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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2002                                        
|    |  |                                                                                          
|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15459

HORIZON MEDICAL PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-1882343                          
|                                                               |  |                                     
|(State or other jurisdiction of
Incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|One Horizon Way
P.O. Box 627
Manchester, Georgia               |  | 31816                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: 706-846-3126

Indicate by check mark whether the registrant: (1) has filed all reports 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 past 90 days.

Yes [X] No [  ]

The number of shares outstanding of the Registrants Common Stock, $.001
par value, as of November 14, 2002 was 24,582,076.





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TABLE OF CONTENTS



|                                                   |                                                                                                |                                                              |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).                                                     
|                                                   |                                                                                                | INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                                   |                                                                                                | INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                                   |                                                                                                | INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                   |                                                                                                | NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                                                   | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                           
|                                                   | ITEM 4. CONTROLS AND PROCEDURES.                                                              
|PART II. OTHER INFORMATION                        
|                                                   | ITEM 1. LEGAL PROCEEDINGS                                                                     
|                                                   | ITEM 2. CHANGES IN SECURITIES AND USE OF FUNDS.                                               
|                                                   | ITEM 3. DEFAULTS UPON SENIOR SECURITIES.                                                      
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|                                                   | ITEM 5. OTHER INFORMATION                                                                     
|                                                   | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURE                                         
|CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER      
|CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER  
|Restated and Amended Articles of Incorporation    
|Amended and Restated Bylaws                       
|Amendment to Employment Agreement                 
|Common Stock Purchase Warrant                     
|Common Stock Purchase Warrant                     
|Certifications of the Chief Executive Officer     
|Certification of the Principal of Financial Office



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HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES

FORM 10-Q

For the Quarterly Period Ended September 30, 2002

INDEX

|                             |                                                  |                                                                                       |  |    |    | 
|---------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------- |  | -- | -- | 
|PART I FINANCIAL INFORMATION |                                                  |                                                                                       |  |   
|                             | ITEM 1                                           | Financial Statements (unaudited)                                                      |  |    | 3  | 
|                             |                                                  | Interim Condensed Consolidated Balance Sheets                                         |  |    | 4  | 
|                             |                                                  | Interim Condensed Consolidated Statements of Operations                               |  |    | 5  | 
|                             |                                                  | Interim Condensed Consolidated Statements of Cash Flows                               |  |    | 6  | 
|                             |                                                  | Notes to Interim Condensed Consolidated Financial Statements                          |  |    | 7  | 
|                             | ITEM 2                                           | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |    | 21 | 
|                             | ITEM 3                                           | Quantitative and Qualitative Disclosures about Market Risk                            |  |    | 28 | 
|                             | ITEM 4                                           | Controls and Procedures                                                               |  |    | 28 | 
|PART II OTHER INFORMATION    |                                                  |                                                                                       |  |   
|                             | ITEM 1                                           | Legal Proceedings                                                                     |  |    | 29 | 
|                             | ITEM 2                                           | Changes in Securities and Use of Funds                                                |  |    | 29 | 
|                             | ITEM 3                                           | Defaults Upon Senior Securities                                                       |  |    | 29 | 
|                             | ITEM 4                                           | Submission of Matters to a Vote of Security Holders                                   |  |    | 29 | 
|                             | ITEM 5                                           | Other Information                                                                     |  |    | 30 | 
|                             | ITEM 6                                           | Exhibits and Reports on Form 8-K                                                      |  |    | 30 | 
|                             | SIGNATURE                                        |                                                                                       |  | 32 |   
|                             | CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER     |                                                                                       |  | 33 |   
|                             | CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER |                                                                                       |  | 34 |   

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PART I. FINANCIAL INFORMATION




ITEM  1.   FINANCIAL STATEMENTS (UNAUDITED).

The financial statements listed below are included on the following pages of
this Report on Form 10-Q:

|                                                                                                                        |  |  |   | 
|----------------------------------------------------------------------------------------------------------------------- |  |  | - | 
|Interim Condensed Consolidated Balance Sheets at September 30, 2002 and
December 31, 2001                               |  |  | 4 | 
|Interim Condensed Consolidated Statements of Operations for the three and
nine months ended September 30, 2002 and 2001 |  |  | 5 | 
|Interim Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001           |  |  | 6 | 
|Notes to Interim Condensed Consolidated Financial Statements                                                            |  |  | 7 | 

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HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |              |            |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ----------- | ---------- | ------------- | ---------- | ------------ | ---------- |  |  | 
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            | September 30, |            | December 31,
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            | 2002          |            | 2001        
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               |                                            |                                      | ASSETS      |            |               |            |              |            |  |  | 
|Current assets:                                 |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                | Cash and cash equivalents                                                                                                                                                                     |                                            | $                                    | 3,918,836   |            |               | $          | 2,748,617    |           
|                                                | Restricted cash                                                                                                                                                                               |                                            |                                      | 572,002     |            |               |            | 24,271       |           
|                                                | Accounts receivable  trade, net                                                                                                                                                              |                                            |                                      | 3,532,161   |            |               |            | 10,052,052   |           
|                                                | Inventories                                                                                                                                                                                   |                                            |                                      | 6,159,063   |            |               |            | 15,836,795   |           
|                                                | Prepaid expenses and other current assets                                                                                                                                                     |                                            |                                      | 2,300,082   |            |               |            | 1,570,223    |           
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total current assets                       |                                      |             | 16,482,144 |               |            |              | 30,231,958 | 
|Property and equipment, net                     |                                                                                                                                                                                               |                                            | 2,335,000                            |             |            |               | 2,723,896  |             
|Goodwill                                        |                                                                                                                                                                                               |                                            | 15,650,356                           |             |            |               | 31,752,259 |             
|Intangible assets, net                          |                                                                                                                                                                                               |                                            | 6,764,239                            |             |            |               | 6,477,380  |             
|Other assets                                    |                                                                                                                                                                                               |                                            | 103,000                              |             |            |               | 162,047    |             
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total assets                               |                                      | $           | 41,334,739 |               |            | $            | 71,347,540 | 
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |             |            |               |            |              |            |  | 
|Current liabilities:                            |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                | Accounts payable  trade                                                                                                                                                                      |                                            | $                                    | 1,338,306   |            |               | $          | 9,090,686    |           
|                                                | Accrued salaries and commissions                                                                                                                                                              |                                            |                                      | 366,697     |            |               |            | 341,788      |           
|                                                | Accrued interest                                                                                                                                                                              |                                            |                                      | 207,657     |            |               |            | 256,106      |           
|                                                | Other accrued expenses                                                                                                                                                                        |                                            |                                      | 1,669,641   |            |               |            | 1,317,193    |           
|                                                | Current portion of long-term debt                                                                                                                                                             |                                            |                                      | 1,508,673   |            |               |            | 40,585,159   |           
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total current liabilities                  |                                      |             | 5,090,974  |               |            |              | 51,590,932 | 
|Long-term debt, net of current portion          |                                                                                                                                                                                               |                                            | 18,810,671                           |             |            |               | 1,354,703  |             
|Other liabilities                               |                                                                                                                                                                                               |                                            | 108,662                              |             |            |               | 119,761    |             
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total liabilities                          |                                      |             | 24,010,307 |               |            |              | 53,065,396 | 
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|Commitments and contingent liabilities (Note 6) |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|Shareholders equity:                           |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                | Preferred stock, no par value; 5,000,000 shares authorized,
none issued and outstanding                                                                                                       |                                            |                                      |             |            |               |            |              |           
|                                                | Common stock, $.001 par value per share; 100,000,000 and 50,000,000 shares
authorized, 24,249,176 and 13,366,278 shares issued and
outstanding as of September 30, 2002 and December 31, 2001 |                                            |                                      | 24,249      |            |               |            | 13,366       |           
|                                                | Additional paid-in capital                                                                                                                                                                    |                                            |                                      | 74,732,841  |            |               |            | 52,086,125   |           
|                                                | Shareholders notes receivable                                                                                                                                                                |                                            |                                      | (170,831    | )          |               |            | (615,940     | )         
|                                                | Accumulated deficit                                                                                                                                                                           |                                            |                                      | (57,261,827 | )          |               |            | (33,201,407  | )         
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total shareholders equity                 |                                      |             | 17,324,432 |               |            |              | 18,282,144 | 
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             
|                                                |                                                                                                                                                                                               | Total liabilities and shareholders equity |                                      | $           | 41,334,739 |               |            | $            | 71,347,540 | 
|                                                |                                                                                                                                                                                               |                                            |                                      |             |            |               |            |             

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

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HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |            |  
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | - | ------------------ | ---------- | ----------------- | - | --------- | ---------- | ---- | - | ----------- | ----------- | - | - | ---------- | ---------- | -
|                                                                                            |                                                                                                                                |   | Three Months Ended |            | Nine Months Ended
|                                                                                            |                                                                                                                                |   | September 30,      |            | September 30,    
|                                                                                            |                                                                                                                                |   |                    |            |                  
|                                                                                            |                                                                                                                                |   | 2002               |            | 2001              |   | 2002      |            | 2001
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |     
|Net sales                                                                                   |                                                                                                                                | $ | 5,317,271          |            |                   | $ | 5,564,436 |            |      | $ | 15,902,512  |             |   | $ | 19,162,231 |           
|Cost of goods sold                                                                          |                                                                                                                                |   | 2,065,796          |            |                   |   | 2,821,760 |            |      |   | 6,886,760   |             |   |   | 8,974,261  |           
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Gross profit                                                                                                                   |   |                    | 3,251,475  |                   |   |           | 2,742,676  |      |   |             | 9,015,752   |   |   |            | 10,187,970 |  
|Selling, general and administrative expenses                                                |                                                                                                                                |   | 3,411,335          |            |                   |   | 3,858,639 |            |      |   | 12,505,868  |             |   |   | 11,946,351 |           
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Operating loss                                                                                                                 |   |                    | (159,860   | )                 |   |           | (1,115,963 | )    |   |             | (3,490,116  | ) |   |            | (1,758,381 | )
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|Other income (expense):                                                                     |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Interest expense, net                                                                                                          |   |                    | (723,605   | )                 |   |           | (496,399   | )    |   |             | (2,107,300  | ) |   |            | (1,760,019 | )
|                                                                                            | Other income (expense)                                                                                                         |   |                    | (1,656     | )                 |   |           | 19,163     |      |   |             | (10,482     | ) |   |            | 68,998     |  
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            |                                                                                                                                |   | (725,261           | )          |                   |   | (477,236  | )          |      |   | (2,117,782  | )           |   |   | (1,691,021 | )         
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Loss from continuing operations                                                                                                |   |                    | (885,121   | )                 |   |           | (1,593,199 | )    |   |             | (5,607,898  | ) |   |            | (3,449,402 | )
|Discontinued operations:                                                                    |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Income (loss) from operations of discontinued distribution
segment (including gain on disposal of $3,232,216 in 2002) (Note 8) |   |                    | 3,828,854  |                   |   |           | (236,643   | )    |   |             | 4,290,394   |   |   |            | (155,500   | )
|Extraordinary loss on extinguishment of debt                                                |                                                                                                                                |   |                    |            |                   |   |           |            |      |   | (6,641,015  | )           |   |   |            |           
|Effect of a change in accounting principle pursuant
to adoption of SFAS 142 (Notes 1 and 9) |                                                                                                                                |   |                    |            |                   |   |           |            |      |   | (16,101,900 | )           |   |   |            |           
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Net income (loss)                                                                                                              |   | $                  | 2,943,733  |                   |   | $         | (1,829,842 | )    |   | $           | (24,060,419 | ) |   | $          | (3,604,902 | )
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|Basic and diluted earnings per share:                                                       |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           
|                                                                                            | Loss from continuing operations                                                                                                |   | $                  | (0.05      | )                 |   | $         | (0.12      | )    |   | $           | (0.35       | ) |   | $          | (0.26      | )
|                                                                                            | Income (loss) from operations of discontinued distribution
segment (including gain on disposal of $3,232,216 in 2002) (Note 8) |   | $                  | 0.22       |                   |   | $         | (0.02      | )    |   | $           | 0.27        |   |   | $          | (0.01      | )
|                                                                                            | Extraordinary loss on extinguishment of debt                                                                                   |   |                    |            |                   |   |           |            |      |   | $           | (0.42       | ) |   |            |            |  
|                                                                                            | Effect of a change in accounting principle pursuant
to adoption of SFAS 142 (Notes 1 and 9)                                    |   |                    |            |                   |   |           |            |      |   | $           | (1.01       | ) |   |            |            |  
|                                                                                            | Net income (loss) per share  basic and diluted                                                                                |   | $                  | 0.17       |                   |   | $         | (0.14      | )    |   | $           | (1.51       | ) |   | $          | (0.27      | )
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |            |  
|                                                                                            | Weighted average common shares outstanding 
basic and diluted                                                                 |   |                    | 17,519,556 |                   |   |           | 13,366,278 |      |   |             | 15,935,027  |   |   |            | 13,366,278 |  
|                                                                                            |                                                                                                                                |   |                    |            |                   |   |           |            |      |   |             |             |   |   |            |           

