7.4 of this Agreement, each Party shall
keep confidential (and shall cause the directors, officers, employees and agents
of such Party or its Affiliates and sublicensors and distributors) to keep
completely confidential and shall not publish or otherwise disclose or use for
any purpose other than as provided for in this Agreement the Confidential
Information, except to the extent the receiving Party's (and their Affiliates)
employees and/or agents (including consultants) need to know such Confidential
Information in order to discharge such Party's obligations and exercise its
rights hereunder. Each Party will protect the other Party's Confidential
Information from unauthorized use, access or disclosure in the same manner that
it protests it own similar Confidential Information. Confidential Information
shall not include information which:

                (i)       was in the lawful knowledge and possession of the
        receiving Party prior to the time it was disclosed to, or learned by,
        the receiving Party, or was otherwise developed independently by the
        receiving Party, as evidenced by written records kept in the ordinary
        course of business, or other documentary proof of actual use by the
        receiving Party;

                (ii)      was generally available to the public or otherwise
        part of the public domain at the time of its disclosure to the receiving
        Party;

                (iii)     became generally available to the public or otherwise
        part of the public domain after its disclosure and other than through
        any act or omission of the receiving Party in breach of this Agreement;

                (iv)      was disclosed to the receiving Party, other than under
        an obligation of confidentiality, by a Third Party who had no obligation
        to the disclosing Party not to disclose such information to others; or

                                       27
<Page>

                (v)       was or is required to be disclosed as a result of a
        judicial order or decree or applicable law or regulation; provided,
        however, that the Party whose Confidential Information is the subject of
        such judicial order or decree is given the opportunity (to the extent
        not violative of applicable law) to contest the judicial order or decree
        prior to any disclosure.

        Each Party will be responsible and liable for all breaches of the
confidentiality provisions of this Agreement by its directors, officers,
employees, agents and Affiliates, and shall indemnify the other for any breaches
thereof.

7.2.    AUTHORIZED DISCLOSURE.

        Except as expressly provided otherwise in this Agreement, each Party may
disclose Confidential Information as follows: To Third Parties (including
without limitation investors and potential investors of ANIKA, Affiliates,
sublicensees, distributors and suppliers of ANIKA and Affiliates of OBI) under
appropriate terms and conditions that include confidentiality provisions
substantially equivalent to those in this Agreement as is reasonably necessary
to exercise the rights granted herein.

7.3.    PUBLICATIONS.

        Notwithstanding any other provision of this Agreement, including, but
not limited to the provisions of Section 7.4, ANIKA may not publish the results
of any of OBI's Development activities relating to Licensed Products in the
Field without the prior written consent of OBI. ANIKA may publish without the
prior written consent of OBI results of its Development activities relating to
Licensed Products for use outside the Territory.

7.4.    PUBLIC ANNOUNCEMENTS.

        Neither Party shall originate any publicity, press release or public
announcements, written or oral, whether to the public or press, relating to this
Agreement, including its existence, the subject matter to which it relates,
performance under it or any of its terms, to any amendment hereto or
performances hereunder without the prior written consent of the other Party (not
to be unreasonably withheld), save only such announcements that are required by
applicable law or any securities exchange or Nasdaq to be made or that are
otherwise agreed by the Parties.

        In the event of such publication, press release or public announcement
(other than those required by applicable law or any securities exchange or
Nasdaq), the Party making the announcement will give the other Party at least
reasonable advance notice, where possible, of the text of the announcement so
that the other Party will have an opportunity to comment upon the announcement.
Notwithstanding anything contained in this Agreement to the contrary, (i) upon
execution of this Agreement, ANIKA may issue a press release in the form of
Exhibit C, and (ii) OBI acknowledges that ANIKA is permitted to file this
Agreement with the Securities and Exchange Commission.

                                       28
<Page>

        Notwithstanding the foregoing, however, where urgent, unusual and rare
circumstances require immediate disclosure in the opinion of the Party's
counsel, the Party will, unless impossible because of legal reasons, provide at
least one (1) Business Day's advance written notice.


       ARTICLE VIII - OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS

8.1.    TITLE.

        Title to all Patents claiming inventions made solely by an employee of a
Party in the course of performing Development ("Development Invention") shall be
owned by such Party. Title to Patents claiming inventions made jointly by
employees of OBI and ANIKA shall be jointly owned by OBI and ANIKA. The laws of
the United States with respect to joint ownership of inventions shall apply in
all jurisdictions; accordingly, except as expressly provided in this Agreement,
neither Party shall have any obligation to account to the other for profits, or
to obtain any approval of the other party to license a jointly-owned patent, by
reason of joint ownership thereof.

8.2.    LICENSE TO OBI DEVELOPMENT INVENTIONS.

        OBI hereby grants ANIKA and its Affiliates a perpetual, royalty-free,
fully paid-up, exclusive, worldwide license to use the OBI Development
Inventions, with the right to sublicense, to use, manufacture, have
manufactured, sell, offer for sale, import, have imported, offer to import,
Licensed Products outside the Territory for a cost equal to half of OBI's fully
allocated direct Development costs associated with any such OBI Development
Invention used by ANIKA.

8.3.    DISCLOSURE OF PATENTABLE INVENTIONS.

        Each Party shall provide to the other any invention disclosure submitted
in the normal course of disclosing an invention arising in the course of the
Development or relating to Licensed Product. Such invention disclosures shall be
provided to the other Party promptly after creation.

8.4.    PATENT FILINGS.

        (a)     Each Party may prepare, file, prosecute and maintain Patents to
cover discoveries and inventions made solely by its own employees or consultants
relating to any Licensed Products being developed or sold hereunder by OBI and
use reasonable efforts to file initially all such applications in the United
States. Inventions relating to the discovery, evaluation, manufacture, use or
sale of Licensed Products that are made jointly by OBI and ANIKA in the course
of this Agreement (hereinafter referred to as "Joint Patents") may be filed,
prosecuted and maintained by ANIKA. The determination of the countries in which
to file Joint Patents shall be made by ANIKA, provided, however, ANIKA agrees to
file in the United States and Mexico. ANIKA shall have the right to direct or
control all material actions relating to the prosecution or maintenance of Joint
Patents.

                                       29
<Page>

        (b)     The Party who is responsible for filing a Patent, will be termed
the "Filing Party". In the case of a solely owned invention the Filing Party
shall bear all Patent Cost associated therewith. With respect to a joint patent
each of the Parties shall bear one half of all Patent Cost associated therewith.
The filing Party shall keep the other Party apprised of the status of each Joint
Patent, and shall seek the advice of the other Party with respect to patent
strategy and drafting applications and shall give reasonable consideration to
any suggestions or recommendations of the other Party concerning the
preparation, filing, prosecution, maintenance and defense thereof. The Parties
shall cooperate reasonably in the prosecution of all Joint Patents and shall
share all material information relating thereto, including all material
communications from patent offices, promptly after receipt of such information.
If, during the term of this Agreement, the filing Party intends to allow any
Joint Patent to lapse or leave abandoned, the filing Party shall, whenever
practicable, notify the non-filing Party of such intention at least sixty (60)
business days prior to the date upon which such Patent shall lapse or become
abandoned, and the non-filing Party shall thereupon have the right, but not the
obligation, to assume responsibility for the prosecution, maintenance and
defense thereof and all expenses related thereto.

8.5.    INFRINGEMENT BY THIRD PARTIES.

                (i)       If any ANIKA, OBI or Joint Patent covering a Licensed
        Product is infringed by a Third Party in any country in connection with
        the manufacture, use and sale of a Licensed Product in such country, the
        Party to this Agreement first having knowledge of such infringement
        shall promptly notify the other in writing. The notice shall set forth
        the known facts of that infringement in reasonable detail.

                (ii)      ANIKA shall have the primary right, but not the
        obligation, to institute, prosecute, and control any action or
        proceeding with respect to such infringement of the Joint Patent, by
        counsel of its own choice, and at its own expense. If ANIKA fails to
        bring an action or proceeding within a period of one hundred eighty
        (180) days after a request by OBI to do so, OBI shall have the right to
        bring and control any such action by counsel of its own choice, and at
        its own expense.

                (iii)     The Party bringing suit under this Paragraph 8.5
        regarding a Joint Patent shall bear all costs and expenses of the suit,
        with any damages or other monetary awards recovered being split with 70%
        to OBI and 30% to ANIKA after costs of the prosecuting Party are
        reimbursed..

                (iv)      A settlement or consent judgment or other voluntary
        final disposition of a suit brought by a Party related to a joint patent
        under this Paragraph 8.5 may be entered into without the consent of the
        other Party; provided that such settlement, consent judgment or other
        disposition does not admit the invalidity or unenforceability of any
        Joint Patent; and provided further that any rights to continue the
        infringing activity in such settlement, consent judgment or other
        disposition shall be limited to the product or activity that was the
        subject of the suit.

                                       30
<Page>

                (v)       Each Party shall have the sole and exclusive right,
        but no obligation, to enforce any Patent that it solely owns against
        infringement or alleged infringement thereof by a Third Party.

8.6.    VALIDITY CHALLENGE CLAIMS.

                (i)       In the event that any person shall assert any claim
        that any of ANIKA, OBI or Joint Patents are invalid or unenforceable, or
        seeks to limit the scope of enforcement thereof (each a "Validity
        Challenge Claim"), whether in defense against an enforcement action
        brought by a party, by a separate action for declaratory judgment, or
        otherwise, the party receiving notice of such claim shall promptly
        notify the other party.

                (ii)      ANIKA shall have the primary right, but not the
        obligation, to institute, prosecute, and control any action or
        proceeding with respect to any Validity Challenge Claim relating to a
        Joint Patent, by counsel of its own choice, and at its own expense. If
        ANIKA fails to bring an action or proceeding within a period of one
        hundred eighty (180) days after a request by OBI to do so, OBI shall
        have the right to bring and control any such action by counsel of its
        own choice, and at its own expense.

                (iii)     The Party bringing suit under this Paragraph 8.6
        regarding a Joint Patent shall bear all costs and expenses of the suit,
        with any damages or other monetary awards recovered being split with 70%
        to OBI and 30% to ANIKA after costs of the prosecuting Party are
        reimbursed. The other party will reasonably cooperate with and use
        commercially reasonable efforts to assist the Party bringing suit under
        this Paragraph 8.6, and the Party bringing such suit shall reimburse the
        other Party for its out-of-pocket expenses incurred as a result of such
        cooperation.

                (iv)      A settlement or consent judgment or other voluntary
        final disposition of a suit brought by a Party relating to a Joint
        Patent under this Paragraph 8.6 may be entered into without the consent
        of the other Party; provided that such settlement, consent judgment or
        other disposition does not admit the invalidity or unenforceability of
        any Joint Patent.

                (v)       Each Party shall have the sole and exclusive right,
        but no obligation, to institute, prosecute and control any action or
        proceeding with respect to any Validity Challenge Claim relating to any
        Patent that it solely owns.

8.7.    PATENT ASSIGNMENT.

        Neither Party may assign, license or otherwise transfer its rights under
any Joint Patent except with the prior written consent of the other Party;
provided, however, that either Party may assign such rights without consent to
permitted assignee under this Agreement in connection with a merger or similar
reorganization or the sale of all or substantially all of its assets.

                                       31
<Page>

8.8.    NOTICES RELATING TO THE ACT.

        ANIKA shall notify OBI of (a) the issuance of each U.S. and Mexican
Patent included among the ANIKA Patents, giving the date of issue and patent
number for each such patent.

8.9.    DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS

        If a Third Party asserts that a patent right owned by it is infringed by
the use or sale of Licensed Product, OBI will be solely responsible for
defending against any such assertions at its cost and expense. OBI shall have
the right to defend and settle against such charge of infringement. ANIKA shall
have the same responsibility and rights in such Third Party actions if the
alleged infringement relates to the manufacture of Licensed Product. If an
action has not been brought but an assertion has been made that a patent right
owned by a Third Party is infringed by the use or sale of Licensed Product, then
the parties shall first exercise their rights and/or perform their obligations
set forth in Section 5.4. If an action for patent infringement is brought
against OBI for the use or sale of Licensed Product by a Third Party, OBI shall
promptly notify ANIKA. ANIKA shall have the right, but not the obligation, to
settle the litigation at its sole cost and expense. In no event, however, shall
any such settlement by ANIKA modify the rights and licenses granted hereunder to
OBI. If OBI is defending such charge of infringement, OBI shall have the right
to apply up to 50% of the royalties due ANIKA on sales of the allegedly
infringing Licensed Product against its litigation expenses during the pendency
of any litigation, but only in the event that the infringement action is not
based on or not related to a Modified Licensed Product. "Modified Licensed
Product" means Licensed Product not in the Currently Filed PMA (except that
Modified Licensed Product shall not include Licensed Products which result
solely from changes initiated by ANIKA). If, as a result of judgment in the
litigation or settlement with the Third Party not in connection with or not
related to a Modified Licensed Product, OBI is required to pay royalties or
other monies to such Third Party, OBI may thereafter deduct from the royalties
due ANIKA on net sales of the Licensed Product charge to infringe, an amount of
which is the lesser of 50% of all sums actually paid by OBI to such Third Party
or 50% of all royalty payments otherwise payable to ANIKA on the net sales of
such Licensed Product. In the case of a litigation involving a Modified Licensed
Product, OBI shall be fully responsible for all costs and expenses of such
litigation or settlement thereof.


                  ARTICLE IX - REPRESENTATIONS AND WARRANTIES.

9.1.    REPRESENTATIONS AND WARRANTIES OF ANIKA.

        ANIKA hereby represents and warrants to OBI as follows:

        (a)     ANIKA is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts and has all
requisite corporate power and lawful authority to own, lease and operate its
assets and to carry on its business as heretofore conducted. ANIKA has the full
legal right, corporate power and authority to execute and deliver this Agreement
and the other agreements contemplated hereby and to consummate the

                                       32
<Page>

transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by ANIKA and constitutes the valid and binding obligation
of ANIKA, enforceable against ANIKA in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally or by general equitable
principles.

        (b)     ANIKA owns all rights, title and interest in the Licensed
Product necessary to grant the rights contained in this Agreement to OBI for
Licensed Product in the Territory. The Licensed Product does not infringe upon
any proprietary right, other than patents of any Person in the Territory;
provided, however, that ANIKA makes no such representation and warranty with
respect to any trademarks or trade dress not licensed to OBI hereunder which may
be used by OBI in the marketing, distribution and sale of the Licensed Product.
ANIKA does not have actual knowledge of any infringement by the Licensed Product
of any issued United States or Mexican patent; however, ANIKA makes no
representations or warranties regarding patents in any foreign jurisdictions
other than Mexico. ANIKA makes no representation or warranty with respect to any
marketing, distribution sale or use of the Licensed Product not in accordance
with any applicable PMA or any other Regulatory Approval. Nothing contained in
this Agreement is in conflict with any other agreement to which ANIKA is a Party
or is otherwise bound. ANIKA has not granted the right to market, sell or
distribute the Licensed Product in the Field in the Territory to any other
Person.

