<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   -----------

                                    FORM 10-K

|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         FOR FISCAL YEAR ENDED DECEMBER 31, 1999

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM ____ TO ____

                        COMMISSION FILE NUMBER 000-21326

                                   -----------

                            Anika Therapeutics, Inc.

             (Exact Name of Registrant as Specified in Its Charter)

              MASSACHUSETTS                                04-3145961
      (State or Other Jurisdiction of                  (I.R.S. Employer
       Incorporation or Organization)                 Identification No.)

236 WEST CUMMINGS PARK, WOBURN, MASSACHUSETTS                01801
  (Address of Principal Executive Offices)                (Zip Code)

                                   -----------

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 932-6616

      SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE EXCHANGE ACT:

                     Common Stock, par value $.01 per share

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes |X| No |_|

         Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation 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 III of this Form 10-K
or any amendment to this Form 10-K. |_|

         The aggregate market value of voting stock held by non-affiliates of
the Registrant as of March 20, 2000 was $83,556,297 based on the last sale price
of Common Stock of $8.53 as reported by the NASDAQ National Market. At March 20,
2000 there were issued and outstanding 9,795,580 shares of Common Stock, par
value $.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain information required in response to Items 10, 11, 12 and 13 of
Part III are hereby incorporated by reference from the Company's Proxy Statement
for the Annual Meeting to be held on June 7, 2000. Such Proxy Statement shall
not be deemed to be "filed" as part of this Annual Report on Form 10-K except
for the parts therein which have been specifically incorporated by reference
herein.


                                       1

<PAGE>


                                    FORM 10-K
                            ANIKA THERAPEUTICS, INC.
                     FOR FISCAL YEAR ENDED DECEMBER 31, 1999

         THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND,"
"ESTIMATE" AND OTHER EXPRESSIONS WHICH ARE PREDICTIONS OF OR INDICATE FUTURE
EVENTS AND TRENDS AND WHICH DO NOT RELATE TO HISTORICAL MATTERS IDENTIFY
FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS, INCLUDING BUT NOT LIMITED TO STATEMENTS
REGARDING: FUTURE SALES, POSSIBLE DEVELOPMENT OF NEW PRODUCTS, POSSIBLE
REGULATORY APPROVAL OF ORTHOVISC-REGISTERED TRADEMARK- AND NEW OR POTENTIAL
PRODUCTS, CAPACITY OF MANUFACTURING FACILITIES AND PERFORMANCE UNDER SUPPLY
AGREEMENTS, INCLUDING THOSE WITH ZIMMER, INC. AND BAUSCH AND LOMB SURGICAL. THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENT COULD DIFFER MATERIALLY
FROM ANTICIPATED RESULTS, PERFORMANCE OR ACHIEVEMENT, EXPRESSED OR IMPLIED IN
SUCH FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE ARE DISCUSSED THROUGHOUT THIS ANNUAL REPORT ON FORM 10-K INCLUDING
SECTIONS TITLED "BUSINESS" BEGINNING ON PAGE 2, "RISK FACTORS AND CERTAIN
FACTORS AFFECTING FUTURE OPERATING RESULTS" BEGINNING ON PAGE 19, "MANAGEMENT'S
DISCUSSION AND ANALYSIS IF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
BEGINNING ON PAGE 12 OF THIS FORM 10-K AND ELSEWHERE IN THIS ANNUAL REPORT ON
FORM 10-K. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENT WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.

PART I

ITEM 1.  BUSINESS

         Anika Therapeutics, Inc. ("Anika" or the "Company") 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. 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-Registered Trademark-, which is an HA product used
in the treatment of some forms of osteoarthritis IN humans and HYVISC-Registered
Trademark-, which is an HA product used in the treatment of equine
osteoarthritis. ORTHOVISC-Registered Trademark- is currently approved for sale
and marketed in CANada, Europe, Turkey, Israel and Iceland. In the U.S.
ORTHOVISC-Registered Trademark- is currently limited to investigational use only
and the Company commenced a Phase III clinical trIAL in the U.S. and Canada in
late April 1999 and the final patient completed the six month follow-up period
in late February 2000. The Company manufactures AMVISC-Registered Trademark-1
and AMVISC-Registered Trademark-Plus, which are HA products used as viscoelastic
supplements in ophthalmic surgery, for Bausch & Lomb Surgical, a subsidiary of
Bausch & Lomb. THE Company is currently developing INCERT-Registered Trademark-,
which is an HA based product designed for use in the prevention of post-surgical
adhesions. In collaboration wITH Orquest, Inc., Anika also has exclusive rights
to produce OSSIGEL-Registered Trademark-2, an injectable formulation of basic
fibroblast growth factor combined with HA designed TO accelerate the healing of
bone fractures.

AMVISC PRODUCTS

         AMVISC-Registered Trademark- and AMVISC-Registered Trademark-Plus 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.

         Anika manufactures the AMVISC-Registered Trademark- product line for
Bausch & Lomb Surgical, a unit of Bausch & Lomb Incorporated, under and
exclusive five-year supPLY agreement that has fixed selling prices and stated
minimum annual purchase obligations through December 31, 2001 (the "AMVISC
Supply Contract"). In addition, the Company has granted Bausch & Lomb Surgical a
royalty-free, worldwide, exclusive license to the Company's manufacturing and
product inventions which relate to the AMVISC-Registered Trademark- products,
effective on December 31, 2001, the termination date of the AMVISC Supply
Contract. There can be no assurances that Bausch & Lomb Surgical wILL not seek
renegotiation of the terms of the


--------
1    AMVISC-Registered Trademark- is a registered trademark of Bausch & Lomb
     Incorporated; the parent of Bausch & Lomb Surgical

2    OSSIGEL-Registered Trademark- is a registered trademark of Orquest, Inc.


                                       2

<PAGE>


AMVISC Supply Contract before the expiration of the agreement on terms less
favorable to the Company. Upon expiration of the AMVISC Supply Contract, there
can be no assurance that Bausch & Lomb Surgical will continue to use the Company
to manufacture AMVISC-Registered Trademark- and AMVISC-Registered Trademark-
PLUS. If either of those events were to occur, the Company's business, financial
condition and results of operations could be materially and adversely affected.
See "RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS -
DEPENDENCE ON MARKETING PARTNERS" AND "--RELIANCE ON A SMALL NUMBER OF
CUSTOMERS."

ORTHOVISC

         ORTHOVISC-Registered Trademark- is a high molecular weight, highly
purified HA product designed to relieve pain and improve joint mobility in
patients suffering fROM osteoarthritis of the knee. ORTHOVISC-Registered
Trademark- is delivered by intra-articular injection to supplement and restore
the body's natural HA found in the synovial fluid OF joints.

         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 analgesics,
non-steroidal anti-inflammatory drugs and steroid injections.

         ORTHOVISC-Registered Trademark- is approved for sale and marketed in
Canada, Turkey, Israel and Iceland. In Europe ORTHOVISC-Registered Trademark- is
sold under Communautee European ("CE MArk") authorization. The CE mark, a
certification required under European Union ("EU") medical device regulation,
allows ORTHOVISC-Registered Trademark- to be marketed without furtHER approvals
in most of the EU nations as well as other countries that recognize EU device
regulation.

         In the U.S., ORTHOVISC-Registered Trademark- is limited to
investigational use only. In October 1998 the Company was notified by the U.S.
Food and Drug Administration (THE "FDA") that its Pre-Market Approval
Application ("PMA") was not approvable and that additional clinical data would
be required to demonstrate the effectiveness of ORTHOVISC-Registered Trademark-.
The PMA was submitted to the FDA in December 1997 and contained clinical data
collected from a 226 patient, randomized double blind clinical stUDY completed
in June 1997. In late March 1999, the Company received an Investigational Device
Exemption ("IDE") approval and initiated a second Phase III clinical study. This
trial completed patient enrollment, totaling 385 patients at 22 centers in the
U.S. and Canada, in August 1999. The final patient completed the six month
follow-up period on February 28, 2000. The statistical analysis of the clinical
trials has not yet been completed and the data has not yet been validated.
Furthermore, there can be no assurances that the results of this second Phase
III clinical study will be adequate to demonstrate the effectiveness of
ORTHOVISC-Registered Trademark- to obtain FDA approval.

         The Company has licensed ORTHOVISC-Registered Trademark- marketing and
distribution rights to Zimmer, Inc., a subsidiary of Bristol-Myers Squibb
Company for the territorIES of United States, Canada, Latin America, most of
Europe and Asia. ORTHOVISC-Registered Trademark- is also licensed to Grupo
Ferrer, Inc. for Spain and Portugal, to BiomEKS Pharmaceuticals in Turkey and to
Rafa Laboratories in Israel. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW."

HYVISC

         HYVISC-Registered Trademark- 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-Registered Trademark-
has viscoelastic properties that lubricate and protect the tissues in horse
joints. HYVISC-Registered Trademark- is distributed by Boehringer InGELheim
Vetmedica, Inc. in the United States under an agreement terminating in 2002.


                                       3

<PAGE>


RESEARCH AND DEVELOPMENT OF POTENTIAL PRODUCTS

         As discussed below in the section titled "RISK FACTORS AND CERTAIN
FACTORS AFFECTING FUTURE OPERATING RESULTS - COMPREHENSIVE GOVERNMENT
REGULATION; NO ASSURANCE OF FDA APPROVAL" beginning on page 19, the Company has
not obtained FDA approval for the sales and marketing in the U.S. of the
potential products described below.

INCERT

         INCERT-Registered Trademark- 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 during the wound healing process. Although surgeons attempt to minimize
the formation of adhesions, nevertheless they 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.

         INCERT-Registered Trademark- is placed in a wound site and intended to
serve as a barrier between adjacent tissues. Anika co-owns an issued United
States patent covering THE use of INCERT-Registered Trademark- for adhesion
prevention. The Company has received notification from the U.S. Patent and
Trademark Office ("PTO") that a third party is attemptING to provoke
interference with respect to the Company's patent covering INCERT-Registered
Trademark-. The Company has tested INCERT-Registered Trademark- in pre-clinical
animal studies. Anika cuRREntly plans to commence human testing of
INCERT-Registered Trademark- during 2000. However, the Company has not yet
obtained FDA approval to commence human testing and there can be NO assurances
that it will obtain such approval on a timely basis.

OSSIGEL

         In June of 1997, the Company executed a multi-year collaboration
agreement with Orquest to develop and manufacture OSSIGEL-Registered Trademark-,
a formulation of baSIC fibroblast growth factor and HA designed to accelerate
the healing of bone fractures. Orquest is a privately held orthobiologics
company headquartered in Mountain View, California, and was founded in 1994 to
develop products for bone and cartilage regeneration. OSSIGEL-Registered
Trademark- has been shown in pre-clinical animal models TO accelerate the
healing of bone fractures. Orquest commenced human clinical testing of
OSSIGEL-Registered Trademark- in Europe during 1998. Orquest has filed a patent
application wITH the U.S. Patent and Trademark Office for the use of
OSSIGEL-Registered Trademark- in accelerating fracture healing.

HA FOR NERVE REGENERATION

         The Company is conducting collaborative research with the Lahey Clinic
to study the effect of HA on nerve regeneration. A pre-clinical animal model
demonstrated that the Company's highly purified HA formulation enhanced
peripheral nerve regeneration. The Company is also collaborating with the Lahey
Clinic to study the use of HA in a spinal cord regeneration pre-clinical model.

MANUFACTURING OF HYALURONIC ACID

         The Company has been manufacturing HA since 1983 in its manufacturing
facility located in Woburn, Massachusetts. This facility is approved by the FDA
for the manufacture of medical devices and drugs. The Company has developed a
proprietary HA manufacturing process for the extraction and purification of HA
from rooster combs that yields high molecular weight, highly purified HA.

         A substantial supply of rooster combs is available and the Company
believes that all the other materials required for the manufacture of its HA
products are also readily available from a number of sources. The Company
obtains syringes used to deliver certain of its HA products from a single
supplier; however, it generally keeps sufficient syringes in its inventory to
meet anticipated demand for at least six months. The Company believes that its
facility in Woburn, Massachusetts has the manufacturing capacity to accommodate
anticipated demand through at least 2003.


                                       4

<PAGE>


PATENT AND PROPRIETARY RIGHTS

         The Company has a policy of seeking patent protection for patentable
aspects of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and the Company solely owns patents
covering certain manufacturing processes. The Company also holds an exclusive
license from Tufts University to use technologies claimed in a United States
patent application which has been granted a notice of allowance by the U.S.
Patent Office which relates to the anti-metastasis applications of HA
oligosaccharides. The Company's issued patents expire between 2007 and 2015 and
the license expires upon expiration of all related patents. The Company intends
to seek patent protection with respect to products and processes developed in
the course of its activities when it believes such protection is in its 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 or
licensed patents will provide the Company 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 the Company's patents. The Company's issued patents and any
patents which arise from the Company's licensed application would provide
competitive protection, if at all, only in the United States. To date, the
Company has not pursued foreign patents equivalent to those issued or applied
for in the United States.

         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 the Company will
not infringe the patent rights of others in the future. Any such infringement
may have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the Company has received
notice from the PTO that a third party is attempting to provoke a patent
interference with respect to one of the Company's co-owned patents covering the
use of INCERT-Registered Trademark- FOR post-surgical adhesion prevention.
Although the Company believes that an interference may be declared by the PTO,
it is too early to determine the merits of the interference or the effect, if
any, the interference will have on the Company's sales, use and marketing of
INCERT-Registered Trademark- for this use. The existence of THE interference
proceeding may have a negative impact on the marketing of the INCERT-Registered
Trademark- product, and no assurance can be given that the Company would be
successful IN any such interference proceeding. If the third party interference
were to be decided adversely to the Company, involved claims of the Company's
patent would be cancelled, the Company's sales, use and marketing of the
INCERT-Registered Trademark- product may be materially and adversely affected
and the third party may enforce patent rigHTS against the Company which could
prohibit the sale and use of the INCERT-Registered Trademark- products, which
could have a material adverse effect on the Company's future operatING results.
In addition, the Company has not obtained FDA approval for its INCERT-Registered
Trademark- product and there can be no assurances such approval will be
obtaIned.

         The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such information.
There can be no assurance that these agreements provide meaningful protection or
that they will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how,
and technological advances will not otherwise become known to others. In
addition, there can be no assurance that, despite precautions taken by the
Company, others have not and will not obtain access to the Company's proprietary
technology. Further, there can be no assurance that third parties will not
independently develop substantially equivalent or better technology.

         The Company has granted Bausch & Lomb Surgical a royalty-free,
worldwide, exclusive license to the Company's manufacturing and product
inventions which relate to the AMVISC-Registered Trademark- products, effective
on December 31, 2001, the termination date of the AMVISC Supply Contract. There
can be no assurances that Bausch & LOMB Surgical will not seek renegotiation of
the terms of the AMVISC Supply Contract before the expiration of the agreement
on terms less favorable to the Company. Upon expiration of the AMVISC Supply
Contract, there can be no assurance that Bausch & Lomb Surgical will continue to
use the Company to manufacture AMVISC-Registered Trademark- AND
AMVISC-Registered Trademark-Plus. If Bausch & Lomb Surgical discontinues the use
of the Company as a manufacturer after such time, or seeks renegotiation of its
existing contract, THE Company's business, financial condition and results of
operations could be materially and adversely affected.


                                       5

<PAGE>


GOVERNMENT REGULATION

         Anika's research, development, manufacturing activities and the future
marketing of products by Anika are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, devices and drugs are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act governs the testing, manufacture, labeling, storage,
record keeping, approval, advertising and promotion of Anika's products.

         Product development and approval within the FDA regulatory framework
takes a number of years and involves the expenditure of substantial resources to
demonstrate safety and effectiveness. There can be no assurance that this
regulatory framework will not change or that additional regulation will not
arise at any stage of Anika's product development process which may affect
approval of or delay an application or require additional expenditures by Anika.

         Furthermore, Anika or the FDA may suspend clinical trials at any time
upon a determination that the subjects or patients are being exposed to an
unacceptable adverse health risk ascribable to Anika's products. If clinical
studies are suspended, Anika may be unable to continue the development of the
investigational products affected.

         In addition to the FDA approval processes for products, manufacturing
facilities are subject to approval by the FDA. Among the conditions for such
approval is the requirement that quality control and manufacturing procedures
conform to the FDA's Good Manufacturing Practices regulations, which must be
followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full technical compliance.
Manufacturing establishments also are subject to inspections by or under the
authority of the FDA and by other federal, state or local agencies.

         In addition to regulations enforced by the FDA, Anika is 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 potential future federal, state and local
regulations of foreign governments. Federal, state and foreign regulations
regarding the manufacture and sale of medical products are subject to change.
Anika cannot predict what impact, if any, such changes might have on its
business.

         For marketing outside the United States, Anika will continue to be
subject to FDA regulations regarding the export of products within its
jurisdiction and to foreign regulatory requirements governing human clinical
trials and marketing approval for medical products and devices. The requirements
relating to the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country. The process of obtaining
approvals from the FDA and foreign regulatory authorities can be costly, time
consuming, and subject to unanticipated delays. There can be no assurance that
approvals of Anika's products, processes or facilities will be granted or that
Anika will obtain the financing needed to develop certain of such products. Any
failure or delay in obtaining, such approvals could adversely affect the ability
of Anika to market its products in other countries.

         Medical products regulated by the FDA are generally classified as
drugs, biologics, and/or medical devices. AMVISC-Registered Trademark- is
approved as a Class III device IN the United States for ophthalmic surgical
procedures in intraocular use in humans. HYVISC-Registered Trademark- 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 have been regulated as medical devices. Anika believes that if FDA
approval is obtained, its ORTHOVISC-Registered Trademark- for osteoarthritis and
INCERT-Registered Trademark- products will have to meet the regulatory
requirements of Class III devices.

DEVICES

         The steps required to qualify a medical device for marketing in the
United States are complex. Medical devices are classified as Class I, II, or III
devices. In general, Class I devices require compliance with labeling and record
keeping regulations and are subject to other general controls. Class II devices
may be subject to special controls, such as market surveillance and are subject
to general controls. Class II devices also may be subject to clinical testing
for purposes of premarket notification to the FDA. Class III devices require
clinical testing to assure safety and effectiveness prior to marketing and
distribution.