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

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HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                                          |                                                               |                                        |             |                   |          |      |             |            |            |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------- | ----------- | ----------------- | -------- | ---- | ----------- | ---------- | ---------- | -
|                                                                                          |                                                               |                                        |             | Nine Months Ended
|                                                                                          |                                                               |                                        |             | September 30,    
|                                                                                          |                                                               |                                        |             |                  
|                                                                                          |                                                               |                                        |             | 2002              |          | 2001
|                                                                                          |                                                               |                                        |             |                   |          |     
|Cash flows from operating activities:                                                     |                                                               |                                        |             |                   |          |      |             |           
|Net loss                                                                                  |                                                               | $                                      | (24,060,419 | )                 |          | $    | (3,604,902  | )         
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: |                                                               |                                        |             |                   |          |      |             |           
|                                                                                          | Depreciation expense                                          |                                        |             | 557,797           |          |      |             | 695,806    |           
|                                                                                          | Amortization of intangibles                                   |                                        |             | 1,144,205         |          |      |             | 1,990,567  |           
|                                                                                          | Amortization of discount                                      |                                        |             |                   |          |      |             | 41,370     |           
|                                                                                          | Loss on sale of property and equipment                        |                                        |             | 3,071             |          |      |             |            |           
|                                                                                          | Non-cash compensation charge                                  |                                        |             | 1,555,468         |          |      |             |            |           
|                                                                                          | Impairment charge                                             |                                        |             | 16,101,900        |          |      |             |            |           
|                                                                                          | Loss on extinguishment of debt                                |                                        |             | 5,443,515         |          |      |             |            |           
|                                                                                          | Gain on disposition of distribution segment                   |                                        |             | (3,451,317        | )        |      |             |            |           
|                                                                                          | Non-cash increase in notes receivable-shareholders            |                                        |             |                   |          |      |             | (76,902    | )         
|                                                                                          | (Increase) decrease in operating assets and liabilities, net: |                                        |             |                   |          |      |             |            |           
|                                                                                          |                                                               | Accounts receivable-trade              |             |                   | (82,613  | )    |             |            | 2,488,534  |  
|                                                                                          |                                                               | Inventories                            |             |                   | 548,887  |      |             |            | 213,533    |  
|                                                                                          |                                                               | Prepaid expenses and other assets      |             |                   | (168,240 | )    |             |            | (99,949    | )
|                                                                                          |                                                               | Income tax receivable/payable          |             |                   |          |      |             |            | 1,931,253  |  
|                                                                                          |                                                               | Accounts payable-trade                 |             |                   | (419,927 | )    |             |            | (1,266,192 | )
|                                                                                          |                                                               | Accrued expenses and other liabilities |             |                   | 181,043  |      |             |            | (492,057   | )
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|                                                                                          | Net cash (used in) provided by operating activities           |                                        |             | (2,646,630        | )        |      |             | 1,821,061  |           
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|Cash flows from investing activities:                                                     |                                                               |                                        |             |                   |          |      |             |           
|Cash proceeds from sale of IFM                                                            |                                                               |                                        |             |                   |          |      | 2,250,500   |           
|Proceeds from disposition of distribution segment                                         |                                                               |                                        | 11,116,000  |                   |          |      |             |           
|Proceeds from shareholders notes receivable                                              |                                                               |                                        | 445,109     |                   |          |      | 300,000     |           
|Proceeds from sale of property and equipment                                              |                                                               |                                        | 8,000       |                   |          |      |             |           
|Acquisition of intangible assets                                                          |                                                               |                                        | (134,568    | )                 |          |      |             |           
|Capital expenditures                                                                      |                                                               |                                        | (295,600    | )                 |          |      | (226,589    | )         
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|                                                                                          | Net cash provided by investing activities                     |                                        |             | 11,138,941        |          |      |             | 2,323,911  |           
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|Cash flows from financing activities:                                                     |                                                               |                                        |             |                   |          |      |             |           
|Change in restricted cash                                                                 |                                                               |                                        | (547,731    | )                 |          |      | 333,104     |           
|Debt issuance costs                                                                       |                                                               |                                        | (1,450,087  | )                 |          |      | (179,214    | )         
|Change in cash overdraft                                                                  |                                                               |                                        |             |                   |          |      | (609,176    | )         
|Proceeds from issuance of long-term debt                                                  |                                                               |                                        | 68,499,120  |                   |          |      | 51,328,333  |           
|Principal payments on long-term debt                                                      |                                                               |                                        | (73,823,394 | )                 |          |      | (54,072,409 | )         
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|                                                                                          | Net cash used in financing activities                         |                                        |             | (7,322,092        | )        |      |             | (3,199,362 | )         
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|                                                                                          | Net increase in cash and cash equivalents                     |                                        |             | 1,170,219         |          |      |             | 945,610    |           
|Cash and cash equivalents, beginning of period                                            |                                                               |                                        | 2,748,617   |                   |          |      | 164,257     |           
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           
|Cash and cash equivalents, end of period                                                  |                                                               | $                                      | 3,918,836   |                   |          | $    | 1,109,867   |           
|                                                                                          |                                                               |                                        |             |                   |          |      |             |           

Supplemental disclosures of non-cash investing and financing activities:

See Note 8 for additional information on the sale of the Companys distribution
segment (Stepic).

In connection with the March 2002 recapitalization transaction described in
Note 4, the Company issued convertible notes that had a fair value of
$33,343,685. The Company recorded these notes at their face value of
$15,000,000, and the premium of $18,343,685 was recorded as an increase to
additional paid-in-capital. During the third quarter of 2002, there were
7,937,500 common shares issued and outstanding as a result of conversions of
the convertible notes by the Additional Note Purchasers, which resulted in a
decrease in long-term debt and an increase to common stock and additional
paid-in-capital of $79,375. In addition, during the third quarter of 2002, the
Company issued stock warrants valued at $50,000 which resulted in an increase
to additional paid-in-capital.

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

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HORIZON MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation and Summary of Significant Accounting Policies

The condensed consolidated balance sheet of Horizon Medical Products, Inc.
and Subsidiaries (the Company) at December 31, 2001 has been derived from the
Companys audited consolidated financial statements at such date. Certain
information and footnote disclosures normally included in complete financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and instructions to Form 10-Q. The
interim condensed consolidated financial statements at September 30, 2002, and
for the three and nine months ended September 30, 2002 and 2001 are unaudited;
however, these statements reflect all adjustments and disclosures which are, in
the opinion of management, necessary for a fair presentation. All such
adjustments are of a normal recurring nature unless noted otherwise. The
results of operations for the interim periods are not necessarily indicative of
the results of the full year. These financial statements should be read in
conjunction with both the Companys Annual Report on Form 10-K for the year
ended December 31, 2001 (the Form 10-K), including, without limitation, the
summary of accounting policies and notes and consolidated financial statements
included therein as well as the Companys Form S-1/A, filed
with the SEC on September 11, 2002 (as amended from time to time).

The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations. SFAS No. 141 supercedes Accounting
Principles Board Opinion (APB) No. 16, Business Combinations, and SFAS No.
38, Accounting for Preacquisition Contingencies of Purchased Enterprises. SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001, establishes specific criteria for the
recognition of intangible assets separately from goodwill, and requires
unallocated negative goodwill to be written off immediately as an extraordinary
gain (instead of being deferred and amortized). The adoption of SFAS No. 141
did not have a material impact on the interim condensed consolidated financial
statements.

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 supersedes APB No. 17, and requires that:
1) goodwill and indefinite lived intangible assets will no longer be amortized;
2) goodwill will be tested for impairment at least annually at the reporting
unit level; 3) intangible assets deemed to have an indefinite life will be
tested for impairment at least annually; and 4) the amortization period of
intangible assets with finite lives will no longer be limited to forty years.
Upon the adoption of SFAS No. 142, the Company recognized an impairment loss of
approximately $16.1 million related to its distribution reporting unit. In
addition, the Company ceased amortization of its goodwill (See Note 9 to the
interim condensed consolidated financial statements for further information and
required disclosures).

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. This statement, which
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, as well as certain other accounting
standards, establishes a single accounting model, based on framework
established in SFAS No. 121 for long-lived assets to be disposed of by sale,
including segments of a business accounted for as discontinued operations. The
impact of adopting SFAS No. 144 was not material to the Companys consolidated financial statements.

In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 145, Recision of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
(SFAS No. 145). SFAS No. 145 requires that gains and losses from
extinguishment of debt be classified as extraordinary items only if they meet
the criteria in Accounting Principles Board Opinion No. 30 (Opinion No. 30).
Applying the provisions of Opinion No. 30 will distinguish transactions that
are part of an entitys recurring operations from those that are unusual and
infrequent that meet criteria for classification as an extraordinary item. SFAS
No. 145 is effective for the Company beginning January 1, 2003, but the Company
may adopt the provisions of SFAS No. 145 prior to this date. The Company is
currently evaluating the impact of SFAS No. 145 on its consolidated financial statements.

In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities(SFAS No. 146). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be

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recognized and measured initially at fair value only when the liability is
incurred. SFAS No. 146 is effective for the Company beginning January 1, 2003,
but the Company may adopt the provisions of SFAS No. 146 prior to this date.
The impact of SFAS No. 146 is not expected to be material to the Companys
consolidated financial statements.

Prior to the sale of the Companys distribution segment (Stepic), as
described more fully in Note 8, the Company operated as two reportable segments
and provided full segment disclosure as required under SFAS No. 131.
Subsequent to the sale of Stepic, the Company has only one segment
(manufacturing) and therefore, the full segment disclosure is no longer
applicable and has been removed.

The Companys operations are located in the United States. Thus, substantially all
of the Companys assets are located domestically. Sales information by geographic
area for the three and nine months ended September 30, 2002 and 2001
is as follows:

|                       |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 
|---------------------- |  | ------------------ | --------- | ----------------- |  | ---- | --------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                       |  | Three Months Ended |           | Nine Months Ended
|                       |  | September 30,      |           | September 30,    
|                       |  |                    |           |                  
|                       |  | 2002               |           | 2001              |  | 2002 |           | 2001
|                       |  |                    |           |                   |  |      |           |     
|United States          |  | $                  | 4,876,639 |                   |  | $    | 5,129,408 |      |  | $ | 14,544,968 |  |  | $ | 17,615,866 | 
|Foreign                |  |                    | 440,632   |                   |  |      | 435,028   |      |  |   | 1,357,544  |  |  |   | 1,546,365  | 
|                       |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 
|Consolidated net sales |  | $                  | 5,317,271 |                   |  | $    | 5,564,436 |      |  | $ | 15,902,512 |  |  | $ | 19,162,231 | 
|                       |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 

The table below presents net sales by major product category for
the manufacturing segment for the three and nine months ended
September 30, 2002 and 2001:

|                 |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 
|---------------- |  | ------------------ | --------- | ----------------- |  | ---- | --------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                 |  |                    |           |                  
|                 |  | Three
Months Ended |           | Nine
Months Ended
|                 |  | September 30,      |           | September 30,    
|                 |  |                    |           |                  
|                 |  | 2002               |           | 2001              |  | 2002 |           | 2001
|                 |  |                    |           |                   |  |      |           |     
|
|Ports            |  | $                  | 4,142,047 |                   |  | $    | 4,488,528 |      |  | $ | 12,187,689 |  |  | $ | 13,734,512 | 
|Port Accessories |  |                    | 461,821   |                   |  |      | 396,385   |      |  |   | 1,251,970  |  |  |   | 1,434,079  | 
|
|Catheters        |  |                    | 608,463   |                   |  |      | 667,153   |      |  |   | 2,246,017  |  |  |   | 2,218,161  | 
|All Other        |  |                    | 104,940   |                   |  |      | 12,370    |      |  |   | 216,836    |  |  |   | 1,775,479  | 
|                 |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 
|Total Net Sales  |  | $                  | 5,317,271 |                   |  | $    | 5,564,436 |      |  | $ | 15,902,512 |  |  | $ | 19,162,231 | 
|                 |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            | 

2.  Inventories

A summary of inventories is as follows:

|                        |  |               |            |              |  |   |            |  
|----------------------- |  | ------------- | ---------- | ------------ |  | - | ---------- | -
|                        |  | September 30, |            | December 31,
|                        |  | 2002          |            | 2001        
|                        |  |               |            |             
|Raw materials           |  | $             | 3,454,758  |              |  | $ | 3,413,158  |  
|Work in process         |  |               | 814,340    |              |  |   | 1,211,437  |  
|Finished goods          |  |               | 4,469,321  |              |  |   | 14,666,961 |  
|                        |  |               |            |              |  |   |            |  
|                        |  |               | 8,738,419  |              |  |   | 19,291,556 |  
|Less inventory reserves |  |               | (2,579,356 | )            |  |   | (3,454,761 | )
|                        |  |               |            |              |  |   |            |  
|                        |  | $             | 6,159,063  |              |  | $ | 15,836,795 |  
|                        |  |               |            |              |  |   |            |  