        (c)     ANIKA represents and warrants to OBI that at the time of
delivery to a common carrier at ANIKA's Shipping Point, all Licensed Product
supplied in connection with this Agreement shall be of merchantable quality, fit
for the purpose intended by this Agreement and free from defects in material and
workmanship and shall be manufactured and provided in accordance and conformity
with the Specifications and in compliance with this Agreement. ANIKA represents
and warrants that it shall materially comply with all pertinent present and
future statutes, laws, ordinances and regulations relating to the manufacture
and supply of the Licensed Product in the Territory and in the Field being
provided hereunder, including, without limitation, those enforced by the United
States Food and Drug Administration (including compliance with GMP) and
International Standards Organization Rules 9000 et seq.

        (d)     ANIKA'S WARRANTIES SET FORTH IN THIS AGREEMENT ARE IN LIEU OF
ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, AND, ANIKA
HEREBY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, NON-INFRINGEMENT, TITLE OR FITNESS FOR A PARTICULAR PURPOSE.

        (e)     EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT,
NEITHER PARTY SHALL IN ANY EVENT BE LIABLE TO THE OTHER FOR PUNITIVE,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT,
INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS.

                                       33
<Page>

9.2.    REPRESENTATIONS AND WARRANTEES OF OBI.

        OBI hereby represents and warrants to ANIKA as follows:

        (a)     OBI is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of New Jersey and has all
requisite power and lawful authority to own, lease and operate its assets and to
carry on its business as heretofore conducted. OBI is a wholly-owned indirect
subsidiary of Johnson & Johnson. OBI has the full legal right, power and
authority to execute and deliver this Agreement and the other agreements
contemplated hereby and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by OBI and
constitutes the valid and binding obligation of OBI, enforceable against OBI in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.

        (b)     Nothing contained in this Agreement is in conflict with any
other agreement to which OBI or its Affiliates or sub-distributors is or may
become a party or is otherwise bound.

        (c)     OBI and its Affiliates and sub-distributors shall store,
distribute, market and sell Licensed Product in accordance with directions for
storage and use as indicated in this Agreement and any amendments hereto.

        (d)     OBI and its Affiliates and sub-distributors shall distribute,
market and sell Product in accordance with all applicable international,
national and local laws of each country within the Territory, including without
limitation, applicable drug and medical device laws.


              ARTICLE X - ANIKA'S GENERAL OBLIGATIONS AND COVENANTS

        (a)     During the Term of this Agreement, ANIKA shall, in accordance
with any marketing plan, strategy and direction approved by the Steering
Committee:

                (i)       Provide to OBI reasonable technical, scientific, sales
        and marketing support with respect to the Licensed Product, to the
        extent OBI makes available opportunities to provide such support;

                (ii)      Use commercially reasonable efforts to ensure that
        products manufactured by the ANIKA for the purposes other than the
        treatment of osteoarthritis (other than the Licensed Product) are not
        marketed or used in the Field in the Territory (the "Gray Market
        Product"). If OBI reasonably believes that Gray Market Product is being
        marketed or used in any country in the Territory, and has caused
        financial loss to OBI of at least [****], OBI shall promptly notify
        ANIKA of such belief, and provide ANIKA with a written description of
        the basis for OBI's belief. Within five (5) Business Days of ANIKA's
        receipt of such notice, the matter shall be submitted to the Steering
        Committee for resolution of the following issues: (A) whether or not the
        goods believed by OBI to be Gray Market Product are actually goods
        manufactured by ANIKA; (B) whether or not

                                       34
<Page>

        the goods believed by OBI to be Gray Market Product are actually being
        marketed or used in the Field in the Territory; (C) upon determination
        that the goods are in fact Gray Market Product, whether or not the
        financial loss to OBI is at least [******], and if so, the approximate
        amount; and (D) upon determination that Gray Market Product has caused
        financial loss to OBI of at least [*****], what commercially reasonable
        course of action ANIKA shall be required to take, including without
        limitation taking such action, including legal and/or equitable action
        as required to prevent the Gray Market Product from entering the
        Territory and to prevent it from being marketed or used therein. In the
        event the Steering Committee does not reach a resolution concerning the
        Gray Market Product within thirty (30) days after such issues are
        presented to it, either Party may submit the matter to arbitration as
        provided in Article XVI herein, for resolution of the same issues as
        outlined in clauses (A) through (C) in the immediately preceding
        sentence;

                (iii)     Use commercially reasonable efforts to ensure that
        products manufactured by ANIKA for the purposes of treatment of
        osteoarthritis outside of the Territory (including the Licensed Product)
        are not marketed or used in the United States of America (the "Diverted
        Product"). If OBI reasonably believes that Diverted Product is being
        marketed or used in the United States of America, and has caused
        financial loss to OBI of at least [*****], OBI shall promptly notify
        ANIKA of such belief, and provide ANIKA with a written description of
        the basis for OBI's belief. Within five (5) Business Days of ANIKA's
        receipt of such notice, the matter shall be submitted to the Steering
        Committee for resolution of the following issues: (A) whether or not the
        goods believed by OBI to be Diverted Product are actually goods
        manufactured by ANIKA (B) whether or not the goods believed by OBI to be
        Diverted Product are actually being marketed or used in the Field in the
        United States of America; (C) upon determination that the goods are in
        fact Diverted Product, whether or not the financial loss to OBI is at
        least [******], and if so, the approximate amount; and (D) upon
        determination that Diverted Product has caused financial loss to OBI of
        at least [*****], what commercially reasonable course of action ANIKA
        shall be required to take, including without limitation, taking such
        action, including legal and/or equitable action as required to prevent
        the Diverted Product from entering the United States of America and to
        prevent it from being marketed or used therein (including, without
        limitation, terminating the supply agreement(s), if permitted
        thereunder, with the parties to whom ANIKA had originally sold such
        Diverted Product). In the event the Steering Committee does not reach a
        resolution concerning the Diverted Product within thirty (30) days after
        such issues are presented to it, either Party may submit the matter to
        arbitration as provided in Article XVI herein, for resolution of the
        same issues as outlined in clauses (A) through (C) in the immediately
        preceding sentence;

                (iv)      Except as otherwise explicitly provided for herein,
        maintain ownership of all Licensed Product Regulatory Approvals and be
        responsible for making all regulatory filings for the Licensed Product
        within the Territory;

                (v)       No earlier than thirty (30) days after the execution
        and delivery of this Agreement, upon OBI's request, ANIKA shall deliver
        to OBI copies of all Information in ANIKA's possession related to
        ANIKA's Know-How and ANIKA's Patents available as

                                       35
<Page>

        of such date which ANIKA and OBI reasonably determine is relevant to the
        safety, efficacy, regulatory status, sale, marketing or distribution of
        a Licensed Product in the Territory; provided, however, that all such
        transferred Information shall be subject to the confidentiality
        provisions of Article VII of this Agreement; and

                (vi)      ANIKA agrees that it will not use or grant rights to a
        Third Party to use the Trademark in connection with any product intended
        for use in animals other than humans.


                     ARTICLE XI - OBI's GENERAL OBLIGATIONS

        During the Term of this Agreement, OBI shall:

        (a)     Store and distribute Licensed Product in accordance with
direction for storage and use as indicated in the applicable PMA and Regulatory
Approvals which are in effect at the time of such storage and use;

        (b)     Market and sell Licensed Product in accordance with approved
labeling for Licensed Product at the time of such distribution, marketing or
sales;

        (c)     Use its commercially reasonable efforts to commercialize
Licensed Product in the Territory in a manner consistent with the efforts that
OBI uses in commercializing its own pharmaceutical products;

        (d)     Subject to Article IV, notify ANIKA prior to engaging any
distributor(s) to market, sell or distribute Licensed Product in the Territory
and cause any such distributor(s) to agree in writing to be bound by the terms
of this Agreement as if OBI hereunder. Notwithstanding the foregoing, OBI shall
remain solely and primarily responsible under this Agreement.

        (e)     Be responsible for the entire cost of selling, marketing,
advertising, promoting and distributing Licensed Product in the Territory;

        (f)     Supply ANIKA with any information as required by the FDA or
other governmental agencies for U.S. and international regulatory filings
related to the sale of the Licensed Product in the Territory;

        (g)     Timely advise ANIKA in writing of any suit, claim or complaint
known to OBI resulting from the distribution or use of any Licensed Product;

        (h)     Refrain from soliciting orders from or selling Licensed Products
to any Person located outside the Territory or to any Person inside the
Territory for sales which OBI knows are intended to be distributed to users
outside the Territory;

                                       36
<Page>

        (i)     Neither acquire directly or indirectly through its Affiliates
from any Third Party, any products containing HA as the sole active ingredient
for use in the Field (a "Competing Product"), nor distribute such Competing
Product;

        (j)     Furnish to ANIKA all advertising, marketing and promotional
materials related to the Licensed Product, for review and approval as to their
conformance with regulatory requirements, not to be unreasonably withheld, at
least five (5) days prior to utilizing such materials, including, without
limitation, any content to be displayed on the website pursuant to Section 3.3
of this Agreement; provided, however, that if there is an unresolved dispute as
to whether ANIKA has unreasonably withheld approval of such materials, such
matter shall be submitted to arbitration as provided in Article XVI; provided
further, however, that should ANIKA fail to respond to any request for approval
within the applicable five (5) day period then such approval will be deemed to
have been granted;

        (k)     Invoice Third Parties (and ensure any distributors invoice Third
Parties appropriately, consistently and on a timely basis with respect to sales
of any and all Licensed Products; and

        (l)     OBI, and its Affiliates, sublicensees and distributors will, to
the extent required by applicable law, keep detailed distribution records for
each lot number detailing the quantity shipped and the first location where the
lot was shipped by OBI, and will provide ANIKA with reasonable access to records
for purposes of conducting quality control audits as provided in Section 5.6(d).
ANIKA will generate and promptly transfer to OBI the same detailed distribution
records for any and all units of the Licensed Product drop-shipped directly from
ANIKA to a customer of OBI.


                       ARTICLE XII - TERM AND TERMINATION

12.1.   TERM.

        This Agreement shall commence on the Effective Date and shall remain in
effect for ten (10) years subject to the termination provisions set forth
herein. OBI shall have the right, but not the obligation, to choose to extend
the term of this Agreement for additional periods of (5) five-year intervals
subject to the termination provisions set forth herein, so long as notification
of any five-year extension of the Term is provided by OBI to ANIKA at least
one-year prior to the expiration of the original ten (10) year Term or the
then-current five (5) year Term, as the case may be, and at such time of
notification extensions are permitted for the next five-year period only. Absent
a provision to the contrary, any extension of this Agreement shall be subject to
the terms set forth hereunder.

12.2.   TERMINATION RIGHTS.

        (a)     Notwithstanding any of the foregoing, this Agreement may be
terminated by either Party upon written notice to the other party, upon the
occurrence of any of the following: (i) a material breach of any term or
condition of this Agreement by the other Party which is amenable

                                       37
<Page>

to cure, and the breaching party shall have failed to cure such breach within
ninety (90) days from the receipt by it of written notice thereof from the other
Party; (ii) either Party commits a material breach which is not amenable to
cure; (iii) the other Party (or, in the case of OBI, its general partner or
ultimate parent Affiliate) shall commence any case, proceeding or other action
(A) under any applicable law relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, wind-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets; (iv) there shall be commenced
against the other Party (or, in the case of OBI, its general partner or ultimate
parent Affiliate) any such case, proceeding or other action referred to in
clause (iii) of this Section 12.2 which results in the entry of an order for
relief; (v) the other Party (or, in the case of OBI, its general partner or
ultimate parent Affiliate) shall take any action authorizing, or in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth above in clauses (iii) or (iv) of this Section 12.2; or (vi) the
other Party (or, in the case of OBI, its general partner or ultimate parent
Affiliate) shall admit in writing its inability to pay its debts as they become
due; PROVIDED, HOWEVER, that OBI may not terminate under Section 12.2(iii)-(vi)
if ANIKA has not materially breached Section 6.1 of this Agreement.

12.3.   RESULTS OF TERMINATION.

        In the event of termination of this Agreement by ANIKA, except as
expressly provided in this Article 12, all the rights and obligations, including
without limitation, the licenses granted to OBI in Article II and Article V
hereof, shall immediately terminate. Upon termination by either Party, OBI shall
provide ANIKA at no cost to ANIKA copies of all relevant communications and
correspondence with and from regulatory agencies pertaining to Licensed Products
and copies of all relevant marketing and promotional materials including
customer lists, together with all Information relating to OBI's product
development pursuant to Article II hereof. Except as otherwise provided in this
Section 12.3, upon the termination of this Agreement, each Party shall promptly:
(i) upon request return to the requesting Party all of the requesting Party's
relevant records, materials and Confidential Information relating to the
Licensed Product in the possession or control of the other Party, or its
Affiliates, suppliers or Third Party distributors or sublicensees, and (ii)
discontinue all distribution of the Licensed Product and the use of know-how in
connection therewith. Notwithstanding anything herein to the contrary, upon
termination of this Agreement for any reason, OBI shall have the right for one
(1) year to dispose of all Licensed Product then in OBI's, OBI's Affiliate's, or
Third Party distributor's possession, and the payments pursuant to Sections 5.2
and 5.3 shall be paid to ANIKA with respect to such Licensed Product as though
this Agreement had not terminated. Termination of this Agreement shall not
terminate OBI's obligation to pay ANIKA for Licensed Product which has been
shipped to OBI under this Agreement or under the supply provisions if it is sold
to a Third Party, including, without limitation, any applicable payments under
Article V hereof. Subject to the provisions of this Section 12.3 with respect to
OBI's right to dispose of Licensed Product post-termination of this Agreement,
ANIKA shall have the right upon termination of this Agreement to purchase all of
OBI' s unsold inventory in merchantable condition or having a remaining shelf

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life acceptable to ANIKA, at the price of [****] per Unit.

12.4.   TERMINATION BY OBI.

        OBI shall have the right to terminate this Agreement as follows:

                (i)       at any time after March 31, 2004, upon 30 days prior
        written notice, if the Currently Filed PMA is not approved;

                (ii)      upon thirty (30) days written notice to ANIKA at any
        time during the Term if material data regarding the safety of the
        Licensed Product arise after the Effective Date that indicate a
        materially and adversely different safety profile as compared to the
        profile as of the Effective Date;

                (iii)     during the period from the Effective Date to the
        second anniversary of the Effective Date, OBI may not terminate other
        than pursuant to Section 12.4(i)-(iii);

                (iv)      upon two hundred and seventy (270) days written notice
        to ANIKA if such notice to terminate is given after two (2) years from
        the Effective Date; and

                (v)       upon one hundred and eighty (180) days written notice
        to ANIKA if such notice to terminate is given after three (3) years from
        the Effective Date.

        In the event of a termination under this Section 12.4, ANIKA shall
retain all payments made by OBI under this Agreement and all payments made by
OBI to purchase Licensed Product prior to the termination date, and OBI shall
also make any such payments to which ANIKA is then entitled under this Agreement
but payment of which have not previously been made by OBI. In addition, ANIKA
shall have no right to use OBI owned trademarks even if such were used by OBI in
connection with the Licensed Product.

        Article VII and any relevant definitions in Article I shall survive the
expiration and any termination of this Agreement for any reason.