                                       6

<PAGE>



         At least 90 days prior to marketing, devices must be subject to a
premarket notification to the FDA to determine the product's classification and
regulatory status. If a product is found to be "substantially equivalent" to a
Class I or Class II device, or a Class III device not subject to a PMA
requirement, it may be marketed without further FDA review. However, none of the
Company's products have been found to be "substantially equivalent" to a Class I
or Class II device, nor have any of them been found to be a Class III device not
subject to a PMA requirement. The FDA may require the submission of clinical
data as a basis for determining whether a device is "substantially equivalent."
If a device is found to be "not substantially equivalent," the device
manufacturer must file a PMA application with the FDA based on testing intended
to demonstrate that the product is both safe and effective. HA-based products
have in the past and will likely continue to require the issuance of a PMA from
the FDA prior to commercial sale.

         The PMA process requires the performance of human clinical studies
under an IDE. Upon completion of required clinical studies, 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 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 staff then determines whether to accept the
application for filing. If accepted for filing, the application is further
reviewed by the FDA and then often reviewed by an FDA scientific advisory panel
of physicians and others with expertise in the relevant field. The FDA will also
conduct an inspection to determine whether an applicant conforms with the FDA's
current Quality Systems Regulations. If the FDA's evaluation is favorable, the
FDA will subsequently publish an order granting the PMA for the device. Although
the initial PMA review process is required to be completed within 180 days from
the date of the PMA application is accepted for filing, the FDA in many cases
raises additional issues which must be addressed prior to the approval of a PMA,
which may significantly extend the review process.

DRUGS

         Medical devices may meet both the definition of a medical device and a
drug. In these instances, the FDA may regulate these products as drugs or
biologics or as both medical devices and drugs or biologics. The steps required
before a drug or biologic may be marketed in the United States include (i)
preclinical laboratory and animal tests; (ii) submission to the FDA of an
Investigational New Drug application ("IND"), which must become effective before
human clinical trials may commence; (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug; (iv)
submission of a New Drug Application ("NDA") or Biologics License Application
("BLA") to the FDA and (v) FDA approval of the NDA or BLA prior to any
commercial sales or shipment of the drug. A clinical study program designed to
demonstrate the safety and effectiveness of a drug usually proceeds in three
phases:

         -    Phase I involves testing the drug for safety and tolerance in a
              small group of healthy volunteers.

         -    Phase II involves testing for efficacy and identifying possible
              side effects in a target patient group.

         -    Phase III involves additional testing for efficacy, optimal dosage
              and safety with an expanded patient group, preferably using a
              comparative control agent.

         The results of the clinical testing, together with manufacturing
information, are then submitted to the FDA in the form of an NDA or a PLA.
Anika's HA products have not historically been classified as drugs or biologics.
In the event, however, Anika's products are classified in the future as drugs or
biologics, it may take five to ten years from discovery to approval, which
typically would be substantially longer than the development process for devices
and would be substantially more expensive.

COMPETITION

         The Company competes 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 the Company.
The Company also competes with academic institutions, governmental agencies and
other research organizations which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete successful clinical studies and obtain FDA


                                       7

<PAGE>


marketing and foreign regulatory approvals prior to its competitors. There can
be no assurance that the Company will be able to compete against current or
future competitors or that competition will not have a material adverse effect
on the Company's business, financial condition and results of operations.

         The Company is aware of several companies, including Genzyme Corp.
(which announced March 6, 2000 that it will be acquiring Biomatrix, Inc.),
Biomatrix, Inc., Hyal Pharmaceutical Corp., Fidia S.P.A., LifeCore Biomedical,
Inc. and Seikagaku, that are developing and/or marketing products utilizing HA
for a variety of human applications. In some cases, competitors have obtained
product approvals, submitted applications for approval or have commenced human
clinical studies, either in the United States or in certain foreign countries.
Major competing products for the use of HA in ophthalmic surgery include Healon
(manufactured by Pharmacia) and Provisc and Viscoat (distributed by Alcon). In
the U.S., two HA products for the treatment of osteoarthritis in the knee,
Hyalgan and Synvisc, have received FDA approval and have been marketed in the
U.S. since the fourth quarter of 1997. Hyalgan is manufactured by Fidia S.P.A.
and is distributed in the United States by Sanofi Pharmaceuticals and OrthoLogic
Corp. In addition, Fidia S.P.A. is selling the product throughout Europe.
Synvisc is manufactured by Biomatrix Inc. and is distributed in the United
States by Wyeth-Ayerst Laboratories, a division of American Home Products Corp.
Synvisc is also marketed in Canada, Europe, Latin America, Australia and other
countries. Artz is manufactured by Seikagaku Corporation and is distributed in
Japan, Spain, Sweden and other countries. Genzyme has received marketing
approvals in Europe and the U.S. for a chemically modified HA for the prevention
of post-surgical adhesions under the brand name of Seprafilm. LifeCore
Biomedical has completed a Phase III human clinical trial on its HA product
INTERGEL-TM- to prevent surgical adhesioNS and has filed a PMA with the FDA.
Smith & Nephew has licensed Supartz from Seikagako Corporation for distribution
in the U.S. and other countries.

RESEARCH AND DEVELOPMENT

         The Company intends to continue development of its existing product
candidates, to expand the therapeutic applications of its existing products and
to develop new therapeutic applications for its HA-based technology.

         The Company's research and development efforts consist primarily of the
development of new medical applications for its HA-based technology and the
management of clinical trials for product candidates and the preparation and
processing of applications for regulatory approvals at all relevant stages of
development. The Company's development of new products is accomplished primarily
through in-house research and development personnel and resources as well as
with collaboration with other companies and scientific researchers. For the
years ended December 31, 1999, 1998 and 1997, research and development expenses
were $4.2 million, $2.0 million and $2.0 million, respectively. The Company
anticipates that it will continue to commit substantial resources to research,
and development in the future. As of December 31, 1999 the Company had twelve
employees engaged primarily in research and development.

         There can be no assurances that the Company's efforts will be
successful in developing its existing product candidates, expanding the
therapeutic applications of its existing products or result in new applications
for its HA technology or that the Company will be able to obtain regulatory
approval for any new applications it develops.

EMPLOYEES

         As of December 31, 1999, the Company had approximately 73 full-time
employees. The Company considers its relations with its employees to be good. No
employees are represented by labor unions.

ENVIRONMENTAL LAWS

         The Company believes that it is in compliance with all federal, state
and local environmental regulations with respect to its manufacturing facilities
and that the cost of ongoing compliance with such regulations does not have a
material effect on the Company's operations. The Company's leased manufacturing
facility is located within the Wells G&H Superfund site in Woburn, MA. The
Company has not been named and is not a party to any such legal proceedings
regarding the Wells G&H Superfund site.


                                       8

<PAGE>


PRODUCT LIABILITY

         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 the
Company. Although the Company has not received any material product liability
claims to date and has coverage under its insurance policy of $1,000,000 per
occurrence and $5,000,000 in aggregate, there can be no assurance if material
claims arise in the future, that the Company's 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 commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition and results of operation.

ITEM 2. PROPERTIES

         The Company leases 35,000 square feet of space at 236 West Cummings
Park, Woburn, Massachusetts for its corporate headquarters and manufacturing
facility. This facility has received all FDA and state regulatory approvals to
operate as a sterile device and drug manufacturer. The lease for this facility
terminates in February 2004. The Company also leases (i) approximately 11,000
square feet of administrative and research and development space in Woburn,
Massachusetts under a lease terminating in October 2001 and (ii) approximately
9,000 square feet of warehouse space in Woburn, Massachusetts under a lease
terminating in January 2004. For the year ended December 31, 1999 the Company
had aggregate lease costs of approximately $489,000. Anika believes that its
existing facilities are adequate to meet its requirements through 2003.

ITEM 3. LEGAL PROCEEDINGS

         The Company has no material pending litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of the security holders during the
fourth quarter of the fiscal year covered by this report.


                                       9

<PAGE>


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK INFORMATION

         The Company's common stock par value $0.01 per share (the "Common
Stock") has traded on the Nasdaq National Market since November 25, 1997 under
the symbol "ANIK". The following table sets forth, for the periods indicated,
the high and low sale prices of the 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 represent actual transactions.


<TABLE>
<CAPTION>

                                                        PRICE RANGE
FISCAL YEAR ENDED DECEMBER 31, 1998                        HIGH          LOW
-----------------------------------                        ----          ---
<S>                                                       <C>            <C>
First Quarter...........................................  $10.13         $7.25
Second Quarter..........................................   15.00          9.56
Third Quarter...........................................   18.19         13.00
Fourth Quarter..........................................   12.38          3.94

</TABLE>


<TABLE>
<CAPTION>

                                                        PRICE RANGE
FISCAL YEAR ENDED DECEMBER 31, 1999                        HIGH          LOW
-----------------------------------                        ----          ---
<S>                                                       <C>            <C>
First Quarter............................................  $5.50        $4.50
Second Quarter...........................................   9.00         4.69
Third Quarter............................................   8.75         5.00
Fourth Quarter...........................................   7.69         5.50

</TABLE>


         At December 31, 1999, there were 319 holders of record of Common Stock.

         The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, for use in its
business and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Payment of future dividends, if any, on the Common Stock
will be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's financial condition, operating
results, anticipated cash needs and plans for expansion.


                                       10

<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

                         STATEMENTS OF OPERATIONS DATA:
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                               FOUR-MONTH
                                                                              TRANSITIONAL
                                                       YEARS ENDED            PERIOD ENDED
                                                        DECEMBER 31,           DECEMBER 31,   YEARS ENDED AUGUST 31,
                                              -------------------------------  ------------   ----------------------
                                                1999        1998       1997       1996          1996        1995
                                              --------    --------   --------   --------      --------    --------
                                                       (AS RESTATED)
<S>                                           <C>         <C>        <C>        <C>           <C>         <C>
Total revenue .............................   $ 13,483    $ 13,273   $ 11,955   $  1,212      $  4,613    $  3,356
Cost of sales .............................      6,440       6,014      4,744      1,309         4,472       3,118
Gross profit (loss) .......................      7,042       7,259      7,211        (97)          141         238
Total operating expenses ..................      7,184       4,687      4,050      2,619         3,104       2,222
Income (loss) before cumulative effect of
  change in accounting principle ..........      1,129       3,752      3,344     (2,658)       (2,849)     (1,955)
Cumulative effect of change in accounting
  principle ...............................     (3,625)         --         --         --            --          --
                                              --------    --------   --------   --------      --------    --------
Net income (loss) .........................   $ (2,496)   $  3,752   $  3,344   $ (2,658)     $ (2,849)   $ (1,955)
                                              --------    --------   --------   --------      --------    --------
                                              --------    --------   --------   --------      --------    --------

Diluted income (loss) per common share:
  Income (loss) before cumulative effect of
  change in accounting principle ..........   $   0.11    $   0.34   $   0.44   $  (0.56)     $  (0.76)   $  (0.63)
  Cumulative effect of change in accounting
  principle ...............................      (0.35)         --         --         --            --          --
                                              --------    --------   --------   --------      --------    --------
  Net income (loss) .......................   $  (0.24)   $   0.34   $   0.44   $  (0.56)     $  (0.76)   $  (0.63)
                                              --------    --------   --------   --------      --------    --------
                                              --------    --------   --------   --------      --------    --------
Diluted common shares outstanding .........     10,221      11,006      7,587      4,905         4,053       3,225

</TABLE>

                               BALANCE SHEET DATA:

<TABLE>
<CAPTION>

                                                         DECEMBER 31,                          AUGUST 31,
                                         --------------------------------------------    --------------------
                                           1999        1998       1997         1996         1996       1995
                                         --------    --------   --------     --------    --------    --------
                                                  (AS RESTATED)
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Cash and cash equivalents ............   $  6,441    $ 10,713    $ 22,680    $  2,705    $  3,651    $  2,825
Investments ..........................     13,743      12,008          --          --          --          --
Working capital ......................     18,973      26,480      25,329       4,226       5,858       4,972
Total assets .........................     32,511      32,393      28,749       6,920       8,580       8,046
Redeemable convertible preferred stock         --          --          --       2,603       2,523       2,326
Accumulated deficit ..................     (4,773)     (2,277)     (6,029)     (9,374)     (6,716)     (3,867)
Treasury stock .......................       (960)     (1,890)         --          --          --          --
Stockholder's equity .................   $ 25,712    $ 29,298    $ 26,224    $  2,369    $  4,415    $  3,544

</TABLE>


                                       11

<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF ANIKA THERAPEUTICS, INC. AND THE NOTES
THERETO APPEARING ELSEWHERE HEREIN.

OVERVIEW

         The Company 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.
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-Registered
Trademark-, which is an HA product used in the treatment of some forms of
osteoarthritis in humans and HYVISC-Registered Trademark-, which is an HA
product USEd in the treatment of equine osteoarthritis. ORTHOVISC-Registered
Trademark- is currently approved for sale and marketed in Canada, Europe,
Turkey, Israel and Iceland. In the U.S., ORTHOVISC-Registered Trademark- is
currently limited to investigational use only, and the Company commenced a Phase
III clinical trial in the U.S. and Canada in April 1999 and THE final patient
completed the six month follow-up period in late February 2000. The Company
manufactures AMVISC-Registered Trademark- and AMVISC-Registered Trademark-Plus,
which are HA products USEd as viscoelastic supplements in ophthalmic surgery,
for Bausch & Lomb Surgical. The Company is currently developing
INCERT-Registered Trademark-, which is an HA based product designed FOR use in
the prevention of post-surgical adhesions. In collaboration with Orquest, Inc.,
Anika also has exclusive rights to produce OSSIGEL-Registered Trademark-; an
injectaBLE formulation of basic fibroblast growth factor combined with HA
designed to accelerate the healing of bone fractures.

         The Company receives a substantial portion of its revenue from the sale
of AMVISC-Registered Trademark- and AMVISC-Registered Trademark-Plus to Bausch &
Lomb Surgical. For the yearS Ended December 31, 1999 and 1998, AMVISC-Registered
Trademark- sales accounted for 63.9% and 68.7% of product revenue, respectively.

         The Company manufactures AMVISC-Registered Trademark- for Bausch & Lomb
Surgical under a five-year supply contract that became effective on January 1,
1997 and expires ON December 31, 2001. Bausch & Lomb Surgical assumed the AMVISC
Supply Contract when it purchased Chiron Vision in January 1998. The current
AMVISC Supply Contract has stated minimums with substantially higher unit
selling prices than a previous six-year supply contract with Chiron Vision which
expired on December 31, 1996. Under the previous supply contract, the Company
was obligated to supply AMVISC-Registered Trademark- at unit selling prices that
approximated the Company's unit manufacturing coST. (See "RISK FACTORS AND
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS--DEPENDENCE UPON MARKETING
PARTNERS" beginning on page 21.)

         In November 1997, the Company entered into a long-term distribution
agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company, that
was subsequently amended in June 1998 and June 1999, (the "Zimmer Distribution
Contract"). The Zimmer Distribution Contract provides Zimmer with exclusive
marketing and distribution rights to ORTHOVISC-Registered Trademark- in the
United States, Canada, Latin America, Asia and most of Europe. To date the
Company has received up-frONT non-refundable licensing payments totaling $4.0
million. In addition, under the Zimmer Distribution Contract, the Company has
the potential to receive additional payments aggregating up to $19.5 million
upon the achievement of certain regulatory approvals, reimbursement approvals
and enumerated sales milestones. As an alternative to a $2.5 million milestone
payment due upon FDA approval for the U.S. Market, Zimmer has the right to elect
to acquire shares of the Company's common stock equal to the greater of: (a)
$2,500,000 divided by 125% of the average daily closing price of the Common
Stock for the prior sixty (60) calendar days or (b) 9.9% of the then outstanding
common stock (but not to exceed 19.9% of the then outstanding common stock).
There can be no assurance that any of such milestones will be met on a timely
basis or at all. In addition, Zimmer has the right to terminate the Zimmer
Distribution Contract within sixty (60) days of the occurrence of any of the
following events: (i) ORTHOVISC-Registered Trademark- is not approved by the FDA
by January 1, 2001, (ii) there is a material recall of ORTHOVISC-Registered
Trademark-, (iii) ZimmeR'S net sales of ORTHOVISC-Registered Trademark- failed
to meet the minimums specified in the Zimmer Distribution Contract for two
consecutive years beginning with the calendar year of 1998 or (iv) a court of
competent jurisdiction rules that ORTHOVISC-Registered Trademark- or any of its
related patents is infringing the patents or proprietary rights of a third
parTY. For the years ended December 31, 1999 and 1998, ORTHOVISC-Registered
Trademark- sales to Zimmer accounted for 2.8% and 10.3%, respectively, of
product revenue.


                                       12

<PAGE>


         As a result of an informal inquiry from the Securities and Exchange
Commission, the Company and its independent auditors conducted a review of its
revenue recognition policy for revenue received from the Zimmer Distribution
Contract. As a result of this review, and after consultation with the SEC, Anika
revised its revenue recognition policy for ORTHOVISC-Registered Trademark- sales
to Zimmer and restated its operating results for 1998 and the first three
quarters of 1999. Under THE revised revenue recognition policy, revenue will be
recognized at the time of shipment to Zimmer based upon the minimum per unit
price under the Zimmer Distribution Contract at the time of sale to Zimmer.
Anika had previously recognized revenue for ORTHOVISC-Registered Trademark-
sales to Zimmer based upon an estimate of the averAGE selling price which would
be obtained by Zimmer upon sale of the ORTHOVISC-Registered Trademark- to its
customers, as specified under the Zimmer Distribution Contract. Any additioNAL
amounts earned by Anika above the contractual minimum per unit price will be
recognized when Zimmer sells the ORTHOVISC-Registered Trademark- to its
customers and Anika is able TO determine its share of the actual per unit sales
price. Anika had also recognized revenue in 1998 and the first three quarters of
1999 for ORTHOVISC-Registered Trademark- which WAS held in its refrigerators at
Zimmer's request. Under the Company's revised revenue recognition policy, this
revenue will be recorded when the ORTHOVISC-Registered Trademark- IS shipped to
Zimmer. Amounts paid by Zimmer in excess of the amount recognized under the
revised revenue recognition policy is recorded by Anika as deferred revenue and
amounted to $1,420,000 at December 31, 1999. (See Note 2 of Financial
Statements.)