3.  Earnings Per Share

A summary of the calculation of basic and diluted earnings per share
(EPS) is as follows:

|            |  |                            |          |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  
|----------- |  | -------------------------- | -------- | ------------------------- |  | --------- | ---------- | ---------- |  | ----------- | ----- | --------------- |  | - | ---------- | - |  |  | ---------- |  |  | - | ----- | -
|            |  | For the Three Months Ended |          | For the Nine Months Ended
|            |  | September 30, 2002         |          | September 30, 2002       
|            |  |                            |          |                          
|            |  | Loss                       |          |                           |  |           |            |            |  |             |       | Loss            |  |   |            |   |  |  |            | 
|            |  | From Continuing            |          |                           |  |           |            |            |  |             |       | From Continuing |  |   |            |   |  |  |            | 
|            |  | Operations                 |          | Shares                    |  | Per-share |            | Operations |  | Shares      |       | Per-share      
|            |  | Numerator                  |          | Denominator               |  | Amount    |            | Numerator  |  | Denominator |       | Amount         
|            |  |                            |          |                           |  |           |            |            |  |             |       |                
|Basic EPS   |  | $                          | (885,121 | )                         |  |           | 17,519,556 |            |  | $           | (0.05 | )               |  | $ | (5,607,898 | ) |  |  | 15,935,027 |  |  | $ | (0.35 | )
|            |  |                            |          |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  
|Diluted EPS |  | $                          | (885,121 | )                         |  |           | 17,519,556 |            |  | $           | (0.05 | )               |  | $ | (5,607,898 | ) |  |  | 15,935,027 |  |  | $ | (0.35 | )
|            |  |                            |          |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  

|            |  |                            |            |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  
|----------- |  | -------------------------- | ---------- | ------------------------- |  | --------- | ---------- | ---------- |  | ----------- | ----- | --------------- |  | - | ---------- | - |  |  | ---------- |  |  | - | ----- | -
|            |  | For the Three Months Ended |            | For the Nine Months Ended
|            |  | September 30, 2001         |            | September 30, 2001       
|            |  |                            |            |                          
|            |  | Loss                       |            |                           |  |           |            |            |  |             |       | Loss            |  |   |            |   |  |  |            | 
|            |  | From Continuing            |            |                           |  |           |            |            |  |             |       | From Continuing |  |   |            |   |  |  |            | 
|            |  | Operations                 |            | Shares                    |  | Per-share |            | Operations |  | Shares      |       | Per-share      
|            |  | Numerator                  |            | Denominator               |  | Amount    |            | Numerator  |  | Denominator |       | Amount         
|            |  |                            |            |                           |  |           |            |            |  |             |       |                
|Basic EPS   |  | $                          | (1,593,199 | )                         |  |           | 13,366,278 |            |  | $           | (0.12 | )               |  | $ | (3,449,402 | ) |  |  | 13,366,278 |  |  | $ | (0.26 | )
|            |  |                            |            |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  
|Diluted EPS |  | $                          | (1,593,199 | )                         |  |           | 13,366,278 |            |  | $           | (0.12 | )               |  | $ | (3,449,402 | ) |  |  | 13,366,278 |  |  | $ | (0.26 | )
|            |  |                            |            |                           |  |           |            |            |  |             |       |                 |  |   |            |   |  |  |            |  |  |   |       |  

Options to purchase 7,293,742 shares of common stock and warrants to
purchase 823,619 shares of common stock were outstanding as of September 30,
2002, but are not included in the computation of the September 30, 2002 diluted
EPS because the effect would be anti-dilutive. The options have exercise prices
ranging from $0.44 to $14.63 and expire between 2008 and 2012. Warrants to
purchase 748,619 shares of common stock have an exercise price of $.01 per
share and expire in 2012. Warrants to purchase 25,000 shares of common stock
have an exercise price of $1.22 and expire in 2011. Warrants to purchase
50,000 shares of common stock have an exercise price of $0.93 and expire in
2005.

As discussed in Note 4 to these interim condensed consolidated financial
statements contained elsewhere in this Form 10-Q, the Company has issued notes,
a portion of which is convertible into a maximum of 27,000,000 shares of common
stock. As of September 30, 2002, there were 7,937,500 shares outstanding as a
result of conversions by the Additional Note Purchasers. The

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remaining convertible shares are excluded from the computation of the
September 30, 2002 diluted EPS because the effect would be anti-dilutive.

Options to purchase 725,020 shares of common stock and warrants to
purchase 435,157 shares of common stock were outstanding as of September 30,
2001, but are not included in the computation of the September 30, 2001 diluted
EPS because the effect would be anti-dilutive. The options have exercise prices
ranging from $0.44 to $14.63 and expire between 2008 and 2011. The warrants had
an exercise price of $.05 per share and were terminated in March 2002 as a
result of the Recapitalization as described in Note 4.

4.  Long-Term Debt

On March 1, 2002, the Company entered into certain agreements with ComVest
Venture Partners, L.P. (ComVest), an affiliate of Commonwealth Associates LP
(Commonwealth) to recapitalize the Company (the Recapitalization). The
Company completed the Recapitalization on March 16, 2002 and the Forbearance
Agreement between the Company and Bank of America dated March 15, 2001, as
subsequently amended (the Forbearance Agreement), was terminated as of March
15, 2002. The Forbearance Agreement is discussed below.

The details of the Recapitalization follow:

On March 19, 2002, the Company completed an arrangement with ComVest,
LaSalle Business Credit, Inc. (LaSalle), and Medtronic Inc. (Medtronic) to
recapitalize the Company by extinguishing all of the Companys senior debt and
warrants held by Bank of America and substantially reducing the Companys total
outstanding debt. Pursuant to the Recapitalization, the Company issued Senior
Subordinated Convertible Notes (Convertible Notes) in the amount of $15
million to ComVest, Medtronic and other investors, assumed a $2 million Junior
Subordinated Promissory Note payable to Bank of America (the Junior Note),
and entered into a new revolving and term loan facility (the LaSalle Credit
Facility) for up to $22 million, of which approximately $1.7 million was
outstanding as of September 30, 2002. The following is a summary of key
provisions of the Recapitalization:

On February 22, 2002, ComVest and Bank of America entered into an
assignment agreement under which ComVest agreed to acquire all of Bank of
Americas interest in the BofA Credit Facility. The purchase price for the
assignment was $22 million in cash, plus the $2 million Junior Note. The
Company subsequently assumed the Junior Note pursuant to the Recapitalization,
and ComVest has been released from obligations under the Junior Note. Upon the
closing of the assignment on March 15, 2002, ComVest acquired all of Bank of
Americas interest in the note outstanding under the BofA Credit Facility (the
BofA Note), the warrants issued to Bank of America pursuant to the BofA
Credit Facility were surrendered and cancelled, and the Forbearance Agreement
was terminated. The warrants, which had previously been recorded in additional
paid-in-capital at their estimated fair value at issuance of $260,000, were
extinguished at their estimated fair value on the date of extinguishment of
$345,000. As a result, $345,000 was included as a component of the
extraordinary loss on early extinguishment of debt.

On March 1, 2002, the Company entered into a Note Purchase Agreement with
ComVest and certain Additional Note Purchasers, as defined. Under the Note
Purchase Agreement, the Company agreed to issue $15 million of Convertible
Notes. Interest on the Convertible Notes is payable quarterly beginning in June
2002 and accrues at a rate of 6% per year for the first six months and 8% per
year thereafter until the notes are paid in full and mature on March 16, 2004.
The Company issued the Convertible Notes as follows: $4.4 million to ComVest,
$4 million to Medtronic and $6.6 million to the Additional Note Purchasers.

The holders of the Convertible Notes have the right to convert in the
aggregate a total of $270,000 of the Convertible Notes into shares of the
Companys common stock at a conversion price of $0.01 per share for a total of
27,000,000 shares, subject to a downward adjustment upon repayment of all or a
portion of the amounts due, as described below. If this $270,000 is converted,
the Company will still be obligated to repay, in the aggregate, $14,730,000 to
the holders of the Convertible Notes. The 27,000,000 shares also includes up to
3,300,000 shares which may be issued upon conversion of the Bridge Note (as
described below). Under the conversion terms, if the principal amount of the
Additional Notes, together with all interest due were paid in full on or before
April 15, 2002, then the maximum aggregate number of shares of common stock
that all the Convertible Notes may be converted into is 22,500,000. The Company
did not repay any principal under the Convertible Notes by this date. If the
principal amount of all the Convertible Notes and all interest due are paid on
or before March 16, 2004, then the maximum aggregate number of shares of the
Companys common stock that the Convertible Notes can be converted into is
19,500,000. The terms of the applicable conversion periods and conversion
amounts of the Convertible Notes (excluding the Bridge Note described below)
are as follows:

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|  |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Between April 16, 2002 and March 16, 2004, ComVest has the right
to convert 1.25% of the Outstanding Balance (defined as principal plus
accrued and unpaid interest under the ComVest Convertible Note) held under
its $4.4 million Convertible Note plus 0.6% of the amount of principal
repaid under the Additional Notes;                                                                         
| 
| |  | Between March 16, 2003 and March 16, 2004, ComVest has the right to convert an additional 0.25% of the Outstanding Balance;                                                                                                                                                                                                                                                                          
| 
| |  | Between April 16, 2002 and March 16, 2004, Medtronic has the right to convert 1.5% of its $4 million Convertible Note;                                                                                                                                                                                                                                                                               
| 
| |  | Between March 16, 2003 and March 16, 2004, Medtronic has the right to convert an additional 0.3% of $4 million if ComVests
Convertible Note and the notes held by the Additional Note Purchasers have not been repaid;                                                                                                                                                                              
| 
| |  | Between April 16, 2002 and March 16, 2004, the Additional Note Purchasers have the right to convert 1.25% of the Additional
Notes Outstanding Balance (defined as principal plus accrued but unpaid interest under the Additional Notes) held under
their $6.6 million Convertible Note plus 0.6% of the amount of principal repaid under ComVests Convertible Note on or
before April 16, 2002; and
| 
| |  | Between March 16, 2003 and March 16, 2004, the Additional Note Purchasers have the right to convert an additional 0.25% of
the Additional Notes Outstanding Balance.                                                                                                                                                                                                                                 

The Company obtained
shareholder approval at its 2002 annual meeting of shareholders on September
17, 2002 for the issuance of up to 27,000,000 shares of common stock issuable
upon conversion of the Convertible Notes.

Additionally, in connection with the Bridge Loan, the Company issued a
Convertible Bridge Note (the Bridge Note) to ComVest. As of September 30,
2002, ComVest had the right to convert this note into up to 3.3 million shares
of the Companys common stock. The number of shares of common stock issuable
pursuant to conversion of the Bridge Note is subject to the thresholds outlined
above in this Note 4. The conversion terms of the Bridge Note are as follows:

|                                    |  |                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                    |  | Maximum Conversion Amount                                                                                                                                                                                                                                                                                                                                                         
|                                    |  | During Applicable Period                                                                                                                                                                                                                                                                                                                                                          
|Applicable Period                   |  | (all shares convertible at $.01 per share)                                                                                                                                                                                                                                                                                                                                        
|                                    |  |                                                                                                                                                                                                                                                                                                                                                                                   
|March 8, 2002 through March 8, 2003 |  |  50% of the Original Amount (equal to $33,000 as
of
   September 30, 2002) may be converted into
shares
   of common stock equal to (i) 0.6667,
multiplied
   by (ii) the aggregate principal
amount outstanding
   under the Additional Notes
on the date of issuance
   (equal to
$6.6 million)                                                                                
|March 8, 2003 through March 8, 2004 |  |  In the event that the ComVest Convertible Notes
   and the Additional Notes have not been repaid
in
   full by March 8, 2003, 50% of the Original
   mount may be converted into shares of common
   stock equal to (A)(i) 0.8 multiplied by (ii)
the
   aggregate principal amount outstanding
under the
   Additional Notes on the date of
issuance
(equal
   to $6.6 million)

The Company may prepay the Convertible Notes, subject to no prepayment
penalty within the first 12 months, with a prepayment penalty of 5% between
months 12 to 15, and a prepayment penalty of 10% between months 15 to 24. The
Note Purchase Agreement, as amended, also contains certain affirmative and
negative covenants, including, but not limited to, restrictions on indebtedness
and liens, business combinations, sale or discount of receivables, conduct of
the Companys business, transactions with affiliates, ability to enter into
contracts outside the ordinary course of business, and ability to pay
dividends. The Events of Default include, but are not limited to, failure to
pay an obligation when due, breach of any covenant that remains uncured for 15
days, bankruptcy, change of control, and failure to obtain shareholder approval
of the Recapitalization within 195 days of the closing date of March 16, 2002. Each of the proposals relating to the Recapitalization (as described
above) for which the Company was required to receive shareholder approval were
passed at the 2002 Annual Meeting of Shareholders held on September 17, 2002.
See Part II: Submission of Matters to a Vote of Security Holders contained
herein.

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On March 15, 2002, the Company and ComVest, as the holder of the
outstanding BofA Note, agreed to reduce the outstanding principal amount of the
BofA Note from $40.3 million to $22 million. As a result, the Company recorded
an extraordinary loss on the early extinguishment of debt of approximately $6.6
million during the first quarter of 2002. This extraordinary loss was
calculated by subtracting the fair value of the new debt of $42.6 million,
which included the amount outstanding under the LaSalle Credit Facility ($7.3
million), the Convertible Notes ($33.3 million), and the BofA Junior Note ($2.0
million), from the amount outstanding under the BofA debt of $40.3 million.
Also included in the extraordinary loss were various costs paid to
ComVest/Commonwealth and LaSalle, as the lenders, to effect the
recapitalization transaction of $4.3 million. Included as components of the
additional $4.3 million of transaction expenses were the following: $570,000 in
closing costs and due diligence fees paid to LaSalle; a warrant to purchase the
Companys common stock issued to LaSalle valued at approximately $695,000;
approximately 2.7 million shares issued to ComVest valued at approximately $2.3
million; deferred loan costs from the original BofA debt of approximately
$128,000, and $1.15 million paid to Commonwealth in closing costs and due
diligence fees. Also included in the additional expenses, but offsetting these
amounts are approximately $130,000 in fees and accrued interest forgiven by
BofA and the fair value of the BofA warrant of $345,000 which was acquired and
cancelled by ComVest.

The Company also incurred numerous other costs that were either expensed
as incurred or capitalized as debt issuance costs. Included in selling,
general, and administrative expenses for the nine-month period ended September
30, 2002 are approximately $3 million of expenses related to the
recapitalization transaction. The primary components of those expenses are $2.4
million in stock compensation and bonuses to two of the Companys executive
officers, $168,000 in consulting fees, and $428,000 in legal and other fees.
The Company capitalized approximately $1.5 million as debt issuance costs,
consisting primarily of $906,000 in legal fees, $322,000 of consulting fees,
and $222,000 of other miscellaneous fees paid for services rendered in
connection with the Recapitalization.