12.5.   ACCRUED RIGHTS, SURVIVING OBLIGATIONS.

        Termination of the Agreement for any reason shall be without prejudice
to any Party's obligations which shall have accrued prior to such termination,
including, without limitation, the payment obligations under Article V hereof or
to the remedy, in accordance with the terms herein, of either Party hereto in
respect of any previous breach on any covenant contained herein. Such
termination shall not relieve either Party from obligations that are expressly
indicated to survive termination or expiration of the Agreement.

12.6.   TERMINATION NOT SOLE REMEDY.

        Termination is not the sole remedy under this Agreement and, whether or
not termination is effected, all other remedies will remain available except as
agreed to otherwise herein.

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                         ARTICLE XIII - INDEMNIFICATION

13.1.   ANIKA shall indemnify, defend and hold harmless OBI, and any Affiliates
of OBI, together with their respective officers and directors, from and against
any and all losses (except consequential losses, such as, for example, loss of
business profits) including compensatory losses for personal injury, damages,
liabilities, costs and expenses, including without limitation reasonable
attorney's fees, arising out of or in connection with:

        (a)     the breach of any of ANIKA's representations and warranties made
in Section 9.1;

        (b)     the breach by ANIKA of any of its obligations, covenants or
undertakings hereunder;

        (c)     any Licensed Product recall for which ANIKA is required to bear
all costs and expenses pursuant to Section 6.9(d); and

        (d)     any act or omission of ANIKA in connection with the design,
development, manufacture, packaging, testing, warehousing or handling of the
Licensed Product;

        (e)     any infringement or alleged infringement of a Third Party's
patent rights resulting solely from the manufacture of any Licensed Product
other than Modified Licensed Products.

13.2.   OBI shall indemnify, defend and hold harmless ANIKA and any Affiliates
of ANIKA, together with their respective officers and directors, from and
against any and all losses (except consequential losses, such as, for example,
loss of business or of profits) including compensatory losses for personal
injury, damages, liabilities, costs and expenses, including without limitation
reasonable attorney's fees, arising out of or in connection with:

        (a)     the breach of any of OBI's representations and warranties made
hereunder;

        (b)     the breach by OBI of any of its obligations, covenants or
undertakings hereunder;

        (c)     any claim made by OBI, its distributors, sublicensees or
Affiliates, as to the safety or effectiveness of the Licensed Product or the use
to be made of the Licensed Product by any purchaser of Licensed Product,
contained in any advertising or other promotional material created and
disseminated by OBI, its distributors, sublicensees or Affiliates, to the extent
that such claim (A) is not supported by the Licensed Product label and package
insert as approved by the FDA (or, in Mexico, the appropriate governmental body
having authority to approve the Licensed Product, label, and package insert for
marketing in Mexico) and (B) was not approved in advance by ANIKA;

        (d)     any other act or omission of the OBI, its distributors,
sublicensees or Affiliates, in connection with the marketing, promotion, and
sale of Licensed Product, including the storage, handling and distribution by
OBI, its distributors, sublicensees or Affiliates of the Product, other than as
contemplated by this Agreement or the provisions of the PMA;

                                       40
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        (e)     any product recall for which OBI is required to bear all costs
and expenses pursuant to Section 6.9(d); and

        (f)     OBI's, its Affiliates', distributors' or sublicensees' use, sale
or disposition of Licensed Products where such Licensed Products incorporate
changes made by OBI, its Affiliates, distributors, or sublicensees, to the
Specifications or packaging which ANIKA has not approved, or changes made by
OBI, its Affiliates, distributors or sublicensees to any Regulatory Application
with respect to Licensed Product which ANIKA has not approved.

13.3.   The Parties agree that in the event of a loss for which it is determined
under this Article XIII that both Parties bear a measure of responsibility, it
is the intent of both Parties that the liability for the loss (including without
limitation all damages, hard costs and expenses, together with reasonable
attorney's fees) be apportioned among the Parties according to their respective
measures of responsibility, as that responsibility is determined according to
this Section 13.3. The Parties further agree that any portion of the loss not
attributable to either party under this Section 13.3 (and not otherwise
recoverable from a third party or its insurer) shall be borne equally among the
Parties. For example, the Party determined to be 10% responsible under Article
XIII pays 10% of the loss, the Party determined to be 60% responsible pays 60%
of the loss, and each Party pays one-half of the remaining 30%. Within ten (10)
business days after either Party so requests, the Steering Committee shall
convene to develop an equitable apportionment of liability for the loss
according to this Article XIII. If the Steering Committee fails to agree on an
apportionment within twenty (20) days after meeting, either Party may submit the
matter to arbitration under this Article XIV.

13.4.   Notwithstanding anything contained in this Agreement to the contrary,
the Parties expressly agree that ANIKA shall have no liability to OBI under this
Article XIII for claims, losses, or liability of any kind based upon or related
to:

        (a)     OBI's, its Affiliates', distributors', sublicensees' use, sale
or disposition of Licensed Products where such Licensed Products incorporates
changes made by OBI, its Affiliates, distributors or sublicensees to the
Specifications or packaging which ANIKA has not approved, or changes made by
OBI, its Affiliates, distributors or sublicensees, to any Regulatory
Application with respect to Licensed Product which ANIKA has not approved;

        (b)     sale or disposition of Licensed Products by OBI, its Affiliates,
distributors or sublicensees for any use other than the uses specified by the
accompanying package inserts;

        (c)     use, sale of disposition of Licensed Products by OBI, its
Affiliates, distributors or sublicensees in combination with devices or Licensed
Products not purchased hereunder, where such combined sale or disposition is the
sole cause of an infringement claim and whereas such Licensed Products would not
themselves be infringing;

        (d)     sale or disposition of Licensed Products by OBI, its Affiliates,
distributors or sublicensees in or for an application or environment for which
such Licensed Products were not approved by the FDA or other applicable
government or regulatory agency; or

                                       41
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        (e)     modifications of Licensed Products by OBI, its Affiliates,
distributors or sublicensees;

to the extent such uses, sales, dispositions or modifications give rise to the
claim, loss or liability and have not been approved by ANIKA.

13.5.   Notwithstanding anything contained in this Agreement to the contrary,
the Parties expressly agree that OBI shall have no liability to ANIKA under this
Section for claims, losses or liability of any kind based upon or related to:

        (a)     the design, manufacturing, packaging, sterilization, testing,
warehousing and handling of the Product by ANIKA through delivery to the common
carrier for shipment to the Shipping Point;

        (b)     ANIKA's use, sale or disposition of Licensed Products where such
Licensed Products incorporate changes made by ANIKA to the Specifications which
OBI has not approved;

        (c)     sale or disposition of Licensed Products by ANIKA for any use
other than the uses specified by the accompanying package inserts;

        (d)     sale or disposition of Licensed Products by ANIKA in or for an
application or environment for which such Licensed Products were not approved by
the FDA or other applicable government or regulatory agency; or

        (e)     modification of Licensed Products by ANIKA which OBI has not
approved and as to which OBI has the right to approve under this Agreement;

to the extent such activities, uses, sales, dispositions or modifications give
rise to the claim, loss or liability and have not been reviewed or approved by
ANIKA.

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13.6.   If OBI or ANIKA intends to claim indemnification under this Section,
such Party (the "Claiming Party") shall (i) promptly notify the other Party in
writing of any claim or loss for which it intends to claim such indemnification,
(ii) cooperate fully with the other Party and its legal representatives in the
investigation of any claim or loss covered by this Section, and (iii) allow the
other Party to control the defense and/or disposition of such suit or claim;
provided that the Claiming Party shall have the right to participate at its own
expense through counsel of its own choosing. Neither Party shall have any
indemnification obligations hereunder to the extent that such Party's ability to
defend such suit or redress such loss is prejudiced by the Claiming Party's
failure to perform the obligations set forth in the preceding sentence. No claim
shall be settled for which any Indemnifying Party shall be liable without the
advance written consent of both the indemnifying Party and the Claiming Party,
which consent shall not be unreasonably withheld.

              ARTICLE XIV - ADDITIONAL APPLICATIONS AND INDICATIONS

14.1.   OBI FIRST RIGHT OF REFUSAL.

        (a)     ANIKA hereby grants to OBI a right of first refusal, as
described in this Section 14.1, to obtain rights to any new HA-based products
derived from ANIKA's R&D Pipeline, which are solely owned by ANIKA, acquired by
or licensed to ANIKA (provided ANIKA has rights to sublicense to others
thereunder) and developed for human use in the treatment of osteoarthritis,
(collectively referred to as the "ANIKA Potential Products").

        (b)     If at any time during the development of ANIKA Potential
Products, ANIKA determines in its sole discretion to seek a license,
distribution and/or development partner, ANIKA shall promptly notify OBI and
shall supply to OBI all available relevant information and data related thereto
as is reasonably necessary for OBI to make an informed decision of its interest
in obtaining license or distribution rights to the ANIKA Potential Product and
to develop a proposal for the commercial terms for such rights. The date of such
notification is hereinafter referred to as the "ANIKA Disclosure Date." OBI
shall have sixty (60) days from the ANIKA Disclosure Date to review the ANIKA
Potential Product and to determine if it wishes to negotiate distribution or
licensing arrangements with respect to such ANIKA Potential Product. During such
period, OBI may request that ANIKA provide OBI with additional information and
data which OBI reasonably considers relevant to OBI's consideration of the ANIKA
Potential Product, and ANIKA shall provide such additional information at OBI's
expense, but only to the extent such information is in existence and easily
accessed. If OBI does not wish to pursue negotiations for the distribution or
license of such ANIKA Potential Product and OBI so notifies ANIKA, or if such
sixty (60) day period expires without OBI notifying ANIKA as to its interest,
then ANIKA shall be free to enter into an agreement with a Third Party as to
that ANIKA Potential Product, as ANIKA shall determine at its sole discretion,
without any further restriction or obligation to OBI.

        (c)     If prior to the expiration of the sixty (60) day period referred
to in Section 14.1(b) OBI expresses in writing its interest in obtaining the
right to distribute or license the ANIKA

                                       43
<Page>

Potential Product, the Parties shall enter into good faith negotiations
regarding the right to distribute or license such ANIKA Potential Product within
the one hundred eighty (180) day period immediately following the ANIKA
Disclosure Date. If at the end of such one hundred eighty (180) day period the
parties are unable to reach a definitive agreement, and ANIKA does not wish to
continue the negotiations, as ANIKA shall determine at its sole discretion,
ANIKA shall be free to enter into an agreement with any Third Party without any
further restriction or obligation to OBI, except that it may not enter into an
agreement with a Third Party on terms less favorable to ANIKA then those terms
offered to ANIKA by OBI.

14.2.   ANIKA FIRST RIGHT OF REFUSAL.

        (a)     OBI (and its Affiliates) hereby grants to ANIKA a right of first
refusal, as described in this Section 14.2, to manufacture any new HA-based
products solely owned by OBI and/or its Affiliates or licensed to OBI and/or its
Affiliates, provided, so long as, in the case of and such licensed products, OBI
and/or its Affiliates has no obligations to use another manufacturer as part of
its license obligations (collectively referred to as the "OBI Potential
Products").

        (b)     If at any time during the development of OBI Potential Products,
OBI or an Affiliate determines in its sole discretion to seek a supplier or
manufactures for OBI Potential Products, OBI shall promptly notify ANIKA and
shall supply to OBI all available relevant information and data related thereto
as is reasonably necessary for ANIKA to make an informed decision of its
interest in supplying and/or manufacturing the OBI Potential Product and to
develop a proposal for the commercial terms for such supply rights. The date of
such notification is hereinafter referred to as the "OBI Disclosure Date." ANIKA
shall have sixty (60) days from the OBI Disclosure Date to review the OBI
Potential Product and to determine if it wishes to negotiate supply and/or
manufacturing arrangements with respect to such OBI Potential Product. During
such period, ANIKA may request that OBI provide ANIKA with additional
information and data which ANIKA reasonably considers relevant to ANIKA's
consideration of the OBI Potential Product, and OBI and its Affiliates shall
provide such additional information at ANIKA's expense, but only to the extent
such information is in existence and easily accessed. If ANIKA does not wish to
pursue negotiations for supply of such OBI Potential Product and ANIKA so
notifies OBI, or if such sixty (60) day period expires without ANIKA notifying
OBI as to its interest, then OBI or an Affiliate shall be free to enter into an
agreement with a Third Party as to that OBI Potential Product, as OBI shall
determine at its sole discretion, without any further restriction or obligation
to ANIKA.

        (c)     If prior to the expiration of the sixty (60) day period referred
to in Section 14.2(b) ANIKA expresses in writing its interest in obtaining the
right to supply the OBI Potential Product, the Parties shall enter into good
faith negotiations regarding the supply and/or manufacturing of such OBI
Potential Product within the one hundred eighty (180) day period immediately
following the OBI Disclosure Date. If at the end of such one hundred eighty
(180) day period, the Parties are unable to reach a definitive agreement, and
OBI does not wish to continue the negotiations, as OBI shall determine at its
sole discretion, OBI or an Affiliate shall be free to enter into an agreement
with any Third Party without any further restriction or

                                       44
<Page>

obligation to ANIKA, except that it may not enter into an agreement with a Third
Party on terms less favorable to OBI and its Affiliates than those terms offered
to OBI and its Affiliates by ANIKA.


                         ARTICLE XV - STEERING COMMITTEE

        (a)     OBI and ANIKA shall establish a Steering Committee (the
"Steering Committee") consisting of four (4) members. Each of OBI and ANIKA
shall appoint two (2) individuals to serve on the Steering Committee.

        (b)     Within thirty (30) days after the execution and delivery of this
Agreement by both Parties, ANIKA and OBI shall each appoint its initial
representatives to serve on the Steering Committee. Each Party may change its
representatives upon notice to the other Party.

        (c)     The Steering Committee shall be chaired by one representative of
either ANIKA or OBI for each successive twelve (12) month period during the Term
of this Agreement, and the chair shall alternate between the Parties. During the
first twelve (12) month period, the Steering Committee shall be chaired by a
representative of OBI.

        (d)     The Steering Committee shall meet at least two (2) times each
year during the Term of this Agreement, at such dates and times as agreed to by
the Parties, with the intention that the meetings should occur at least once
during each Calendar Quarter. Meetings in person shall alternate between the
offices of the Parties or such other place as may be mutually agreed upon by the
Parties. The Steering Committee may also convene or be polled or consulted from
time to time by means of telecommunications or correspondence, and members will
be deemed "present" at "meetings" for purposes of this Article 15 if
participating by such means. All decisions made or actions taken by the Steering
Committee shall require the affirmative vote of a majority of its entire
membership. A quorum for a meeting shall require at least one ANIKA member and
at least one OBI member.