         The Company also adopted the provisions of SEC Staff Accounting
Bulletin 101 (SAB 101) in its restated 1999 operating results. The issuance
of SAB 101 in December 1999 changed revenue recognition practices for
non-refundable up-front payments received as part of broad supply,
distribution and marketing agreements, and is applicable to $2,500,000 and
$1,500,000, respectively, received from Zimmer in the fourth quarter of 1997
and the second quarter of 1998. These amounts were previously recognized in
the period received. In accordance with SAB 101, the company has
retroactively recorded the cumulative effect of the change in accounting
principle of $3,625,000 as a charge in the first quarter of 1999. These
payments will be recognized as revenue ratably over the 10-year term of the
distribution agreement including $400,000 recognized in 1999. The amount
received and deferred to future periods is $3,225,000 at December 31, 1999
and is included in deferred revenue.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 (AS
RESTATED)

                         STATEMENT OF OPERATIONS DETAIL

<TABLE>
<CAPTION>


                                                              YEARS ENDED DECEMBER 31,
                                                            ---------------------------
                                                               1999            1998
                                                            -----------    ------------
                                                                           (AS RESTATED)
<S>                                                         <C>            <C>
Product revenue ..........................................  $13,082,662    $ 11,773,343
Licensing fees ...........................................      400,000       1,500,000
                                                            -----------    ------------
 Total revenue ..........................................    13,482,662      13,273,343
Cost of product revenue ..................................    6,440,166       6,014,181
                                                            -----------    ------------
 Gross profit ...........................................     7,042,496       7,259,162
Operating expenses:
 Research and development ...............................     4,154,479       1,955,940
 Selling, general and administrative ....................     3,029,394       2,731,142
                                                            -----------    ------------
 Total operating expenses ...............................     7,183,873       4,687,082
                                                            -----------    ------------
 Income (loss) from operations ..........................      (141,377)      2,572,080
 Interest income, net ...................................     1,068,430       1,307,825
 Gain on sale of securities .............................       233,633              --
                                                            -----------    ------------
 Income before income taxes .............................     1,160,686       3,879,905
 Income taxes ...........................................        31,412         127,557
                                                            -----------    ------------
Income before cumulative effect of change in
 accounting principle ...................................     1,129,274       3,752,348
Cumulative effect of change in accounting principle .....    (3,625,000)             --
                                                            -----------    ------------
 Net income (loss) ......................................   $(2,495,726)    $ 3,752,348
                                                            -----------    ------------
                                                            -----------    ------------

</TABLE>


                                       13

<PAGE>


         PRODUCT REVENUE. Product revenue for the year ended December 31,
1999 was $13,082,662 an increase of $1,309,319 or 11.1%, over the $11,773,343
recorded in the prior year. The increase was primarily attributable to an
increase of $805,352 or 22.0% in sales of ORTHOVISC-Registered Trademark-. At
Zimmer's request, the Company has been holding an inventory of
ORTHOVISC-Registered Trademark- in its refrigerators for purchase orders
placed by Zimmer in 1999 for Zimmer's anticipated future sales. The Company
will record revenue for this Orthovisc when shipped to Zimmer. There can be
no assurance that Zimmer will place additional orders in the year 2000. Under
the Zimmer Distribution Contract, Zimmer or the Company has the right to
terminate the contract if Zimmer's sales of ORTHOVISC-Registered Trademark-
fail to meet specified minimums for 1998 and 1999. Zimmer was below the
minimum for 1998 and the Company expects Zimmer'S sales to be below the
minimum for 1999. There can be no assurance that Zimmer will not terminate
the contract. See "RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE
OPERATING RESULTS--RELIANCE ON A SMALL NUMBER OF CUSTOMERS." Sales of
AMVISC-Registered Trademark- products also increased by $294,606 or 3.7%.

         LICENSING FEES. For the year ended December 31, 1999, licensing fees of
$400,000 represent the annual amortization of amounts received in 1997 and 1998,
in accordance with the Company's change in accounting for such fees. The
$1,500,000 included in licensing fees in 1998 was received from Zimmer for the
extension of marketing rights for ORTHOVISC-Registered Trademark- to include
most of Europe and Latin America under the Zimmer Distribution Agreement. This
amount, along with $2,500,000 received in 1997, underlies the charge against
earnings in 1999 under the caption "Cumulative effect of change in accounting
principle."

         GROSS PROFIT. Gross profit for the year ended December 31, 1999 was
$7,042,496, a decrease of $216,666 or 3.0% from $7,259,162 recorded in the prior
year. The decrease was primarily due to the decrease in licensing fees. Gross
profit from product revenues increased as a percentage of product revenue to
50.8% for the year ended December 31, 1999 as compared to 48.9% in the prior
year. The increase in the gross profit percentage on product revenues primarily
reflects the impact of capital spending and resulting scale-up costs during 1998
and 1999 to increase manufacturing capacity and other efforts to improve
efficiencies.

         RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 1999 increased by $2,198,539 to $4,154,479 from
$1,955,940 recorded in the prior year. The increase in research and development
during 1999 was primarily for the cost of ORTHOVISC-Registered Trademark- Phase
III trials. The Company expeCTS to incur approximately $700,000 over the next
three quarters to complete the trial.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the year ended December 31, 1999 increased by
$298,252 or 10.9% to $3,029,394 from $2,731,142 in the prior year. The increase
was primarily attributable to ORTHOVISC-Registered Trademark- selling and
marketing costs, headcount increases and THE amortization of deferred stock
compensation.

         NET INTEREST INCOME AND GAIN ON SALE OF SECURITIES. The Company's net
interest income decreased by $239,395 to $1,068,430 for the year ended December
31, 1999 from $1,307,825 in the prior year. The decrease is attributable to
lower average cash balances on hand in 1999 versus 1998 and lower average
interest rates. During the fourth quarter of 1999, the Company recorded a gain
of approximately $233,633, net of expenses, on the sale of equity securities
purchased in the second quarter of 1999.

         INCOME TAXES. The Company recorded tax expense for the year ended
December 31, 1999 of $31,412 and $127,557 for the year ended December 31,
1998. The Company has utilized net operating loss and credit carryforwards to
offset taxable income earned during these years. The Company has no net
operating loss carryforwards available for federal income tax purposes after
1999. For state income taxes, the Company has net operating loss
carryforwards of $1,403,000 which may be used to offset future state income
taxes, if any.

                                       14

<PAGE>


YEAR ENDED DECEMBER 31, 1998 (AS RESTATED) COMPARED TO YEAR ENDED DECEMBER 31,
1997

                         STATEMENT OF OPERATIONS DETAIL

<TABLE>
<CAPTION>

                                         YEARS ENDED DECEMBER 31,
                                        --------------------------
                                           1998           1997
                                        -----------   ------------
                                       (AS RESTATED)
<S>                                     <C>           <C>
Product revenue .....................   $11,773,343   $ 9,255,338
Licensing fees ......................     1,500,000     2,700,000
                                        -----------   ------------
  Total revenue .....................    13,273,343    11,955,338
Cost of product revenue .............     6,014,181     4,744,123
                                        -----------   ------------
  Gross profit ......................     7,259,162     7,211,215
Operating expenses:
  Research and development ..........     1,955,940     1,957,796
  Selling, general and administrative     2,731,142     2,092,467
                                        -----------   ------------
  Total operating expenses ..........     4,687,082     4,050,263
                                        -----------   ------------
  Income from operations ............     2,572,080     3,160,952
  Interest income, net ..............     1,307,825       262,162
                                        -----------   ------------
  Income before income taxes ........     3,879,905     3,423,114
  Income taxes ......................       127,557        78,677
                                        -----------   ------------
      Net income ....................   $ 3,752,348   $ 3,344,437
                                        -----------   ------------
                                        -----------   ------------

</TABLE>


         PRODUCT REVENUE. Product revenue for the year ended December 31, 1998
was $11,773,343 an increase of $2,518,005, or 27.2%, over the $9,255,338
recorded in the prior year. The increase was primarily attributable to an
increase of $2,322,317 or 172.8% in sales of ORTHOVISC-Registered Trademark-.
Sales of AMVISC-Registered Trademark- products also inCREased by $280,662 or
3.6%.

         LICENSING FEES. Licensing fees of $1,500,000 and $2,700,000 were
received for the years ended December 31, 1998 and 1997, respectively. During
1998, the Company received a non-refundable $1.5 million licensing payment from
Zimmer for the expansion of territories under the Zimmer Distribution Agreement.
During 1997, the Company received a non-refundable $2.5 million licensing
payment from Zimmer for ORTHOVISC-Registered Trademark- distribution rights and
$200,000 from Orquest for THE development of OSSIGEL-Registered Trademark-. The
payments under the Zimmer Distribution Agreement underly the 1999 charge against
earnings under the caption "Cumulative effect OF change in accounting
principle."

         GROSS PROFIT. Gross profit for the year ended December 31, 1998 was
$7,259,162 an increase of $47,947 or .7% over the $7,211,215 recorded in the
prior year. The increase was primarily due to the increase in product revenue
and the gross profit percentage on product revenue partially offset by a
decrease in licensing fee. Gross profit from product revenues increased as a
percentage of product revenue to 48.9% for the year ended December 31, 1998 as
compared to 48.7% in the prior year.

         RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 1998 decreased by $1,856 to $1,955,940 from $1,957,796
recorded in the prior year. An increase in research and development staffing
during 1998 was offset by a reduction in ORTHOVISC-Registered Trademark-
regulatory and clinical cosTS. The Company expects that research and development
expenses will increase substantially during 1999 due to ORTHOVISC-Registered
Trademark- clinical trial costs.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the year ended December 31, 1998, increased by
$638,675, or 30.5%, to $2,731,142 from $2,092,467 in the prior year. The
increase was primarily attributable to increases in consulting, recruiting,
selling and marketing costs and the amortization of unearned stock compensation.

         NET INTEREST INCOME. The Company's net interest income increased by
$1,045,663 to $1,307,825 for the year ended December 31, 1998 from $262,162 in
the prior year. The increase is attributable to an increase in average cash
available for investment during the 1998 as compared to 1997, as a result the
Company's December 1997 stock offering.


                                       15

<PAGE>


         INCOME TAXES. The Company recorded an effective tax rate of 3.2% for
1998 versus 2.3% for the prior year. The Company utilized net operating loss
carryforwards to offset taxable income generated during these years.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996


                         STATEMENT OF OPERATIONS DETAIL

<TABLE>
<CAPTION>

                                           YEARS ENDED DECEMBER 31,
                                        ----------------------------
                                           1997             1996
                                        ------------    ------------
                                                         (UNAUDITED)
<S>                                     <C>             <C>
Product revenue .....................   $  9,255,338    $  4,633,743
Licensing fees ......................      2,700,000              --
                                        ------------    ------------
  Net revenue .......................     11,955,338       4,633,743
  Cost of product revenue ...........      4,744,123       4,517,591
                                        ------------    ------------
Gross profit ........................      7,211,215         116,152
                                        ------------    ------------
Operating expenses:
  Research and development ..........      1,957,796       2,488,657
  Selling, general and administrative      2,092,467       2,393,623
                                        ------------    ------------
  Total operating expenses ..........      4,050,263       4,882,280
                                        ------------    ------------
  Income (loss) from operations .....      3,160,952      (4,766,128)
  Interest income, net ..............       (262,162)       (166,908)
                                        ------------    ------------
  Income (loss) before income taxes .      3,423,114      (4,599,220)
  Income taxes ......................         78,677              --
                                        ------------    ------------
      Net income (loss) .............   $  3,344,437    $ (4,599,220)
                                        ------------    ------------
                                        ------------    ------------

</TABLE>

         PRODUCT REVENUE. Product revenue for the year ended December 31, 1997
was $9,255,338 an increase of $4,621,595 or 99.7% over the $4,633,743 in the
prior year. The increase was primarily attributable to increased
AMVISC-Registered Trademark- sales. Sales of AMVISC-Registered Trademark- as
measured in units increased by 6.5% while the average sellinG Price of
AMVISC-Registered Trademark- increased by 70% under the new AMVISC Supply
Contract. Future increased selling prices under the AMVISC Supply Contract will
be limited to annUAL adjustment based on the producer price index.

         LICENSING FEES. Licensing fees of $2,700,000 were received for the year
ended December 31, 1997. The Company received a $2.5 million licensing payment
from Zimmer for ORTHOVISC-Registered Trademark- distribution rights and $200,000
from Orquest for the development of OSSIGEL-Registered Trademark-.

         GROSS PROFIT. The Company's gross profit for the year ended December
31, 1997 was $7,211,215 an increase of $7,095,063 over the $116,152 recorded in
the prior year. The increase was primarily due to the 70% increase in the
average unit selling price of AMVISC-Registered Trademark- under the new AMVISC
Supply Contract, increased saLES volume of ORTHOVISC-Registered Trademark- and
the $2,700,000 licensing fee received in 1997. Gross profit from product
revenues increased as a percentage of product revenues to 48.7% for the year
ended December 31, 1997 as compared to 2.5% in the prior year due primarily to
the increase in average unit selling price of AMVISC-Registered Trademark-.

         RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 1997 decreased by $530,861, or 21.3% to $1,957,796 from
$2,488,657 recorded in the prior year. The decrease was primarily due to a
reduction in expenses associated with the ORTHOVISC-Registered Trademark-
clinical trial which was compleTED in June 1997.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the year ended December 31, 1997, decreased by
$301,156, or 12.6%, to $2,092,467 from $2,393,623 in the prior year. Staffing
levels were substantially the same for each of these years. The decrease is
primarily attributable to severance payments to the Company's former president
incurred in 1996 and a $544,000 write-off of leasehold improvements and lease
expenses resulting from the closing of one of the Company's facilities in 1996
which was partially offset by an increase in general expense levels in 1997.


                                       16

<PAGE>


         NET INTEREST INCOME. The Company's net interest income increased to
$262,162, or 56.9%, in the year ended December 31, 1997 from $166,908 in the
prior year. The increase is attributable to an increase in average cash
available for investment in the year ended December 31, 1997 as compared to
1996.

         TAX EXPENSE. The Company recorded tax expense for the year ended
December 31, 1997 of approximately $78,677, or 2.3% of pretax income. Net
operating loss carryforwards were utilized to offset taxable income generated
during the year. At December 31, 1997 the company has a remaining tax benefit of
$3,256,000 from net operating loss carryforwards to offset future tax expense.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1999, the Company had cash, cash equivalents and short
and long-term investments of $20.2 million and working capital of $19.0 million
versus cash, cash equivalents and short-term investments of $22.7 million and
working capital of $26.5 million at December 31, 1998. During 1999, the Company
made investments of $5.6 million in long-term marketable securities, consisting
of commercial paper. Also during 1999, the Company generated approximately
$813,000 of cash from operating activities, which consisted primarily of the net
loss adjusted for depreciation and amortization and by changes in other working
capital items. Cash flow from working capital items includes a positive $3.8
million in 1999 for deferred revenue arising from the revenue restatements
discussed above.

         During 1999, the Company utilized $1,740,000 for capital expenditures,
primarily for the expansion of its manufacturing facility. The Company expects
to continue to incur costs during 2000 to complete the expansion of its
manufacturing facility to meet currently expected demand through the year 2003.

         In October 1998, the Board of Directors approved a stock repurchase
program under which the Company was authorized to repurchase up to $4 million of
Anika common stock with the total number of shares repurchased under the plan
not to exceed 9.9% of the total issued and outstanding shares. Through December
31, 1999, the Company had repurchased 762,100 shares at an average cost per
share of $5.08 for an aggregate cash purchase price of approximately $3,873,000.
During the years ended December 31, 1999 and 1998 the Company received $516,000
and $1,071,000 respectively from the exercise of stock options and warrants.

         In December 1997, the Company completed a secondary public offering of
2,725,000 shares of Common Stock that resulted in net proceeds to the Company of
approximately $17 million.

         The Company believes that its cash on hand will be sufficient to meet
its operating requirements until December 2001. Expenditures required to fund
the ORTHOVISC-Registered Trademark- clinical trial will adversely impact the
Company's financial results in 2000.

         The Company's future capital requirements and the adequacy of available
funds will depend, however, on numerous factors, including market acceptance of
its existing and future products, the successful commercialization of products
in development, progress in its product development efforts, the magnitude and
scope of such efforts, progress with preclinical studies, clinical trials and
product clearances by the FDA and other agencies, the cost, timing requirements
of its efforts to expand its manufacturing capabilities, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, and the
development of strategic alliances for the marketing of certain of its products.
Although the Company achieved profitability for the years ended December 31,
1998 and 1997 there can be no assurance that the Company will record profits in
future periods. For 1999, 1998 and 1997, the Company's unit sales of
AMVISC-Registered Trademark- substantially exceeded the minimum obligations
under the AMVISC Supply Contract. For 2000, THE Company can provide no assurance
that unit sales of AMVISC-Registered Trademark- for 2000 will exceed minimum
annual purchase obligations. Furthermore, there can be no assurances thaT Bausch
& Lomb Surgical will not seek to renegotiate its existing agreement on terms
less favorable to the Company. See "RISK FACTORS AND CERTAIN FACTORS AFFECTING
FUTURE OPERATING RESULTS - DEPENDENCE ON MARKETING PARTNERS" and "--RELIANCE ON
A SMALL NUMBER OF CUSTOMERs."

         In addition, at Zimmer's request, the Company has been holding an
inventory of ORTHOVISC-Registered Trademark- in its refrigerators for
purchase  orders placed by Zimmer in 1999 for Zimmer's anticipated future
sales. The Company will record revenue for this Orthovisc when shipped to
Zimmer. There can be assurance that Zimmer will place additional orders in
the year 2000. Under the Zimmer Distribution Contract, Zimmer or the Company
has the right to terminate the contract if Zimmer's sales of
ORTHOVISC-Registered Trademark- fail to meet specified

                                       17

<PAGE>


minimums for 1998 and 1999. Zimmer was beLOw the minimum for 1998 and the
Company expects Zimmer's sales to be below the minimum for 1999. There can be
no assurance that Zimmer will not terminate the contract. See "RISK FACTORS
AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS--DEPENDENCE UPON
MARKETING PARTNERS."