In exchange for funding a portion of the $22 million cash purchase price
paid to BofA, ComVest assigned $4 million in principal amount of the BofA Note
to Medtronic and $6.6 million in principal amount of the BofA Note to the
Additional Note Purchasers while retaining $11.4 million in principal amount of
the BofA Note itself. After such assignments, the Company issued the
Convertible Notes under the Note Purchase Agreement in the aggregate principal
amount of $15 million in exchange for the surrender of $15 million in principal
amount of the BofA Note held by ComVest, Medtronic and the Additional Note
Purchasers. The remaining $7 million in principal amount of the BofA Note was
repaid with the proceeds of a bridge loan from ComVest to the Company made on
March 15, 2002 (the Bridge Loan).

The fair value of the Convertible Notes, which was used in the
determination of the extraordinary loss on early extinguishment of debt, was
$33.3 million. As this value represents a substantial premium to the face value
of the debt, the Company recorded the debt at its face value of $15 million,
and recorded the premium of $18.3 million as an increase to additional
paid-in-capital. The Company determined the fair value of the convertible notes
by considering their two components, the non-convertible debt of $14,730,000
and the convertible debt of $270,000. The non-convertible debt components
carrying value of $14,730,000 represents its fair value because, when
considered with the convertible component, its terms yield a market rate of
return. The convertible components fair value was determined by multiplying
the fair value of the Companys stock by the number of shares into which this
component is convertible. Thus, 27 million shares multiplied by $0.68940 per
share equals $18,613,685. The sum of the non-convertible components fair value
of $14,730,000 and the convertible components fair value of $18,613,685 equals
the total debt instruments fair value of $33,343,685.

The Company determined the fair value of its stock in a multiple-step
process. First, the Company computed its assumed fair value of $13,762,977 at
the date of the transaction by multiplying the number of outstanding shares
(16,311,676) by the then current market price per share of $0.84375, which
resulted in a fair value of the Company prior to any conversion of the
convertible portion of the notes. The Company then added to this computed fair
value $16,095,909, which represents the difference between the extinguished
Bank of America debt of $40,320,909 and the face value of the new debt of
$24,225,000. This $16,095,909 difference was credited to additional
paid-in-capital. Thus, the new fair value of the Company, prior to any
conversion, is $29,858,886. The Company then assumed full conversion of the
convertible portion of the notes, which resulted in an additional 27,000,000
shares becoming outstanding. After conversion, the Company would have
43,311,676 shares outstanding, which when divided into the new fair value of
$29,858,886, yields a new per share market value of $0.68940.

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On March 18, 2002, the Company entered into the LaSalle Credit Facility
pursuant to a loan and security agreement (the Loan Agreement) with Standard
Federal Bank National Association (SFB), acting by and through LaSalle, as
SFBs agent (collectively the Lender). Under the Loan Agreement, the Lender
has provided a $20 million senior revolving loan facility (the Revolving
Loan) and a $2 million term loan facility (Term Loan). The Company used the
proceeds to repay the Bridge Loan and expenses related to the Recapitalization
and used the remaining proceeds for working capital and general corporate
purposes. Both loan facilities will bear interest at the LaSalle Bank Prime
Rate plus 2%, subject to an additional 2% that would be added to the interest
rate upon the occurrence of an Event of Default (as discussed below).

As collateral, the Company granted a security interest in all of the
Companys present and future assets, whether now or hereafter owned, existing,
acquired or arising and wherever now or hereafter located, including, but not
limited to: all accounts receivable; all chattel paper, instruments, documents
and general intangibles including patents, patent applications, trademarks,
trademark applications, trade secrets, trade names, goodwill, copyrights,
copyright applications, registrations, licenses, software, franchises, customer
lists, tax refund claims, claims against carriers and shippers, guaranty
claims, contract rights, payment intangibles, security interests, security
deposits, and indemnification rights; all inventory; all goods including
equipment, vehicles, and fixtures; all investment property; all deposit
accounts, bank accounts, deposits and cash; all letter-of-credit rights;
certain commercial tort claims; all property of the Company in control of the
Lender or any affiliate of the Lender; and all additions, substitutions,
replacements, products, and proceeds of the aforementioned property including
proceeds from insurance policies and all books and records relating to the
Companys business.

The Loan Agreement contains affirmative and negative covenants. The
affirmative covenants require the Company to, among other things, maintain
accurate and complete records, notify the Lender of major business changes,
comply with relevant laws, maintain proper permits, conduct relevant
inspections and audits, maintain adequate insurance with the Lender named as
loss payee, keep collateral in good condition, use proceeds only for business
purposes, pay required taxes, maintain all intellectual property, maintain a
checking account with LaSalle, hire a Chief Operating Officer with experience
in the medical products industry within 90 days of the date of the Loan
Agreement (which has been done), grant the Lender the right to conduct
appraisals of the collateral on a bi-annual basis, and deliver a survey of the
property located at the Companys offices on Northside Parkway in Atlanta
within 60 days of the date of the Loan Agreement (which has been done). The
negative covenants restrict the Companys ability to, among other things, make
any guarantees, incur additional indebtedness, grant liens on its assets, enter
into business combinations outside the ordinary course of business, pay
dividends, make certain investments or loans, allow its equipment to become a
fixture to real estate or an accession to personal property, alter its lines of
business, settle accounts, or make other fundamental corporate changes.

The Loan Agreement also contains financial maintenance covenants,
including, but not limited to, the following:

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | maintaining Minimum Availability at all times of at least $4 million
under the Minimum Availability Test. Minimum Availability is defined as
(a) the lesser of: (i) the Revolving Loan Limit (which is up to 85% of the
face amount of the Companys eligible accounts receivable; plus the lesser
of (x) up to 55% of the lower of cost or market value of the Companys
eligible inventory or up to 85% of the net orderly liquidation value of
eligible inventory, whichever is less, or (y) $11 million; plus such
reserves as the Lender may establish) and (ii) the Maximum Revolving Loan
Limit of $20 million minus (b) the sum of (i) the amount of all then
outstanding and unpaid Liabilities (to Lender, as defined) plus (ii) the
aggregate amount of all then outstanding and unpaid trade payables and
other obligations more than 60 days past due; plus (iii) the amount of
checks issued by the Company which are more than 60 days past due but not
yet sent and the book overdraft of the Company plus (iv) $4,000,000 owed
by the Company to Arrow International;
| 
| |  | maintaining Tangible Net Worth of $7,698,000 for the quarter ending
December 31, 2002, $8,522,000 for the quarter ending March 31, 2003,
$9,475,000 for the quarter ending June 30, 2003, $10,544,000 for the
quarter ending September 30, 2003, $11,728,000 for the quarter ending
December 31, 2003 and each quarter thereafter (Tangible Net Worth is
defined as shareholders equity including retained earnings less the book
value of all intangible assets, prepaid and non-cash items arising from
the transactions contemplated by the Loan Agreement and goodwill
impairment charges recorded as a result of FASB No. 142 as determined
solely by Lender plus the amount of any LIFO reserve plus the amount of
any debt subordinated to the Lender)                                                                                                                                                                                                                                                                                                                          
| 
| |  | maintaining fixed charge coverage (ratio of EBITDA to fixed charges)
of 1.10 to 1.0 from April 1, 2002 through December 31, 2002, 1.20 to 1.0
from April 1, 2002 through March 30, 2003, 1.40 to 1.0 for the quarter
ending June 30, 2003 and for the immediately preceding four fiscal
quarters, and 1.50 to 1.0 for the quarter ending September 30, 2003 and
for the immediately preceding four fiscal quarters and each fiscal quarter
thereafter;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|  |  |                                                                                                                                                                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | maintain EBITDA, based on the immediately preceding four fiscal quarters,
of $4,000,000 on December 31, 2002, $5,437,000 on March 31, 2003,
$6,605,000 on June 30, 2003, $7,374,000 on September 30, 2003 and
$7,482,000 on December 31, 2003 and each fiscal quarter thereafter; and
| 
| |  | limit capital expenditures to no more than $500,000 during any
fiscal year.                                                                                                                                                                                                          

On September 3, 2002, the Company sold its distribution segment (Stepic)
to Arrow International, Inc. for approximately $12.7 million, consisting of
$11.1 million in cash, $1.1 million placed in escrow and a note receivable in
the amount of $500,000. The Company used $7.8 million of the proceeds to pay
off the amount then outstanding under its Revolving Loan from LaSalle. As of
the date of this filing, $1,051,317 plus interest of $904 has been paid to the
Company out of escrow.

Pursuant to a letter
agreement among the Company, ComVest and Medtronic, the
Companys management and Executive Committee delivered to each of
ComVest and Medtronic an operating plan and budget (including working capital
needs) reflecting its business following the sale of Stepic and a proposal for
the use of proceeds from the sale of Stepic. This operating plan and budget,
together with the use of proceeds, are subject to the approval of ComVest and
Medtronic and must be ratified by the Companys board of directors. If its
board of directors fails to ratify the proposed use of proceeds (as agreed to
by ComVest and Medtronic), then this failure shall constitute an Event of
Default under the Note Purchase Agreement. In no event will the proposed use
of proceeds result in the amount of the Companys cash on hand being less than
its senior debt outstanding after application of the proposed use of proceeds.
In connection with this sale, the Company received the consent of LaSalle and
the requisite noteholders under the Note Purchase Agreement. (See Note 8 for
further discussion contained elsewhere in this Form 10-Q.)

After giving effect to the September 3, 2002 sale of Stepic, the Companys
current forecast indicates that it will be in noncompliance with each of the
Tangible Net Worth covenant, the fixed charged coverage ratio covenant and the
EBITDA covenant at December 31, 2002. However, the Company plans to reset
these covenants with the Lender prior to year end. As of the date of this
filing, the Company has complied with all the requirements of the Loan
Agreement and currently does not have any borrowings under the Revolving Loan,
nor does it expect to borrow under the Revolving Loan before year end 2002.
The Company believes it has available cash resources to meet its working
capital needs through fiscal year 2002.

The Loan Agreement also specifies certain Events of Default, including,
but not limited to, failure to pay obligations when due, failure to direct its

account debtors to make payments to an established lockbox, failure to make
timely financial reports to the Lender, the breach by the Company or any
guarantor of any obligations with any other Person (as defined in the Loan
Agreement) if such breach might have a material adverse effect on the Company
or such guarantor, breach of representations, warranties or covenants, loss of
collateral in excess of $50,000, bankruptcy, appointment of a receiver,
judgments in excess of $25,000, any attempt to levy fees or attach the
collateral, defaults or revocations of any guarantees, institution of criminal
proceedings against the Company or any guarantor, occurrence of a change in
control, the occurrence of a material adverse change or a default or an event
of default under certain subordinated debt documents. Upon the occurrence of
any Event of Default, the Lender may accelerate the Companys obligations under
the Loan Agreement.

The Company must repay the Revolving Loan on or before March 17, 2005, the
Termination Date, unless the Loan Agreement is renewed and the repayment period
is extended through a new Termination Date. The Company must repay the Term
Loan in 36 equal monthly installments of $55,556, commencing April 2002. The
Loan Agreement will automatically renew for one-year terms unless the Lender
demands repayment prior to the Termination Date as a result of an Event of
Default, the Company gives 90-days notice of its intent to terminate and pays
all amounts due in full, or the Lender elects to terminate on or after February
1, 2004 as a result of a Termination Event. A Termination Event is defined as
the failure of Medtronic, ComVest or any Additional Note Purchaser to extend
the maturity date of the Convertible Notes at least thirty days past the date
of the original term or any applicable renewal term.

Pursuant to the LaSalle Credit Facility, the Company also issued to
LaSalle and SFB warrants to purchase up to an aggregate of 748,619 shares of
common stock at an exercise price of $.01 per share. The Company recorded the
estimated fair value of the warrant as of March 18, 2002 of approximately
$695,000, determined using the Black-Scholes model (using weighted average
assumptions as follows: dividend yield of 0%, expected life of 3 years,
expected volatility of 112.2% and a risk free interest rate of 2.43%) as a
reduction of the gain on early extinguishment of debt.

The Junior Note in the amount of $2 million bears interest at a rate of 6%
per annum, payable monthly beginning April 2002, and matures on March 15, 2007.
Beginning on May 1, 2003, a principal payment on the Junior Note of $22,500 is
payable on the first day of each month until maturity of the Junior Note.

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As a condition to closing, the Company also agreed to enter into a
Securityholders Agreement dated March 16, 2002 with ComVest, Medtronic,
LaSalle, the CEO and the Companys President (together ComVest, Medtronic,
LaSalle, the CEO and the Companys President are the Investors) under which
the Company granted certain registration rights, rights of first refusal and
corporate governance rights to the Investors. The registration rights required
the Company to file a shelf registration statement, which the Company
did, covering the resale of
certain shares of common stock issuable pursuant to the Recapitalization and to
include, at the Investors option, certain of the Investors shares of common
stock in any registration statement undertaken by the Company, at the Companys
expense. Pursuant to the Securityholders Agreement, ComVest and Medtronic have
been granted (i) a right of first refusal to purchase all or part of their pro
rata share of new securities which the Company may propose to sell or issue,
(ii) the right of first refusal to participate in any sale of the CEOs and/or
the Companys Presidents shares of common stock of the Company to third
parties upon the same terms and conditions, (iii) the co-sale right of first
refusal to participate in sales of shares of the Companys common stock by the
CEO and/or the Companys President and (iv) the bring-along right to require
the CEO and the Companys President to sell the same percentage of shares of
common stock as the holders of the rights propose to sell in the event that the
rights holders propose to sell 51% or more of their common stock. The corporate
governance rights include, but are not limited to, the following: (i) granting
ComVest the right to designate one ComVest director and two additional
independent directors, (ii) requiring that certain actions of the Board of
Directors include the affirmative vote of the ComVest director, (iii) requiring
the Company to establish and maintain an Executive Committee consisting of the
ComVest director as Chairman, one of the independent directors designated by
ComVest, and the CEO, and (iv) requiring that the Executive Committee approve
certain actions. Failure to comply with the Securityholders Agreement is
considered an Event of Default under the Note Purchase Agreement.