        (e)     The duties and responsibilities of the Steering Committee shall
include: (i) reviewing and commenting on any Development being conducted by OBI;
(ii) reviewing and commenting on development relating to Orthovisc(R) being
conducted by ANIKA outside the Territory; (iii) review and comment on marketing
and sales activities being carried out by OBI in the Territory including
trademark and website issues, including review of an annual marketing plan; (iv)
review and comment on marketing and sales activities being conducted by ANIKA
outside the Territory; (v) discussing issues concerning whether to file for
Regulatory Approval and/or launch the Licensed Product in Mexico; and (vi)
review and discuss any manufacture and supply issues that may arise. In
connection with any meeting of the Steering Committee, the Parties will endeavor
to provide to the other Party all materials in connection with this Article
XV(e) at least five (5) Business Days in advance of such meeting.

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                        ARTICLE XVI - DISPUTE RESOLUTION.

16.1.   DISPUTE RESOLUTION AND ARBITRATION.

        In the case of any Disputes (as defined below) between the Parties
arising from this Agreement, and in case this Agreement does not provide a
solution for how to resolve such disputes, the Parties shall endeavor to discuss
and negotiate in good faith towards a solution acceptable to both Parties and in
the spirit of this Agreement. If the Parties fail to reach agreement within
sixty (60) days, then the President of ANIKA and the President of OBI shall
discuss in good faith an appropriate resolution to the dispute. If these
executives fail to reach an amicable agreement within sixty (60) days, then
either Party may upon written notice to the other submit the dispute to binding
arbitration pursuant to Section 16.2.

16.2.   ARBITRATION.

        Any claim, dispute or controversy arising out of or in connection with
or relating to this Agreement, (including, without limitation, disputes with
respect to the rights and obligations of the Parties following termination) (a
"Dispute") not settled by the procedures set forth in Section 16.1 above shall
be adjudicated by arbitration in accordance with the Arbitration Proceedings as
set forth in Exhibit B attached hereto.


                            ARTICLE XVII - HSR FILING

17.1.   To the extent, that a Party concludes in good faith that it is required
to file or register this Agreement or a notification thereof in accordance with
applicable Laws with any Governmental Authority with regulatory jurisdiction
over enforcement of any applicable Competition Laws ("Governmental Antitrust
Authority"), including without limitation the U.S. Federal Trade Commission
Bureau of Competition ("FTC") and the U.S. Department of Justice Antitrust
Division ("DOJ"), such Party may do so. Without limiting the foregoing, the
Parties agree to make all necessary HSR Filings, if any, within seven (7)
business days after the Effective Date. Each Party shall be responsible for its
own costs, expenses, and filing fees associated with any filing with any
Governmental Antitrust Authority, including any HSR Filing.

17.2.   Subject to appropriate confidentiality protections, the Parties shall
work cooperatively in connection with obtaining the requisite approvals,
consents or orders of each applicable Governmental Antitrust Authority necessary
for the consummation of the transactions contemplated by this Agreement, and
shall keep each other apprised of the status of matters relating to the
obtainment of such approvals, consents or orders, including:

                (i)       cooperating with each other in connection with HSR
        Filings and filings under any foreign investments laws or any other
        Competition Laws;

                (ii)      furnishing to the other Party all information within
        its possession that is required for any HSR Filing or any application or
        other filing to be made by the other party pursuant to any foreign
        investment laws or any other Competition Laws in connection with the
        transactions contemplated by this Agreement;

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                (iii)     promptly notifying each other of any communications
        from or with any Governmental Antitrust Authority with respect to the
        transactions contemplated by this Agreement;

                (iv)      promptly providing to the other Party copies of all
        communications with any Governmental Antitrust Authority relating to the
        transactions contemplated by this Agreement, or relating to any of the
        matters described in this Article XVII;

                (v)       not participating in any meeting or discussion with
        any Governmental Antitrust Authority in connection with proceedings
        under or relating to the HSR Act, any foreign investment laws or any
        other antitrust laws unless it consults with the other Party in advance,
        and, to the extent permitted by such Governmental Antitrust Authority,
        gives the other Party the opportunity to attend and participate thereat;
        and

                (vi)      consulting and cooperating with one another in
        connection with all analyses, appearances, presentations, memoranda,
        briefs, arguments, opinions and proposals made or submitted by or on
        behalf of any Party hereto in connection with proceedings under or
        relating to the HSR Act, any foreign investment laws or any other
        competition laws.

17.3.   The Parties agree to request early termination of the applicable waiting
period under the HSR Act in any HSR Filing. Each Party shall use its
commercially reasonable best efforts to secure termination of any waiting
periods under the HSR Act or other applicable law, to certify as soon as
practicable its substantial compliance with any requests for additional
information or documentary material that may be made under the HSR Act, and/or
to obtain the approval of any Governmental Antitrust Authority of the
transactions contemplated by this Agreement, including without limitation
promptly providing information and documents requested by any Governmental
Antitrust Authority and entering into good faith negotiations with any
Governmental Antitrust Authority to enter into a consent decree or other
arrangement to secure termination of such waiting periods or to obtain such
approval (provided, however, that nothing in this Article XVII shall prevent, or
be construed to prevent, either Party from agreeing to extend the waiting period
under the HSR Act in connection with good faith settlement negotiations with the
DOJ or FTC).

17.4.   As used in this Article, the following terms have the following
meanings:

        (a)     "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rule and regulations promulgated thereunder.

        (b)     "HSR Filing" means filings by ANIKA and OBI with the FTC and the
DOJ of a Notification and Report Form for Certain Mergers and Acquisitions (as
that term is defined in the HSR Act) with respect to the matters set forth in
this Agreement, together with all required documentary attachments thereto.

        (c)     "HSR Clearance Date" means the earlier of

                                       47
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                (i)       the date on which the FTC shall notify OBI and ANIKA
        of early termination of the applicable waiting period under the HSR Act,
        or

                (ii)      the day after the date on which the applicable waiting
        period under the HSR Act expires; or

                (iii)     the day after the date on which the seven (7) Business
        Day period referred to in Section 17.1 expires if no HSR Filings have
        been filed by that date.

17.5.   The licenses granted pursuant to Articles III, IV and VIII shall not be
effective until the HSR Clearance Date. In the event that an HSR Filing is
required and either:

        (a)     the FTC and/or the DOJ shall seek a preliminary injunction under
the HSR Act against ANIKA and OBI to enjoin the transactions contemplated by
this Agreement; or

        (b)     the HSR Clearance Date shall not have occurred on or prior to
June 1, 2004;

this Agreement may be terminated by either Party upon one (1) week written
notice (such termination to be deemed a termination pursuant to Section 12.2).


                          ARTICLE XVIII - MISCELLANEOUS

18.1.   RELATIONSHIP OF PARTIES.

        For the purposes of this Agreement, each Party is an independent
contractor and not an agent or employee of the other Party. Neither Party shall
have authority to make any statements, representations, or commitments of any
kind, or to take any action which shall be binding on the other Party, except as
may be explicitly provided for herein or authorized in writing.

18.2.   COUNTERPARTS.

        This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which together shall be deemed to
be one and the same instrument.

18.3.   HEADINGS.

        All headings in this Agreement are for convenience only and shall not
affect the meaning of any provision hereof.

18.4.   BINDING EFFECT.

        This Agreement shall inure to the benefit of and be binding upon the
Parties and their respective lawful successors and assigns.

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18.5.   ASSIGNMENT.

        Neither Party may assign or transfer this Agreement or its rights and
obligations under this Agreement without the prior written consent of the other
Party, except to its Affiliates, which consent may be given or withheld in its
sole discretion, and any such assignment or transfer shall be null and void and
entitle the non-assigning party to terminate this Agreement forthwith.
Notwithstanding the foregoing, either Party must assign this Agreement (and
shall be permitted to do so without the consent of the other Party) in
connection with the sale of all or substantially all of its assets (whether by
merger, consolidation or otherwise); provided, however, that in no event shall
any such assignment release either Party from its responsibilities under this
agreement unless the assignee has agreed in writing to assume all of the
obligations of assignor hereunder.

18.6.   AMENDMENT AND WAIVER.

        This Agreement may be amended, supplemented, or otherwise modified at
any time, but only by means of a written instrument signed by both Parties. Any
waiver of any rights or failure to act in a specific instance shall relate only
to such instance and shall not be construed as an agreement to waive any rights
or fail to act in any other instance, whether or not similar.

18.7.   GOVERNING LAW.

        This Agreement and the legal relations among the parties shall be
governed by and construed in accordance with the laws of the State of New York,
USA, irrespective of any choice of laws or conflict-of-law principles.

18.8.   SEVERABILITY.

        In the event that any provision of this Agreement shall, for any reason,
be held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein.

18.9.   ENTIRE AGREEMENT.

        This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any and all prior or
contemporaneous oral and prior written agreements and understandings.

18.10.  ADVICE OF COUNSEL.

        OBI and ANIKA have each consulted counsel of their choice regarding this
Agreement, and each acknowledges and agrees that this Agreement shall not be
deemed to have been drafted by one party or another and will be construed
accordingly.

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18.11.  FORCE MAJEURE.

        Neither Party shall lose any rights hereunder or be liable to the other
Party for damages or losses on account of failure or delay of performance by the
defaulting Party if the failure or delay is occasioned by (i) any fire,
explosion, unusually severe weather, natural disaster or Act of God (except for
any fire or explosion that could reasonably have been prevented by ANIKA); (ii)
epidemic; any nuclear, biological, chemical, or similar attack; any other public
health or safety emergency; any act of terrorism; and any action reasonably
taken in response to any of the foregoing; (iii) any act of declared or
undeclared war or of a public enemy, or any riot or insurrection; (iv) any
disruption in transportation, communications, electric power or other utilities,
or other vital infrastructure; or any means of disrupting or damaging internet
or other computer networks or facilities; (v) any strike, lockout or other labor
dispute or action; (vi) any action taken in response to any of the foregoing
events by any civil or military authority; or (vii) any other event beyond such
Party's control, provided that the Party claiming force majeure has exerted all
reasonable efforts to avoid or remedy such force majeure; provided, however,
that in no event shall a Party be required to settle any labor dispute or
disturbance. Notwithstanding the foregoing, this Section 18.11 shall not operate
to relieve either Party from performance of any obligation for more than ninety
(90) days.

18.12.  FURTHER ACTIONS.

        Each Party agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts, as may be necessary or appropriate
in order to carry out the purposes and intent of this Agreement.

18.13.  NO TRADEMARK RIGHTS.

        Except as otherwise explicitly provided herein, no right, express or
implied, is granted by the Agreement to use in any manner the name "ANIKA" or
"OBI", or any other trade name or trademark of the other Party or its Affiliates
in connection with the performance of the Agreement.

18.14.  NOTICES.

        All notices hereunder shall be in writing and shall be deemed given if
delivered personally or by facsimile transmission (receipt verified), email
(receipt acknowledged), mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the Parties
at the following address (or at such other address for a Party as shall be
specified by like notice; provided, that notices of a change of address shall be
effective only upon receipt thereof).

                                       50
<Page>

If to ANIKA,

                addressed to:

                ANIKA THERAPEUTICS INC.
                160 New Boston Street
                Woburn, MA 01801
                Attention:  Chief Executive Officer
                Facsimile:  (781) 932-3360
                Email: csherwood@anikatherapeutics.com

        With a copy to:

                Goodwin Procter LLP
                Exchange Place
                Boston, MA 02109
                Attention:  H. David Henken, P.C.
                Facsimile:  (617) 523-1231
                Email: dhenken@goodwinprocter.com

If to OBI:

                addressed to:

                Ortho Biotech Products, L.P.
                430 Route 22 East
                P.O. Box 6914
                Bridgewater, NJ 08807-0914
                Attention: President
                Facsimile: 908-529-4365
                Email: jhjohns@obius.jnj.com

                With a copy to:

                Office of General Counsel
                Johnson & Johnson
                One Johnson & Johnson Plaza
                New Brunswick, NJ 08933
                Facsimile:   732-524-2788
                Email: pjohnson@corus.jnj.com

        Each of the Parties consent to the personal jurisdiction of the U.S.
Federal Courts and agree to accept any legal process served upon such Party at
the addresses specified above for such Party.

                                       51
<Page>

18.15.  WAIVER.

        Except as specifically provided for herein, the waiver from time to time
by either of the Parties of any of their rights or their failure to exercise any
remedy shall not operate or be construed as a continuing waiver of same or of
any other of such Party's rights or remedies provided in this Agreement.

18.16.  BANKRUPTCY.

        All rights and licenses granted under or pursuant to this Agreement by
each Party are, and shall otherwise be deemed to be, for purposes of Section
365(n) of Title 11, U.S. code (the "Bankruptcy Code"), licenses of rights to
"intellectual property" as defined under Section 101(60) of the Bankruptcy Code.
The parties agree that OBI shall retain and may fully exercise all of its rights
and elections under the Bankruptcy Code. The licensor agrees, during the term of
this Agreement, to create and maintain current copies or, if not amenable to
copying, detailed descriptions or other appropriate embodiments, of all such
intellectual property. The Parties further agrees that in the event of the
commencement of a bankruptcy proceeding by or against it under the Bankruptcy
Code, the licensee shall be entitled to a complete duplicate of (or complete
access to, as appropriate) any such intellectual property, and all embodiments
of such intellectual property, and same, if not already in its possession, shall
promptly be delivered to licensee (a) upon such commencement of a bankruptcy
proceeding upon written request therefore by licensee, unless licensor elects to
continue to perform all of its obligations under this Agreement, or (b) if not
delivered under (a) above, upon the rejection of this Agreement by or on behalf
of licensor upon written request therefore by licensee.

18.17.  COMPLIANCE WITH ENVIRONMENT, SAFETY AND INDUSTRIAL HYGIENE.

        With respect to all environmental, safety and industrial hygiene matters
related to ANIKA's activities under this Agreement, ANIKA shall (i) comply with
all applicable laws and regulations issued by national, state and local
authorities, (ii) allow OBI to inspect ANIKA's facilities, such inspections to
be at reasonable times and upon reasonable notice, and (iii) implement
corrective action which may be reasonably requested by OBI to correct an
violations of laws or regulations regarding environmental, safety and industrial
hygiene

18.18.  CHILD LABOR EMPLOYMENT PRACTICES.

        ANIKA agrees to comply with the following PPC Corporate Policy relating
to the Employment of Child Labor:

        (a)     No person under the age of 16 shall be employed, and no other
young person (under age of 18) shall be employed unless such employment is in
compliance with the International Labor Organizations Convention 138 Concerning
Minimum Age;

        (b)     No young person (under age 18) shall be required to work more
than 48 regular hours and 12 hours overtime per week nor more than six (6) days
per week; and

                                       52
<Page>

        (c)     No young person (under age 18) shall be employed unless such
employment is in compliance with all applicable laws and regulations concerning,
age, hours, compensation, health and safety.

                                       53
<Page>

IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.


ORTHO BIOTECH PRODUCTS, L.P.

BY:   Ortho Biotech Inc., its general partner


     BY: /s/ John Johnson
         --------------------------------------------
           John Johnson, President

DATE: December 20, 2003
      -----------------------------------------------


ANIKA THERAPEUTICS, INC.