         The terms of any future equity financings may be dilutive to the
Company's stockholders and the terms of any debt financings may contain
restrictive covenants which limit the Company's ability to pursue certain
courses of action. The ability of the Company to obtain financing is dependent
on the status of the Company's 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 the Company or will be available
on acceptable terms should such a need arise. The Company's estimate of the time
period for which cash and cash equivalents will be adequate to fund operations
is a forward looking statement within the meaning of the Private Securities
Litigation Reform Act of 1995 and is subject to risks and uncertainties. Actual
results may differ materially from those contemplated in such forward-looking
statements. In addition to those described above, factors which may cause such a
difference are set forth under the caption "Risk Factors and Certain Factors
Affecting Future Operating Results" as well as in this Annual Report on Form
10-K generally.

YEAR 2000 DISCLOSURE

         The term "Year 2000 issue" is a general term used to describe various
problems that may result from the improper processing by computer systems of
dates after 1999. These problems arise from the inability of some hardware and
software to distinguish dates before the year 2000 from the dates in and after
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and all organizations.

         The Company's efforts to address its Year 2000 issues prior to January
1, 2000, were focused in the following three areas: (i) reviewing and taking any
necessary steps to attempt to correct the Company's computer information systems
(i.e., software applications and hardware platforms), (ii) evaluating and making
any necessary modifications to other computer systems that do not relate to
information technology but include embedded technology, such as
telecommunications, security, HVAC, elevator, fire and safety systems, and (iii)
communicating with certain significant third-party service providers to
determine whether there will be any interruption in their systems that could
affect the Company. In October 1999, the Company implemented a new financial
planning system to replace an older system that did not address the Year 2000
issue.

         The Company has not experienced any business or service disruptions as
a result of any Year 2000 issues, nor has the Company been contacted by any
vendors or customers as to any Year 2000 issues with respect to their various
products or services. Costs incurred to date related to Year 2000 issues were
approximately $90,000 and have not been material, nor does the Company expect to
incur additional material costs related to Year 2000 issues. The Company is
continuing to evaluate potential disruptions or complications that might result
in the future from Year 2000 related problems; although at this time, the
Company has not identified any specific business functions that are likely to
suffer material disruption as a result of Year 2000 related issues. Due to the
unique and pervasive nature of the Year 2000 issue, however, it is not possible
to anticipate each of the wide variety of Year 2000 issues that might arise,
particularly outside of the Company, which might have a material adverse impact
on the Company's business, financial condition and results of operations.


                                       18

<PAGE>


RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL. The Company's
products, product development activities, manufacturing processes, and current
and future sales and marketing are subject to extensive and rigorous regulation
by the FDA and comparable agencies in foreign countries. In the United States,
the FDA regulates the marketing, advertising, promotion, and distribution of
medical devices, drugs, and biologics, as well as testing, manufacturing,
labeling, recordkeeping, and reporting activities for such products.

         Medical products regulated by the FDA are generally classified as
medical devices and/or drugs and/or biologics. 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 the Company's new products on a timely basis if at all, or that FDA
review will not involve delays that will adversely affect the Company's 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 the Company's product development
process which may adversely affect approval of or delay an application or
require additional expenditures by the Company. In the event the Company's
future products are regulated as human drugs or biologics, the FDA's review
process typically would be substantially longer and more expensive than the
review process to which they are currently subject as devices.

         The Company anticipates that once FDA approval for their
ORTHOVISC-Registered Trademark- product is obtained, ORTHOVISC-Registered
Trademark- will have to meet regulatory requirementS of a Class III device by
the FDA. Class III devices are those that generally must receive pre-market
approval by the FDA to ensure their safety and effectiveness (e.g.
life-sustaining, life-supporting and implantable or new devices which have not
been found to be substantially equivalent to legally marketed devices) and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution. In order for the Company to commercially
distribute ORTHOVISC-Registered Trademark- in the U.S., it must obtain FDA
approval of a PMA. The PMA approval process can be expensive, uncertain and
lengthy. A number of devices for whICH pre-market approval has been sought have
never been approved for marketing. The review of an application often occurs
over a protracted time period and may take two years or more from the filing
date to complete. The Company submitted a PMA for ORTHOVISC-Registered
Trademark- in December 1997. In October 1998, the Company was notified by THE
FDA that the Company's PMA application for ORTHOVISC-Registered Trademark- was
not approvable and that additional clinical data would be required to
demonstrate the effectiveness OF ORTHOVISC-Registered Trademark-. The Company
submitted an IDE to the FDA in February 1999 and received approval in late March
1999 to commence a second Phase III clinical study. THE ORTHOVISC-Registered
Trademark- clinical trial commenced in late April 1999 and completed patient
enrollment for the trial in August 1999. The final patient completed the six
moNTH follow-up period in late February 2000. There can be no assurance that
Anika will file a PMA. In addition, there can be no guarantee that the FDA will
approve a PMA application for ORTHOVISC-Registered Trademark- on a timely basis,
if at all, or that the FDA review will not involve delays that will affect the
Company's ability TO commercialize additional products or expand permitted uses
of existing products. Furthermore, even if granted, the approval may include
significant limitations on the indications and other claims sought for use for
which the product may be marketed.

         The Company's developmental HA products, including INCERT-Registered
Trademark-, have not obtained regulatory approval in the U.S. for
investigational use and/or commercIAL marketing and sale. The Company believes
that INCERT-Registered Trademark- will be regulated as a Class III medical
device. Before undertaking clinical trials in the U.S. to supporT A PMA, the
Company must apply for and obtain FDA and/or institutional review board ("IRB")
approval of an IDE. There can be no assurance that the Company will be permitted
to undertake clinical trials of these or other future products in the U.S. or
that clinical trials will demonstrate that the products are safe and effective
or otherwise satisfy the FDA's pre-market approval requirements. Orquest has not
received regulatory approval in the U.S. for the commercial marketing and sale
of OSSIGEL-Registered Trademark-. OSSIGEL-Registered Trademark- will be
regulated as a Class III medical device with the FDA's Center of Biologics
Research and Review as the lead review CENter. There can be no assurance that
Orquest will be permitted to undertake clinical trials of OSSIGEL-Registered
Trademark- or, if clinical trials are permitted, that such clinical triALS will
demonstrate that OSSIGEL-Registered Trademark- is safe and effective or
otherwise satisfy FDA requirements.

         Once obtained, marketing clearance can be withdrawn by the FDA due to
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial clearance. The Company may be required to make
further filings with the FDA under certain circumstances. The FDA's regulations
require agency approval of 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, changes in manufacturing methods
or quality control systems and changes in performance or design specifications.
Failure


                                       19

<PAGE>


by the Company 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, would have a
material adverse effect on the Company's business, financial condition and
results of operations. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. Significant delay or cost in obtaining, or failure to obtain
FDA clearance to market products, any FDA limitations on the use of the
Company's products, or any withdrawal or suspension of clearance by the FDA
could have a material adverse effect on the Company's business, financial
condition and results of operations.

         In addition, all FDA-approved products manufactured by the Company must
be manufactured in compliance with FDA's Good Manufacturing Practices ("GMP")
regulations or, for medical devices, FDA's Quality System Regulations ("QSR").
Ongoing compliance with GMP, QSR and other applicable regulatory requirements is
monitored through periodic inspection by state and federal agencies, including
the FDA. The FDA may inspect the Company and its facilities from time to time to
determine whether the Company is in compliance with regulations relating to
medical device and manufacturing companies, including regulations concerning
manufacturing, testing, quality control and product labeling practices. There
can be no assurance that the Company will be able to comply with current or
future FDA requirements applicable to the manufacture of products.

         FDA regulations depend heavily on administrative interpretation and
there can be no assurance that the future interpretations made by the FDA or
other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company. In addition, changes in the existing regulations or adoption
of new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.

         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.

         In addition to regulations enforced by the FDA, the Company is subject
to other existing and potential 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. To enable the
Company to market ORTHOVISC-Registered Trademark- in Europe, the Company was
required to receive a "CE" marking certification, an international symbol of
quality and compliance with the applicable European medical device directive. In
October 1996, the Company received an EC Design Examination and an EC Quality
System Certificate from a European Notified Body, which entitles the Company to
affix a CE marking on ORTHOVISC-Registered Trademark- for the treatment of
osteoarthritis in synovial joints. There can be no assurance that the Company
will be able to achieve and/or maintain compliaNCE required for CE marking or
other foreign regulatory approvals for any or all of its products or that it
will be able to produce its 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. The Company cannot predict what impact, if any, such changes might
have on its business. The requirements relating to the conduct of clinical
trials, product licensing, pricing and reimbursement also vary widely from
country to country.

         The process of obtaining approvals from the FDA and other regulatory
authorities can be costly, time consuming, and subject to unanticipated delays.
There can be no assurance that approvals of the Company's products will be
granted or that the Company will have the necessary funds to develop certain of
such products. Any failure to obtain, or delay in obtaining, such approvals
could adversely affect the ability of the Company to market its products.

         HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. From its
inception up until December 31, 1996 and in 1999, the Company had incurred
annual operating losses. As of December 31, 1999, the Company had an accumulated
deficit of approximately $4,773,000. The continued development of the Company's
products will require the commitment of substantial resources to conduct
research and preclinical and clinical development programs, and to establish
sales and marketing capabilities. The ability of the Company to reach sustained
profitability is highly uncertain. To achieve sustained profitability the
Company must, among other things, successfully complete development of certain
of its products, obtain regulatory approvals and establish sales and marketing
capabilities for certain of its products. There can be no assurance that the
Company will be able to achieve sustained profitability.


                                       20

<PAGE>


         COMPETITION. The Company competes 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 the Company. The Company also competes with academic institutions,
governmental agencies and other research organizations which may be involved in
research, development and commercialization of products. Because a number of
companies are developing HA products for similar applications, the successful
commercialization of a particular product will depend in part upon the ability
of the Company to complete clinical studies and obtain FDA marketing and foreign
regulatory approvals prior to its competitors. There can be no assurance that
the Company will be able to compete against current or future competitors or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.

         UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS. Several of the
Company's products, including ORTHOVISC-Registered Trademark- and
INCERT-Registered Trademark-, as well as the products OF the Company's
collaborative partners, including OSSIGEL-Registered Trademark-, will require
clinical trials to determine their safety and efficacy in humans for various
conditions. ThERE can be no assurance that the Company or its collaborative
partners will not encounter problems that will cause it to delay, suspend or
terminate clinical trials of any of these products. In addition, there can be no
assurance that such clinical trials, if completed, will ultimately demonstrate
these products to be safe and efficacious.

         DEPENDENCE UPON MARKETING PARTNERS. The Company does not plan to
directly market and sell its current products to end-users. Therefore, the
Company's success will be dependent upon the efforts of its marketing partners
and the terms and conditions of the Company's relationships with such marketing
partners. In addition, there can be no assurances that such marketing partners
will not seek to renegotiate their current agreements on terms less favorable to
the Company. The Company currently manufactures AMVISC-Registered Trademark- and
AMVISC-Registered Trademark-Plus for Bausch & Lomb Surgical under an exclusive
fixed price, five-year supply agreement which cONTains stated minimum annual
purchase obligations and terminates on December 31, 2001. Since January 1, 1997,
Bausch & Lomb Surgical has purchased AMVISC-Registered Trademark- AND
AMVISC-Registered Trademark-Plus in amounts substantially in excess of the
minimum purchase obligations set forth in the AMVISC Supply Contract. There can
be no assurance that BauscH & Lomb, Surgical will continue to purchase
AMVISC-Registered Trademark- and AMVISC-Registered Trademark-Plus at levels
beyond the stated minimum annual purchase obligations or that future unit sale
PRices will not be subject to negotiated reductions. Any such decrease in orders
or prices under the AMVISC Supply Contract could have a material adverse effect
on the Company's business, financial condition and results of operations. For
the years ended December 31, 1999 and 1998, sales of AMVISC-Registered
Trademark- products to Bausch & LOMB Surgical accounted for 63.9% and 68.7% of
product revenues.

         The Zimmer Distribution Contract provides Zimmer with exclusive
marketing and distribution rights to ORTHOVISC-Registered Trademark- in the
United States, Canada, LaTIN America, Asia and most of Europe. To date the
Company has received up-front non-refundable licensing payments totaling $4.0
million. In addition, under the Zimmer Distribution Contract the Company has the
potential to receive payments aggregating up to an additional $19.5 million upon
the achievement of certain regulatory approvals and enumerated sales milestones.
As an alternative to a $2.5 million milestone payment due upon receipt of FDA
approval for the U.S. market, Zimmer has the right to elect to acquire shares of
the Company's Common Stock equal to the greater of: (a) $2,500,000 divided by
125% of the average daily closing price of the Common Stock for the prior sixty
(60) calendar days or (b) 9.9% of the then outstanding Common Stock (but not to
exceed 19.9% of the then outstanding Common Stock) at a 25% premium to the
market price for the 60 days prior to the milestone. There can be no assurance
that any of such milestones will be met on a timely basis or at all. In
addition, Zimmer has the right to terminate the Zimmer Distribution Contract
within sixty (60) days of the occurrence of any of the following events: (i)
ORTHOVISC-Registered Trademark- is not approved by the FDA by January 1, 2001,
(ii) there is a material recall of ORTHOVISC-Registered Trademark-, (iii)
Zimmer's net sales of ORTHOVISC-Registered Trademark- failed to meet the
minimums specified in the Zimmer Distribution Contract for two consecutive years
beginning with the calendar year of 1998 or (iv) a court of competent
jurisdiction rules that ORTHOVISC-Registered Trademark- or any of its related
patents is infringing the patents or proprietary rights of a third party. There
can be no assurance tHAT any of these events will not occur, or, even if any
such event does not occur, that Zimmer will not elect to terminate the
agreement. In fact, Zimmer's sales of ORTHOVISC-Registered Trademark- for 1999
and 1998, are less than the minimums for this consecutive two-year period.
Despite the fact that Zimmer has not given notice within THE requisite sixty
(60) day period, there can be no assurances that Zimmer will not terminate the
Zimmer Distribution Contract or seek to renegotiate the agreement on terms less
favorable to the Company. Any such termination is likely to have a material
adverse effect on the Company's ability to market ORTHOVISC-Registered
Trademark-, which MAY have a material adverse effect on the Company's future
operating results. ORTHOVISC-Registered Trademark- sales to Zimmer accounted for
10.3% and 2.8% of product revenue for the yeARS ended December 31, 1998 and
1999, respectively.


                                       21

<PAGE>


         The Company will need to obtain the assistance of additional marketing
partners for new products which are brought to market and existing products
brought to new markets. There can be no assurance that such additional partners
will be available or that such partners will agree to market the Company's
products on acceptable terms. The failure to establish strategic partnerships
for the marketing and distribution of the Company's products on acceptable terms
would have a material adverse effect on the Company's business, financial
condition and results of operations.

         UNCERTAINTY OF MARKET ACCEPTANCE OF FUTURE PRODUCTS. The Company's
success will depend in part upon the acceptance of the Company's future products
by the medical community, hospitals and physicians and other health care
providers, and third-party payors. Such acceptance may depend upon the extent to
which the medical community perceives the Company's products as safer, more
effective or cost-competitive than other similar products. Ultimately, for the
Company's new products to gain general market acceptance, it will also be
necessary for the Company to develop marketing partners for the distribution of
its products. There can be no assurance that the Company's new products will
achieve significant market acceptance on a timely basis, or at all. Failure of
some or all of the Company's future products to achieve significant market
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations.

         DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success
will depend, in part, on its ability to obtain and enforce patents, protect
trade secrets, obtain licenses to technology owned by third parties when
necessary, and conduct its business without infringing the proprietary rights of
others. The patent positions of pharmaceutical, medical products and
biotechnology firms, including the Company, 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, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office ("PTO") to determine priority
of invention (see below), 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 the Company, such
interference proceedings could result in substantial cost to the Company. 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 the Company's 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 the Company to lose exclusivity covered
by the disputed rights. If a third party is found to have rights covering
products or processes used by the Company, the Company 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 the
Company's 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 the Company using the resulting alternative
technology.

         The Company has a policy of seeking patent protection for patentable
aspects of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and solely owns patents directed to
certain manufacturing processes. The Company also holds an exclusive license
from Tufts University to use technologies claimed in a United States patent
application which has been granted a Notice of Allowance from the U.S. Patent
Office for the anti-metastasis applications of HA oligosaccharides. The
Company's patents expire between 2007 and 2015 and the license expires upon
expiration of all related patents. The Company intends to seek patent protection
with respect to products and processes developed in the course of its activities
when it believes such protection is in its 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 the Company
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 the Company's patents. The
Company's issued patents and any patents which arise from the Company's licensed
application would provide competitive protection, if at all, only in the United
States. The Company has not, to date, pursued foreign patents equivalent to
those issued or applied for in the United States.


                                       22

<PAGE>


         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 the Company will
not infringe the patent rights of others in the future. Any such infringement
may have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the Company has received
notice from the PTO that a third party is attempting to provoke a patent
interference with respect to one of the Company's co-owned patents covering the
use of INCERT-Registered Trademark- FOR post-surgical adhesion prevention.
Although the Company believes that an interference may be declared by the PTO,
it is too early to determine the merits of the interference or the effect, if
any, the interference will have on the Company's marketing of INCERT-Registered
Trademark- for this use. The existence of the interference proceedING may have a
negative impact on the marketing of the INCERT-Registered Trademark- product,
and no assurance can be given that the Company would be successful in any such
interfereNCE proceeding. If the third-party interference were to be decided
adversely to the Company, involved claims of the Company's patent would be
cancelled, the Company's marketing of the INCERT-Registered Trademark- product
may be materially and adversely affected and the third party may enforce patent
rights against the Company which could prohiBIT the sale and use of the
INCERT-Registered Trademark- products, which could have a material adverse
effect on the Company's future operating results.