On March 15, 2002, the Company entered into a Co-Promotion Agreement with
Medtronic under which the Company is promoting and providing technical advice
for Medtronics implantable drug delivery systems which are used for the
treatment of hepatic arterial infusion and malignant pain. After basic sales
training, sales representatives of the Company and of its distributors will
promote the sale of such systems, identify appropriate patients for such
systems, and after additional training provide assistance in the implantation
and refill procedure for such systems, for which identification and assistance
the Company will be compensated by Medtronic. If the Company breaches or fails
to comply with its obligations under the Co-Promotion Agreement (after giving
effect to any applicable cure periods), then Medtronic or 51% of the holders of
the aggregate principal amount of the Convertible Notes may accelerate the due
date for payment of the Convertible Notes.

To effect the Recapitalization, the Company also entered into certain
ancillary agreements including the following: (i) a voting agreement under
which the CEO and the Companys President have agreed to vote their shares in
favor of all proposals relating to the Recapitalization; (ii) a new employment
agreement and option agreements with the CEO that grants him options to
purchase an aggregate of 3,500,000 shares of common stock (the new employment
agreement replaced the CEOs previous employment agreement and reduced the
previous term of employment and the previous severance compensation and
benefits from approximately four years to twelve months.); (iii) a new
employment agreement and an option agreement with the Companys President that
grants him options to purchase 1,000,000 shares of common stock (the new
employment agreement replaced the Presidents previous employment agreement and
reduced the previous term of employment from approximately four years to six
months and reduced the previous severance compensation and benefits from
approximately four years to twelve months.); (iv) an advisory agreement with an
affiliate of ComVest under which the affiliate received 2,645,398 shares of
common stock and a cash fee of $750,000; (v) a note with ComVest under which
ComVest received 75,000 shares in exchange for advancing certain transaction
expenses associated with the Recapitalization; (vi) an expense guaranty with
the CEO under which he received 150,000 shares of common stock in exchange for
agreeing to reimburse ComVest for certain of its transaction expenses in the
event that the Recapitalization were not consummated; and (vii) an advance note
with the CEO under which he received 75,000 shares of common stock in exchange
for advancing to the Company certain transaction expenses associated with the
Recapitalization. The Company recognized compensation expense of approximately
$1,400,000 during the first quarter of 2002 related to 2,500,000 of the options
granted to the CEO and all of the options granted to the Companys President.
The remaining 1,000,000 options that were granted to the CEO are
performance-based, and the Company will measure and recognize compensation as
the options are earned. The Company recorded the estimated fair value of the
shares of the common stock issued to ComVest of approximately $2,500,000, as
well as the cash fee of $750,000, as a component of its extraordinary loss on
early extinguishment of debt. The Company recorded the value of the shares of
the common stock issued to the CEO of approximately $152,000 as debt cost and
will be amortized over the terms of the related agreements.

As a result of the Recapitalization, the BofA Credit Facility, the
Forbearance Agreement with Bank of America, and all subsequent amendments were
terminated. Because those agreements were significant to the capitalization of
the Company prior to the Recapitalization, the terms of those agreements are
summarized below:

Effective March 30, 2001, the Company entered into a Forbearance Agreement
(as amended, the Forbearance Agreement) and a First Amendment to Forbearance
Agreement with Bank of America, N.A. (Bank of America) wherein Bank of
America agreed to

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forbear from exercising its rights and remedies allowed under a $50
million amended and restated credit facility (the BofA Credit Facility) due
to certain defaults. The Company was in default at that time for violating
certain restrictive covenants and for failing to make principal payments when
due. All of the defaults were forborne as provided for in the Forbearance
Agreement, and revised restrictive covenants were set. By September 30, 2001,
the Company was in default under the Forbearance Agreement for failing to
comply with several of the revised covenants, including minimum net worth, debt
service coverage, leverage and minimum EBITDA.

Effective October 15, 2001, the Company entered into a Second Amendment to
the Forbearance Agreement (the Second Amendment). The Second Amendment
amended the terms of the Forbearance Agreement as follows: (i) changed the
termination date of the Forbearance Agreement (the Termination Date) from
March 31, 2002 to January 15, 2002 (the period from March 30, 2001 through
January 15, 2002 being defined as the Forbearance Period); (ii) required the
Company to maintain a general operating account with Bank of America and
restricted the use of funds in a calendar month to payments equal to or less
than the monthly budget submitted to Bank of America; (iii) required the
Company to pay accrued or unpaid interest on the BofA Note on the first day of
each month beginning November 1, 2001 and each month thereafter during the
Forbearance Period at the Bank of America Prime Rate plus 2.5% per annum; and
(iv) added additional reporting requirements.

The Second Amendment also amended the Termination Events as defined in
the Forbearance Agreement to include the following: (i) the Company fails to
execute and deliver or to cause the Companys Chief Executive Officer (the
CEO) and related entity to execute and deliver within ten days from the
effective date of the Second Amendment a pledge to Bank of America of all the
stock owned by the CEO and documentation to amend the current pledge agreement
between the CEO, an affiliate and the Company; (ii) the Company fails to engage
and hire within five days from the effective date of the Second Amendment
competent crisis and turn around management and a new Chief Executive Officer
to report directly to the independent members of the Companys Board of
Directors; (iii) the Company fails to provide Bank of America within five days
from the effective date of the Second Amendment a copy of resolutions
confirming the resignation of the CEO as an officer and director of the Company
and that no further salary or bonuses shall be paid to the CEO; (iv) the
Company fails to make efforts to refinance the amounts outstanding under the
BofA Credit Facility and fails to provide weekly status reports; (v) on or
before December 15, 2001, the Company fails to provide Bank of America evidence
that the Company has engaged an investment banking firm to begin marketing the
sale of the assets of the Company if the amounts outstanding under the BofA
Credit Facility are not paid off by the Termination Date; or (vi) the Company
fails to execute and deliver to Bank of America within 24 hours of Bank of
Americas request a consent order consenting to the appointment of a Receiver
in the event of a Termination Event, as defined.

In addition, the Second Amendment reduced the Working Capital Sublimit
under the BofA Credit Facility to $5,000,000 and limited the Working Capital
Loan to the smaller of the Working Capital Sublimit or an amount equal to the
Borrowing Base, as defined in the BofA Credit Facility. The Second Amendment
also amended several of the financial covenants previously contained in the
Forbearance Agreement.

The Forbearance Agreement provided for the payment of Excess Cash Flow, as
defined in the BofA Credit Facility, on the ninetieth day following the last
day of each fiscal year. There was no Excess Cash Flow payment required for
fiscal year 2001. In addition, the Forbearance Agreement required an additional
principal payment in the amount of the greater of $150,000 or the gross
proceeds payable to the Company in connection with the Companys sale of the
Ideas for Medicine business (IFM) (see Note 14 to the Companys consolidated
financial statements contained in the Form 10-K.

The Forbearance Agreement further required payments of $300,000 each on a
short-term bridge loan (the BofA Bridge Loan) on May 31, 2001, August 31,
2001, and November 30, 2001. The proceeds of the BofA Bridge Loan were used to
fund a short-term bridge loan to the Companys Chairman of the Board, CEO, and
largest shareholder (the Shareholder Bridge Loan) (see Note 11 to the
Companys Consolidated Financial Statements included in the Form 10-K). The Company
received approximately $474,000 from the CEO as payment on the Shareholder
Bridge Loan and paid that amount to reduce the amount outstanding under the
BofA Bridge Loan. In addition, the CEO paid approximately $426,000 directly to
Bank of America, which was applied against the BofA Bridge Loan (and which the
Company applied to the Shareholder Bridge Loan).

The Forbearance Agreement also provided for a forbearance and
restructuring fee of $10,000 plus related expenses and interest at the rate
then in effect plus 6% upon a Termination Event, as defined in the Forbearance
Agreement.

As permitted under the BofA Credit Facility and BofA Bridge Loan
documents, Bank of America instituted a sweep arrangement whereby funds
collected in the Companys lockbox accounts were swept periodically into a Bank
of America account and applied against the outstanding loan under the BofA
Credit Facility. The financial institutions which held such accounts were
notified by Bank of America that such lockbox arrangements had been instituted,
and the Companys right to withdraw, transfer or pay funds from the

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accounts had been terminated. The Company periodically applied to receive
additional loans under the Working Capital Loans under the BofA Credit Facility
to the extent such loan had been paid down under the lockbox arrangement.

In connection with the Forbearance Agreement, the Company issued a warrant
to Bank of America to acquire 435,157 shares of the Companys common stock for
$.05 per share. The warrant was exercisable by Bank of America during a
three-year period without regard to the status of the BofA Credit Facility or
the BofA Bridge Loan. The Company recorded the estimated fair value of the
warrant as of April 2001 of $260,000, determined using the Black-Scholes Model
(using weighted average assumptions as follows: dividend yield of 0%, expected
life of five years, expected volatility of 107.6% and a risk free interest rate
of 4.44%) as a deferred cost which was being amortized over the Forbearance
Period. As with the BofA Credit Facility and other related agreements, the
warrant was terminated in connection with the Recapitalization.

The Forbearance Agreement also required the Company to hire on or before
June 30, 2001 a new chief operating officer, restricted the repayment of
principal debt to junior lien holders, and to either (i) sell the assets of IFM
or (ii) obtain an agreement from the seller of the IFM business to defer all
payments under the related promissory note through the Termination Date (see
Note 7 to the Companys interim condensed consolidated financial statements
contained elsewhere in this Form 10-Q regarding the sale of the IFM business.)
The Company hired a Chief Operating Officer in April 2001 who was terminated in
June 2001, and the Company did not hire a replacement. The Company sold the
assets of the IFM business as of March 30, 2001 (see Note 7).

On December 15, 2001, the Company entered into a third amendment to the
Forbearance Agreement under which Bank of America consented to the increase in
payments of $8,000 per month to certain former shareholders of Stepic
Corporation (Stepic) (see Note 6 to the Companys consolidated financial
statements in the Form 10-K).

In January 2002, the Company entered into a fourth amendment to
Forbearance Agreement with Bank of America, pursuant to which Bank of America
agreed to extend the Forbearance Period until March 15, 2002 (the Expiration
Date) in order for the Company to consider its strategic alternatives. On
March 15, 2002, the BofA Credit Facility was assigned from BofA to ComVest. On
March 16, 2002, the Company issued the Convertible Notes in an aggregate amount
of $15 million to ComVest, Medtronic and the Additional Note Purchasers. On
March 18, 2002, the Company entered into the LaSalle Credit Facility.

As of December 31, 2001, $3,465,874 was outstanding under the Working
Capital Loans, and $36,518,039 was outstanding under the Acquisition Loans,
each as defined in the BofA Credit Facility. No funds were available for
borrowing under the BofA Credit Facility as of December 31, 2001, except as may
be available under the sweep arrangement described below. In addition, the
Company had an outstanding standby letter of credit of $144,000 as of December
31, 2001. The letter of credit, which had terms through January 2002,
collateralized the Companys obligations to a third party in connection with an
acquisition (see Note 12 to the consolidated financial statements included in
the Form 10-K).

Effective March 30, 2001, through the Termination Date of the Forbearance
Agreement, the BofA Credit Facility bore interest at the Bank of America prime
rate plus 2.5% per annum. As of December 31, 2001, the Companys interest rate
on the BofA Credit Facility was approximately 7.25%.

The BofA Credit Facility called for an unused commitment fee payable
quarterly, in arrears, at a rate of .375% per annum, as well as a letter of
credit fee payable quarterly, in arrears, at a rate of 2% per annum. Both fees
were based on a defined calculation in the agreement. In addition, the BofA
Credit Facility required an administrative fee in the amount of $30,000 to be
paid annually.

The Companys obligations under the BofA Credit Facility were
collateralized by liens on substantially all of the Companys assets, including
inventory, accounts receivable and general intangibles as well as a pledge of
the stock of the Companys subsidiaries. The Companys obligations under the
BofA Credit Facility were also guaranteed individually by each of the Companys
subsidiaries (the Guarantees). The obligations of such subsidiaries under the
Guarantees were collateralized by liens on substantially all of their
respective assets, including inventory, accounts receivable and general
intangibles. The Companys obligation under the Bridge Loan was collateralized
by the pledge of 2,813,943 shares of the Companys common stock beneficially
owned by the CEO and an affiliate, and by the collateral previously pledged by
the Company to Bank of America under the BofA Credit Facility.

5.  Related-Party Transactions

As discussed in Note 6 to the Companys consolidated financial statements
in the Form 10-K, on June 6, 2000, the Company obtained the BofA Bridge Loan in
the amount of $900,000, which was used to fund the Shareholder Bridge Loan to
the Companys CEO. The Shareholder Bridge Loan required interest at either the
Index Rate or adjusted LIBOR, as defined in the Shareholder Bridge

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Loan, plus 4.5% as elected by the CEO. As of December 31, 2001, the
interest rate was based on the Index Rate with a resulting rate of
approximately 11.32%. The Shareholder Bridge Loan and related accrued interest
were recorded as contra-equity in the consolidated balance sheets and were due
on August 30, 2000 but not paid. As a result, the Company was unable to pay the
amount due under the BofA Bridge Loan, thereby causing the Company to default
under the BofA Bridge Loan and the BofA Credit Facility (see Note 6 to the Form
10-K). During 2001, the CEO paid the Shareholder Bridge Loan obligation of
$900,000 as described in Note 6 to the Form 10-K. Accrued interest of $109,305
related to the Shareholder Bridge Loan was outstanding as of December 31, 2001
and recorded as contra-equity. The accrued interest was paid to the Company by
the CEO in June 2002.