By: /s/ Charles h. Sherwood
    -------------------------------------------------
        Charles H. Sherwood, Ph.D., President and CEO

DATE: December 20, 2003
      -----------------------------------------------

<Page>

                                    EXHIBIT A
                             PRODUCT SPECIFICATIONS

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                                       A-1
<Page>

                                    EXHIBIT B

                                   ARBITRATION

        Any controversy or claim arising out of or relating to this Agreement
shall be resolved by arbitration before a single arbitrator in accordance with
the Commercial Arbitration Rules of the American Arbitration Association ("AAA")
then pertaining (available at www.adr.org), except where those rules conflict
with this provision, in which case this provision controls. Any court with
jurisdiction shall enforce this clause and enter judgment on any award. The
arbitrator shall be selected within twenty business days from commencement of
the arbitration from the AAA's National Roster of Arbitrators pursuant to
agreement or through selection procedures administered by the AAA. Within 45
days of initiation of arbitration, the parties shall reach agreement upon and
thereafter follow procedures, including limits on discovery, assuring that the
arbitration will be concluded and the award rendered within no more than six
months from selection of the arbitrator or, failing agreement, procedures
meeting such time limits will be designed by the AAA and adhered to by the
parties. In connection with the arbitration proceeding, the arbitrator shall
order the prompt exchange of relevant documents by each party; each party may
take up to two depositions as of right, and the arbitrator may in his or her
discretion allow additional depositions upon good cause shown by the moving
party; however, the arbitrator shall not have the power to order the answering
of interrogatories or the response to requests for admission. In connection with
any arbitration, each party shall provide to the other, no later than fourteen
(14) days before the date of the arbitration, the identity of all persons that
may testify at the arbitration and a copy of all documents that may be
introduced at the arbitration or considered or used by a party's witness or
expert. The arbitration shall be held in Boston, MA and the arbitrator shall
apply the substantive law of New York, except that the interpretation and
enforcement of this arbitration provision shall be governed by the Federal
Arbitration Act. From the date of initiation of arbitration and until such time
as any matter has been finally settled by arbitration, the running of the time
periods contained in Article VII as to which Party must cure a breach of this
Agreement shall be suspended as to the subject matter of the dispute. Prior to
commencement of arbitration, emergency relief is available from any court to
avoid irreparable harm. THE ARBITRATOR SHALL NOT AWARD EITHER PARTY PUNITIVE,
EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, OR ATTORNEYS FEES OR COSTS.

        Prior to commencement of arbitration, the parties must attempt to
mediate their dispute using a professional mediator from AAA, the CPR Institute
for Dispute Resolution, or like organization selected by agreement or, absent
agreement, through selection procedures administered by the AAA. Within a period
of 45 days after the request for mediation, the parties agree to convene with
the mediator, with business representatives present, for at least one session to
attempt to resolve the matter. In no event will mediation delay commencement of
the arbitration for more than 45 days absent agreement of the parties or
interfere with the availability of emergency relief.

                                       B-1
<Page>

                                    EXHIBIT C

                              FORM OF PRESS RELEASE

DRAFT 12/18/03


FOR IMMEDIATE RELEASE

Contacts:

ANIKA THERAPEUTICS, INC.            PONDEL/WILKINSON KLEIN

Charles Sherwood, Ph.D., CEO        Susan Klein (508) 358-4315
William Knight, CFO                 Rob Whetstone (323) 866-6050
(781) 932-6616

ANIKA THERAPEUTICS ANNOUNCES U.S. ORTHOVISC(R)LICENSE AND SUPPLY AGREEMENT WITH
ORTHO BIOTECH PRODUCTS, L.P.

        WOBURN, MA - December 22, 2003 - Anika Therapeutics, Inc. (NASDAQ:ANIK)
today announced the signing of an exclusive, multi-year U.S. licensing and
supply agreement with Ortho Biotech Products, L.P. for Anika's ORTHOVISC(R), a
highly purified, high molecular weight form of hyaluronic acid for treating pain
in patients suffering from osteoarthritis of the knee.

        Under the agreement, Anika will receive an initial payment of $2 million
and payments upon receipt of final marketing approval for ORTHOVISC from the
U.S. Food and Drug Administration (FDA), and other milestones. Earlier this
month, Anika announced that it had received a letter from the FDA stating that
an approval order will be issued for ORTHOVISC subject to a successful
inspection of Anika's manufacturing facility. In addition, Ortho Biotech will
fund post-marketing clinical trials for ORTHOVISC and development of future
products based on Anika's proprietary viscosupplementation technology. The
agreement covers the U.S. and Mexico. The effectiveness of certain of the
license provisions under the agreement may be subject to customary regulatory
approvals, including clearance under the Hart-Scott-Rodino Antitrust
Improvements Act.

        Anika Chief Executive Officer Charles H. Sherwood, Ph.D., said Anika
selected Ortho Biotech as its U.S. marketing partner for ORTHOVISC due to its
outstanding reputation for high quality products and customer service. "Ortho
Biotech is known for its strategy aimed at becoming a leader in the markets it
chooses to address. We

                                       C-1
<Page>

believe the company is an excellent partner for driving ORTHOVISC sales and
penetrating the U.S. market for viscosupplementation."

Designed to relieve pain and stiffness and improve joint mobility, ORTHOVISC has
been marketed outside of the United States since 1996. It is currently sold in
Canada and various European and Middle Eastern nations. The U.S. market for
viscosupplementation products is growing, with more than 10 million Americans
suffering from osteoarthritis of the knee.

ABOUT ORTHO BIOTECH PRODUCTS, L.P. (www.orthobiotech.com)

        In 1990, Ortho Biotech Products, L.P. was established in Raritan, N.J.,
as the first biotechnology subsidiary of Johnson & Johnson. Since that time,
Ortho Biotech and its worldwide affiliates have earned a global reputation for
researching, manufacturing and marketing innovative health care products that
extend and enhance the quality of patients' lives. Ortho Biotech, the
established market leader in Epoetin alfa therapy for anemia management across
multiple indications, focuses its research and marketing efforts in four
clinical areas: oncology, nephrology, immunology and critical care/surgery.

ABOUT ANIKA THERAPEUTICS, INC. (www.anikatherapeutics.com)

        Headquartered in Woburn, Mass., Anika Therapeutics, Inc. develops,
manufactures and commercializes therapeutic products and devices intended to
promote the repair, protection and healing of bone, cartilage and soft tissue.
These products are based on hyaluronic acid (HA), a naturally occurring,
biocompatible polymer found throughout the body. In addition to ORTHOVISC(R), a
treatment for osteoarthritis of the knee (not approved for sale in the U.S.),
Anika markets HYVISC(R) in the U.S. for the treatment of equine osteoarthritis
through Boehringer Ingelheim Vetmedica, Inc. and manufactures AMVISC(R) and
AMVISC(R) Plus, HA viscoelastic products for ophthalmic surgery, for Bausch &
Lomb. It also produces CoEaseTM, which is marketed by Advanced Medical Optics,
Inc., STAARVISCTM-II distributed by STAAR Surgical Company and ShellgelTM for
Cytosol Ophthalmics, Inc.

THE STATEMENTS MADE IN THIS PRESS RELEASE WHICH ARE NOT STATEMENTS OF HISTORICAL
FACT ARE 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, WITHOUT LIMITATION, STATEMENTS THAT MAY BE IDENTIFIED BY WORDS SUCH
AS "EXPECTATIONS," "REMAINS," "FOCUS," "EXPECTED," "PROSPECTIVE," "EXPANDING,"
"BUILDING," "CONTINUE," "PROGRESS," "EFFORTS," "HOPE," "BELIEVE," "OBJECTIVES,"
OPPORTUNITIES," "WILL," "SEEK," AND OTHER EXPRESSIONS WHICH ARE PREDICTIONS OF
OR INDICATE FUTURE EVENTS AND TRENDS AND WHICH DO NOT CONSTITUTE HISTORICAL
MATTERS IDENTIFY FORWARD-LOOKING STATEMENTS. THE STATEMENTS ARE BASED UPON THE
CURRENT BELIEFS AND EXPECTATIONS OF MANAGEMENT AND ARE SUBJECT TO SIGNIFICANT
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM ANY ANTICIPATED FUTURE RESULTS,

                                       C-2
<Page>

PERFORMANCE OR ACHIEVEMENTS DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF A NUMBER OF FACTORS, INCLUDING: THE RESULTS OF ITS RESEARCH AND
DEVELOPMENT EFFORTS AND TIMING OF REGULATORY APPROVALS; APPROVAL AND
COMMERCIALIZATION OF THE COMPANY'S PRODUCTS, AND, WITH RESPECT TO ORTHOVISC,
RISKS RELATING TO THE ABILITY OF THE COMPANY TO SUCCESSFULLY ADDRESS THE
REQUESTS OF THE FDA IN THE APPROVABLE LETTER AND THE TIMING OF THE COMPANY'S
EFFORTS TO DO SO, AS WELL AS THE TIMING OF ANY APPROVED ORDER; AND THAT THE
COMPANY'S NEW LICENSING AND SUPPLY ARRANGEMENTS WILL NOT RESULT IN MEANINGFUL
SALES OR WILL BE TERMINATED AT AN EARLIER DATE IN ACCORDANCE WITH ITS TERMS OR
THAT ANY OF THE MILESTONES CONTAINED IN THE COMPANY'S NEW LICENSING AND SUPPLY
AGREEMENTS WILL BE ACHIEVED. THERE CAN BE NO ASSURANCES THAT THE COMPANY'S
INCREASED UNIT SALES WILL MATERIALLY INCREASE PRODUCT REVENUE OR IMPROVE GROSS
MARGINS. CERTAIN OTHER FACTORS THAT MIGHT CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS INCLUDE THOSE SET
FORTH UNDER THE HEADINGS "BUSINESS," "RISK FACTORS AND CERTAIN FACTORS AFFECTING
FUTURE OPERATING RESULTS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" IN EACH OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, ITS QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2003 AND CURRENT REPORTS ON FORM 8-K,
AS WELL AS THOSE DESCRIBED IN THE COMPANY'S OTHER PRESS RELEASES AND SEC
FILINGS.

                                      # # #

                                       C-3
<Page>

                                    EXHIBIT D

                         ANIKA'S INSURANCE REQUIREMENTS

1.0     DEFINITIONS

        "ANIKA"

2.0     INSURANCE REQUIREMENTS

        ANIKA shall procure and maintain, at all times, and at its own expense,
        until final completion of the work covered by the contract, and during
        the time period following the final completion if ANIKA is required to
        return and perform additional work, for any reason whatsoever, the types
        of insurance(s) specified below.

        A.      COMMERCIAL GENERAL LIABILITY

                ANIKA shall provide coverage on a Commercial General Liability
                Occurrence Coverage Form (or equivalent) with limits of not less
                than $1,000,000 each occurrence, $1,000,000 products/completed
                operations aggregate, $1,000,000 personal injury/advertising
                injury aggregate and $2,000,000 general aggregate. ANIKA will
                endeavor to inform OBI of any exclusions or amendments to the
                policy form which would result in direct impact to OBI. ANIKA's
                policy shall be specifically endorsed with Chubb Form to include
                OBI, its subsidiaries, and its directors, officers and
                employees, as an Additional Insured, as respects negligence
                caused by ANIKA as a result of this Agreement. ANIKA shall
                supply OBI with the above proof of insurance and forms as
                required upon the signing of this Agreement, but OBI's failure
                to demand such proof or forms shall not waive OBI's rights to
                such coverage as specified herein.

        B.      AUTOMOBILE LIABILITY

                ANIKA shall provide coverage on a Business Auto Policy Form (or
                equivalent) for hired and non-owned automobiles with a limit of
                liability in an amount no less than $1,000,000 each accident.

        C.      WORKERS' COMPENSATION

                ANIKA shall provide Workers' Compensation Form (or equivalent)
                in accordance with the laws of the State of MA, and any other
                applicable jurisdiction, covering all employees who are to
                provide service under this Agreement. Employers' Liability
                coverage is required with limits of not less than the following:

<Table>
                <S>                                                       <C>
                Bodily Injury by Accident.................................$500,000 Each Accident
                Bodily Injury by Disease..................................$500,000 Each Employee
                Bodily Injury by Disease..................................$500,000 Policy Limit
</Table>

                                       D-1
<Page>

        D.      EXCESS LIABILITY

                ANIKA shall provide Umbrella Liability coverage with a limit of
                liability no less than $5,000,000 each occurrence, $5,000,000
                aggregate.

        E.      MISCELLANEOUS

                All insurance companies must be authorized to do business in the
                States where business is being transacted covering all
                operations under this Agreement. All insurance companies must be
                rated A or better with a financial rating of VII or better in
                the most recent A. M. BEST'S RATING GUIDE.

                All insurers will endeavor to provide for thirty (30) days'
                prior written notice to OBI of cancellation.

                Certificates of insurance for all required coverages shall be
                provided to OBI prior to commencement of any work on the
                project.

                                       D-2
<Page>

                                    EXHIBIT E

                                QUALITY AGREEMENT


                                QUALITY AGREEMENT

                                     BETWEEN

                 PHARMACEUTICAL SOURCING GROUP AMERICAS (PSGA),
                          A JOHNSON & JOHNSON COMPANY,

                                       AND

                               ANIKA THERAPEUTICS

                     EFFECTIVE DATE:  MM/YY / REPLACES: NEW

                                       E-1
<Page>

                                QUALITY AGREEMENT

21 CFR Sec. 820.50 (Purchasing controls) of the Quality System Regulation states
"Each manufacturer shall establish and maintain procedures to ensure that all
purchased or otherwise received product and services conform to specified
requirements."

Toward this end, the PURPOSE of this Agreement is to ensure a mutual
understanding of key responsibilities to assure that those Pharmaceutical
Sourcing Group Americas (PSGA) products manufactured by Anika Therapeutics,
Inc., are produced according to specifications and comply with all governing
regulations and corporate policies. IT IS ACKNOWLEDGED THAT THIS WILL BE A
CONTINUOUSLY EVOLVING PROCESS.

                                       E-2
<Page>

                                TABLE OF CONTENTS

<Table>
<Caption>
SECTION TITLE                                                        PAGE
- -------------                                                        ----
<S>                                                                  <C>
1.   MAIN CONTACTS                                                   4

2.   OBJECTIVES                                                      5

3.   SCOPE                                                           5

4.   DEFINITIONS                                                     5

5.   REGULATORY/GMP                                                  6

6.   MATERIALS                                                       7

7.   MANUFACTURING/PACKAGING                                         7

8.   STABILITY                                                       7

9.   PRODUCT COMPLAINTS                                              8

10.  EXPIRATION DATING / LOT NUMBERING                               8

11.  SPECIFICATIONS                                                  8

12.  NON-CONFORMANCES                                                9

13.  PRODUCT RELEASE/REJECTION                                       9

14.  VALIDATION                                                      9

15.  SUPPLIERS                                                       10

16.  CHANGE CONTROL                                                  10

17.  ADVERSE DRUG EXPERIENCES                                        10

18.  RECALLS                                                         10

19.  TECHNICAL SUPPORT                                               11

20.  AGREEMENT MAINTENANCE                                           11

21.  RESPONSIBILITIES                                                12

22.  APPROVALS                                                       17
</Table>

                                       E-3
<Page>

1.      MAIN CONTACTS:

PSGA:

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ANIKA THERAPEUTICS:


Name: Frank Luppino

Title: Vice President - Operations

Telephone: 781-932-6616 x136

FAX: 781-932-3360

e-mail: fluppino@anikatherapeutics.com

                                       E-4
<Page>

  2.  OBJECTIVES:

2.1     To document the responsibilities of Anika Therapeutics and
     Pharmaceutical Sourcing Group Americas (PSGA) associated with the
     manufacture, packaging, testing, storage, and release of product.

