<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

    [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
                              Exchange Act of 1934.
               For the quarterly period ended September 30, 2001.

     [ ] 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
                                     0-25133

                               PHARMANETICS, INC.
             (Exact Name of Registrant as Specified in its Charter)

              North Carolina                         56-2098302
    (State or other jurisdiction of    (IRS Employer Identification Number)
    Incorporation or organization)

                 9401 Globe Center Drive, Suite 140
                  Morrisville, North Carolina                27560
               (Address of Principal Executive Office)     (Zip Code)

         Registrant's Telephone Number, Including Area Code 919-582-2600

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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

                                 YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

              Class                        Outstanding as of November 7, 2001
    Common Stock, no par value                          9,380,805

<PAGE>

                               PHARMANETICS, INC.

                               INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I.              FINANCIAL INFORMATION                                                                     PAGE

<S>                                                                                                            <C>
                     Item 1.  Financial Statements

                     Consolidated Balance Sheets as of  September 30, 2001
                       (unaudited) and December 31, 2000                                                        3

                     Consolidated Statements of Operations for the Three Months
                       and Nine Months ended September 30, 2001 and 2000
                       (unaudited)                                                                              4

                     Consolidated Statements of Cash Flows for the Nine Months
                       ended September 30, 2001 and 2000 (unaudited)                                            5

                     Notes to the  Unaudited Consolidated Financial Statements                                  6

                     Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                                                        8


SIGNATURES                                                                                                     11
</TABLE>





                                        2

<PAGE>

                               PHARMANETICS, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                               SEPTEMBER 30,    DECEMBER 31,
                                                                                                   2001            2000
                                                                                                   ----            ----

                                                                                                 (UNAUDITED)
ASSETS
Current assets:
<S>                                                                                                  <C>            <C>
   Cash and cash equivalents                                                                       $16,486        $5,344
   Short term investments, held-to-maturity                                                             --         3,904
   Short term investments, trading                                                                      82            --
   Accounts and other receivables                                                                      345           301
   Inventories                                                                                       1,992         1,286
   Other current assets                                                                                199           218
                                                                                                       ---           ---

      Total current assets                                                                          19,104        11,053

Property and equipment, net                                                                          8,450         6,424
Patents and intellectual property, net                                                                 553           536
Other noncurrent assets                                                                                286           301
                                                                                                       ---           ---

      Total assets                                                                                 $28,393       $18,314
                                                                                                   =======       =======


LIABILITIES, REDEEMABLE PREFERRED STOCK, CONTINGENTLY REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                                   $243          $958
   Accrued expenses                                                                                    559           649
   Deferred revenue, current portion                                                                   732           232
   Current portion of long term debt and capital lease obligations                                      33           861
                                                                                                        --           ---

      Total current liabilities                                                                      1,567         2,700

Noncurrent liabilities:
   Deferred revenue, less current portion                                                              723           896
   Long term debt and capital lease obligations, less current portion                                   75            36
                                                                                                        --            --

      Total noncurrent liabilities                                                                     798           932
                                                                                                       ---           ---

      Total liabilities                                                                              2,365         3,632

Series A convertible redeemable preferred stock, no par value; authorized
 120,000 shares; 95,500 and 97,500 shares issued and outstanding at September 30, 2001 and
 December 31, 2000, respectively (aggregate liquidation value at September 30, 2001 of $9,550)       7,936         8,102

Contingently redeemable common stock                                                                 9,050            --

Shareholders' equity:
   Common stock, no par value; authorized 40,000,000 shares; 9,393,805 and
     7,851,225 issued and outstanding at September 30, 2001 and
     December 31, 2000, respectively                                                                56,035        47,028
   Accumulated deficit                                                                             (46,993)      (40,448)
                                                                                                   --------      --------

      Total shareholders' equity                                                                     9,042         6,580
                                                                                                   -------         -----

      Total liabilities, redeemable preferred stock, contingently redeemable
        common stock and shareholders' equity                                                      $28,393       $18,314
                                                                                                   =======       =======

</TABLE>

The accompanying notes are an integral part of the unaudited consolidated
financial statements.

                                        3

<PAGE>

                               PHARMANETICS, INC.