         The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such information.
There can be no assurance that these agreements provide meaningful protection or
that they will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how,
and technological advances will not otherwise become known to others. In
addition, there can be no assurance that, despite precautions taken by the
Company, others have not and will not obtain access to the Company's proprietary
technology. Further, there can be no assurance that third parties will not
independently develop substantially equivalent or better technology.

         Pursuant to the AMVISC Supply Contract, the Company has agreed to grant
Bausch & Lomb Surgical a royalty-free, worldwide, exclusive license to the
Company's manufacturing and product inventions which relate to AMVISC-Registered
Trademark- products, effective on December 31, 2001, the termination date of the
AMVISC supPLY contract (which became effective on January 1, 1997). Upon
expiration of the AMVISC Supply Contract, there can be no assurance that Bausch
& Lomb Surgical will continue to use the Company to manufacture
AMVISC-Registered Trademark- and AMVISC-Registered Trademark-Plus. If Bausch &
Lomb Surgical discontinues the use of the Company as a manufacturer aftER such
time, the Company's business, financial condition and results of operations
would be materially and adversely affected.

         RISKS ASSOCIATED WITH MANUFACTURING. The Company's results of
operations are dependent upon the continued operation of its manufacturing
facility in Woburn, Massachusetts. The operation of biomedical manufacturing
plants involves many risks, including the breakdown, failure or substandard
performance of equipment, natural and other disasters, and the need to comply
with the requirements of directives of government agencies, including the FDA.
In addition, the Company relies 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 its HA products. Furthermore, manufacturing
processes and research and development efforts of the Company involve animals
and products derived from animals. 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 the Company's 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 the Company's business, financial condition and results of operations
during the period of such operational difficulties.

         NO ASSURANCE OF GROWTH OR ABILITY TO MANAGE GROWTH. The Company's
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.
There can be no assurance that even if substantial growth in product sales and
the demand for the Company's products is achieved, the Company will be able to
(i) develop the necessary manufacturing capabilities; (ii) obtain the assistance
of additional marketing partners; (iii) attract, retain and integrate the
required key personnel; or (iv) implement the financial, accounting and
management systems needed to manage growing demand for its products, should it
occur. Failure of the Company to successfully manage future growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.


                                       23

<PAGE>


         THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES.
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's products,
generally rely on third party payors, including Medicare, Medicaid and other
health insurance and managed care plans, to reimburse all or part of the cost of
the health care product. The Company depends upon the distributors for its
products to secure reimbursement. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the use
of the Company's products are clinically useful and cost-effective, medically
necessary and not experimental or investigational. Since reimbursement approval
is required from each payor individually, seeking such approvals can be a time
consuming and costly process which, in the future, could require the Company or
its marketing partners to provide supporting scientific, clinical and
cost-effectiveness data for the use of the Company's products to each payor
separately. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and third party payors 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 the Company.
Outside the U.S., the success of the Company's 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 payors for the Company' products and services could have a material
adverse effect on the Company's business, financial condition and results of
operations.

         NEED FOR ADDITIONAL FUNDS; LIQUIDITY. The Company had cash, cash
equivalents and short- and long-term investments of $20.2 million as of December
31, 1999. The Company's future capital requirements and the adequacy of
available funds will depend, however, on numerous factors, including market
acceptance of its existing and future products, the successful commercialization
of products in development, progress in its product development efforts, the
magnitude and scope of such efforts, progress with preclinical studies, clinical
trials and product clearances by the FDA and other agencies, the cost and timing
of its efforts to expand its manufacturing capabilities, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, and the
development of strategic alliances for the marketing of certain of its products.
To the extent that funds generated from the Company's operations, together with
the Company's existing capital resources and are insufficient to meet future
requirements, the Company 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 the Company's stockholders and the terms of any debt financings
may contain restrictive covenants which limit the Company's ability to pursue
certain courses of action. The ability of the Company to obtain financing is
dependent on the status of the Company's 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 the Company or will be
available on acceptable terms should such a need arise.

         EXPOSURE TO PRODUCT LIABILITY CLAIMS. 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 the Company. Although the Company has not
received any material product liability claims to date and has an insurance
policy of $1,000,000 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 the Company's 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 commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition and results of operations.

         DEPENDENCE UPON KEY PERSONNEL. The Company is highly dependent on the
members of its management and scientific staff, the loss of one or more of whom
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled, scientific, managerial and manufacturing
personnel. The Company faces significant competition for such personnel from
other companies, research and academic institutions, government entities and
other organizations. There can be no assurance that the Company will be
successful in hiring or retaining the personnel it requires. The failure to hire
and retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.


                                       24

<PAGE>


         ENVIRONMENTAL REGULATION. The Company is 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 the Company's products. Any
failure by the Company to control the use, disposal, removal or storage of
hazardous chemicals or toxic substances could subject the Company to significant
liabilities, which could have a material adverse effect on the Company's
business, financial condition and results of operations.

         RISKS RELATING TO INTERNATIONAL OPERATIONS. Approximately 31.4% and
20.9% of the Company's product sales during 1999 and 1998 were generated in
international markets through marketing partners. The Company's representatives,
agents and distributors which sell products in international markets are subject
to the laws and regulations of the foreign jurisdictions in which they operate
and in which the Company's 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 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 an adverse effect on the Company's business, financial condition
and results of operations.

         POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING. The
market price of shares of the Company's Common Stock may be highly volatile.
Factors such as announcements of new commercial products or technological
innovations by the Company or its 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 the Company and general market conditions may
have a significant effect on the market price of the Company's Common Stock. In
particular, the Company's stock price declined significantly in October 1998
following the Company's announcement that the FDA had notified the Company that
its PMA for ORTHOVISC-Registered Trademark- was not approvable and that
additional clinical data would be required to demonstrate the effectiveness of
ORTHOVISC-Registered Trademark-. To the extent the COMpany experiences any other
adverse developments in the process of seeking FDA approval for
ORTHOVISC-Registered Trademark-, the price of the Common Stock will likely be
subject to furthER, and perhaps substantial, declines. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in the Company's operating results, material
announcements by the Company or its 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 the
Company's 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. The Company's operating results in
future quarters may be below the expectations of equity research analysts and
investors. In such event, the price of the Common Stock would likely decline,
perhaps substantially.

         No person is under any obligation to make a market in the Common Stock
or publish research reports on the Company, and any person making a market in
the Common Stock or publishing research reports on the Company may discontinue
market making or publishing such reports at any time without notice. There can
be no assurance that an active public market in the Common Stock will be
sustained.

         POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. Certain
provisions of the Company's 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 the Company 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 1998. The Company also is 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 the
Company at a price considered attractive by many stockholders, since such
provisions could have the effect of preventing or delaying a potential acquiror
from acquiring control of the Company and its Board of Directors.

         POTENTIAL SECURITIES CLASS ACTION LITIGATION. As a result of an
informal inquiry from the Securities and Exchange Commission, the Company has
revised its revenue recognition policies and has restated its operating results
for 1998 and the first three quarters of 1999. In the past, companies that have
restated their financial information have been subject to


                                       25

<PAGE>


securities class action litigation. The Company may be involved in a securities
class action litigation in the future. Such litigation often results in
significant costs and a diversion of management's attention and resources and
could harm the Company's business, financial condition and results of
operations.

         RELIANCE ON A SMALL NUMBER OF CUSTOMERS. The Company has 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. 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. For the year ended December 31, 1999, Bausch & Lomb
Surgical accounted for 63.9% of our product revenues and 42% of our account
receivables balance and Biomeks accounted for 28.4% of our product revenues and
49% of our accounts receivable balance. Accordingly, present and future
customers may terminate their purchasing arrangements with us, significantly
reduce or delay their orders or seek to renegotiate their agreements on terms
less favorable to the Company. Furthermore, in any future negotiations the
Company may be subject to the perceived or actual leverage the customers may
have given their relative size and importance to the Company. 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.

ITEM 7A. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK.

         None.


                                       26

<PAGE>


ITEM 8. FINANCIAL STATEMENTS


                            ANIKA THERAPEUTICS, INC.
                                 BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                                         DECEMBER 31,
                                                                                                         ------------
                                                                                                     1999             1998
                                                                                                 ------------    ------------
                                                                                                                 (AS RESTATED)
<S>                                                                                              <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents ..................................................................   $  6,440,705    $ 10,712,520
  Short-term investments .....................................................................      8,184,870      12,007,503
  Accounts receivable, net ...................................................................      2,106,452       3,032,737
  Inventories ................................................................................      5,493,701       3,522,019
  Prepaid expenses ...........................................................................        721,206         250,023
                                                                                                 ------------    ------------
      Total current assets ...................................................................     22,946,934      29,524,802
                                                                                                 ------------    ------------
Property and equipment .......................................................................      8,116,233       6,376,405
Less: accumulated depreciation ...............................................................      4,587,692       3,809,723
                                                                                                 ------------    ------------
      Net property and equipment .............................................................      3,528,541       2,566,682
Long-term investments ........................................................................      5,558,029              --
Notes receivable from officers ...............................................................        353,000         193,000
                                                                                                 ------------    ------------
Deposits .....................................................................................        124,600         108,500
                                                                                                 ------------    ------------
      Total assets ...........................................................................   $ 32,511,104    $ 32,392,984
                                                                                                 ------------    ------------
                                                                                                 ------------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...........................................................................   $    629,080    $    891,493
  Accrued expenses ...........................................................................      1,552,661       1,356,586
  Deferred revenue ...........................................................................      1,792,505         796,368
                                                                                                 ------------    ------------
      Total current liabilities ..............................................................      3,974,246       3,044,447
                                                                                                 ------------    ------------
Advance rent payment .........................................................................             --          50,215
Long-term deferred revenue ...................................................................      2,825,000              --
Commitments (Note 8)
Stockholders' equity:
  Redeemable convertible preferred stock; $.01 par value: authorized 750,000 shares; no shares
  issued and outstanding .....................................................................             --              --
  Undesignated preferred stock; $.01 par value: authorized 1,250,000 shares; no shares issued
  and outstanding ............................................................................             --              --
  Common stock; $.01 par value: authorized 30,000,000 shares; issued 9,991,943 shares in 1999
  and 1998, respectively .....................................................................         99,919          99,919
  Additional paid-in capital .................................................................     31,959,316      34,439,676
  Deferred compensation ......................................................................       (615,001)     (1,074,699)
  Treasury stock (at cost, 200,863 and 344,500 shares in 1999 and 1998, respectively) ........       (959,870)     (1,889,794)
  Accumulated deficit ........................................................................     (4,772,506)     (2,276,780)
                                                                                                 ------------    ------------
      Total stockholders' equity .............................................................     25,711,858      29,298,322
                                                                                                 ------------    ------------
      Total liabilities and stockholders' equity .............................................   $ 32,511,104    $ 32,392,984
                                                                                                 ------------    ------------
                                                                                                 ------------    ------------

</TABLE>


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


                                       27

<PAGE>


                            ANIKA THERAPEUTICS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                  YEARS ENDED DECEMBER 31,
                                                                                  ------------------------
                                                                         1999               1998               1997
                                                                      -----------         -----------         ----------
                                                                                        (AS RESTATED)
<S>                                                                   <C>                 <C>                 <C>
Product revenue.................................................      $13,082,662         $11,773,343         $9,255,338
Licensing fees..................................................          400,000           1,500,000          2,700,000
                                                                      -----------         -----------         ----------
  Total revenue.................................................       13,482,662          13,273,343         11,955,338
Cost of product revenue.........................................        6,440,166           6,014,181          4,744,123
                                                                      -----------         -----------         ----------
  Gross profit..................................................        7,042,496           7,259,162          7,211,215
Operating expenses:
  Research and development......................................        4,154,479           1,955,940          1,957,796
  Selling, general and administrative...........................        3,029,394           2,731,142          2,092,467
                                                                      -----------         -----------         ----------
Total operating expenses........................................        7,183,873           4,687,082          4,050,263
                                                                      -----------         -----------         ----------
Income (loss) from operations...................................         (141,377)          2,572,080          3,160,952
  Interest income, net..........................................        1,068,430           1,307,825            262,162
  Gain on sale of securities....................................          233,633                  --                 --
                                                                      -----------         -----------         ----------
Income before provision for income taxes........................        1,160,686           3,879,905          3,423,114
  Provision for income taxes....................................           31,412             127,557             78,677
                                                                      -----------         -----------         ----------
Income before cumulative effect of change in
 accounting principle...........................................        1,129,274           3,752,348          3,344,437
Cumulative effective of change in accounting principle..........       (3,625,000)                 --                 --
                                                                      -----------         -----------         ----------
Net income (loss)...............................................      $(2,495,726)         $3,752,348         $3,344,437
                                                                      -----------         -----------         ----------
Basic income (loss) per share:
  Income before cumulative effect of change in accounting
  principle.....................................................            $0.12               $0.38              $0.60
  Cumulative effect of change in accounting principle...........            (0.38)                 --                 --
                                                                      -----------         -----------         ----------
  Net income (loss).............................................           $(0.26)              $0.38               0.60
                                                                      -----------         -----------         ----------
                                                                      -----------         -----------         ----------
Basic weighted average common shares outstanding................        9,740,560           9,885,724          5,436,474
                                                                      -----------         -----------         ----------
                                                                      -----------         -----------         ----------

Diluted income (loss) per share:
  Income before cumulative effect of change in accounting
  principle.....................................................            $0.11               $0.34              $0.44
  Cumulative effect of change in accounting principle                       (0.35)                 --                 --
                                                                      -----------         -----------         ----------
  Net income (loss).............................................           $(0.24)              $0.34              $0.44
                                                                      -----------         -----------         ----------
                                                                      -----------         -----------         ----------

Diluted weighted average common and potential common shares
   outstanding..................................................       10,220,584          11,006,276          7,587,393
                                                                      -----------         -----------         ----------
                                                                      -----------         -----------         ----------

</TABLE>


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


                                       28

<PAGE>


                            ANIKA THERAPEUTICS, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                             COMMON STOCK
                                                              ADDITIONAL                                                  TOTAL
                                         NUMBER OF $.01 PAR    PAID-IN     DEFERRED      TREASURY      ACCUMULATED    STOCKHOLDERS'
                                          SHARES     VALUE     CAPITAL    COMPENSATION    STOCK          DEFICIT         EQUITY
                                         --------- --------  -----------  ------------   --------      -----------    -------------
<S>                                     <C>         <C>      <C>          <C>           <C>           <C>              <C>
Balance, December 31, 1996.............  4,930,719  $49,307  $11,693,070  $         --  $        --   $(9,373,566)     $  2,368,811
Exercise of common stock options.......    228,047    2,281      583,394            --           --            --           585,675
Sale of common stock, net of issuance
  costs of $2,043,519..................  2,725,000   27,250   17,004,231            --           --            --        17,031,481
Issuance of common stock to 401(k) plan     25,795      258      133,147            --           --            --          133,405
Issuance of common stock to Board of
  Directors............................      8,000       80       43,670            --           --            --           43,750
Conversion of redeemable convertible
  preferred stock......................  1,773,530   17,735    2,802,027            --           --            --        2,819,762
Dividend on redeemable convertible
  preferred stock......................         --       --    (103,035)            --           --            --         (103,035)
Net income.............................         --       --          --             --           --     3,344,437        3,344,437
                                        ----------  -------  ----------    -----------   ----------    ----------       ----------
Balance, December 31, 1997.............  9,691,091   96,911  32,156,504             --           --    (6,029,129)      26,224,286
Exercise of common stock options.......    112,153      971     368,099             --       34,024            --          403,094
Exercise of common stock warrants......    203,700    2,037     666,099             --           --            --          668,136
Expenses from sale of common stock, net                        (107,293)            --           --            --         (107,293)
Unearned stock compensation............         --       --   1,356,267     (1,074,699)          --            --          281,568
Purchase of 359,500 shares of common
  stock................................         --       --          --             --   (1,923,818)           --       (1,923,818)
Net income (as restated)...............         --       --          --             --           --     3,752,348        3,752,348
                                        ----------  -------  ----------    -----------   ----------    ----------       ----------
Balance, December 31, 1998.............  9,991,943   99,919   34,439,676    (1,074,699)  (1,889,794)   (2,276,780)      29,298,322
Exercise of common stock options.......         --       --   (2,362,544)           --    2,878,913            --          516,369
Amortization of deferred compensation..         --       --           --       342,464           --            --          342,464
Purchase of 402,600 shares of common
  stock................................         --       --           --            --   (1,948,989)           --       (1,948,989)
Reversal of unearned stock compensation         --       --     (117,234)      117,234           --            --               --
Net loss...............................         --       --           --            --           --    (2,495,726)      (2,495,726)
                                        ----------  -------  ----------    -----------   ----------    ----------       ----------
Balance, December 31, 1999.............  9,991,943  $99,919  $31,959,316     $(615,001)   $(959,870)  $(4,772,506)     $25,711,858
                                        ----------  -------  ----------    -----------   ----------    ----------       ----------
                                        ----------  -------  ----------    -----------   ----------    ----------       ----------

</TABLE>


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


                                       29

<PAGE>


                            ANIKA THERAPEUTICS, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                               YEARS ENDED DEC. 31,
                                                                                 --------------------------------------------
                                                                                     1999            1998             1997
                                                                                 ------------     -----------    ------------
                                                                                                  (AS RESTATED)
<S>                                                                              <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss) ..........................................................   $ (2,495,726)   $  3,752,348    $  3,344,437
  Adjustments to reconcile net income (loss) to net cash provided by operating
  activities:
     Depreciation and amortization ...........................................        777,969         484,402         279,035
     Amortization of deferred compensation ...................................        342,464         281,568              --
     Provision for doubtful accounts .........................................             --          57,000              --
     Common stock issued to 401(k) plan and Board of Directors ...............             --              --         177,155
     Advance rent payment ....................................................        (50,215)        (53,697)        (38,863)
     Changes in operating assets and liabilities:
        Accounts receivable ..................................................        926,285      (1,171,444)     (1,379,289)
        Inventories ..........................................................     (1,971,682)       (980,467)        (59,906)
        Prepaid expenses .....................................................       (471,183)        360,341        (303,827)
        Accounts payable .....................................................       (262,413)        (76,493)        417,672
        Accrued expenses .....................................................        196,075         103,432         197,920
        Deferred revenue .....................................................      3,821,137         596,368              --
                                                                                 ------------     -----------    ------------
            Net cash provided by operating activities ........................        812,711       3,353,359       2,634,334