The Company has unsecured loans to the CEO, the President of the Company,
and a former Vice Chairman of the Board of the Company in the form of notes
receivable, collectively in the amount of $112,613 and $337,837, plus accrued
interest receivable of $58,218 and $168,800 as of September 30, 2002 and
December 31, 2001, respectively. The notes require annual payments of interest
at 8% beginning on September 28, 1997 and were amended in September 2001 to
extend the maturity date from 2000 to December 31, 2002. The notes and related
accrued interest are recorded as contra-equity in the consolidated balance
sheets. In March of 2002, approximately $342,000 was paid to the Company by the
CEO and the President in full settlement of their outstanding balances, which
included accrued interest.

During 2001, Tunstall Consulting, Inc., an affiliate of Gordon Tunstall, a
director of the Company, provided consulting services to the Company with
respect to financial and certain related matters, including the
Recapitalization. In 2001, the Company incurred fees of $484,013 in
consideration for such services. In the nine months ended September 30, 2002,
the Company incurred fees of $318,185 to Tunstall Consulting for consulting
services rendered to the Company in connection with the Recapitalization.

See Note 11 of the Companys consolidated financial statements included in
the Form 10-K for description of the Companys other related party
transactions.

6.  Commitments and Contingencies

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position, results of operations, or cash flows of the
Company.

The Company is subject to numerous federal, state and local environmental
laws and regulations. Management believes that the Company is in material
compliance with such laws and regulations and that potential environmental
liabilities, if any, are not material to the consolidated financial statements.

The Company is party to license agreements with an individual (the
Licensor) for the right to manufacture and sell dual lumen fistula needles,
dual lumen over-the-needle catheters, dual lumen chronic and acute catheters,
and other products covered by the Licensors patents or derived from the
Licensors confidential information. Payments under the agreement vary,
depending upon the purchaser, and range from 9% to 15% of the Companys net
sales of such licensed products. Such payments shall continue until the
expiration date of each corresponding licensed patent right covering each
product under the agreement.

Effective November 15, 2001, the exclusive distributor agreement between
Stepic Corporation, the Companys wholly owned distributor subsidiary
(Stepic), and Pall Medical Companies (Pall) was terminated. As part of the
termination, Stepic was permitted to sell the Pall critical care products
through November 14, 2001 and the Pall blood products through January 31, 2002.
In addition, Stepic has returned for credit substantially all remaining Pall
inventory. On September 3, 2002 the Company sold Stepic to Arrow International, Inc.

The Company has entered into various distribution agreements under which
the Company has guaranteed certain gross margin percentages to its
distributors. As a result of these guarantees, the Company has accrued
approximately $593,000 and $649,000 as of September 30, 2002 and December 31,
2001, respectively, related to amounts to be rebated to the various
distributors.

The Company is party to numerous agreements which contain certain
provisions regarding change in control, as defined by the agreements, or the
acquisition of the Company by a third party. These provisions could result in
additional payments being required by the Company should these events, as
defined, occur.

Effective October 15, 1998, the Company completed the purchase of the
outstanding stock of Stepic for $8 million in cash and contingent payments of
up to $12 million over a three-year period based upon the successful
achievement of certain specified future earnings targets by Stepic. The Company
recorded additional purchase price payable to the previous Stepic shareholders
of

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approximately $2.1 million, $1.2 million, and $667,000, respectively,
representing the Companys additional earned contingent payments for the
anniversary years ending October 31, 1999, 2000 and 2001, respectively, as
required by the purchase agreement (the Purchase Agreement). All additional
payments made have been accounted for as additional costs of acquired assets
and amortized over the remaining life of the assets.

The 2000 contingent payment was due December 15, 2000 and $2.4 million,
which was previously accrued, was paid from proceeds from the BofA Credit
Facility. On December 15, 2000, the Company amended the Purchase Agreement so
that the remaining portion of the 2000 contingent payment of approximately $1.2
million could be paid, together with interest at 11%, through April 2001. The
Company failed to make all required payments to the Stepic shareholders under
the December 15, 2000 amendment and on February 14, 2001, two of the three
previous Stepic shareholders (the Plaintiffs) filed suit against the Company
for non-payment. On March 30, 2001, the Company entered into a Settlement
Agreement with the Plaintiffs wherein the Plaintiffs agreed to voluntarily
dismiss their pending lawsuit against the Company, and the Company agreed to
pay the 2000 contingent payment at a rate of $9,400 per month beginning on
April 15, 2001, until final payment of the remaining outstanding balance on
February 10, 2002. In addition, under the terms of the Settlement Agreement,
the Company agreed to pay interest to the Plaintiffs on the unpaid balance of
the 2000 contingent payment at the rate of 11% per annum, including a lump sum
interest payment of approximately $27,000. The 2001 contingent payment was due
December 15, 2001, and $2.4 million, which was previously accrued, was paid
from proceeds from the BofA Credit Facility.

On March 14, 2002, the Company entered into an agreement with the
Plaintiffs, which replaces the Settlement Agreement, pursuant to which the
Company paid $100,000 to the Plaintiffs on March 15, 2002 and agreed to pay
monthly payments of principal and interest of approximately $36,000 through
March 2006.

Pursuant to the terms of the Note Purchase Agreement, the holders of the
Convertible Notes have the right to convert in the aggregate a total of
$270,000 of the Convertible Notes into shares of the Companys common stock at
a conversion price of $0.01 per share for a total of 27,000,000 shares, subject
to a downward adjustment. See Note 4 to these interim condensed consolidated
financial statements. As of September 30, 2002, there were
7,397,500 shares issued and outstanding as a result of conversions by the Additional Note Purchasers.

As described in Note 4 to the interim condensed consolidated financial
statements contained in this Form 10-Q, the Loan Agreement sets forth certain
Events of Default, the occurrence of which would allow the Lender to accelerate
the Companys obligations under the Loan Agreement. See Note 4 to these interim
condensed consolidated financial statements.

On March 15, 2002, the Company entered into a Co-Promotion Agreement with
Medtronic under which the Company is promoting and providing technical advice for
Medtronics implantable drug delivery systems which are used for the treatment
of hepatic arterial infusion and malignant pain. If the Company breaches or
fails to comply with its obligations under the Co-Promotion Agreement (after
giving effect to any applicable cure periods), then Medtronic or 51% of the
holders of the aggregate principal amount of the Convertible Notes may
accelerate the due date for payment of the Convertible Notes. See Note 4 to
these unaudited interim condensed consolidated financial statements.

7.  Sale of IFM

Effective March 30, 2001 (the IFM Closing Date), the Company completed
the sale of certain IFM assets for the assumption of the Note related to IFM
(see Note 6 of the consolidated financial statements contained in the Form
10-K), cash of $2,250,500 upon closing, and cash of $150,000 due six months
from the IFM Closing Date (the Second Installment). Assets sold included
inventory of $3.3 million, property and equipment of $2.4 million, and
intangible assets of $1.6 million. The asset purchase agreement provided for a
purchase price adjustment related to certain inventory values within five
business days after the IFM Closing Date. Based on the values of the inventory
following the IFM Closing Date, the Company recorded an additional purchase
price receivable of approximately $70,000 which is to be paid as part of the
Second Installment. In addition to the purchase of certain assets, the
purchaser assumed the Companys sublease of the IFM facility and the related
employees.

The Second Installment in the amount of approximately $220,000 was due
from the purchaser on September 30, 2001. As of September 30, 2002, the Second
Installment has not been paid, and the purchaser has sought indemnification
under the asset purchase agreement for the Companys alleged breach of its
representations and warranties set forth in the agreement. On September 24,
2001, the Company filed a Complaint for Declaratory Judgement and Breach of
Contract against the purchaser in the Superior Court of Fulton County in the
State of Georgia. As of September 30, 2002 and December 31, 2001, the Company
has fully reserved the amount due from the purchaser of approximately $220,000.
The Company and IFM settled this lawsuit in August 2002.

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8.  Sale of Distribution Segment

On September 3, 2002, the
Company sold its distribution segment (Stepic)
to Arrow International, Inc. for approximately $12.7 million, consisting of
$11.1 million in cash, $1.1 million placed in escrow and a note receivable in
the amount of $500,000. In addition, the Company retained assets of
approximately $1.1 million in the transaction.

Approximately $7.8 million of the cash proceeds of the Stepic sale were
used to pay down all amounts outstanding at closing under the Companys
revolving senior credit facility with the Lender. The Company currently
intends to use the remaining proceeds for working capital purposes.
Additionally, as required pursuant to a letter agreement among the
Company, ComVest and Medtronic, the Companys management and Executive
Committee delivered to each of ComVest and Medtronic an operating plan and
budget (including working capital needs) reflecting its business following the
sale of Stepic and a proposal for the use of proceeds from the sale of Stepic.
This operating plan and budget, together with the use of proceeds, are subject
to the approval of ComVest and Medtronic and must be ratified by the Companys
board of directors. If its board of directors fails to ratify the proposed use
of proceeds (as agreed to by ComVest and Medtronic), then this failure shall
constitute an Event of Default under the Note Purchase Agreement. In no event
will the proposed use of proceeds result in the amount of the Companys cash on
hand being less than its senior debt outstanding after application of the
proposed use of proceeds. In connection with this sale, the Company received
the consent of LaSalle and the requisite noteholders under the Note Purchase
Agreement.

Arrow paid $1.1 million of the cash purchase price into escrow, which sum
will be distributed either to the Company or to Arrow in accordance with the
terms of the asset purchase agreement and escrow agreement entered into in
connection with the Stepic sale. Finally, Arrow issued to the Company a
promissory note in the principal amount of $500,000, which bears interest at an
annual rate of 5% and is payable as follows:



| |  |  | $250,000, plus accrued interest thereon, is due and payable 10
days after the post-closing determination of the value of the net
assets transferred (subject to possible offset of this payment and the
note related to a shortfall in the value of the assets sold); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the balance is due and payable six months after the closing.                                                                                                                                                                                                             

As of the date of this filing, the Company has received $1,051,317 plus
interest of $904 and Arrow has received $48,683 from the escrow account in
accordance with the terms of the asset purchase agreement and escrow agreement.
In addition, the Company has submitted to Arrow the Companys calculation of
the closing date net assets. Once the Company has received a response from
Arrow to the Companys calculation and the parties come to a mutually agreed
upon amount, the Company will receive the first payment of $250,000 under the
promissory note plus an additional purchase price amount based on the final net
asset calculation.

Net sales and income (loss) from the discontinued operation are as follows:

|                                               |  |                    |           |                   |  |      |           |      |  |   |            |  |  |   |            |  
|---------------------------------------------- |  | ------------------ | --------- | ----------------- |  | ---- | --------- | ---- |  | - | ---------- |  |  | - | ---------- | -
|                                               |  | Three Months Ended |           | Nine Months Ended
|                                               |  | September 30,      |           | September 30,    
|                                               |  |                    |           |                  
|                                               |  | 2002               |           | 2001              |  | 2002 |           | 2001
|                                               |  |                    |           |                   |  |      |           |     
|Net sales                                      |  | $                  | 5,691,852 |                   |  | $    | 8,978,537 |      |  | $ | 21,987,450 |  |  | $ | 27,775,724 |  
|Net income (loss) from
discontinued operations |  | $                  | 3,828,854 |                   |  | $    | (236,643  | )    |  | $ | 4,290,394  |  |  | $ | (155,500   | )

The major classes of assets and liabilities disposed of were as follows at
September 3, 2002:

|                                       |  |   |           | 
|-------------------------------------- |  | - | --------- | 
|Accounts receivable, net               |  | $ | 6,602,504 | 
|Inventory                              |  |   | 9,128,845 | 
|Prepaid expenses and other assets      |  |   | 1,209,359 | 
|Property and equipment, net            |  |   | 115,628   | 
|Intangibles, net                       |  |   | 25,703    | 
|Accounts payable                       |  |   | 7,332,453 | 
|Accrued expenses and other liabilities |  |   | 372,972   | 

Goodwill of $16.1 million for the Stepic distribution segment was written
off in the first quarter of 2002 as part of the Companys adoption of SFAS No.
142. See Note 2 of the Companys Form 10-K.

9.  Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142 Goodwill and Other Intangible Assets effective January 1, 2002. SFAS No.
142 requires that: 1) goodwill and indefinite lived intangible assets will no
longer be amortized; 2) goodwill will be tested for impairment at least
annually at the reporting unit level; 3) intangible assets deemed to have an
indefinite life will be tested for impairment at least annually; and 4) the
amortization period of intangible assets with finite lives will no longer be
limited to forty years. Upon the adoption of SFAS No. 142, the Company recorded
an impairment loss of $16.1 million.