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

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED              NINE MONTHS ENDED

                                                                SEPTEMBER 30    SEPTEMBER 30   SEPTEMBER 30    SEPTEMBER 30
                                                                    2001           2000            2001            2000
                                                                    ----           ----            ----            ----

<S>                                                                   <C>          <C>              <C>             <C>
Net sales                                                             $1,235       $   743          $3,359          $3,609
Cost of goods sold                                                     1,004           788           2,865           2,670
                                                                       -----           ---           -----           -----

Gross profit                                                             231           (45)            494             939
                                                                         ---           ----            ---             ---

Operating expenses:
     General and administrative                                        1,094           794           3,322           2,400
     Sales and marketing                                                 336           213             928             776
     Research and development                                          1,007         1,001           2,752           2,628
                                                                       -----         -----           -----           -----

           Total operating expenses                                    2,437         2,008           7,002           5,804
                                                                       -----         -----           -----           -----

Operating loss                                                        (2,206)       (2,053)         (6,508)         (4,865)
                                                                      -------       -------         -------        -------

Other income (expense):
     Interest expense                                                     (3)          (47)            (69)           (161)
     Interest income                                                     138           209             347             532
     Grant/royalty income                                                  -             -              12              19
     Development income                                                   50           142             150             425
     Other expense                                                        (5)            -             (52)              -
                                                                          ---            -            ----               -

           Total other income                                            180           304             388             815
                                                                         ---           ---             ---             ---

Net and comprehensive loss                                            (2,026)       (1,749)         (6,120)         (4,050)

Dividends on preferred stock                                             134           168             425             417

Amortization of beneficial conversion feature of
     Series A convertible preferred stock                                  -             -               -             976
                                                                           -          ----               -             ---

Net loss applicable to common shareholders                           ($2,160)      ($1,917)        ($6,545)       ($5,443)
                                                                     ========      ========        ========       ========


Basic and diluted net loss per common
  share                                                               ($0.23)       ($0.25)         ($0.75)        ($0.72)
                                                                      =======       =======         =======        =======


Average weighted common shares outstanding                             9,369         7,676           8,694          7,594
                                                                ============   ===========    ============    ===========
</TABLE>

The accompanying notes are an integral part of the unaudited consolidated
financial statements.

                                        4

<PAGE>

                               PHARMANETICS, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                       NINE MONTHS ENDED
                                                                                                   SEPTEMBER 30  SEPTEMBER 30
                                                                                                       2001          2000
                                                                                                       ----          ----

Cash flows from operating activities:
<S>                                                                                                    <C>          <C>
    Net loss                                                                                        ($6,120)     ($4,050)
    Adjustments to reconcile net loss to net cash
        used in operating activities:
         Loss on disposal of assets                                                                      49            -
         Depreciation                                                                                   925          733
         Amortization of intangible and other assets                                                    144          101
         Amortization of discount on investment                                                         (31)        (270)
         Loss on  trading securities                                                                      5            -
         Provision for inventory obsolescence                                                           110           74
         Provision for warranty reserve                                                                   -            3
    Change in assets and liabilities:
        Accounts receivable                                                                             (43)         247
        Inventories                                                                                    (816)        (349)
        Other assets                                                                                    (60)        (109)
        Accounts payable and accrued expenses                                                          (733)         900
        Deferred revenue                                                                                326            -
                                                                                                        ---            -

                    Net cash used in operating activities                                            (6,244)      (2,720)
                                                                                                     -------      -------

Cash flows from investing activities:

     Payments for purchase of property and equipment                                                 (3,000)      (1,299)
     Costs incurred to obtain patents and intangibles                                                   (67)         (14)
     Proceeds from maturities of investments                                                          3,935        4,000
     Purchases of investments                                                                           (88)     (10,534)
                                                                                                        ----     --------

           Net cash provided by (used in) investing activities                                          780       (7,847)
                                                                                                        ---       -------

Cash flows from financing activities:

     Principal payments on long-term debt and capital lease
        obligations                                                                                    (860)        (570)
     Proceeds from issuance of common stock, net of offering costs                                   17,360            -
     Proceeds from exercise of stock options                                                            106          139
     Proceeds from Series A preferred stock offering, net of
      offering costs                                                                                      -       11,220
                                                                                                          -       ------

           Net cash provided by financing activities                                                 16,606       10,789
                                                                                                     ------       ------

           Net increase in cash and cash equivalents                                                 11,142          222
Cash and cash equivalents at beginning of period                                                      5,344        3,661
                                                                                                      -----        -----

Cash and cash equivalents at end of period                                                          $16,486       $3,883
                                                                                                    =======       ======


Supplemental disclosure of noncash investing and financing activities:

   Preferred stock issuance costs                                                                        $-          $62
   Preferred stock dividends paid with common shares                                                   $425         $417
   Purchase of property and equipment through capital lease                                             $72           $-
</TABLE>

The accompanying notes are an integral part of the unaudited consolidated
financial statements.
                                        5

<PAGE>

                               PHARMANETICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 1. Organization and Basis of Presentation

PharmaNetics, Inc. (the "Company") is a holding company incorporated in July
1998 as the parent company of Cardiovascular Diagnostics, Inc. ("CVDI"). CVDI
was incorporated in November 1985 and develops, manufactures and markets rapid
turnaround diagnostics to assess blood clot formation and dissolution. CVDI
develops tests based on its proprietary dry chemistry diagnostic test system,
known as the Thrombolytic Assessment System ("TAS"), to provide rapid and
accurate evaluation of hemostasis at the point of patient care. The consolidated
financial statements included herein as of any date other than December 31 have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Financial information as
of December 31 has been derived from the audited financial statements of the
Company, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. For
further information regarding the Company's accounting policies, refer to the
Consolidated Financial Statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000. Results for the
interim period are not necessarily indicative of the results for any other
interim period or for the full fiscal year.

Note 2. Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

Note 3. Investments

The Company makes investments in accordance with its investment policy which
seeks to minimize the possibility of loss. Investments with original maturities
at date of purchase beyond three months and which mature at or less than twelve
months from the balance sheet date are classified as current. Investments are
accounted for in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Investments held-to-maturity at December 31, 2000 consisted of United States
government agency obligations and corporate bonds. Trading investments at
September 30, 2001 consisted of marketable equity securities. These securities
are classified as trading securities as the Company may hold these securities
for only a short period of time.

Note 4. Inventory

Inventories consisted of the following (in thousands):

                            September 30, 2001      December 31, 2000
                            ------------------      -----------------

Raw materials                     $1,449                    $1,132
Finished goods                       543                       154
                                     ---                       ---
                                  $1,992                    $1,286
                                  ======                    ======


Note 5. Loss Per Common Share

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share" ("EPS"), the Company is required to present both basic and
diluted EPS on the face of the Statement of Operations. Basic EPS excludes
dilution and is computed by dividing income (loss) attributable to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is the same as basic EPS for the Company's quarters ended
September 30, 2001 and 2000, because, for loss periods, potential common shares
(such as options) are not included in computing diluted EPS since the effect
would be antidilutive. The number of potential common shares (options, warrants
and convertible preferred stock) as of September 30, 2001 and 2000 totaled
2,586,175 and 2,482,148, respectively.

                                        6

<PAGE>

Note 6. Preferred Stock

During the first quarter of 2000, the Company completed a private placement of
120,000 shares of Series A convertible preferred stock ("Series A"), resulting
in net proceeds to the Company of $11,219,621. The Company also issued five-year
warrants to acquire 240,000 shares of common stock at $10.00 per share.
Approximately $1,275,000 of the net proceeds was allocated to the warrants based
on their relative fair value. The Series A has a dividend of 6% payable
quarterly in cash or in shares of common stock at the option of the Company. For
the quarter ended September 30, 2001 and the year ended December 31, 2000, the
Series A dividend was paid by issuing 19,070 and 40,065 shares of common stock,
respectively.

Each share of the Series A is convertible into ten shares of common stock at
$10.00 per share. The Series A is convertible at the option of the holder at any
time or may be redeemed at the option of the Company upon the occurrence of any
of the following events: (a) the common stock closes at or above $20.00 per
share for 20 consecutive trading days, (b) a completion by the Company of a
follow-on public offering of at least $10 million at a per share price of at
least $15.00, (c) the acquisition of the Company by another entity by means of a
transaction that results in the transfer of 50% or more of the outstanding
voting power of the Company, (d) a sale of all or substantially all of the
Company's assets, or (e) at any time after February 28, 2004.

The holders of the Series A have a liquidation preference of $100 per preferred
share plus any accrued but unpaid dividends then held, such amounts subject to
certain adjustments. The liquidation preference is payable upon a change in
control of the Company, thus the Series A is carried in the mezzanine section of
the balance sheet. The holders also have the right to vote together with the
common stock on an as-if-converted basis.

On the date of issuance of the Series A, the effective conversion price of the
Series A was at a discount to the price of the common stock into which the
Series A is convertible. In accordance with EITF 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios", this discount totaled $3,003,590 and was recorded
as a preferred stock dividend during 2000.