2.2     To ensure a mutual understanding of key responsibilities, to ensure PSGA
     products are produced according to agreed upon specifications, and to
     ensure compliance with all applicable governing regulations and corporate
     policies.

2.3     It is acknowledged that this will be a continuously evolving process and
     that this Quality Agreement may be amended with concurrence from both
     parties as necessary.

  3.  SCOPE:

3.1     This agreement applies to the product(s) and locations listed below:

     PRODUCT(S):  ORTHOVISC(R)

     LOCATION(S): 236 West Cummings Park, Woburn, MA 01801

3.2     Any external manufacturing or packaging services provided for PSGA by an
     outside facility must conform at a minimum to the Quality Agreement terms
     and conditions. Anika Therapeutics is currently being contracted to provide
     these services. This Quality Agreement is being implemented to delineate
     the PSGA/Anika Therapeutics quality objectives and responsibilities.

3.3     This document constitutes a Quality Agreement only and is not intended
     to represent a purchase contract. The Quality Agreement does not represent
     or replace the Manufacturing and Supply Agreement or any other agreement
     and/or amendment(s) thereto between Anika Therapeutics and PSGA.

  4.  DEFINITIONS:

4.1     FDA: United States Food and Drug Administration or any successor entity
     (CBER-CDER).

4.2     PMA: Pre-market approval

                                       E-5
<Page>

4.3     QSR'S: Quality System Regulation, covering medical device good
     manufacturing practices as defined in the regulations promulgated under the
     Food, Drug, & Cosmetic Act (FDCA) 21 CFR Part 820.

4.4     PRODUCTS: Those products in Section 3.

4.5     RESPONSIBILITY: These abbreviations will be used to identify the
     responsibilities outlined in Section 21.

4.5.1          A = Audit
4.5.2          R = Primary Responsibility
4.5.3          D = Ultimate Decision Maker
4.5.4          S = Shared Responsibility

4.6     SPECIFICATIONS:

4.6.1          Master Formula
4.6.2          Test Methods
4.6.3          Product (WIP (Work in-process)/Finished) Requirements
4.6.4          Standard Operating Procedures (SOPs)
4.6.5          Labels & labelling

4.7     PRODUCT TERMS:

4.7.1          Bulk: Product stored in containers (drums, vessels, portable
     kettles etc.)

4.7.2          Work in Process (WIP): Product processed into its primary
     container needing further processing and/or packaging.

4.7.3          Finished Product: Product completely packaged and in its final
     stage. No further processing and/or packaging is required.

4.8     NON-CONFORMANCE: Any deviation from a specification as defined in
     Section 4.6.

  5.  REGULATORY / QSR:

5.1     Unless other wise specified, all information and documentation from
     Anika Therapeutics shall be provided to the PSGA QA contacts designated in
     Section 1 or their designee.

5.2     Anika Therapeutics shall manufacture, test, label, package, and store
     ORTHOVISC(R) in compliance with the QSR.

5.3     PMA:

                                       E-6
<Page>

5.3.1   Anika Therapeutics shall provide PSGA with copy of the annual report to
     the FDA not later than thirty (30) days from established dates.

5.4     GMP AUDITS:

5.4.1   For auditing purposes, PSGA will be granted full access to the Anika
     Therapeutics facility (except restricted areas) used for manufacturing,
     filing, packaging, testing, and storage of ORTHOVISC(R).
5.4.2   PSGA will provide Anika Therapeutics at least two weeks notification
     prior to scheduling an audit of the Anika Therapeutics facility.
5.4.3   The Anika Therapeutics response to any audit report findings must be
     received by PSGA within 30 days of receipt of an audit report unless
     otherwise agreed upon by the two companies.

5.5     VISITS BY THE FDA:

5.5.1   Within 2 business days Anika Therapeutics shall notify PSGA of any FDA
     inspection, or notice of inspection, relating to the ORTHOVISC(R) product.
5.5.2   Anika Therapeutics will notify PSGA by the end of the audit, or more
     frequently if appropriate, of any issues found during the FDA inspection
     that may impact ORTHOVISC(R) operations.
5.5.3   Anika Therapeutics will provide PSGA with copies of FDA 483 reports or
     similar reports relating to ORTHOVISC(R) or the facility.
5.5.4   PSGA will participate in the development and approval of action plans
     which involve actions to be taken by PSGA.

  6.  MATERIALS:

6.1     RAW MATERIALS: Anika Therapeutics will be responsible for
     inspection/testing and acceptance of all raw materials.

6.2     COMPONENTS: Anika Therapeutics will be responsible for all
     inspection/testing of components.

  7.  MANUFACTURING / PACKAGING:

7.1     Anika Therapeutics shall manufacture, package, test, and store the,
     bulk, WIP, and finished product in accordance with its approved
     specifications and current Good Manufacturing Practices.

7.2     The manufacture of any penicillin or steroid product will not be allowed
     in the same facility used for the manufacture of (PSGA product(s)).

                                       E-7
<Page>

7.3     Anika Therapeutics is responsible for releasing the finished product for
     PSGA review and the overall quality/compliance of the product (see
     Responsbilities - Section 21).

  8.  STABILITY / RETAIN SAMPLES:

8.1     Anika Therapeutics will be responsible for withdrawing the required
     number of samples and performing annual product stability analysis in
     accordance with approved test methods and at test intervals identified in
     the stability specifications.

8.2     Anika Therapeutics will maintain the required amount of retain samples
     of finished goods to perform full testing from every commercial lot
     manufactured at Anika Therapeutics.

8.3     All stability results will be available to PSGA upon request.

8.4     Anika Therapeutics will provide a copy of their stability protocol to
     PSGA.

  9.  PRODUCT COMPLAINTS:

9.1     OBI shall promptly communicate to ANIKA by facsimile, telephone or email
     (and confirm any such telephone communication as instructed at the time)
     any complaint received from users of the Licensed Product, in the
     configuration supplied by ANIKA.

9.2     Each notification of a complaint shall contain, but not be limited to,
     the lot number, dosage size, expiration date, indication for actual use and
     description of circumstances involved in the failure of the Unit(s) in
     question.

9.3     Each complaint notification will contain all the information available
     to OBI at that time, including all information then available which is
     required in the ANIKA Complaint Form, and a summary of the proposed action
     to be taken by OBI to comply with its legal obligations. OBI will provide
     additional information promptly as it becomes available.

9.4     OBI acknowledges that complaint investigation is the responsibility of
     ANIKA, but OBI reserves the right to directly contact its customers.

9.5     Anika Therapeutics will make reasonable efforts to complete their
     investigation, in writing, to all complaints within 30 business days of
     receipt, although some complaint investigations, due to their nature, may
     take longer to complete.

9.6     Anika Therapeutics will provide PSGA with summary complaint data on a
     semi-annual basis.

                                       E-8
<Page>

  10. EXPIRATION DATING / LOT NUMBERING:

10.1    Anika Therapeutics will be responsible for providing PSGA QA the
     formats, layouts and abbreviations for expiration dating and lot numbers.
     The assignment of expiration dates will be identified in the
     specifications.

10.2    The format, layout, and abbreviation for expiration date and lot number
     will be approved in writing by PSGA QA and be documented in the
     specification. All labels must comply with the PMA-approved labelling.

  11. NON-CONFORMANCES:

11.1    Anika Therapeutics will be responsible for investigating and documenting
     any non-conformance to any process, material or product. (Reference
     Sections 4.6 and 4.8).

11.2    Anika Therapeutics will provide PSGA with non-conformance summary data
     on a quarterly basis.

  12. PRODUCT RELEASE:

12.1    Upon determination by Anika Therapeutics that the ORTHOVISC(R) meets the
     required specifications it is approved for shipment to PSGA. PSGA will
     disposition the shipment after review and receipt of Anika Therapeutics QA
     documentation:

12.1.1     Anika Therapeutics is responsible for the storage of product prior to
      its receipt by PSGA
12.1.2     Shipment will be made to the designated PSGA facility
12.1.3     PSGA will specify approved carrier(s).
12.1.4     Carriers not specified by PSGA must be initially approved by PSGA
      prior to use by Anika Therapeutics.

12.2    Anika Therapeutics will forward the required documentation to PSGA QA
     for release.

12.2.1      Certificate of Analysis (COA)
12.2.2      Certificate of Compliance (COC)
12.2.3      Copies of the completed manufacturing record
12.2.4

12.3    PSGA is responsible for its acceptance decisions on finished
     ORTHOVISC(R) lots based on manufacturing site compliance with QSR's,
     including completed and approved batch record documentation and conformance
     to specifications.

                                       E-9
<Page>

12.4    Anika Therapeutics will maintain retain samples for each lot of raw
     materials for one (1) year past the expiration date.

12.5    Anika Therapeutics will not supply to PSGA product that has been
     reworked unless such rework is validated and approved within the PMA for
     the product.

  13. VALIDATION:

13.1    Anika Therapeutics will perform process, packaging, and cleaning
     validations as required by its procedures and in accordance with standard
     industry practice.

13.2    Anika Therapeutics will perform laboratory test method validations as
     required by its procedures and in accordance with standard industry
     practice.

13.3    Anika Therapeutics will develop protocols for required validations in
     accordance with standard industry practice.

  14. SUPPLIERS:

14.1    Anika Therapeutics will be responsible for conducting periodic audits of
     suppliers.

14.2    Anika Therapeutics will be responsible for qualification of new
     suppliers.

14.3    Anika Therapeutics will notify PSGA of any supplier-related quality
     issues impacting PSGA product(s).

  15. CHANGE CONTROL:

15.1    Anika Therapeutics will notify PSGA QA in advance of any changes in
     processes, testing, and materials prior to implementation if such changes
     are significant enough to affect finished product specifications or require
     FDA pre-approval submission.

15.2    Anika Therapeutics will provide PSGA with a summary of Change Control
     activities on a semi annual basis. This depends upon the type of change.

  16. MEDICAL DEVICE REPORTS:

16.1    ANIKA shall be responsible for notifying all applicable regulatory
     authorities of reportable events (including without limitation complaints)
     involving the Licensed Product for which ANIKA receives written
     notification, as required by applicable laws.

                                      E-10
<Page>

16.2    OBI shall notify ANIKA of potentially reportable events promptly but in
     no event later than twenty-four (24) hours after the event. In addition,
     all such notices by OBI shall be consistent with the requirements of law in
     the applicable jurisdictions.

16.3    Anika Therapeutics will provide PSGA with a summary of Medical Device
     Reports on a semi annual basis.

16.4    Anika Therapeutics and PSGA will work together to investigate reportable
     events and complaints, including gathering information from customers and
     end users.

  17. RECALLS:

17.1    Anika Therapeutics shall be responsible for coordinatingany recall of
     product from PSGA

17.2    PSGA shall be responsible for recalling product from end users and
     notifying end users of any field alert activities.

17.3    Anika Therapeutics shall forward all required recall-related information
     to PSGA on request, within two (2) calendar days of the request.

  18. TECHNICAL SUPPORT:

18.1    Technical support will be mutually agreed upon as situations arise.

  19. AGREEMENT MAINTENANCE:

19.1    This agreement shall be reviewed and amended annually or as needed.

19.2    Modifications/addenda can be made as required; any such modifications or
     addenda must be in writing and approved by the Anika Therapeutics and PSGA.

19.3    RECORD RETENTION: Original signed copies of this Agreement must be
     maintained for ten (10) years from the date of approval.

                                      E-11
<Page>

  20. RESPONSIBILITIES:

<Table>
<Caption>
                       DUTIES                                     ANIKA     PSGA      N/A        COMMENTS
- -------------------------------------------------------------------------------------------------------------
<S>                                                                <C>       <C>      <C>    <C>
1.  RAW MATERIAL AND COMPONENTS
    -Specifications Development & Maintenance                      R, D      A
    -Specifications Control in Plant/SOPs                          R, D      A
    -Ordered from Approved Suppliers                               R, D      A
    -Receipt/Warehousing/Segregation of Materials                  R, D      A
    -Incoming inspection, sampling & testing                       R, D      A
    -Retest as necessary for release                               R, D      A
    -Retest for expiration                                         R, D      A
    -Inventory Management & Accountability - FIFO                  R, D      A
    -Destruction of Waste Materials                                R, D      A
    -Retain Samples (Active RM)                                    R, D      A
    -Labelling Control & Accountability                            R, D      A
    -Disposition of Materials (Release/Reject)                     R, D      A
- -Use of Materials out of Specifications - Deviations               R, D      A
    -Suppliers Audits                                              R, D      A
    -Supplier Audit (API)                                                             X
</Table>

                                      E-12
<Page>

<Table>
<S>                                                                <C>       <C>      <C>    <C>
2.  BULK AND WORK-IN-PROGRESS
    -Specifications Development and Maintenance                    R, D      A
    -Manufacturing Directions Development & Maint.                 R, D      A
    -Specifications Control in Plant                               R, D      A
    -Area/Equipment Set Up & Inspection                            R, D      A
    -Sanitization - Manufacturing Areas                            R, D      A
    -Filling Machinery & Equipment Sanitization                    R, D      A
    -Line Clearance Procedure                                      R, D      A
    -Batch Records issuance & maintenance                          R, D      A
    -Equipment -maintenance, integrity & calibration               R, D      A
    -Environmental & Personnel monitoring                          R, D      A
    -Primary batch record review                                   R, D      A
    -Cleaning Records & Logs                                       R, D      A
    -Dispensing records & logs                                     R, D      A
    -In-Process Sampling analysis & testing                        R, D      A
    -Deviations from Bulk Finished Parameters Specifications         S       S
- -Development of Bulk and WIP Parameters/Annual Rev.                  R       A
    -Documentation System and SOPs/Int'l                           R, D      A
    -Changes to Process Parameters*                                  S       S
    -Final Product Sampling and testing                            R, D      A
    -Disposition of Product (release/reject)                         R       A
    -Destruction of Waste Materials                                R, D      A
</Table>

        *To the extent changes meet the threshold in the "Change Control"
        section of this agreement.