Cash flows from investing activities:
  Deposits ...................................................................        (16,100)          2,765         (42,500)
  Purchase of long-term investments ..........................................     (5,558,029)             --              --
  Purchase of short-term investments .........................................    (35,079,915)    (39,832,074)             --
  Sale of short-term investments .............................................     38,902,548      27,824,571              --
  Purchase of property and equipment .........................................     (1,739,828)     (2,238,040)       (273,035)
  Notes receivable from officers .............................................       (160,000)       (118,000)        (75,000)
                                                                                 ------------     -----------    ------------
           Net cash used in investing activities .............................     (3,651,324)    (14,360,778)       (390,535)
                                                                                 ------------     -----------    ------------
Cash flows from financing activities:
  Proceeds from sale of common stock, net ....................................             --              --      17,031,481
  Expenses from issuance of stock ............................................             --        (107,293)             --
  Proceeds from exercise of preferred stock warrants .........................             --              --         114,200
  Purchase of 402,600 and 359,500 shares of common stock, respectively .......     (1,948,989)     (1,923,818)             --
  Proceeds from exercise of stock options and warrants .......................        516,369       1,071,230         585,675
                                                                                 ------------     -----------    ------------
            Net cash (used in) provided by financing activities ..............     (1,432,620)       (959,881)     17,731,356
                                                                                 ------------     -----------    ------------
            (Decrease) increase in cash and cash equivalents .................     (4,271,815)    (11,967,300)     19,975,155
Cash and cash equivalents at beginning of period .............................     10,712,520      22,679,820       2,704,665
                                                                                 ------------     -----------    ------------
Cash and cash equivalents at end of period ...................................   $  6,440,705    $ 10,712,520    $ 22,679,820
                                                                                 ------------     -----------    ------------
Supplemental disclosure of cash flow information:
  Cash paid for interest .....................................................   $         --    $         --    $      2,771
                                                                                 ------------     -----------    ------------
                                                                                 ------------     -----------    ------------
  Cash paid for taxes ........................................................   $    131,206    $     75,000              --
                                                                                 ------------     -----------    ------------
                                                                                 ------------     -----------    ------------
Supplemental disclosure of non cash items:
  Conversion of redeemable convertible preferred stock .......................   $         --    $         --    $  2,819,762
                                                                                 ------------     -----------    ------------
                                                                                 ------------     -----------    ------------
  Dividend on redeemable convertible preferred stock .........................   $         --    $         --    $    103,035
                                                                                 ------------     -----------    ------------
                                                                                 ------------     -----------    ------------

</TABLE>


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


                                       30
<PAGE>


                            ANIKA THERAPEUTICS, INC.
                          NOTES TO FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS

         Anika Therapeutics, 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-Registered Trademark-, which is an HA product used
in the treatment of some forms of osteoarthritis in humans AND HYVISC-Registered
Trademark-, which is an HA product used in the treatment of equine
osteoarthritis. In the U.S., ORTHOVISC-Registered Trademark- is currently
approved for sale and marketed in CANada, Europe, Turkey, Israel and Iceland. In
the U.S., ORTHOVISC-Registered Trademark- is currently limited to
investigational use and the Company commenced a Phase III clinical trial IN the
U.S. and Canada in late April 1999 and the final patient completed the six month
follow-up period in late February 2000. The Company manufactures
AMVISC-Registered Trademark- AND AMVISC-Registered Trademark-Plus, which are HA
products used as viscoelastic supplements in ophthalmic surgery, for Bausch &
Lomb Surgical, a subsidiary of Bausch & Lomb. The CompANY is currently
developing INCERT-Registered Trademark-, which is an HA based product designed
for use in the prevention of post-surgical adhesions. In collaboration with
Orquest, InC., Anika also has exclusive rights to produce OSSIGEL-Registered
Trademark-; an injectable formulation of basic fibroblast growth factor combined
with HA designed to accelerate THE healing of bone fractures.

         In the fourth quarter of 1999, the Company performed a review of its
revenue recognition policy for revenue received from Zimmer, Inc., a division of
Bristol-Myers Squibb Co., under a distribution agreement for
ORTHOVISC-Registered Trademark-, Anika's osteoarthritis product. As a result of
this review, and after consultation wITH the SEC, Anika revised its revenue
recognition policy for ORTHOVISC-Registered Trademark- sales to Zimmer and
restated its operating results for 1998 and the first three quarters OF 1999.
(See REVENUE RECOGNITION below.)


                                       31

<PAGE>

The following tables present a summary of restated results for 1998 and the
first three quarters of 1999.


                      QUARTERLY FINANCIAL DATA (Unaudited)
                                      1998

<TABLE>
<CAPTION>

                                                                                     AS REPORTED    AS RESTATED       CHANGE
<S>                                                                                   <C>           <C>             <C>
QUARTER ENDED MARCH 31, 1998
Total revenue.....................................................................    $2,754,419    $2,702,484      ($51,935)
Cost of sales.....................................................................     1,343,472     1,343,472            --
Gross profit......................................................................     1,410,947     1,359,012       (51,935)
Net income (loss).................................................................      $637,006      $585,071      ($51,935)

Diluted income(loss) per common share:
Net income (loss).................................................................         $0.06         $0.05         ($.01)

Diluted common shares outstanding.................................................    10,863,410    10,863,410            --

QUARTER ENDED JUNE 30, 1998
Total revenue.....................................................................    $4,595,966    $4,575,608      ($20,358)
Cost of sales.....................................................................     1,564,569     1,564,569            --
Gross profit......................................................................     3,031,397     3,011,039       (20,358)
Net income (loss).................................................................    $2,201,455    $2,181,097      ($20,358)

Diluted income(loss) per common share:
Net income (loss).................................................................         $0.20         $0.19         ($.01)

Diluted common shares outstanding.................................................    11,197,949    11,197,949            --

QUARTER ENDED SEPTEMBER 30, 1998
Total revenue.....................................................................    $3,179,901    $2,592,671     ($587,230)
Cost of sales.....................................................................     1,425,270     1,201,273      (223,997)
Gross profit......................................................................     1,754,631     1,391,398      (363,233)
Net income (loss).................................................................      $741,053      $377,820     ($363,233)

Diluted income (loss) per common share:
Net income (loss).................................................................         $0.07         $0.03        ($0.04)

Diluted common shares outstanding.................................................    11,316,539    11,316,539            --

QUARTER ENDED DECEMBER 31, 1998
Total revenue.....................................................................    $3,339,426    $3,402,581       $63,155
Cost of sales.....................................................................     1,680,870     1,904,867       223,997
Gross profit......................................................................     1,658,556     1,497,714      (160,842)
Net income (loss).................................................................      $769,203      $608,361     ($160,842)

Diluted income(loss) per common share:
Net income (loss).................................................................         $0.07         $0.06        ($0.01)

Diluted common shares outstanding.................................................    10,564,628    10,564,628            --

YEAR ENDED DECEMBER 31, 1998
Total revenue.....................................................................   $13,869,712   $13,273,344     ($596,368)
Cost of sales.....................................................................     6,014,181     6,014,181            --
Gross profit......................................................................     7,855,531     7,259,163      (596,368)
Net income (loss).................................................................    $4,348,717    $3,752,348     ($596,368)

Diluted income(loss) per common share:
Net income (loss).................................................................         $0.40         $0.34        ($0.06)

Diluted common shares outstanding.................................................    11,006,276    11,006,276            --

</TABLE>


                                       32

<PAGE>


                       QUARTERLY FINANCIAL DATA (Unaudited)
                                       1999

<TABLE>
<CAPTION>

                                                                                    AS REPORTED    AS RESTATED      CHANGE
<S>                                                                                 <C>            <C>            <C>
QUARTER ENDED MARCH 31, 1999
Total revenue...................................................................    $3,224,578      $3,335,650     $111,072
Cost of sales...................................................................     1,708,171       1,708,171           --
Gross profit....................................................................     1,516,407       1,627,479      111,072
Income (loss) before cumulative effect of change in accounting principle........       344,749         455,821      111,072
Cumulative effect of change in accounting principle.............................             0      (3,625,000)  (3,625,000)
Net income (loss)...............................................................      $344,749     ($3,169,179) ($3,513,928)

Diluted income (loss) per common share:
Income before cumulative effect of change in accounting principle...............         $0.03           $0.05        $0.02
Cumulative effect of change in accounting principle.............................            --              --           --
Net income (loss)...............................................................         $0.03          ($0.31)      ($0.34)

Diluted common shares outstanding...............................................    10,077,488      10,077,488           --

QUARTER ENDED JUNE 30, 1999
Total revenue...................................................................    $3,750,275      $3,533,346    ($216,929)
Cost of sales...................................................................     1,896,633       1,688,714     (207,919)
Gross profit....................................................................     1,853,642       1,844,632       (9,010)
Income (loss) before cumulative effect of change in accounting principle........      $406,898         397,888       (9,010)
Cumulative effect of change in accounting principle.............................            --              --           --
Net income (loss)...............................................................      $406,898        $397,888      ($9,010)

Diluted income (loss) per common share:
Income before cumulative effect of change in accounting principle...............         $0.04           $0.04           --
Cumulative effect of change in accounting principle.............................            --              --           --
Net income (loss)...............................................................         $0.04           $0.04           --

Diluted common shares outstanding...............................................    10,075,826      10,075,826           --

QUARTER ENDED SEPTEMBER 30, 1999
Total revenue...................................................................    $3,481,637      $2,995,350    ($486,287)
Cost of sales...................................................................     1,818,807       1,429,587     (389,220)
Gross profit....................................................................     1,662,830       1,565,763      (97,067)
Income (loss) before cumulative effect of change in accounting principle........         4,186         (92,881)     (97,067)
Cumulative effect of change in accounting principle.............................            --              --           --
Net income (loss)...............................................................        $4,186        ($92,881)    ($97,067)

Diluted income (loss) per common share:
Income before cumulative effect of change in accounting principle...............         $0.01          ($0.01)      ($0.02)
Cumulative effect of change in accounting principle.............................            --              --           --
Net income (loss)...............................................................         $0.01          ($0.01)      ($0.02)

Diluted common shares outstanding...............................................    10,374,349       9,940,228           --

</TABLE>



                                       33

<PAGE>


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consists of cash and investments with
original maturities of 90 days or less.

SHORT-TERM AND LONG-TERM INVESTMENTS

         The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES.

         Short-term investments consist of debt securities with original
maturities between three and twelve months. The Company classifies these
short-term investments as held to maturity, and accordingly they are carried at
amortized costs. Aggregate fair value, amortized cost and average maturity for
marketable securities held at December 31, 1999 and 1998 is as follows:


<TABLE>
<CAPTION>

                                                                           DECEMBER 31, 1999
                                                                           -----------------
                                                                                GROSS
                                                            AMORTIZED        UNREALIZED
                                                               COST          HOLDING GAIN        FAIR VALUE
                                                            ----------       ------------        ----------
<S>                                                         <C>                <C>               <C>
Commercial Paper (weighted average maturity of 7.64
  months)..........................................         $8,184,870         $60,209           $8,245,079
                                                            ----------         -------           ----------
                                                            ----------         -------           ----------

</TABLE>


<TABLE>
<CAPTION>

                                                                           DECEMBER 31, 1998
                                                                           -----------------
                                                           AMORTIZED          UNREALIZED
                                                              COST           HOLDING GAIN        FAIR VALUE
                                                           ---------         ------------        ----------
<S>                                                         <C>                <C>               <C>
Commercial Paper (weighted average maturity of 2.57
  months)..........................................        $12,007,503        $(6,593)          $12,000,910
                                                            ----------         -------           ----------
                                                            ----------         -------           ----------

</TABLE>


         Long-term investments consist of debt securities with original
maturities greater than twelve months. The Company classifies these long-term
investments as held to maturity, and accordingly they are carried at amortized
costs. Aggregate fair value, amortized cost and average maturity for marketable
securities held at December 31, 1999 is as follows:


<TABLE>
<CAPTION>

                                                                                GROSS
                                                           AMORTIZED          UNREALIZED
                                                              COST           HOLDING GAIN        FAIR VALUE
                                                           ---------         ------------        ----------
<S>                                                         <C>                <C>               <C>

Commercial Paper (weighted average maturity of 1.67
  years)...........................................         $5,558,029         $30,764           $5,588,793
                                                            ----------         -------           ----------
                                                            ----------         -------           ----------

</TABLE>


         During 1999, the Company sold securities classified as held for
maturity with an amortized cost aggregating $38,902,548. Total proceeds from
these sales were $39,403,879 with total interest and realized gain of $501,331
which is included in interest income on the Statement of Operations. In
addition, during 1999, the Company acquired and sold certain equity securities
and realized a gain of $233,633 which is shown separately on the Statement of
Operations.


                                       34

<PAGE>


FINANCIAL INSTRUMENTS

         SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, short-term and long-term investments,
accounts receivable, notes receivable from officers and accounts payable. The
estimated fair value of these financial instruments approximates their carrying
value, and in the case of cash equivalents, short-term and long-term
investments, is based on market quotes. The Company's cash equivalents,
short-term and long-term investments are generally obligations of the federal
government or investment-grade corporate issuers. The Company, by policy, limits
the amount of credit exposure to any one financial institution.

INVENTORIES

         Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.

REVENUE RECOGNITION

         Product revenue is recognized upon shipment of commercial product and
represents sales of AMVISC-Registered Trademark- products, HYVISC-Registered
Trademark- and ORTHOVISC-Registered Trademark-. ORTHOVISC-Registered Trademark-
is sold under several supply contracts, including one with Zimmer, Inc., a
division of Bristo-Myers Squibb (Zimmer), for Zimmer's distribution in Canada
and Europe. The Company has revised its revenue recognition policy for sales of
ORTHOVISC-Registered Trademark- under its contract with Zimmer. Under the
revised revenue recognition policy, reveNUE will be recognized at the time of
shipment to Zimmer based upon the minimum per unit price under the Distribution
Agreement at the time of sale to Zimmer. Anika had previously recognized revenue
for ORTHOVISC-Registered Trademark- sales to Zimmer based upon an estimate of
the average selling price which would be obtained by Zimmer upon sALE of the
ORTHOVISC-Registered Trademark- to its customers, as specified under the
Distribution Agreement. Any additional amounts earned by Anika above the
contractual minimum per uNIT price will be recognized when Zimmer sells the
ORTHOVISC-Registered Trademark- to its customers and Anika is able to determine
its share of the actual per unit sales price. Anika HAD also recognized revenue
in 1998 and the first three quarters of 1999 for ORTHOVISC-Registered Trademark-
which was held in its refrigerators at Zimmer's request. Under the CompanY'S
revised revenue recognition policy, this revenue will be recorded when the
ORTHOVISC-Registered Trademark- is shipped to Zimmer. Amounts paid by Zimmer in
excess of the amoUNT recognized under the revised revenue recognition policy is
recorded by Anika as deferred revenue and amounted to $1,420,000 at December 31,
1999.

         The Company has also adopted the provisions of SEC Staff Accounting
Bulletin 101 (SAB 101) in its 1999 operating results. The issuance of SAB 101
changes revenue recognition practices for non-refundable up-front payments
received as part of broad supply, distribution and marketing agreements,
including $2,500,000 and $1,500,000, respectively, received from Zimmer in
the fourth quarter of 1997 and the second quarter of 1998. These amounts were
previously recognized in the period received. In accordance with SAB 101, the
company has retroactively recorded the cumulative effect of the change in
accounting principle of $3,625,000 as a charge in the first quarter of 1999.
These payments will be recognized as revenue ratably over the 10-year term of
the distribution agreement including $400,000 recognized in 1999. The amount
received and deferred to future periods is $3,225,000 at December 31, 1999
and is included in deferred revenue.

         Advanced payments received for products are recorded as deferred
revenue and are recognized when the product is shipped.

PROPERTY AND EQUIPMENT

         Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
as follows:

<TABLE>
<S>                                                                                          <C>
Machinery and equipment....................................................................  3-10 years
Furniture and fixtures.....................................................................  3-5 years
Leasehold improvements.....................................................................  4-10 years

</TABLE>


                                       35

<PAGE>


         Amortization on leasehold improvements is calculated using the
straight-line method over the shorter of the lease term or estimated life of the
asset.

IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF

         The Company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.

         During the years ended December 31, 1999, 1998, and 1997 the Company
did not record losses on impairment.

RESEARCH AND DEVELOPMENT

         Research and development costs are expensed as incurred.

EARNINGS PER SHARE

         SFAS No. 128, EARNINGS PER SHARE, 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 and dilutive potential common shares
outstanding during the period. Under the treasury stock method, the dilutive
unexercised 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.

         The following illustrates a reconciliation of the number of shares used
in the calculation of basic and diluted net income (loss) per share for the
years ended December 31, 1999, 1998, and 1997:

<TABLE>
<CAPTION>

                                                                                         YEARS ENDED DECEMBER 31,
                                                                                         ------------------------
                                                                                1999                1998            1997
                                                                             -----------         ----------      ----------
                                                                                              (AS RESTATED)
<S>                                                                          <C>                 <C>             <C>
Net income (loss).........................................................   $(2,495,726)        $3,752,348      $3,344,437
Less: Redeemable convertible preferred stock dividend.....................            --                 --         103,035
                                                                             -----------         ----------      ----------
Net income (loss) available to common shareholders........................   $(2,495,726)        $3,752,348      $3,241,402
                                                                             -----------         ----------      ----------
                                                                             -----------         ----------      ----------
Basic weighted average common shares outstanding..........................     9,740,560          9,885,724       5,436,474
Dilutive effect of assumed exercise of stock options and warrants.........       480,024          1,120,552         952,432
Dilutive effect of assumed conversion of preferred stock..................            --                 --       1,198,437
                                                                             -----------         ----------      ----------
Diluted weighted average common and potential common shares outstanding...    10,220,584         11,006,276       7,587,393
                                                                             -----------         ----------      ----------
                                                                             -----------         ----------      ----------

</TABLE>


INCOME TAXES

         The Company provides for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 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 bases of assets and
liabilities.