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In accordance with SFAS No. 142, prior period amounts were not restated. A
reconciliation of the previously reported net income and earnings per share for
the three and nine months ended September 30, 2001 to the amounts adjusted for
the reduction of amortization expense, net of the related income tax effect, is
as follows:

|                  |  |                                               |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|----------------- |  | --------------------------------------------- | ----------- | -------- |  | --------- | ----------- | ----------- |  |  | ------ | - |  |  | ------ | -
|                  |  | For the Three Months Ended September 30, 2001
|                  |  |                                              
|                  |  | Loss before                                   |             |          |  |           |             |             |  |  |        |   |  | 
|                  |  | extraordinary items                           |             | Net Loss |  | Basic EPS |             | Diluted EPS
|                  |  |                                               |             |          |  |           |             |            
|Reported          |  |                                               | ($1,829,842 | )        |  |           | ($1,829,842 | )           |  |  | ($0.14 | ) |  |  | ($0.14 | )
|Add: amortization |  |                                               |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|Adjustment        |  |                                               | 318,557     |          |  |           | 318,557     |             |  |  | 0.03   |   |  |  | 0.03   |  
|                  |  |                                               |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|Adjusted          |  |                                               | ($1,511,285 | )        |  |           | ($1,511,285 | )           |  |  | ($0.11 | ) |  |  | ($0.11 | )
|                  |  |                                               |             |          |  |           |             |             |  |  |        |   |  |  |        |  

|                  |  |                                              |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|----------------- |  | -------------------------------------------- | ----------- | -------- |  | --------- | ----------- | ----------- |  |  | ------ | - |  |  | ------ | -
|                  |  | For the Nine Months Ended September 30, 2001
|                  |  |                                             
|                  |  | Loss before                                  |             |          |  |           |             |             |  |  |        |   |  | 
|                  |  | extraordinary items                          |             | Net Loss |  | Basic EPS |             | Diluted EPS
|                  |  |                                              |             |          |  |           |             |            
|Reported          |  |                                              | ($3,604,902 | )        |  |           | ($3,604,902 | )           |  |  | ($0.27 | ) |  |  | ($0.27 | )
|Add: amortization |  |                                              |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|Adjustment        |  |                                              | 955,670     |          |  |           | 955,670     |             |  |  | 0.07   |   |  |  | 0.07   |  
|                  |  |                                              |             |          |  |           |             |             |  |  |        |   |  |  |        |  
|Adjusted          |  |                                              | ($2,649,232 | )        |  |           | ($2,649,232 | )           |  |  | ($0.20 | ) |  |  | ($0.20 | )
|                  |  |                                              |             |          |  |           |             |             |  |  |        |   |  |  |        |  

Finite lived intangible assets as of September 30, 2002, subject to
amortization, are comprised of the following:

|                                      |       |   |                |            |              |   |            |            |   |   |           |           | 
|------------------------------------- | ----- | - | -------------- | ---------- | ------------ | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                      |       |   | Gross Carrying |            | Accumulated  |   |            |            |  
|                                      |       |   | Amount         |            | Amortization |   | Net       
|                                      |       |   |                |            |              |   |           
|Patents                               |       | $ | 8,218,000      |            |              | $ | (2,723,142 | )          |   | $ | 5,494,858 |          
|Non-compete and consulting agreements |       |   | 2,165,592      |            |              |   | (2,037,800 | )          |   |   | 127,792   |          
|Debt issuance costs                   |       |   | 1,450,087      |            |              |   | (378,066   | )          |   |   | 1,072,021 |          
|Other                                 |       |   | 69,568         |            |              |   |            |            |   |   | 69,568    |          
|                                      |       |   |                |            |              |   |            |            |   |   |           |          
|                                      | Total |   | $              | 11,903,247 |              |   | $          | (5,139,008 | ) |   | $         | 6,764,239 | 
|                                      |       |   |                |            |              |   |            |            |   |   |           |          

Amortization expense for finite lived intangible assets was $400,693 and
$1,144,201 for the three and nine months ended September 30, 2002. The expected
amortization expense for each of the five succeeding years ended December 31 is
as follows:

|               |      |   |           |           | 
|-------------- | ---- | - | --------- | --------- | 
|Remaining 2002 |      | $ | 374,391   |          
|               | 2003 |   |           | 1,290,926 | 
|               | 2004 |   |           | 910,419   | 
|               | 2005 |   |           | 642,749   | 
|               | 2006 |   |           | 599,724   | 
|               | 2007 |   |           | 599,724   | 
|Thereafter     |      |   | 2,346,306 |          
|               |      |   |           |          
|               |      | $ | 6,764,239 |          
|               |      |   |           |          

The change in the net carrying amount of goodwill during the nine months
ended September 30, 2002 is due to the impairment loss recorded on the
distribution segment of $16.1 million upon the adoption of SFAS 142.

During the third
quarter of 2002, the Company acquired a portion of the business of
one of its former independent distributors, which consisted of
inventory, a non-compete agreement and a
customer list in the amounts of $78,513, $65,000 and $69,568,
respectively, and ended its relationship with the distributor.
Subsequent to September 30, 2002, the Company has agreed to acquire a
portion of the business of another independent distributor, which
will consist of inventory, a non-compete
agreement and a customer list. The Company will end its relationship
with the distributor.

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

Results of Operations

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

Net Sales.Net sales decreased 4.4% to $5.3 million for the third quarter
of 2002 from $5.6 million for the third quarter of 2001. This slight decrease
is attributable to lower sales volumes to independent distributors as a result
of the Companys direct sales expansion program in which a greater proportion
of the Companys sales will be derived from its direct sales force compared to
a larger mix of distributors and direct sales representatives in the past. The
decrease is partially offset by increased sales from new products launched in
2002 which consist of LifeJet, LifeGuard, and LifeValve.

Gross Profit.Gross profit increased 18.6% to $3.3 million for the third
quarter of 2002 from $2.7 million for the third quarter of 2001. Gross margin
percentage increased to 61.1% in the third quarter of 2002 from 49.3% in the
third quarter of 2001. The increase in gross profit and gross margin percentage
is primarily the result of favorable manufacturing production efficiencies and
lower distributor rebates as well as a favorable change in product mix in the
third quarter of 2002 compared to the third quarter of 2001.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses (SG&A) decreased approximately $447,300 or 11.6% to
approximately $3.4 million for the third quarter of 2002 compared with $3.9
million for the third quarter of 2001. This decrease is attributable to lower
turnaround expenses, including consulting fees, PR campaign fees and
severances, in addition to the Companys cost reduction program implemented in
June 2002, which includes lower salaries, travel and marketing expenses in the
third quarter of 2002. Partially offsetting the decrease were ongoing
recapitalization expenses of approximately $200,000 incurred in the third
quarter of 2002. Exclusive of the recapitalization expenses, SG&A would have
decreased approximately $647,300 million in the third quarter of 2002 over the
third quarter of 2001. As a result of decreased SG&A expenses, SG&A as a
percentage of net sales decreased to 64.2% for the third quarter of 2002 from
69.3% for the third quarter of 2001.

Earnings Before
Interest, Taxes, Depreciation, and Amortization.
Earnings before interest, taxes, depreciation and amortization and
other income/expense (EBITDA) for
the three months ended September 30, 2002 was approximately $225,000
compared with a loss of ($558,000) for the three months ended
September 30, 2001. In order to reconcile EBITDA to the operating
losses of approximately ($160,000) and ($1.1 million) for the three
months ended September 2002, and 2001, respectively,
there would be an add back of the manufacturing segments depreciation and amortization expense
of approximately $385,000 and $557,000 for three months ended
September 30, 2002 and 2001, respectively. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles (GAAP) and should not be considered as a
substitute for net income as an indicator of operating performance or
as an alternative to cash flow (as measured by GAAP) as a measure of
liquidity.

Interest Expense.Net
interest expense increased to approximately $723,600
in the third quarter of 2002 compared to approximately $496,400 in the third
quarter of 2001. Upon completion of the Recapitalization in the first
quarter of 2002, the Company increased the amount of debt allocated
to the manufacturing segment. Accordingly, the amount of interest
attributable to this segment has increased in the three months ended
September 30, 2002 over the same period in the previous year.
Interest expense for both periods attributable to the distribution
segment has been reclassified and is now reported as part of the
gain/loss from operations of discontinued operations. In addition,
upon consummation of the Recapitalization, the Company incurred
increased deferred loan costs, the amortization of which is recorded
as a component of interest expense. For the three months ended
September 30, 2002, the Company's amortization of deferred loan costs
was approximately $35,000 higher than in the same period in the prior
year.

Income Taxes.The
Companys projected taxable income from continuing
operations and extinguishment of the BofA Credit Facility, which has
been partially reduced by the tax loss of approximately $7.6 million
incurred in connection with the sale of Stepic on September 3, 2002, is expected to be
fully offset by a net operating loss carryforward upon which a valuation
allowance had previously been established in 2001. This valuation allowance is
now being released to the extent of the projected taxable income in 2002. A
valuation allowance remains in effect on the remaining deferred tax assets
because, based on the weight of available evidence, it is more likely than not
that the deferred tax assets will not be realized.

Discontinued Operations.Income from operations of the Companys
discontinued distribution segment (Stepic) was $3.8 million for the third
quarter of 2002 compared to a loss of approximately $237,000 for the third
quarter of 2001. In connection with the sale of Stepic on September 3, 2002,
the Company recognized a gain on the sale of approximately $3.2 million which
is included in the income from discontinued operations in the third quarter of
2002.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September
30, 2001

Net Sales.Net sales decreased 17% to $15.9 million for the nine months
ended September 30, 2002 from $19.2 million for the nine months ended September
30, 2001. This decrease is primarily attributable to the fact that sales of the
IFM product line (of approximately $1.8 million in 2001) are not included in
2002 net sales as the product line was sold on March 30, 2001. In addition,
there was a decline in sales to independent distributors in the nine months
ended September 30, 2002, due to the Companys direct sales expansion program
in which a larger proportion of the Companys sales will be derived from its
direct sales force compared to a larger mix of distributors and direct sales
representatives in the past.

Gross Profit.Gross profit decreased 11.5% to $9 million for the nine
months ended September 30, 2002 from $10.2 million for the nine months ended
September 30, 2001. Gross margin percentage increased to 56.7% in 2002 from
53.2% in 2001. The decrease in

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gross profit dollars is the result of decreased sales, and the increase in
gross margin percentage is the result of favorable manufacturing production
efficiencies and lower distributor rebates as well as a favorable change in
product mix for the nine month period ended September 30, 2002 compared to the
nine month period ended September 30, 2001.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses (SG&A) increased
approximately $559,500 or 4.7% to
approximately $12.5 million for the nine months ended September 30, 2002
compared with $11.9 million for the nine months ended September 30, 2001. This
increase is fully attributable to recapitalization expenses of approximately $3
million incurred as a result of the Companys recapitalization transaction in
March 2002. Exclusive of the recapitalization expenses, SG&A decreased
approximately $2.4 million in 2002 from 2001. This decrease is a result of
lower turnaround expenses, including consulting fees, PR campaign fees and
severances, in addition to the Companys cost reduction program including lower
salaries, travel and marketing expenses in 2002. SG&A expenses increased as a
percentage of net sales to 78.6% for the nine months ended September 30, 2002
from 62.3% for the nine months ended September 30, 2001. This increase is due
to decreased sales as well as the recapitalization expenses in 2002 from 2001.

Earnings Before
Interest, Taxes, Depreciation, and Amortization. Earnings before interest, taxes, depreciation and amortization
and other income/expense (EBITDA) for the nine months ended September 30, 2002 was a loss of ($2.3
million) compared with approximately $118,000 for the nine months
ended September 30, 2001. In order to reconcile EBITDA to the operating
losses of approximately ($3.5 million) and ($1.8 million) for the
nine months ended September 2002, and 2001, respectively, there
would be an add back of the manufacturing segments depreciation and amortization
expense of $1.2 million and $1.9 million for nine months ended
September 30, 2002 and 2001, respectively. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles (GAAP) and should not be considered as a
subscriber for net income as an indicator of operating performance or
as an alternative to cash flow (as measured by GAAP) as a measure of
liquidity.

Interest Expense.Net interest expense increased to approximately $2.1
million in the nine months ended September 30, 2002 compared to approximately
$1.8 million in the nine months ended September 30, 2001.
Upon completion of the Recapitalization in the first quarter of 2002,
the Company increased the amount of debt allocated to the
manufacturing segment. Accordingly, the amount of interest
attributable to this segment has increased in the nine months ended
September 30, 2002 over the same period in the previous year.
Interest expense for both periods attributable to the distribution
segment has been reclassified and is now reported as part of the
gain/loss from operations of discontinued operations. In addition,
upon consummation of the Recapitalization, the Company incurred
increased deferred loan costs, the amortization of which is recorded
as a component of interest expense. For the nine months ended
September 30, 2002, the Companys amortization of deferred loan
costs was approximately $184,000 higher than in the same period in
the prior year.

Income Taxes.The Companys projected taxable income from continuing
operations and extinguishment of the BofA Credit Facility, which has
been partially reduced by the tax loss of approximately $7.6 million
incurred in connection with the sale of Stepic on September 3, 2002, is expected to be
fully offset by a net operating loss carryforward upon which a valuation
allowance had previously been established in 2001. This valuation allowance is
now being released to the extent of the projected taxable income in 2002. A
valuation allowance remains in effect on the remaining deferred tax assets
because, based on the weight of available evidence, it is more likely than not
that the deferred tax assets will not be realized.

Discontinued Operations.Income from operations of the Companys
discontinued distribution segment (Stepic) was $4.3 million for the nine months
ended September 30, 2002 compared to a loss of approximately $155,500 for the
nine months ended September 30, 2001. In connection with the sale of Stepic on
September 3, 2002, the Company recognized a gain on the sale of approximately
$3.2 million which is included in the income from discontinued operations in
the nine month period ended September 30, 2002.

Extraordinary Loss.The Company recorded an extraordinary loss of
approximately $6.6 million on the extinguishment of its BofA debt as a result
of the recapitalization transaction during the first quarter of 2002.

Goodwill Impairment Loss.Upon the adoption of SFAS No. 142 on January 1,
2002, the Company recognized an impairment loss of approximately $16.1 million
related to its distribution reporting unit. Prior to the sale of Stepic in
September 2002, the Company had identified two reporting units, the
aforementioned manufacturing unit and the distribution unit. These reporting
units were consistent with the Companys previously identified reportable
segments under SFAS 131. In applying the transitional impairment model
prescribed by SFAS 142, the Company used a discounted cash flow model to
determine the fair value of the net assets of each of the Companys reporting
units. Significant assumptions utilized in the model were revenue growth rates,
gross margin percentages, depreciation and amortization, capital expenditures,
working capital requirements, and the appropriate discount rate. The fair value
of the Companys distribution reporting units net assets were less than the
carrying value of those net assets; thus, the Company proceeded to step 2 of
the SFAS 142 impairment model, whereby the Company allocated that fair value to
the reporting units tangible and intangible net assets. The Company utilized
various methods to determine the fair value of the distribution units
identifiable intangible assets, including discounted cash flows, royalty
savings method, and the cost approach. Significant assumptions used in valuing
these intangible assets included price premiums, expected effective tax rates,
the discount rate, remaining useful lives of intangible assets, royalty rates,
and residual values. A comparison of the implied fair value of goodwill,
calculated from the allocation of fair value described above, to the carrying
net book value of goodwill at January 1, 2002 yielded the impairment charge
described above. The Company applied the same methodology to its manufacturing
unit and concluded that the goodwill associated with that reporting unit was
not impaired.