Note 7. Common Stock

In April 2001, Bayer Diagnostics, the Company's distributor, purchased 1,450,000
shares of common stock of the Company at $12 per share for $17.4 million. This
investment increased Bayer's ownership percentage in the Company from
approximately 7% to 19.9%. The Company and Bayer entered into an amended
distribution agreement to replace the previous distribution agreement between
the parties entered into during 1998.

The 2001 common stock purchase agreement with Bayer contains a provision that,
upon the occurrence of a "change in control", as defined in the agreement, the
Company may be required to compensate Bayer, in cash or shares of common stock,
for any difference between per share prices originally paid by Bayer and the
amount received by the Company's shareholders. In accordance with the
implementation requirements of recently issued and adopted Emerging Issues Task
Force Abstract No. 00-19, the Company has transferred to temporary equity an
amount equal to the "change in control" payment called for by the purchase
agreement. Under the new accounting guidelines, this temporary transfer is
required only for those reporting periods in which the price per share paid by
Bayer is in excess of the fair market value of a common share, as measured by
reference to the NASDAQ National Market.

Note 8. Deferred Revenue

In 2000, the Company began recognizing revenue in accordance with SEC Staff
Accounting Bulletin No. 101. Under SAB 101, payments received under
collaboration agreements are deferred and recognized as income over the period
of the respective agreements. During 2001 and 2000, the Company received
payments as part of collaboration agreements with other entities. Revenue
recognized related to collaboration agreements for the quarters ended September
30, 2001 and 2000 were $550,000 and $142,000, respectively.

Note 9. Significant Customers

During the quarters ended September 30, 2001 and 2000, the Company had sales to
one customer totaling $732,000 and $711,000, respectively. At September 30, 2001
and December 31, 2000, outstanding receivables from that customer totaled 65%
and 92%, respectively, of total receivables.

Note 10. Recent Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS Nos.
141 and 142 will change the


                                       7

<PAGE>

accounting for business combinations and goodwill in two significant ways.
First, SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. Second, SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business transactions, will cease upon adoption of SFAS No. 142, which for
companies with calendar year ends, will be January 1, 2002. We do not anticipate
that these standards will have any material impact on the Company's financial
condition, results of operations or cash flows.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 ("FAS 143"), Accounting for Asset Retirement Obligations, and in July, 2001
the FASB issued Statement of Financial Accounting Standards No. 144 ("FAS 144"),
Accounting for the Impairment of Disposal of Long-Lived Assets. FAS 143 requires
that obligations associated with the retirement of tangible long-lived assets be
recorded as a liability when those obligations are incurred, with the amount of
the liability initially measured at fair value. FAS 143 will be effective for
financial statements beginning after June 15, 2002, though early adoption is
encouraged. The application of this statement is not expected to have a material
impact on the Company's financial statements.

FAS 144 supersedes FAS 121 and applies to all long-lived assets, including
discontinued operations, and amends Accounting Principles Board Opinion No. 30
("APB 30") Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. FAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book or fair value less costs to sell. FAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are generally expected to be applied
prospectively. The application of this statement is not expected to have a
material impact on the Company's financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                                  INTRODUCTION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements. Our actual results might differ
materially from those projected in the forward-looking statements due to any
number of factors, including those set forth below under "--Factors That May
Affect Future Results". Additional information concerning factors that could
cause actual results to materially differ from those in the forward-looking
statements is contained in our other SEC filings, copies of which are available
upon request to us.

The following discussion should be read in connection with the unaudited
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. Unless the context indicates otherwise, all references to us include our
wholly-owned subsidiary, Cardiovascular Diagnostics, Inc., or CVDI.

CVDI develops, markets and manufactures a Thrombolytic Assessment System, or
TAS, consisting of a compact, portable analyzer and disposable test cards which
are inserted into the analyzer to perform a variety of hemostasis tests. In
August 1998, CVDI signed a global distribution agreement with Chiron
Diagnostics, which is now a part of the diagnostics division of the Bayer
Corporation ("Bayer"), to distribute CVDI's PT, aPTT, HMT, and LHMT test cards
in North America and certain South American, European and Asian countries. At
that time, we received an equity investment of $6 million. This distribution
agreement was replaced by an amended distribution agreement in April 2001, at
which time Bayer invested $17.4 million in exchange for 1,450,000 shares of our
common stock.