                                      E-13
<Page>

<Table>
<Caption>
                       DUTIES                                     ANIKA     PSGA      N/A        COMMENTS
- -------------------------------------------------------------------------------------------------------------
<S>                                                                <C>       <C>      <C>    <C>
3.  PACKAGING
    -Specifications Development & Maintenance                      R, D      A
    -Specifications Control in Plant                               R, D      A
    -Line Clearance Procedure                                      R, D      A
    -Environmental & Personnel monitoring                          R, D      A
- -Labelling controls & reconciliation (bottle, PI, carton)          R, D      A
    -Lot number, control                                           R, D      A
    -Expiration Date Control                                       R, D      A
    -Expiration Dating Development                                   S       A
    -Cartoning & Bundling                                          R, D      A
    -Palletizing and Storage                                       R, D      A
    -Quarantine and Storage SOPs                                   R, D      A
    -Deviations from Packaging Specifications                        S       S
    -Product Sampling, Inspection and testing                      R, D      A

4.  PRODUCT RELEASE
    -Specifications Development and Maintenance                    R, D      A
    -Quarantine Release SOPs                                       R, D      A
    -Product Release SOPs                                          R, D      A
    -Standard Analytical & Microbiological Tests                   R, D      A
    -Batch record review                                           R, D      A
- -Environmental monitoring review (air, water, steam, pressure)     R, D      A
    -Tests Problem Resolution procedures                           R, D      A
- -Deviation(s) reporting, investigations & documentation              S       S
- -Finished Goods Re-testing                                           R       D
    -Disposition of Product (release/rejection)                      R       D
- -Evaluation of Finished Product with deviations from specs           R       D
</Table>

                                      E-14
<Page>

<Table>
<S>                                                                <C>       <C>      <C>    <C>
    -Destruction of Waste Materials                                R, D      A
- -Quarantine & Quarantine Release procedures/Execute based on SOP   R, D      A
</Table>

                                      E-15
<Page>

<Table>
<Caption>
                       DUTIES                                     ANIKA     PSGA      N/A         COMMENTS
- -------------------------------------------------------------------------------------------------------------
<S>                                                                <C>       <C>      <C>    <C>
5.  STABILITY PROGRAM
    -Stability Protocols/Documentation System                      R, D      A
    -Documentation Systems/SOPs in Plant                           R, D      A
    -Retain Sampling                                               R, D      A
    -Stability Testing                                             R, D      A
- -New test Methods Development
(validation, transfer, documentation)                              R, D      A
    -Test Methods Implementation                                   R, D      A
    -Equipment Records, calibrations, validations                  R, D      A
    -Result Handling
        -Result Reporting to PSGA                                    R       A
        -Stability alert - OOS Results                               R       A
    -Reporting (Internal, External)                                R, D      A
    -FDA Field Alert                                                 S       S

6.  CUSTOMER COMPLAINTS
    -Standard Operating Procedure-in plant                         R, D      A
    -Logging/Receipt                                               R, D      A
    -Retain Sampling, handling & testing                           R, D      A
    -Analysis
       -in plant laboratory                                        R, D      A
       -outside laboratory                                           R       D
    -Synchrony on records with PSGA                                                   X
    -Reporting (Internal & External)                               R, D      A
    -FDA Field Alert                                                 S       S
</Table>

                                      E-16
<Page>

<Table>
<Caption>
                       DUTIES                                     ANIKA     PSGA      N/A         COMMENTS
- -------------------------------------------------------------------------------------------------------------
<S>                                                                <C>       <C>      <C>    <C>
7.  GENERAL & FACILITY
    -SOPs, Guidelines, Practices and Policies                      R, D      A
    -Monitoring, Maintenance, Calibration of
        -Water Systems (DI, WFI)                                   R, D      A
        -Clean Air System                                          R, D      A
        -HVAC System                                               R, D      A
        -Steam System                                              R, D      A
        -Pressure System                                           R, D      A
    -Annual Product Review
        -Data Collection                                           R, D      A
- -Written Report (Process, Analytical & Complaint Data)             R, D      A
    -General Records Systems                                       R, D      A
        -Documentation System in Plant                             R, D      A
        -Records Retention (Batch Records)                         R, D      A
    -Change Control in Plant                                       R, D      A
    -Retain Samples Management                                     R, D      A
    -Training and Education                                        R, D      A
    -Process and Product Validation
        -Facility and Systems                                      R, D      A
        -Equipment                                                 R, D      A
        -Product                                                   R, D      A
        -Revalidation                                              R, D      A
        -New Products                                                                 X
    -Quality Alert System                                          R, D      A

8.  COMPLIANCE & PMA-RELATED
- - Adverse Drug Experience Reporting                                R,D       A
- - PMA compliance & Annual Report to FDA                            R,D       A
- - Recall coordination                                               S        S
</Table>

                                      E-17
<Page>

      A = Audits
      R = Primary Responsible
      D = Ultimate Decision Maker
      S = Shared Responsibility/Agree

                                      E-18
<Page>

  22. APPROVAL SIGNATURES

  THIS AGREEMENT HAS BEEN REVIEWED AND APPROVED BY:

<Table>
<Caption>
               APPROVED BY:                   DATE:
    --------------------------------------------------
       <S>                                    <C>
            Anika Therapeutics



          (Site QA Manager, PSGA)

       (QA Director Ext. Mfg., PSGA)

       (VPQA Pharmaceuticals, PSGA)
</Table>

                                      E-19
<Page>

                                    EXHIBIT F

                              ANIKA COMPLAINT FORM

COMPLAINT FORM

COMPLAINT FILE NUMBER:                                       COMPLAINANT:
DATE COMPLAINT RECEIVED:                                     Address
METHOD OF COMMUNICATION OF COMPLAINT:                        Address
                                                             Phone number

PRODUCT NAME:                                                PRODUCT LOT NUMBER:

COMPLAINT:

ATTACH APPROPRIATE DOCUMENTATION TO THIS FORM.
1.      Date Complaint Receipt Acknowledged:
2.      Was there a death, serious injury or serious illness?
3.      Any relationship of the device/drug to the reported incident?
4.      Is the event described in product labeling?
5.      Description of specific medical intervention action taken or withheld:

6.      Physician name:
7.      Description of patient condition:

8.      ADE or MDR Reportable Event? YES: ________ NO: ________ ( If yes,
        proceed to #4.)
        IF NO STATE RATIONALE:


        Vigilance Reporting? YES: ________ NO: ________ Date Reported:
        _____________

9.      DATE FAILURE INVESTIGATION INITIATED: If investigation was not
        initiated, state reason:


10.     CAPA #: If corrective action is not required, state rationale:

11.     DATE FAILURE INVESTIGATION CLOSED:

                                       F-1
<Page>

REQUIRED DOCUMENTATION OBTAINED AND COMPLAINT CLOSED:

DATE OF CLOSE-OUT TO COMPLAINANT: ____________________


QS/RA SIGNATURE: __________________________________      DATE:  ________________

                                       F-2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.39
<SEQUENCE>4
<FILENAME>a2132242zex-10_39.txt
<DESCRIPTION>EXHIBIT 10.39
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.39

                                           January 19, 2004

Roger C. Stikeleather
6166 Stover's Mill Road
Doylestown, PA 18901

Dear Roger:

As previously discussed with you in connection with your separation from
employment with Anika Therapeutics, Inc. (the "COMPANY"), this letter presents
two options from which you may choose with respect to your separation benefits.
The first option, "Option A," will be governed by the first paragraph of the
severance terms contained in the agreement between you and the Company dated
February 21, 2003 (the "Offer Letter"). If you choose Option A, your employment
will terminate on February 17, 2004. Under Option A, you do not need to execute
this document.

Alternatively, you may choose "Option B." Under the Terms of Option B, the Offer
Letter will become void and the Company will continue to employ you through
March 31, 2004 to permit you to vest in certain stock options. Under Option B,
the Company will also pay you one month's severance pay and contribute toward
your health benefits for one month following your termination. If you elect
Option B, you must enter into an Agreement, which includes a release of all
claims you may have against the Company and related persons.

I set forth in detail below the terms of the two options.

OPTION A - GOVERNED BY TERMS OF THE OFFER LETTER:

o Your employment with the Company shall terminate effective February 17, 2004
  (the "Option A Termination Date"), provided that you continue to perform your
  duties loyally and in good faith between now and the Option A Termination
  Date.

o As required by law, on the Option A Termination Date, the Company shall pay
  you for all accrued but unused vacation time through that date.

o In accordance with the terms of the Offer Letter, the Company also shall
  continue paying your salary ("Severance Pay") at your final base salary rate
  of $15,416.67 per month, subject to regular deductions and withholdings, for
  the period February 18, 2004 through and including August 18, 2004 (the
  "Severance Pay Period"). The Company shall pay you Severance Pay on its
  regular payroll dates applicable to your position.

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 2

o The Company shall also provide you with the right to continue group medical
  and dental insurance coverage after the termination of your employment under
  the law known as "COBRA." If you elect COBRA continuation coverage and
  PROVIDED that you and your beneficiaries remain eligible for COBRA
  continuation coverage, the Company shall continue to pay for medical and
  dental insurance premiums for coverage of you and your beneficiaries to the
  same extent as if you had remained employed to the end of the Severance Pay
  Period. You will be responsible for the remaining portion of such coverage as
  if you remained employed. The Company will deduct the portion for which you
  are responsible from your Severance Pay. If you elect COBRA continuation
  coverage, you may continue coverage for yourself and any beneficiaries after
  the end of the Severance Pay period at your own expense for the remainder of
  the COBRA period, to the extent you and they remain eligible. The terms for
  that opportunity will be set forth in a separate written notice.

o The termination of other benefits will be addressed in separate
  correspondence. Basically, your eligibility to participate in any other
  employee benefit plans and programs of the Company ceases on or after the
  termination of your employment in accordance with applicable benefit plan or
  program terms and practices.

o The Company shall also reimburse you for any outstanding, reasonable
  business-related expenses that you have incurred or will incur on the
  Company's behalf as part of the execution of your duties through the
  termination of your employment, PROVIDED THAT you submit appropriate
  documentation pursuant to the Company's business expense reimbursement policy
  no later than five (5) business days after the Option A Termination Date.

o In accordance with the terms of the Offer Letter, during the Severance Pay
  Period, you will provide transitional services to Anika at any reasonable time
  requested by the Company.

o You understand that the payment of your Severance Pay is contingent upon your
  continuing to abide by the terms of the Anika Non-Disclosure and
  Non-Competition Agreement (the "Anika Non-Disclosure and Non-Competition
  Agreement") between you and the Company which you acknowledge you executed in
  or around March 2003 at the commencement of your employment with Anika.
  Because the Company is unable to locate its copy of the Anika Non-Disclosure
  and Non-Competition Agreement that you previously executed, you hereby agree
  to execute the Anika Non-Disclosure and Non-Competition Agreement that is
  attached as Exhibit A to this document, which is identical to the Anika
  Non-Disclosure and Non-Competition Agreement that you previously signed.

OPTION B - IN LIEU OF TERMS OF OFFER LETTER

In lieu of the above, the Company proposes entering into the following Agreement
(the "OPTION B AGREEMENT") between you and the Company. The purpose of the
Option B Agreement is to

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 3

establish an amicable arrangement for ending your employment relationship,
including releasing the Company and related persons or entities from any claims.

If you agree to the terms of this Option B Agreement, you acknowledge that you
are entering into this Option B Agreement voluntarily. It is customary in
employment separation agreements for the departing employee to release the
employer from any possible claims, even if the employer believes, as is the case
here, that no such claims exist. Neither the Company nor you want your
employment relationship to end with a legal dispute. By entering into this
Option B Agreement, you understand that the Company is not admitting in any way
that it violated any legal obligation that it owed to you.

With those understandings, you and the Company agree as follows:

1. TERMINATION OF EMPLOYMENT

Your employment with the Company as its Vice President of Sales and Marketing
will terminate on March 31, 2004 (the "OPTION B TERMINATION DATE"). You agree
that you will resign from any and all other positions that you hold with the
Company as an officer, director or otherwise effective on the Option B
Termination Date.

2. TERMINATION OF EXISTING OFFER LETTER

You acknowledge and agree that the Offer Letter is null and void and of no
continuing effect.

3. SEVERANCE BENEFITS

         (a) SEVERANCE PAY. Promptly after the Option B Termination Date, the
Company shall pay you (the "Option B Agreement Severance Payment") the amount of
$15,416.67, constituting one-month's pay at your regular base salary.

         (b) HEALTH BENEFITS. Your rights and obligations under COBRA will be
explained in a separate letter to you describing your medical and dental
insurance continuation rights under COBRA. To continue your medical and dental
insurance coverage, you must elect COBRA continuation coverage. If you elect
COBRA continuation coverage and PROVIDED that you and your beneficiaries remain
eligible for COBRA continuation coverage, the Company shall continue to pay for
medical and dental insurance premiums for coverage of you and your beneficiaries
to the same extent as if you had remained employed to April 30, 2004. You will
be responsible for the remaining portion of such coverage as if you remained
employed. You hereby authorize the deduction of the portion for which you are
responsible after March 31, 2004 from the Option B Agreement Severance Payment.
If you elect COBRA continuation coverage, you may continue coverage for yourself
and any beneficiaries after April 30, 2004 at your own expense for the remainder
of the COBRA period, to the extent you and they remain eligible.

         (c) STOCK OPTIONS. Pursuant to the Anika Therapeutics Incentive Stock
Option Agreement dated June 12, 2003 between you and the Company (the "Stock
Option Agreement"),

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 4

the Company granted you the option to purchase 75,000 shares of common stock in
the Company at an exercise price of $1.50 to vest in four equal annual
installments beginning March 17, 2004. If you enter into this Option B
Agreement, the Company will continue to employ you through March 31, 2004 and,
consequently, you will be permitted to vest in the first such annual installment
of 18,750 shares. You understand that the exercise of any such share options is
subject to the terms of the Stock Option Agreement and the Company's 2003 Stock
Option and Incentive Plan (the "Plan"). In accordance with Section 3(d) of the
Stock Option Agreement, to the extent that any shares are exercisable upon the
Option B Termination Date, you must exercise them within three months of the
Option B Termination Date. To the extent you exercise such options, you agree to
notify the Company in the event that you sell any shares so acquired. Any sale
of such shares must be in accordance with applicable securities laws.

         (d) OTHER BENEFITS. The termination of other benefits will be addressed
in separate correspondence. Basically, your eligibility to participate in any
other employee benefit plans and programs of the Company ceases on or after the
Option B Termination Date in accordance with applicable benefit plan or program
terms and practices.

         (e) REIMBURSEMENT OF EXPENSES. The Company shall also reimburse you for
any outstanding, reasonable business-related expenses that you have incurred or
will incur on the Company's behalf as part of the execution of your duties
through the termination of your employment, PROVIDED THAT you submit appropriate
documentation pursuant to the Company's business expense reimbursement policy no
later than five (5) business days after the Option B Termination Date.

         (f) VACATION PAY. As required by law, on the Option B Termination Date,
the Company shall pay you for all accrued but unused vacation time through that
date.

4. TAX TREATMENT

The Company shall undertake to make deductions, withholdings and tax reports
with respect to payments and benefits under this Option B Agreement to the
extent that it reasonably and in good faith determines that it is required to
make such deductions, withholdings and tax reports. Payments under this Option B
Agreement shall be in amounts net of any such deductions or withholdings.
Nothing in this Option B Agreement shall be construed to require the Company to
make any payments to compensate you for any adverse tax effect associated with
any payments or benefits or for any deduction or withholding from any payment or
benefit.

5. RETURN OF PROPERTY

You confirm that, upon the Option B Termination Date, you will return to the
Company all Company property, including, without limitation, computer equipment,
software, keys and access cards, credit cards, files and any other documents
(including computerized data and any copies made of any computerized data or
software) containing information concerning the Company, its business or its
business relationships (in the latter two cases, actual or prospective).