                                       36

<PAGE>


STOCK-BASED COMPENSATION

         The Company has adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income disclosures
for employee stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 for employee grants and provide the pro forma
disclosure of SFAS No. 123 (see Note 9).

         In March 1999, the Financial Accounting Standards Board (FASB) issued a
proposed interpretation, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK
COMPENSATION--AN INTERPRETATION OF APB OPINION NO. 25. The Proposed
Interpretation would clarify the application of APB 25 in certain situations, as
defined. The Proposed Interpretation would be effective upon issuance (expected
to be in early 2000) but would cover certain events that occur after December
15, 1998. To the extent that events covered by this Proposed Interpretation
occur during the period after December 15, 1998, but before issuance of the
final interpretation, the effects of applying this Proposed Interpretation would
be recognized on a prospective basis from the effective date. Accordingly, upon
initial application of the final interpretation, (a) no adjustments would be
made to financial statements for periods before the effective date and (b) no
expense would be recognized for any additional compensation cost measured that
is attributable to periods before the effective date. The Company expects that
the adoption of this Interpretation will not have a material affect on the
financial statements.

CONCENTRATION OF CREDIT RISK

         SFAS No. 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 and credit
risk concentrations. The Company has no significant off-balance-sheet or
concentration of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements.

         Sales of AMVISC-Registered Trademark- products to Bausch & Lomb
Surgical accounted for 63.9%, 68.7% and 84.1% of product revenue for the years
ended December 31, 1999, 1998, and 1997, respectively. ORTHOVISC-Registered
Trademark- sales to another customer accounted for 28.4%, 19.2% and 14.5% of
product revenue for the years ended December 31, 1999, 1998 and 1997,
respectively. ORTHOVISC-Registered Trademark- sales to Zimmer accounted for
10.3% and 2.8% of product revenue for the years ended December 31, 1998 and
1999, respectiveLY. Additionally, as of December 31, 1999, two customers, one of
which is an international customer, represented 49% and 42%, respectively, of
the Company's accounts receivable balance. As of December 31, 1998 three
customers represented 100% of the Company's accounts receivable balance with one
international customer representing 14% of the Company's accounts receivable
balance.

REPORTING COMPREHENSIVE INCOME

         SFAS No. 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 nonowner 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 31, 1999, 1998 and 1997.

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

         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
how to allocate resources and assess performance. The Company's chief
decision-making group consists of the chief executive officer and the chief
financial officer. Based on the criteria established by SFAS No. 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 financial statements. Substantially all of the operations and
assets of the Company have been derived from and are located in the United
States.


                                       37

<PAGE>


         Revenues by country of the customer in total and as a percentage of
total revenues are as follows for the years ended December 31, 1999, 1998 and
1997, respectively:

<TABLE>
<CAPTION>

                                                YEARS ENDED DECEMBER 31,
                                                ------------------------
                                    1999                   1998                        1997
                                    ----                   ----                        ----
COUNTRY:                                               (AS RESTATED)
--------
                                      PERCENT OF                PERCENT OF                   PERCENT OF
                           REVENUE     REVENUE       REVENUE     REVENUE        REVENUE       REVENUE
                           -------     -------       -------     -------        -------       -------
<S>                      <C>           <C>        <C>            <C>         <C>               <C>
United States.......      $9,381,073    69.6%      $10,816,248    81.5%       $10,615,518       88.8%
Middle East.........       3,948,839    29.3         2,307,095    17.4          1,339,820       11.2
Other/Europe........         152,750     1.1           150,000     1.1                 --         --
                         -----------   -----       -----------   -----        -----------      -----
  Total.............     $13,482,662   100.0%      $13,273,343   100.0%       $11,955,338      100.0%
                         -----------   -----       -----------   -----        -----------      -----
                         -----------   -----       -----------   -----        -----------      -----

</TABLE>


NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES. SFAS No. 133,
as amended by SFAS No. 137, is effective for all fiscal quarters beginning with
the quarter ending September 30, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
will adopt SFAS No. 133 in its quarter ending September 30, 2000 and does not
expect that such adoption to have an impact on the Company's results of
operations, financial position or cash flows.

         As noted above the Company adopted the provisions of SEC Staff
Accounting Bulletin 101 (SAB 101) in its restated 1999 operating results. The
issuance of SAB 101 changes revenue recognition practices for non-refundable
up-front payments received as part of broad supply, distribution and marketing
agreements. Such amounts were previously recognized in the period received. In
accordance with SAB 101, such payments will be recognized as revenue ratably
over the term of the distribution agreement.

3.  ALLOWANCE FOR DOUBTFUL ACCOUNTS

         A summary of the allowance for doubtful account activity is as follows:

<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                           ------------
                                                         1999        1998
                                                         ----        ----
          <S>                                          <C>         <C>
          Balance, beginning of the year..............  $57,000     $    --
          Amounts provided............................   12,000      57,000
          Amounts written off.........................   (8,000)         --
                                                        -------     -------
          Balance, at the end of the year.............  $61,000     $57,000
                                                        -------     -------
                                                        -------     -------

</TABLE>

4.  INVENTORIES

         Inventories consist of the following:


<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                           ------------
                                                         1999        1998
                                                         ----        ----
          <S>                                           <C>         <C>
          Raw materials..........................      $  681,936   $  432,255
          Work in-process........................       3,690,618    3,013,930
          Finished goods.........................       1,121,147       75,834
                                                       ----------   ----------
           Total.................................      $5,493,701   $3,522,019
                                                       ----------   ----------
                                                       ----------   ----------

</TABLE>


                                       38

<PAGE>


5.  PROPERTY & EQUIPMENT

         Property and equipment is stated at cost and consists of the following:

<TABLE>
<CAPTION>

                                                         DECEMBER 31,
                                                         ------------
                                                       1999        1998
                                                       ----        ----
          <S>                                       <C>          <C>
          Machinery and equipment.................  $5,704,663   $4,145,013
          Furniture and fixtures..................   1,773,390      564,621
          Leasehold improvements..................     638,180    1,666,771
                                                    ----------   ----------
            Total.................................  $8,116,233   $6,376,405
                                                    ----------   ----------
                                                    ----------   ----------

</TABLE>


6.  NOTES RECEIVABLE FROM OFFICERS

         Notes receivable from officers consists of loans made to three
officers. The loan amounts are due at the earlier of the end of five years from
the date of the note or at the termination of the officers' employment. Interest
accrues at annual rates between 4.42% to 6.0% and is payable monthly over the
term of the loans.

7.  ACCRUED EXPENSES

         Accrued expenses consists of the following:

<TABLE>
<CAPTION>

                                                         DECEMBER 31,
                                                         ------------
                                                       1999        1998
                                                       ----        ----
          <S>                                       <C>          <C>
          Accrued compensation....................  $  790,100   $ 560,270
          Federal taxes...........................      30,530     130,324
          Other accrued expenses..................     732,031     665,992
                                                    ----------  ----------
           Total..................................  $1,552,661  $1,356,586
                                                    ----------  ----------
                                                    ----------  ----------

</TABLE>


8.  LEASE OBLIGATIONS

         The Company leases three facilities with one lease expiring in October
2001, another in January 2004 and the third lease in February 2004. As of
December 31, 1999, one facility is being partially sublet. These leases are
accounted for as operating leases in the accompanying statements of operations.
Net rental expense in connection with the leases, totaled $489,000, $377,000 and
$353,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments under the operating leases, net of sublease income
for the years ending December 31st are as follows:

<TABLE>
<CAPTION>

                                                           AMOUNT
                                                           ------
          <S>                                            <C>
          2000...........................................$  616,000
          2001...........................................   643,000
          2002...........................................   626,000
          2003...........................................   655,000
          2004...........................................   109,000
                                                         ----------
           Total........................................ $2,649,000
                                                         ----------
                                                         ----------

</TABLE>


9.  STOCK OPTION PLAN

         The Company has reserved 3,000,000 shares of Common Stock for the grant
of stock options to employees, directors, consultants and advisors under the
Anika Therapeutics, Inc. Stock Option Plan (the "Plan"). In addition, the
Company also established the Directors Stock Option Plan (the "Director's Plan")
and reserved 40,000 shares of the Company's common stock for issuance to the
Board of Directors. On October 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


                                       39

<PAGE>


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 3, 1998. When the
amendment was approved by the shareholders, the Company was required to record
compensation expense with respect to the 269,000 options granted equal in an
amount to the difference between the exercise price and the fair market value of
the common stock at the time of such approval. The Company recorded deferred
compensation of $1,490,061 of which $415,362 and $342,464 was amortized to
expense during 1998 and 1999, respectively. The unamortized deferred
compensation of $615,002 at December 31, 1999 will be amortized on a
straight-line basis over the options' remaining vesting period.

         Combined stock option activity for both Plans is summarized as follows:

<TABLE>
<CAPTION>

                                                                                   WEIGHTED AVG EXERCISE
                                                                   SHARES             PRICE PER SHARE
                                                                   ------             ---------------
<S>                                                               <C>                       <C>
Outstanding at December 31, 1996.............................     1,779,395                 $2.99
  Granted....................................................       309,500                 $7.40
  Canceled...................................................      (14,333)                 $2.42
  Exercised..................................................     (228,047)                 $2.54
                                                                  ---------                 -----
Outstanding at December 31, 1997.............................     1,846,515                 $3.77
                                                                  ---------                 -----
  Granted....................................................       508,500                 $5.82
  Canceled...................................................      (68,958)                 $8.49
  Exercised..................................................     (112,153)                 $3.62
                                                                  ---------                 -----
Outstanding at December 31, 1998.............................     2,173,904                 $4.02
                                                                  ---------                 -----
  Granted....................................................       223,500                 $5.60
  Canceled...................................................     (241,116)                 $5.91
  Exercised..................................................     (561,237)                 $2.08
                                                                  ---------                 -----
Outstanding at December 31, 1999.............................     1,595,051                 $4.99
                                                                  ---------                 -----
                                                                  ---------                 -----

</TABLE>

         Generally, options vest in varying 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 201,717 options available for future grant at December
31, 1999.

         The following table summarizes significant ranges of outstanding
options under both Plans at December 31, 1999:

<TABLE>
<CAPTION>

                             OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                             -------------------                                -------------------
                                       WEIGHTED
                                        AVERAGE          WEIGHTED                            WEIGHTED
    RANGES OF           NUMBER         REMAINING         AVERAGE                             AVERAGE
     EXERCISE         OUTSTANDING     CONTRACTUAL        EXERCISE            NUMBER          EXERCISE
      PRICE           -----------        LIFE             PRICE           EXERCISABLE          PRICE
      -----                              ----             -----           -----------          -----
<S>                    <C>              <C>             <C>                <C>               <C>
    $1.07 - 3.00         246,592          4.14            $2.63              246,592           $2.63
     3.13 - 4.78         401,776          6.84             4.29              261,776            4.04
     4.91 - 5.81         644,183          7.91             5.22              252,766            5.25
     6.16 - 8.13         302,500          8.37             7.38              109,250            7.63
                       ---------          ----            -----              -------           -----
                       1,595,051          7.15            $4.99              870,384           $4.44
                       ---------          ----            -----              -------           -----
                       ---------          ----            -----              -------           -----

</TABLE>


                                       40

<PAGE>


         The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board ("APB")
Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123 for
stock-based compensation awarded in 1999, 1998 and 1997 using the Black-Scholes
option pricing model prescribed by SFAS No. 123. The underlying assumptions used
are as follows:

<TABLE>
<CAPTION>

                                                                               YEARS ENDED DECEMBER 31,
                                                                               ------------------------
                                                                             1999        1998        1997
                                                                             ----        ----        ----
<S>                                                                        <C>         <C>          <C>
Risk-free interest rate...............................................       5.56%       5.45 %       6.0%
Expected dividend yield...............................................         --          --          --
Expected lives........................................................          6           6           6
Expected volatility...................................................       65.1%       50.0%       54.8%
Weighted average value of grants......................................     $ 3.21      $ 4.07      $ 7.40

</TABLE>


         Had compensation expense for employee stock options granted been
determined based on the fair value at the date of grant as prescribed, SFAS No.
123, pro forma net income (loss) and net income (loss) per share would have been
as follows:

<TABLE>
<CAPTION>

                                                                          YEARS ENDED DECEMBER 31,
                                                                          ------------------------
                                                                  1999              1998           1997
                                                                  ----              ----           ----
                                                                               (AS RESTATED)
<S>                                                            <C>               <C>              <C>
Net income (loss):
  As reported............................................      $(2,495,726)      $3,752,348       $3,344,437
  Pro forma..............................................      $(3,165,031)      $3,105,462       $2,644,895
Net income (loss) per share, as reported:
  Basic..................................................           $(0.26)           $0.38            $0.60
  Diluted................................................           $(0.24)           $0.34            $0.44
Net income (loss) per share, pro forma:
  Basic..................................................           $(0.32)           $0.31            $0.48
  Diluted................................................           $(0.31)           $0.28            $0.35

</TABLE>


10. COMMON STOCK

         On December 1, 1997 the Company completed a secondary offering of
common stock. In connection with the offering the Company issued 2,725,000
shares of common stock and received total gross proceeds of $19,075,000, and net
proceeds of $17,031,481.

SHAREHOLDER RIGHTS PLAN

On April 6, 1998, the Board of Directors adopted a shareholder rights agreement
(the "Rights Plan"). In connection with the adoption of the Rights Plan, the
Board of Directors declared a dividend distribution of one preferred stock
purchase right (a "Right") for each outstanding share of common stock to
stockholders of record as of the close of business on April 23, 1998. Currently,
these Rights are not exercisable and trade with the shares of the Company's
Common Stock. Under the Rights Plan, the Rights generally become exercisable if:
(i) a person becomes an "acquiring person" by acquiring 15% or more of the
Company's Common Stock, (ii) a person commences a tender offer that would result
in that person owning 15% or more of the Company's Common Stock, or (iii) 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 the Company is acquired in a merger or other business combination transaction
after any such event, 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.


                                       41

<PAGE>


The Rights will expire at the close of business on April 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 (i) the time at which any person
becomes an "acquiring person" or (ii) the Expiration Date. At any time after any
person becomes an "acquiring 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 effect such exchange at any time after any person
becomes the beneficial owner of 50% or more of the Company's Common Stock.

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.

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 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.

11. WARRANTS

         In connection with the private placement in March 1996, the Company
issued warrants to Leerink, Swann, Garrity, Sollami, Yaffe and Wynn, Inc.
("Leerink Swann & Company"), for 146,664 shares of common stock exercisable at
$3.00 per share and warrants for 57,036 shares of common stock exercisable at
$4.00 per share. On January 8, 1998, the notice for mandatory exercise of the
warrants by the Company was sent in accordance with the warrant provisions and
all warrants were converted into common stock resulting in net proceeds to the
Company of $668,136.

12. STOCK REPURCHASE PLAN

         In October 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 and subject to regulatory considerations. As of December 31,
1999, the Company had repurchased a total of 762,100 shares at a net cost of
approximately $3,873,000 and has reissued 561,237 shares upon exercise of
employee stock options.

13. EMPLOYEE BENEFIT PLAN

         Full-time 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 can make
annual discretionary contributions. For the year ended December 31, 1999 and
1998 the Company's matching contribution was in the form of cash of $160,142 and
$130,644, respectively. For the year ended December 31, 1997, the Company's
matching contribution to the plan was in the form of the Company's common stock.
The Company's total 401(k) savings plan expense for 1997 was $133,405.

14. LICENSING AND DISTRIBUTION AGREEMENT

         In November 1997, the Company entered into a long-term distribution
agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company, that
was subsequently amended in June 1998 and June 1999, (the "Zimmer Distribution
Contract"). The Zimmer Distribution Contract provides Zimmer with exclusive
marketing and distribution rights to ORTHOVISC-Registered Trademark- in the
United States, Canada, Asia and most of Europe. To date, the Company has
received up-front non-refundable licensING payments from Zimmer totaling $4.0
million. In addition, under the Zimmer Distribution Contract the Company has the
potential to receive payments aggregating up to $19.5 million upon the
achievement of certain regulatory approvals, reimbursement approvals and
enumerated sales milestones. As an alternative to a $2.5 million milestone
payment due upon FDA approval for the U.S. market, Zimmer has the right to elect
to acquire shares of the Company's Common Stock equal to the greater of: (a)
$2,500,000 divided by 125% of the average daily closing price of the Common
Stock for the prior sixty (60) calendar days or (b) 9.9% of the then outstanding
Common Stock (but not to exceed 19.9% of the then outstanding common stock).
There can be no assurance that any of such milestones will be met on a timely
basis or at all.


                                       42

<PAGE>


The Zimmer Distribution Contract provides that the amount Zimmer will pay to the
Company for ORTHOVISC-Registered Trademark- will be based on a fiXED percentage
of Zimmer's actual average selling price, subject to a floor. Additionally, the
Zimmer Distribution Contract contains certain annual minimum purchase
requirements that Zimmer must order.

15. INCOME TAXES

         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.

         As of December 31, 1999, the Company has net operating loss
carryforwards for state tax purposes of approximately $1,403,000. These
carryforwards expire in 2001, and are subject to review and possible
adjustment. The Company has no net operating loss carryforwards available for
Federal income tax purposes after 1999.

         The Internal Revenue Code (IRC) contains provisions that may limit the
amount of net operating loss and 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 382, utilization of the carryforwards may
be restricted.