Given the consolidating hospital market and pricing pressures, our strategy has
evolved towards becoming more focused on the development of theranostic tests
for drugs, some which have narrow ranges between over- and under-dosage.
Theranostics is an emerging new field of medicine that enables physicians to
therapeutically manage coagulation parameters of their patients in the treatment
of angina, myocardial infarction (heart attack), stroke, and pulmonary and
arterial emboli. The Company's flexible technology platform is the primary
driver of existing collaborations with a number of major pharmaceutical
companies, including Aventis Pharmaceuticals and Knoll BASF, to develop
theranostic tests for specific compounds and disease indications being targeted
by these corporations. These and other future collaborations for theranostic
tests also may further demand for our analyzers and routine anticoagulant tests.
We believe that rapid diagnostic capabilities improve patient care and turnover,
and that there is a market trend to obtain diagnostic information faster in
order to effect therapy sooner. We also believe that these trends should allow
us to obtain higher pricing for these theranostic tests. Our development efforts
will continue to focus on expanding our menu of tests to monitor developmental
drugs where rapid therapeutic intervention is needed.

                                       8

<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2001 VS SEPTEMBER 30, 2000

Net sales for the quarter ended September 30, 2001 were $1,235,000 compared to
$743,000 in the same period in 2000. The increase was due to higher specialty
card revenue in 2001, attributable to a $1.5 million payment from AstraZeneca
early in 2001 which was recorded as deferred revenue in accordance with the
provisions of the contract. In the third quarter, $500,000 of this payment was
recognized as revenue. The remainder of this payment will be recognized as
revenue in the fourth quarter of the year. Routine test card and TAS analyzer
revenue was virtually unchanged from the prior period.

Cost of goods sold for the quarter ended September 30, 2001 was $1,004,000
compared to $788,000 in the same period in 2000. This increase was principally
due to higher manufacturing costs related to depreciation, personnel and
inventory reserves in 2001 compared to 2000. The resulting gross profit for the
2001 period was higher than the third quarter of 2000 as a result of the
increased specialty test card revenue that more than offset the noted
manufacturing cost increases.

Total operating expenses for the quarter ended September 30, 2001 were
$2,437,000 compared to $2,008,000 in the third quarter of 2000. General and
administrative expenses were higher in the third quarter of 2001 compared to the
same period in 2000 due to technology infrastructure costs that did not occur in
the comparable period in 2000, and also because of expected increased personnel
costs. Sales and marketing expenses increased from 2000 primarily due to
training materials expense during the third quarter of 2001 that did not occur
in 2000. Research and development expenses increased slightly with expected
increases in payroll costs offset by decreased clinical research costs compared
to the prior year period.

Other income (expense) for the quarter ended September 30, 2001, which is
composed of interest income, interest expense, royalty income and development
income, was a net other income of $180,000 compared to a net other income of
$304,000 in the third quarter of 2000. Interest income decreased in the third
quarter of 2001 compared to 2000 as much lower interest rates more than offset
higher average cash balances. In addition, development income decreased during
the third quarter of 2001 as income was recognized during the third quarter of
2000 related to a collaborative development agreement with Bayer that ended
during 2000.

NINE MONTHS ENDED SEPTEMBER 30, 2001 VS SEPTEMBER 30, 2000

Net sales for the nine months ended September 30, 2001 were $3,359,000 compared
to $3,609,000 for the same period in 2000. This decrease was mainly due to
decreased revenue from the sale of routine test cards, analyzers and controls to
our distributor in 2001 compared to 2000. This decrease was partially offset by
increased specialty card revenue related to the payment from AstraZeneca in
2001.

Cost of goods sold for the nine months ended September 30, 2001 was $2,865,000
compared to $2,670,000 for the same period in 2000. Cost of goods sold increased
in 2001 as a result of higher manufacturing costs associated with the Company's
move to a new facility, including increased depreciation related to new
equipment and additional personnel. The gross profit percentage decreased
compared to the prior year as a result of these cost increases and lower sales
volume.

Total operating expenses for the nine months ended September 30, 2001 were
$7,002,000 compared to $5,804,000 for the same period in 2000. This increase is
primarily the result of facility relocation costs, technology infrastructure
costs, budgeted payroll increases and increased sales and marketing efforts.