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 5

In the event that you discover that you continue to retain any such property,
you shall return it to the Company immediately.

6. CONFIDENTIAL INFORMATION AND NONCOMPETITION AGREEMENT

You acknowledge and agree that you and the Company entered into the Anika
Non-Disclosure and Non-Competition Agreement (the "Anika Non-Disclosure and
Non-Competition Agreement") in or around March 2003, at the commencement of your
employment with Anika. Because the Company is unable to locate its copy of the
Anika Non-Disclosure and Non-Competition Agreement that you previously executed,
you hereby agree to execute the Anika Non-Disclosure and Non-Competition
Agreement that is attached as Exhibit A to this document, which is identical to
the Anika Non-Disclosure and Non-Competition Agreement that you previously
signed. You acknowledge that you are bound by the terms and conditions of the
Anika Non-Disclosure and Non-Competition Agreement and that nothing in this
Option B Agreement shall be construed to supersede its terms and conditions.]

7. RELEASE OF YOUR CLAIMS

In consideration for, among other terms, the terms, payments and benefits
described in Section 3, which are substantially more advantageous to you than
any benefits to which you otherwise may be entitled, you voluntarily release and
forever discharge the Company, its affiliated and related entities, its and
their respective predecessors, successors and assigns, its and their respective
employee benefit plans and fiduciaries of such plans, and the current and former
officers, directors, shareholders, employees, attorneys, accountants and agents
of each of the foregoing in their official and personal capacities (collectively
referred to as the "RELEASEES") generally from all claims, demands, debts,
damages and liabilities of every name and nature, known or unknown ("CLAIMS")
that, as of the date when you sign this Option B Agreement, you have, ever had,
now claim to have or ever claimed to have had against any or all of the
Releasees. This release includes, without limitation, all Claims:

         o  relating to your employment by and termination of employment with
            the Company;
         o  of wrongful discharge;
         o  of breach of contract;
         o  of retaliation or discrimination under federal, state or local law
            (including, without limitation, Claims of age discrimination or
            retaliation under the Age Discrimination in Employment Act, Claims
            of disability discrimination or retaliation under the Americans with
            Disabilities Act, and Claims of discrimination or retaliation under
            Title VII of the Civil Rights Act of 1964);
         o  under any other federal or state statute (including, without
            limitation, Claims under the Family Medical Leave Act);
         o  of defamation or other torts;
         o  of violation of public policy;

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 6

         o  for wages, bonuses, incentive compensation, stock options, vacation
            pay or any other compensation or benefits, including any such Claims
            that may be brought pursuant to the Offer Letter; and
         o  for damages or other remedies of any sort, including, without
            limitation, compensatory damages, punitive damages, injunctive
            relief and attorney's fees;

PROVIDED, however, that this release shall not affect your vested rights under
the Company's Section 401(k) Plan, the Stock Option Agreement, the Plan or your
rights under this Option B Agreement.

You agree that you shall not seek or accept damages of any nature, other
equitable or legal remedies for your own benefit, attorney's fees, or costs from
any of the Releasees with respect to any Claim. As a material inducement to the
Company to enter into this Option B Agreement, you represent that you have not
assigned to any third party and you have not filed with any agency or court any
Claim released by this Option B Agreement.

8. CONFIDENTIALITY

You agree to keep the existence and terms of this Option B Agreement
("AGREEMENT-RELATED INFORMATION") in the strictest confidence and not reveal,
unless legally compelled to do so, any Agreement-Related Information to any
persons except your spouse, your attorney and your financial advisors, and to
them only provided that they first agree for the benefit of the Company to keep
Agreement-Related Information confidential. Any violation of this provision will
be deemed a material breach of this Option B Agreement. Nothing in this Section
8 shall be construed to prevent you from disclosing Agreement-Related
Information to the extent required by a lawfully issued subpoena or duly issued
court order; PROVIDED that you provide the Company with advance written notice
and a reasonable opportunity to contest such subpoena or court order.

9. NONDISPARAGEMENT

You agree not to make any disparaging statements concerning the Company or any
of its affiliates or current or former officers, directors, shareholders,
employees or agents. You further agree not to take any actions or conduct
yourself in any way that would reasonably be expected to affect adversely the
reputation or goodwill of the Company or any of its affiliates or any of its
current or former officers, directors, shareholders, employees or agents. These
nondisparagement obligations shall not in any way affect your obligation to
testify truthfully in any legal proceeding.

10. INFORMATION CONCERNING ACTUAL, POTENTIAL OR ALLEGED FINANCIAL IRREGULARITIES
    OR WRONGDOING

You represent that you are not aware of any actual, potential or alleged
financial irregularities concerning the Company or any other wrongdoing by the
Company.

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 7

11. TRANSITIONAL SERVICES

Between January 19, 2004 and the Option B Termination Date, you agree to remain
a full-time employee of the Company and to devote your attention and diligence
to the good faith execution of your duties in your position as Vice President of
Sales and Marketing. You further agree to provide transitional services to the
Company to assist the Company in an orderly and effective transition from your
position.

12. FUTURE COOPERATION

You agree to cooperate reasonably with the Company and all of its affiliates
(including its and their outside counsel) in connection with the contemplation,
prosecution and defense of all phases of existing, past and future litigation
about which the Company believes you may have knowledge or information. You
further agree to make yourself available at mutually convenient times during and
outside of regular business hours as reasonably deemed necessary by the
Company's counsel. The Company shall not utilize this Section 12 to require you
to make yourself available to an extent that would unreasonably interfere with
full-time employment responsibilities that you may have. You agree to appear
without the necessity of a subpoena to testify truthfully in any legal
proceedings in which the Company calls you as a witness. The Company shall also
reimburse you for any pre-approved reasonable business travel expenses that you
incur on the Company's behalf as a result of your litigation cooperation
services, after receipt of appropriate documentation consistent with the
Company's business expense reimbursement policy. In addition, for all time that
you reasonably expend in cooperating with the Company or any of its affiliates
pursuant to this Section 12 after the end of the Severance Pay Period, the
Company shall compensate you at the rate of $150 per hour; PROVIDED that your
right to such compensation shall not apply to time spent in activities that
could have been compelled pursuant to a subpoena, including testimony and
related attendance at depositions, hearings or trials. You further agree that
you shall not voluntarily provide information to or otherwise cooperate with any
individual or entity that is contemplating or pursuing litigation against any of
the Releasees or that is undertaking any investigation or review of any of the
Releasees' activities or practices; PROVIDED, however, that you may participate
in or otherwise assist in any investigation or inquiry conducted by the EEOC or
the Massachusetts Commission Against Discrimination. Notwithstanding the
foregoing, this provision shall not apply to the extent that your breach of this
Option B Agreement consists of initiating a legal action in which you contend
that the release set forth in Section 7 is invalid, in whole or in part, due to
the provisions of 29 U.S.C. Section 626(f).

13. SUSPENSION OR TERMINATION OF PAYMENTS

In the event that you fail to comply with any of your obligations under this
Option B Agreement, in addition to any other legal or equitable remedies it may
have for such breach the Company shall have the right to terminate or suspend
its payments to you under this Option B Agreement. The termination or suspension
of such payments in the event of such breach by you will not affect your
continuing obligations under this Option B Agreement. Notwithstanding the

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 8

foregoing, this provision shall not apply to the extent that your breach of this
Option B Agreement consists of initiating a legal action in which you contend
that the release set forth in Section 7 is invalid, in whole or in part, due to
the provisions of 29 U.S.C. Section 626(f).

14. LEGAL REPRESENTATION

This Option B Agreement is a legally binding document and your signature will
commit you to its terms. You acknowledge that you have been advised to discuss
all aspects of this Option B Agreement with your attorney, that you have
carefully read and fully understand all of the provisions of this Option B
Agreement and that you are voluntarily entering into this Option B Agreement.

15. ABSENCE OF RELIANCE

In signing this Option B Agreement, you are not relying upon any promises or
representations made by anyone at or on behalf of the Company.

16. ENFORCEMENT

         (a) JURISDICTION. You and the Company hereby agree that the Superior
Court of the Commonwealth of Massachusetts and the United States District Court
for the District of Massachusetts shall have the exclusive jurisdiction to
consider any matters related to this Option B Agreement, including without
limitation any claim for violation of this Option B Agreement. With respect to
any such court action, you (i) submit to the jurisdiction of such courts, (ii)
consent to service of process, and (iii) waive any other requirement (whether
imposed by statute, rule of court or otherwise) with respect to personal
jurisdiction or venue.

         (b) RELIEF. You agree that it would be difficult to measure any harm
caused to the Company that might result from any breach by you of your promises
set forth in Sections 6, 7, 8, 9, 10, 11 or 12, and that in any event money
damages would be an inadequate remedy for any such breach. Accordingly, you
agree that if you breach, or propose to breach, any portion of your obligations
under Sections 6, 7, 8, 9, 10, 11 or 12, the Company shall be entitled, in
addition to all other remedies it may have, to an injunction or other
appropriate equitable relief to restrain any such breach, without showing or
proving any actual damage to the Company and without the necessity of posting a
bond. In the event that the Company prevails in any action to enforce Sections
6, 7, 8, 9, 10, 11 or 12, then you also shall be liable to the Company for
attorney's fees and costs incurred by the Company in enforcing such
provision(s).

17. GOVERNING LAW; INTERPRETATION

This Option B Agreement shall be interpreted and enforced under the laws of the
Commonwealth of Massachusetts, without regard to conflict of law principles. In
the event of any dispute, this Option B Agreement is intended by the parties to
be construed as a whole, to be

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 9

interpreted in accordance with its fair meaning, and not to be construed
strictly for or against either you or the Company or the "drafter" of all or any
portion of this Option B Agreement.

18. ENTIRE AGREEMENT

This Option B Agreement constitutes the entire agreement between you and the
Company. This Option B Agreement supersedes any previous agreements or
understandings between you and the Company, including without limitation, the
Offer Letter, PROVIDED that, this Agreement does not supercede the Anika
Non-Disclosure and Non-Competition Agreement attached as Exhibit A to this
Option B Agreement.

19. TIME FOR CONSIDERATION; EFFECTIVE DATE

You have the opportunity to consider this Option B Agreement for twenty-one (21)
days before signing it. To accept this Option B Agreement, you must return a
signed original of this Option B Agreement so that it is received by the
undersigned at or before the expiration of this twenty-one (21) day period. If
you sign this Option B Agreement within less than twenty-one (21) days of the
date of its delivery to you, you acknowledge by signing this Option B Agreement
that such decision was entirely voluntary and that you had the opportunity to
consider this Option B Agreement for the entire twenty-one (21) day period. For
the period of seven (7) days from the date when this Option B Agreement becomes
fully executed, you have the right to revoke this Option B Agreement by written
notice to the undersigned. For such a revocation to be effective, it must be
delivered so that it is received by the undersigned at or before the expiration
of the seven (7) day revocation period. This Option B Agreement shall not become
effective or enforceable during the revocation period. This Option B Agreement
shall become effective on the first business day following the expiration of the
revocation period (the "EFFECTIVE DATE").

Please indicate your agreement to the terms of this Option B Agreement by
signing and returning to me the original of this letter within the time period
set forth above.

Very truly yours,

ANIKA THERAPEUTICS, INC.

By: /s/ Charles H. Sherwood                January 19, 2004
    ------------------------------         -----------------------------------
    CHARLES H. SHERWOOD, PH.D.             Date
    PRESIDENT AND CHIEF EXECUTIVE OFFICER

<PAGE>

Roger C. Stikeleather
January 19, 2004
Page 10

You are advised to consult with an attorney before signing this Option B
Agreement. The foregoing is agreed to and accepted by:

/s/ Roger C. Stikeleather                   February 9, 2004
- ------------------------------------        ----------------------------------
ROGER C. STIKELEATHER                                Date


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>a2132242zex-21_1.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>

<PAGE>

                                                                    EXHIBIT 21.1

                    SUBSIDIARIES OF ANIKA THERAPEUTICS, INC.

Anika Securities Corp.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>a2132242zex-23_1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
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<A NAME="toc_mc1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 23.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="mc1390_consent_of_independent_accountants"> </A>
<A NAME="toc_mc1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>CONSENT OF INDEPENDENT ACCOUNTANTS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 333-06275,
333-66831, 333-79047, 333-58264 and 333-110326) of Anika Therapeutics,&nbsp;Inc., of our report dated February&nbsp;20,2003 relating to the
financial statements, which appears in this Form&nbsp;10-K. s </FONT></P>

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<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>/s/ </FONT><FONT SIZE=2>PRICEWATERHOUSECOOPERS LLP</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2><BR>
Boston, Massachusetts<BR>
March&nbsp;29, 2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="50%" VALIGN="TOP"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<FONT SIZE=2><A HREF="#toc_mc1390_2">CONSENT OF INDEPENDENT ACCOUNTANTS</A></FONT><BR>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>7
<FILENAME>a2132242zex-31_1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="me1390_exhibit_31.1"> </A>
<A NAME="toc_me1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;31.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="me1390_certification"> </A>
<A NAME="toc_me1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>I,
Charles H. Sherwood, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this report on Form&nbsp;10-K for the year ended December&nbsp;31, 2003 of Anika Therapeutics,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>
<BR>

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<TD WIDTH="47%"><FONT SIZE=2>Date: March&nbsp;29, 2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CHARLES H. SHERWOOD</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Charles H. Sherwood, Ph.D.<BR>
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

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<UL>
<FONT SIZE=2><A HREF="#toc_me1390_1">Exhibit 31.1</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_me1390_2">CERTIFICATION</A></FONT><BR>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>8
<FILENAME>a2132242zex-31_2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
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</HEAD>
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NAME="mg1390_exhibit_31.2"> </A>
<A NAME="toc_mg1390_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;31.2    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="mg1390_certification"> </A>
<A NAME="toc_mg1390_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>I,
William J. Knight, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this report on Form&nbsp;10-K for the year ended December&nbsp;31, 2003 of Anika Therapeutics,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>
<BR>

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<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>Date: March&nbsp;29, 2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>WILLIAM J. KNIGHT</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> William J. Knight<BR>
Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

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<UL>
<FONT SIZE=2><A HREF="#toc_mg1390_1">Exhibit 31.2</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_mg1390_2">CERTIFICATION</A></FONT><BR>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>9
<FILENAME>a2132242zex-32_1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>

<PAGE>

                                                                   EXHIBIT 32.1

                            SECTION 906 CERTIFICATION

The undersigned officers of Anika Therapeutics, Inc. (the "Company") hereby
certify in their respective capacities that the Company's annual report on Form
10-K to which this certification is attached (the "Report"), as filed with the
Securities and Exchange Commission on the date hereof, fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

Date: March 29, 2004                        /s/ Charles H. Sherwood
                                            -----------------------------------
                                            Charles H. Sherwood, Ph.D.
                                            Chief Executive Officer

                                            /s/ William J. Knight
                                            -----------------------------------
                                            William J. Knight
                                            Chief Financial Officer

This certification shall not be deemed "filed" for any purpose, nor shall it be
deemed to be incorporated by reference into any filing, under the Securities Act
of 1933 or the Exchange Act.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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