         The approximate income tax effect of each type of temporary difference
and carryforward is as follows:

<TABLE>
<CAPTION>

                                                                                  YEARS ENDED DECEMBER 31,
                                                                                  ------------------------
                                                                                   1999             1998
                                                                                   ----             ----
                                                                                                (AS RESTATED)
<S>                                                                             <C>              <C>
Deferred tax assets (liabilities):
  Depreciation............................................................        $430,006         $312,754
  Accrued expenses and other..............................................         (5,097)         (17,585)
  Inventory loss reserve..................................................         120,690           60,429
  Nonqualified stock option amortization..................................         112,627          113,387
  Deferred revenue........................................................       1,847,002          318,547
  Net operating loss carryforwards........................................          84,181          583,915
  Credit carryforward.....................................................              --          275,901
                                                                                ----------       ----------
Gross deferred tax assets.................................................       2,589,409        1,647,348
  Less: valuation allowance...............................................      (2,589,409)      (1,647,348)
                                                                                ----------       ----------

Net deferred tax asset....................................................          $--               $--
                                                                                ----------       ----------
                                                                                ----------       ----------

</TABLE>


         Due to the uncertainty surrounding the timing of realization of the
benefits of its favorable tax attributes in future tax returns, the Company has
placed a full valuation allowance against its net deferred tax asset. However,
approximately $113,000 of the valuation allowance relates to the excess tax
benefit of disqualifying dispositions and the exercise of non-qualified stock
options. If the valuation allowance is reduced in the future periods, this
benefit will be recorded in additional paid in capital at that time.


                                       43

<PAGE>


         Income tax expense was $31,412, $127,557 and $78,677 for the years
ended December 31, 1999, 1998 and 1997, respectively. The provision for income
taxes differs from the amounts computed by applying the U.S. Federal income tax
rate of thirty-four percent to pretax income as a result of the following:

<TABLE>
<CAPTION>

                                                                          YEARS ENDED DECEMBER 31,
                                                                          ------------------------
                                                                 1999               1998               1997
                                                                 ----               ----               ----
                                                                               (AS RESTATED)
<S>                                                            <C>                <C>               <C>
Computed expected tax expense (benefit).................       $(837,867)         $1,319,168        $1,163,859
State tax (benefit) expense (net of federal benefit)....        (147,859)            232,794           215,329
Nondeductible expenses..................................          44,944              12,069             3,804
Unrealized gain on short-term investments...............              --             (80,702)               --
Other...................................................          30,133             (58,829)           (7,660)
Change in valuation allowance related to income tax
  benefit...............................................          942,061         (1,296,943)       (1,296,655)
                                                                ---------         ----------         ----------
Tax expense.............................................          $31,412           $127,557           $78,677
                                                                ---------         ----------         ----------
                                                                ---------         ----------         ----------

</TABLE>


                                       44

<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Anika Therapeutics, Inc.:

         We have audited the accompanying balance sheet of Anika Therapeutics,
Inc. (the "Company") as of December 31, 1999 and 1998, as restated, and the
related statements of operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Anika Therapeutics,
Inc. as of December 31, 1999 and 1998, as restated, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.


                                  ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 11, 2000


                                       45

<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Anika Therapeutics, Inc.:

We have audited the accompanying statement of operation, stockholders' equity,
and cash flow of Anika Therapeutics, Inc. for the year ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements base
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operation and cash flow of Anika
Therapeutics, Inc. for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.


                                  KPMG LLP

Boston, Massachusetts
February 18, 1998


                                       46

<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         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 7, 2000 under the headings "Election
of Directors".

ITEM 11. EXECUTIVE COMPENSATION

         The information required by Item 11 is hereby incorporated by reference
to the Proxy Statement under the heading "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 is hereby incorporated by reference
to the Proxy Statement under the heading "Beneficial Ownership of Voting Stock."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 13 is hereby incorporated by reference
to the Proxy Statement under the headings "Employment Arrangements with Senior
Executives" and "Certain Relationships."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)  Documents filed as part of Form 10-K.

              (1)  Financial Statements

         Report of Independent Public Accountants                      45-46
         Consolidated Balance Sheets                                     27
         Consolidated Statements of Operations                           28
         Consolidated Statements of Stockholder's Equity                 29
         Consolidated Statements of Cash Flows                           30
         Notes to Consolidated Financial Statements                    31-44

Notes to Financial Statements

              (2)  Schedules

         Schedules other than those listed above have been omitted since they
         are either not required or the information required is included in the
         financial statements or the notes thereto.

         Arthur Andersen LLP's Reports with respect to the above listed
         financial statements and financial statements schedules are included
         herein on Item 8 and Exhibit 23.1

         KPMG LLP's Reports with respect to the above listed financial
         statements and financial statements schedules are included herein on
         Item 8 and Exhibit 23.2


                                       47

<PAGE>


              (3)  Exhibits required to be filed by Item 601 of Regulation S-K
                   and by Item 14 (c)

         The list of Exhibits filed as a part of this Annual Report on Form 10-K
         are set forth on the Exhibit Index immediately preceding such Exhibits,
         and is incorporated herein by reference.

         (b)  Reports on Form 8-K

         The Company did not file any Current Reports on Form 8-K during the
last quarter of the period covered by this report.

         (c) Exhibit Index

(3)      Articles of Incorporation and Bylaws:

         3.1      The Amended and Restated Articles of Organization of the
                  Company, incorporated herein by reference to Exhibit 3.1 to
                  the Company's Registration Statement on Form 10 (file no.
                  000-21326), filed with the Securities and Exchange Commission
                  on March 5, 1993.

         3.2      The Amended and Restated Bylaws of the Company, incorporated
                  herein by reference to Exhibit 3.4 to the Company's quarterly
                  report on Form 10-QSB for the period ended November 30, 1996,
                  filed with the Securities and Exchange Commission on January
                  14, 1997.

         3.3      Amendment to the Amended and Restated Articles of Organization
                  of the Company, incorporated herein by reference to Exhibit
                  3.1 to the Company's Form quarterly report on Form 10-QSB for
                  the period ended November 30, 1996, filed with the Securities
                  and Exchange Commission on January 14, 1997.

(4)      Instruments Defining the Rights of Security Holders

         4.1      Shareholder Rights Agreement dated as of April 6, 1998 between
                  the Company and Firstar Trust Company, incorporated herein by
                  reference to Exhibit 4.1 of the Company's Current Report of
                  Form 8-A12B (File no. 001-14022), filed with the Securities
                  and Exchange Commission on April 7, 1998.

(10)     Material Contracts

         10.1     Settlement Agreement dated January 11, 1991 among MedChem
                  Products, Inc., Kabi Pharmacia AB, Pharmacia, Inc., Dr. Endre
                  Balazs and IOLAB Corporation, incorporated herein by reference
                  to Exhibit 10.3 to the Company's Registration Statement on
                  Form 10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.2     Third Amendment to Distribution Agreement dated as of January
                  11, 1991 between the Company and IOLAB Corporation,
                  incorporated herein by reference to Exhibit 10.2 to the
                  Company's Registration Statement on Form 10 (file no.
                  000-21326), filed with the Securities and Exchange Commission
                  on March 5, 1993.

         10.3     Fourth Amendment to Distribution Agreement dated as of August
                  1, 1994 between the Company and IOLAB Corporation,
                  incorporated herein by reference to Exhibit 10.24 to the
                  Company's annual report on Form 10-K for the fiscal year ended
                  August 31, 1994, filed with the Securities and Exchange
                  Commission on November 25, 1994.

         10.4     Supply Agreement dated as of August 1, 1994 between the
                  Company and IOLAB, incorporated herein by reference to Exhibit
                  10.25 to the Company's Annual Report on Form 10-K for the
                  fiscal year ended August 31, 1994, filed with the Securities
                  and Exchange Commission on November 25, 1994.

         10.5     Sponsored Research Agreement dated as of June 18, 1992 between
                  Tufts University and the Company, incorporated herein by
                  reference to Exhibit 10.5 to the Company's Registration
                  Statement on Form 10, filed with the Securities and Exchange
                  Commission on March 5, 1993.


                                       48

<PAGE>


         10.6     Form of TMJ Agreement dated as of April 29, 1993 between the
                  Company and MedChem, incorporated herein by reference to
                  Exhibit 10.6 to the Company's Registration Statement on Form
                  10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.7     Sublease Agreement dated as of April 29, 1993 between the
                  Company and MedChem, incorporated herein by reference to
                  Exhibit 10.8 to the Company's Registration Statement on Form
                  10 (file no. 000-21326), filed on March 5, 1993.

         10.8     1993 Stock Option Plan, incorporated herein by reference to
                  Exhibit 10.1 to the Company's quarterly report on Form 10-QSB
                  for the period ended June 30, 1998, filed with the Securities
                  and Exchange Commission on August 14, 1998.

         10.9     1993 Directors Stock Option Plan, incorporated herein by
                  reference to Exhibit 10.15 to the Company's Registration
                  Statement on Form 10/A (file no. 000-21326), filed with the
                  Securities and Exchange Commission on April 28, 1993.

         10.10    License Agreement dated as of July 22, 1992 between the
                  Company and Tufts University, incorporated herein by reference
                  to Exhibit 10.4 to the Company's Registration Statement on
                  Form 10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.11    Lease dated March 10, 1995 between the Company and Cummings
                  Properties, incorporated herein by reference to Exhibit 10.11
                  to the Company's Annual Report on Form 10-K for the fiscal
                  year ended August 31, 1995, filed with the Securities and
                  Exchange Commission on November 29, 1995.

         10.12    Employment Agreement dated September 24, 1996 between the
                  Company and J. Melville Engle, incorporated herein by
                  reference to Exhibit 10.31 to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended August 31, 1996, filed
                  with the Securities and Exchange Commission on November 27,
                  1996.

         10.13    Change of Control Agreement dated as of June 3, 1999 between
                  the Company and J. Melville Engle is filed herewith as Exhibit
                  10.13.

         10.14    Promissory Note for $75,000 dated as of March 17, 1996 between
                  the Company and J. Melville Engle, incorporated herein by
                  reference to Exhibit 10.25 to the Company's Registration
                  Statement on Form SB-2 (file no. 333-38993), filed with the
                  Securities and Exchange Commission on October 29, 1997.

         10.15    Exclusive Distribution Agreement dated as of November 7, 1997
                  between the Company and Zimmer, Inc., incorporated herein by
                  reference to Exhibit 10.26 to the Company's Registration
                  Statement on Form SB-2/A, filed with the Securities and
                  Exchange Commission on November 10, 1997. Confidential
                  treatment was granted to certain portions of this Exhibit.

         10.16    First Amendment to Exclusive Distribution Agreement dated as
                  of June 1, 1998 between the Company and Zimmer, Inc.,
                  incorporated herein by reference to Exhibit 10.1 to the
                  Company's quarterly report on Form 10-QSB for the quarterly
                  period ended June 30, 1998, filed with the Securities and
                  Exchange Commission on August 14, 1998.

(23)     Consent of ARTHUR ANDERSEN LLP is filed herewith as Exhibit 23.1.
         Consent of KPMG LLP is filed herewith as Exhibit 23.2.

(27)     Financial Data Schedule.


                                       49

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Woburn, Massachusetts on
March 30, 2000.


                                  ANIKA THERAPEUTICS, INC.

                                  By: /s/  Kathleen A. Theriault
                                      --------------------------
                                      Kathleen A. Theriault
                                      PRINCIPAL FINANCIAL & ACCOUNTING OFFICER
                                      March 30, 2000

                                   SIGNATURES

         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, on March 30, 2000.

     SIGNATURE                        TITLE                          DATE
     ---------                        -----                          ----

/s/ J. MELVILLE ENGLE         Chairman, President & Chief       March 30, 2000
-------------------------     Executive Officer
    J. Melville Engle         PRINCIPAL EXECUTIVE OFFICER

/s/ JOSEPH L. BOWER           Director                          March 30, 2000
-------------------------
    Joseph L. Bower

/s/ EUGENE A. DAVIDSON        Director                          March 30, 2000
-------------------------
    Eugene A. Davidson

/s/ JONATHAN D. DONALDSON     Director                          March 30, 2000
-------------------------
  Jonathan D. Donaldson

/s/ SAMUEL F. MCKAY           Director                          March 30, 2000
-------------------------
    Samuel F. McKay

/s/ HARVEY S. SADOW           Director                          March 30, 2000
-------------------------
    Harvey S. Sadow

/s/ STEVEN E. WHEELER         Director                          March 30, 2000
-------------------------
    Steven E. Wheeler

/s/ KATHLEEN A. THERIAULT     Controller                        March 30, 2000
-------------------------     PRINCIPAL FINANCIAL AND
    Kathleen A. Theriault     ACCOUNTING OFFICER


                                       50

<PAGE>


                                  EXHIBIT INDEX

(3)      Articles of Incorporation and Bylaws:

         3.1      The Amended and Restated Articles of Organization of the
                  Company, incorporated herein by reference to Exhibit 3.1 to
                  the Company's Registration Statement on Form 10 (file no.
                  000-21326), filed with the Securities and Exchange Commission
                  on March 5, 1993.

         3.2      The Amended and Restated Bylaws of the Company, incorporated
                  herein by reference to Exhibit 3.4 to the Company's quarterly
                  report on Form 10-QSB for the period ended November 30, 1996,
                  filed with the Securities and Exchange Commission on January
                  14, 1997.

         3.3      Amendment to the Amended and Restated Articles of Organization
                  of the Company, incorporated herein by reference to Exhibit
                  3.1 to the Company's Form quarterly report on Form 10-QSB for
                  the period ended November 30, 1996, filed with the Securities
                  and Exchange Commission on January 14, 1997.

(4)      Instruments Defining the Rights of Security Holders

         4.1      Shareholder Rights Agreement dated as of April 6, 1998 between
                  the Company and Firstar Trust Company, incorporated herein by
                  reference to Exhibit 4.1 of the Company's Current Report of
                  Form 8-A12B (File no. 001-14022), filed with the Securities
                  and Exchange Commission on April 7, 1998.

(10)     Material Contracts

         10.1     Settlement Agreement dated January 11, 1991 among MedChem
                  Products, Inc., Kabi Pharmacia AB, Pharmacia, Inc., Dr. Endre
                  Balazs and IOLAB Corporation, incorporated herein by reference
                  to Exhibit 10.3 to the Company's Registration Statement on
                  Form 10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.2     Third Amendment to Distribution Agreement dated as of January
                  11, 1991 between the Company and IOLAB Corporation,
                  incorporated herein by reference to Exhibit 10.2 to the
                  Company's Registration Statement on Form 10 (file no.
                  000-21326), filed with the Securities and Exchange Commission
                  on March 5, 1993.

         10.3     Fourth Amendment to Distribution Agreement dated as of August
                  1, 1994 between the Company and IOLAB Corporation,
                  incorporated herein by reference to Exhibit 10.24 to the
                  Company's annual report on Form 10-K for the fiscal year ended
                  August 31, 1994, filed with the Securities and Exchange
                  Commission on November 25, 1994.

         10.4     Supply Agreement dated as of August 1, 1994 between the
                  Company and IOLAB, incorporated herein by reference to Exhibit
                  10.25 to the Company's Annual Report on Form 10-K for the
                  fiscal year ended August 31, 1994, filed with the Securities
                  and Exchange Commission on November 25, 1994.

         10.5     Sponsored Research Agreement dated as of June 18, 1992 between
                  Tufts University and the Company, incorporated herein by
                  reference to Exhibit 10.5 to the Company's Registration
                  Statement on Form 10, filed with the Securities and Exchange
                  Commission on March 5, 1993.

         10.6     Form of TMJ Agreement dated as of April 29, 1993 between the
                  Company and MedChem, incorporated herein by reference to
                  Exhibit 10.6 to the Company's Registration Statement on Form
                  10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.7     Sublease Agreement dated as of April 29, 1993 between the
                  Company and MedChem, incorporated herein by reference to
                  Exhibit 10.8 to the Company's Registration Statement on Form
                  10 (file no. 000-21326), filed on March 5, 1993.


                                       51

<PAGE>


         10.8     1993 Stock Option Plan, incorporated herein by reference to
                  Exhibit 10.1 to the Company's quarterly report on Form 10-QSB
                  for the period ended June 30, 1998, filed with the Securities
                  and Exchange Commission on August 14, 1998.

         10.9     1993 Directors Stock Option Plan, incorporated herein by
                  reference to Exhibit 10.15 to the Company's Registration
                  Statement on Form 10/A (file no. 000-21326), filed with the
                  Securities and Exchange Commission on April 28, 1993.

         10.10    License Agreement dated as of July 22, 1992 between the
                  Company and Tufts University, incorporated herein by reference
                  to Exhibit 10.4 to the Company's Registration Statement on
                  Form 10 (file no. 000-21326), filed with the Securities and
                  Exchange Commission on March 5, 1993.

         10.11    Lease dated March 10, 1995 between the Company and Cummings
                  Properties, incorporated herein by reference to Exhibit 10.11
                  to the Company's Annual Report on Form 10-K for the fiscal
                  year ended August 31, 1995, filed with the Securities and
                  Exchange Commission on November 29, 1995.

         10.12    Employment Agreement dated September 24, 1996 between the
                  Company and J. Melville Engle, incorporated herein by
                  reference to Exhibit 10.31 to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended August 31, 1996, filed
                  with the Securities and Exchange Commission on November 27,
                  1996.

         10.13    Change of Control Agreement dated as of June 3, 1999 between
                  the Company and J. Melville Engle is filed herewith as Exhibit
                  10.13.

         10.14    Promissory Note for $75,000 dated as of March 17, 1996 between
                  the Company and J. Melville Engle, incorporated herein by
                  reference to Exhibit 10.25 to the Company's Registration
                  Statement on Form SB-2 (file no. 333-38993), filed with the
                  Securities and Exchange Commission on October 29, 1997.

         10.15    Exclusive Distribution Agreement dated as of November 7, 1997
                  between the Company and Zimmer, Inc., incorporated herein by
                  reference to Exhibit 10.26 to the Company's Registration
                  Statement on Form SB-2/A, filed with the Securities and
                  Exchange Commission on November 10, 1997. Confidential
                  treatment was granted to certain portions of this Exhibit.

         10.16    First Amendment to Exclusive Distribution Agreement dated as
                  of June 1, 1998 between the Company and Zimmer, Inc.,
                  incorporated herein by reference to Exhibit 10.1 to the
                  Company's quarterly report on Form 10-QSB for the quarterly
                  period ended June 30, 1998, filed with the Securities and
                  Exchange Commission on August 14, 1998.

(23)     Consent of ARTHUR ANDERSEN LLP is filed herewith as Exhibit 23.1.
         Consent of KPMG LLP is filed herewith as Exhibit 23.2.

(27)     Financial Data Schedule.


                                       52