Other income (expense) for the nine months ended September 30, 2001, was a net
other income of $388,000 compared to a net other income of $815,000 in the same
period of 2000. Interest income decreased compared to 2000 as much lower
interest rates more than offset higher average cash balances. In addition,
development income decreased during the nine months of 2001 as income was
recognized during 2000 related to a collaborative development agreement with
Bayer that ended prior to 2001.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, we had cash and cash equivalents and investments of $16.6
million and working capital of $17.5 million, as compared to $9.2 million and
$8.4 million, respectively, at December 31, 2000. During the nine months ended
September 30, 2001, we used cash in operating activities of $6.2 million. The
use of cash was primarily due to funding our net operating loss, increased
inventory balances and decreased payables. These outflows were somewhat offset
by inflows from past revenues that were deferred to subsequent periods.
Investing activities in 2001 mainly consisted of purchasing fixed assets,
consisting mainly of equipment and improvements for our new facility. Financing
activities in 2001 included the elimination of our remaining debt with
Transamerica Business and a significant equity financing with Bayer Diagnostics,
our distributor, who invested $17.4 million in exchange for 1,450,000 shares of

                                       9

<PAGE>

our common stock at $12 per share. This increased Bayer's ownership percentage
from approximately 7% to 19.9%. We have used and plan to continue to use the
proceeds to fund our operations and to fund development and marketing of new
specialty test cards.

We expect to incur additional operating losses during the remainder of 2001 and
into 2002. Our working capital requirements will depend on many factors,
primarily the volume of future orders of TAS products from our distributor,
Bayer Diagnostics. In addition, we expect to incur costs associated with
clinical trials for development of new test cards. We may acquire other
products, technologies or businesses that complement our existing and planned
products, although we currently have no understanding, commitment or agreement
with respect to any such acquisitions. Management believes that our existing
capital resources and cash flows from operations, including that from our
distribution agreement with Bayer Diagnostics, will be adequate to satisfy our
planned capital and operational requirements.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS Nos. 141 and 142 will
change the accounting for business combinations and goodwill in two significant
ways. First, SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. Second, SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business transactions, will cease upon adoption of SFAS No. 142, which for
companies with calendar year ends, will be January 1, 2002. We do not anticipate
that these standards will have any material impact on the Company's financial
condition, results of operations or cash flows.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 ("FAS 143"), Accounting for Asset Retirement Obligations, and in July, 2001
the FASB issued Statement of Financial Accounting Standards No. 144 ("FAS 144"),
Accounting for the Impairment of Disposal of Long-Lived Assets. FAS 143 requires
that obligations associated with the retirement of tangible long-lived assets be
recorded as a liability when those obligations are incurred, with the amount of
the liability initially measured at fair value. FAS 143 will be effective for
financial statements beginning after June 15, 2002, though early adoption is
encouraged. The application of this statement is not expected to have a material
impact on the Company's financial statements.

FAS 144 supersedes FAS 121 and applies to all long-lived assets, including
discontinued operations, and amends Accounting Principles Board Opinion No. 30
("APB 30") Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. FAS
144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book or fair value less costs to sell. FAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and its provisions are generally expected to be applied
prospectively. The application of this statement is not expected to have a
material impact on the Company's financial statements.

FACTORS THAT MAY AFFECT FUTURE RESULTS

A number of uncertainties exist that may affect our future operating results and
stock price, including risks associated with development of new tests,
particularly specialty tests that rely on development, regulatory approval,
commercialization and market acceptance of collaborators' new drugs; market
acceptance of TAS; our continuing losses and the resulting potential need for
additional capital in the future; managed care and continuing market
consolidation, which may result in price pressure, particularly on routine
tests; and FDA regulations and other regulatory guidelines affecting the Company
and/or its collaborators. The market price of the common stock could be subject
to significant fluctuations in response to variations in our quarterly operating
results as well as other factors which may be unrelated to our performance. The
stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of and announcements concerning public companies. Such broad
fluctuations may adversely affect the market price of our common stock.
Securities of issuers having relatively limited capitalization or securities
recently issued in an initial public offering are particularly susceptible to
volatility based on short-term trading strategies of certain investors.

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<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                               PHARMANETICS, INC.

Date: November 9, 2001                    By: /s/ James McGowan
                                             ----------------------------------

                                          James McGowan
                                          Chief Financial Officer
                                          (Principal Financial Officer)


                                          By: /s/ Paul Storey
                                             ----------------------------------

                                          Paul Storey
                                          Director of Finance/Treasurer
                                          (Principal Accounting Officer)



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