Liquidity and Capital Resources

Net cash (used in) provided by operating activities was ($2.6 million) for
the nine months ended September 30, 2002 compared with approximately $1.8 for
the nine months ended September 30, 2001. The increase in cash used in
operations during 2002 compared to 2001 was primarily attributable to the
Recapitalization expenses paid in 2002, as well as the increased loss from
operations in 2002 from 2001 (see above description in Results of
Operations).

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Net cash provided by investing activities was approximately $11.1 million
for the nine months ended September 30, 2002 compared to $2.3 million for the
nine months ended September 30, 2001. Cash provided by investing activities in
2002 consisted primarily of cash proceeds from the sale of Stepic of
approximately $11.1 million and also cash proceeds from the CEO and President
for payment of their shareholder notes outstanding. Cash provided by investing
activities in 2001 consisted of cash proceeds from the sale of IFM of
approximately $2.3 million and the payment of $300,000 from the Companys CEO
for the Shareholder Bridge Loan. Cash used in investing activities in both 2002
and 2001 consisted primarily of capital expenditures for the Companys
facilities.

Net cash used in
financing activities was approximately $7.3 million for
the nine months ended September 30, 2002 compared to approximately $3.2 million
for the nine months ended September 30, 2001. Financing activities in 2002
substantially consisted of debt issuance costs paid as part of the
Recapitalization of approximately $1.5 million as well as net proceeds from the
issuance of long-term debt and payment of debt on the Companys BofA Credit
Facility, both pursuant to the Recapitalization. In addition, 2002 financing
activities included borrowings from and repayments of its Revolving Loan under
its LaSalle Credit Facility and the utilization of cash proceeds from the sale
of Stepic to pay down all amounts then outstanding under its Revolving Loan
under its LaSalle Credit Facility of approximately $7.8 million. In 2001,
financing activities primarily consisted of borrowings from and repayments of
the Companys working capital loan under its BofA Credit Facility, as well as a
principal payment of its BofA Credit Facility of approximately $2.3 million
from the proceeds of the sale of IFM.

The Company incurred a loss of approximately $5.1 million for the year
ended December 31, 2001, and as discussed in Note 6 of the consolidated
financial statements included in the Form 10-K, the Company was in violation of
the Forbearance Agreement with Bank of America as of December 31, 2001 and
continuing into 2002. As more fully described below, the Company has completed
a recapitalization transaction that extinguished all of the Companys
outstanding debt and warrants held by Bank of America, entered into new
financing facilities with new lenders and substantially reduced the Companys
total outstanding debt. The Companys senior loan agreement contains certain
requirements which are either determined at the discretion of the lender or
involve meeting financial covenants. While there can be no assurance, it is
the Companys expectation to comply with these covenants and to have the
financing facilities available for its working capital needs throughout 2002.
If the Company is unable to comply with the requirements of the new financing
facilities during 2002, it may not be able to borrow additional funds, and all
amounts under the senior loan agreement (approximately $1.7 million
at September 30, 2002) may become immediately due.

On March 19, 2002, the Company announced that it had completed an
arrangement with ComVest, LaSalle, and Medtronic to recapitalize the Company by
extinguishing all of the Companys senior debt and warrants held by Bank of
America and substantially reducing the Companys total outstanding debt.
Pursuant to the Recapitalization, the Company issued Convertible Notes in the
amount of $15 million to ComVest, Medtronic and other investors, assumed a $2
million Junior Note payable to Bank of America, and entered into the LaSalle
Credit Facility for up to $22 million, of which approximately $1.7 million was
outstanding as of September 30, 2002.

A summary of the details of the Recapitalization affecting the Companys
liquidity is as follows:

On February 22, 2002, ComVest and Bank of America entered into an
assignment agreement under which ComVest agreed to acquire all of Bank of
Americas interest in the outstanding $50 million BofA Credit Facility. The
purchase price for the assignment was $22 million in cash, plus the $2 million
Junior Note. The Company subsequently assumed the Junior Note pursuant to the
Recapitalization, and ComVest has been released from obligations under the
Junior Note. Upon the closing of the assignment on March 15, 2002, ComVest
acquired all of Bank of Americas interest in the BofA Note, the warrants
issued to Bank of America pursuant to the BofA Credit Facility were surrendered
and cancelled, and the Forbearance Agreement was terminated. The warrants,
which had previously been recorded in additional paid-in-capital at their
estimated fair value at issuance of $260,000, were extinguished at their
estimated fair value on the date of extinguishment of $345,000. As a result,
$345,000 was included as a component of the extraordinary loss on early
extinguishment of debt.

On March 1, 2002, the Company entered into the Note Purchase Agreement
with ComVest and certain Additional Note Purchasers. Under the Note Purchase
Agreement, the Company agreed to issue $15 million of Convertible Notes.
Interest on the Convertible Notes is payable quarterly beginning in June 2002
and accrues at a rate of 6% per year for the first six months and 8% per year
thereafter until the notes are paid in full and mature on March 16, 2004. The
Company issued the Convertible Notes as follows: $4.4 million to ComVest, $4
million to Medtronic and $6.6 million to the Additional Note Purchasers.

On March 15, 2002, the Company and ComVest, as the holder of the
outstanding BofA Note, agreed to reduce the outstanding principal amount of the
BofA Note from $40.3 million to $22 million. As a result, the Company has
recorded a net extraordinary loss on the early extinguishment of debt of
approximately $6.6 million, during the first quarter of 2002. This
extraordinary loss was

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calculated by subtracting the fair value of the new debt of $42.6 million,
which included the amount outstanding under the LaSalle Credit Facility ($7.3
million), the Convertible Notes ($33.3 million), and the BofA Junior Note ($2.0
million), from the amount outstanding under the BofA debt of $40.3 million.
Also included in the extraordinary loss were various costs paid to
ComVest/Commonwealth and LaSalle, as the lenders, to effect the
recapitalization transaction of $4.3 million. Included as components of the
additional $4.3 million of transaction expenses were the following: $570,000 in
closing costs and due diligence fees paid to LaSalle; a warrant to purchase the
Companys common stock issued to LaSalle valued at approximately $695,000;
approximately 2.7 million shares issued to ComVest valued at approximately $2.3
million; deferred loan costs from the original BofA debt of approximately
$128,000, and $1.15 million paid to Commonwealth in closing costs and due
diligence fees. Also included in the additional expenses, but offsetting these
amounts are approximately $130,000 in fees and accrued interest forgiven by
BofA and the fair value of the BofA warrant of $345,000 which was acquired and
cancelled by ComVest.

The Company also incurred numerous other costs that were either expensed
as incurred or capitalized as debt issuance costs. Included in selling,
general, and administrative expenses for the nine-month period ended September
30, 2002 are approximately $3 million of expenses related to the
recapitalization transaction. The primary components of those expenses are $2.4
million in stock compensation and bonuses to two of the Companys executive
officers, $168,000 in consulting fees, and $428,000 in legal and other fees.
The Company capitalized approximately $1.5 million as debt issuance costs,
consisting primarily of $906,000 in legal fees, $322,000 of consulting fees,
and $222,000 of other miscellaneous fees paid for services rendered in
connection with the recapitalization.

In exchange for funding a portion of the $22 million cash purchase price
paid to BofA, ComVest assigned $4 million in principal amount of the BofA Note
to Medtronic and $6.6 million in principal amount of the BofA Note to the
Additional Note Purchasers while retaining $11.4 million in principal amount of
the BofA Note itself. After such assignments, the Company issued the
Convertible Notes under the Note Purchase Agreement in the aggregate principal
amount of $15 million in exchange for the surrender of $15 million in principal
amount of the BofA Note held by ComVest, Medtronic and the Additional Note
Purchasers. The remaining $7 million in principal amount of the BofA Note was
repaid with the proceeds of the Bridge Loan.

The fair value of the Convertible Notes, which was used in the
determination of the extraordinary loss on early extinguishment of debt was
$33.3 million. As this value represents a substantial premium to the face value
of the debt, the Company recorded the debt at its face value of $15 million,
and recorded the premium of $18.3 million as an increase to additional
paid-in-capital. The Company determined the fair value of the convertible notes
by considering their two components, the non-convertible debt of $14,730,000
and the convertible debt of $270,000. The non-convertible debt components
carrying value of $14,730,000 represents its fair value because, when
considered with the convertible component, its terms yield a market rate of
return. The convertible components fair value was determined by multiplying
the fair value of the Companys stock by the number of shares into which this
component is convertible. Thus, 27 million shares multiplied by $0.68940 per
share equals $18,613,685. The sum of the non-convertible components fair value
of $14,730,000 and the convertible components fair value of $18,613,685 equals
the total debt instruments fair value of $33,343,685.

The Company determined the fair value of its stock in a multiple-step
process. First, the Company computed its assumed fair value of $13,762,977 at
the date of the transaction by multiplying outstanding shares of 16,311,676 by
the then current market price per share of $0.84375, which resulted in a fair
value of the Company prior to any conversion of the convertible portion of the
notes. The Company then added to this computed fair value $16,095,909, which
represents the difference between the old Bank of America debt of $40,320,909
and the face value of the new debt of $24,225,000. This $16,095,909 difference
was credited to additional paid-in-capital. Thus, the new fair value of the
Company, prior to any conversion, is $29,858,886. The Company then assumed full
conversion of the convertible portion of the notes, which resulted in an
additional 27,000,000 shares becoming outstanding. After conversion, the
Company would have 43,311,676 shares outstanding, which when divided into the
new fair value of $29,858,886, yields a new per share market value of $0.68940.

On March 18, 2002, the Company entered into the LaSalle Credit Facility
pursuant to the Loan Agreement. Under the Loan Agreement, the Lender has
provided a $20 million Revolving Loan and a $2 million Term Loan. The Company
used the proceeds to repay the Bridge Loan and expenses related to the
Recapitalization and will use the remaining proceeds for working capital and
general corporate purposes. Both loan facilities will bear interest at the
LaSalle Bank Prime Rate plus 2%, subject to an additional 2% that would be
added to the interest rate upon the occurrence of an Event of Default (as
discussed below). As collateral, the Company granted a security interest in all
of the Companys present and future assets, whether now or hereafter owned,
existing, acquired or arising and wherever now or hereafter located. The Loan
Agreement contains affirmative and negative covenants as well as financial
maintenance covenants (See Note 4 to the interim condensed consolidated
financial statements included in this Form 10-Q).

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The Loan Agreement also specifies certain Events of Default, including,
but not limited to, failure to pay obligations when due, failure to direct its
account debtors to make payments to an established lockbox, failure to make
timely financial reports to the Lender, the breach by the Company or any
guarantor of any obligations with any other Person (as defined in the Loan
Agreement) if such breach might have a material adverse effect on the Company
or such guarantor, breach of representations, warranties or covenants, loss of
collateral in excess of $50,000, bankruptcy, appointment of a receiver,
judgments in excess of $25,000, any attempt to levy fees or attach the
collateral, defaults or revocations of any guarantees, institution of criminal
proceedings against the Company or any guarantor, occurrence of a change in
control, the occurrence of a Material Adverse Change or a default or an event
of default under certain subordinated debt documents. Upon the occurrence of
any Event of Default, the Lender may accelerate the Companys obligations under
the Loan Agreement.

The Company must repay the Revolving Loan on or before March 17, 2005, the
Termination Date, unless the Loan Agreement is renewed and the repayment period
is extended through a new Termination Date. The Company must repay the Term
Loan in 36 equal monthly installments of $55,556 commencing April 2002. The Loan Agreement will
automatically renew for one-year terms unless the Lender demands repayment
prior to the Termination Date as a result of an Event of Default, the Company
gives 90-days notice of its intent to terminate and pays all amounts due in
full, or the Lender elects to terminate on or after February 1, 2004 as a
result of a Termination Event. A Termination Event is defined as the failure of
Medtronic, ComVest or any Additional Note Purchaser to extend the maturity date
of the Convertible Notes at least thirty days past the date of the original
term or any applicable renewal term.

Pursuant to the LaSalle Credit Facility, the Company also issued to
LaSalle and SFB warrants to purchase up to an aggregate of 748,619 shares of
common stock at an exercise price of $.01 per share. The Company recorded the
estimated fair value of the warrant as of March 18, 2002 of approximately
$695,000, determined using the Black-Scholes model (using weighted average
assumptions as follows: dividend yield of 0%, expected life of 3 years,
expected volatility of 112.2% and a risk free interest rate of 2.43%) as a
reduction of the gain on early extinguishment of debt.

The Junior Note in the amount of $2 million bears interest at a rate of 6%
per annum, payable monthly beginning April 2002, and matures on March 15, 2007.
Beginning on May 1, 2003, a principal payment on the Junior Note of $22,500 is
payable on the first day of each month until maturity of the Junior Note.

On September 3, 2002, the Company sold substantially all of the assets of
Stepic to Arrow International, Inc. The total value of the transaction was
approximately $12.7 million, consisting of $11.1 million in cash, $1.1 million
paid into escrow and a $500,000 promissory note. In addition, the Company
retained assets of approximately $1.1 million in the transaction.

Approximately $7.8 million of the cash proceeds of the Stepic sale were
used to pay down all amounts outstanding at closing under the Companys
revolving senior credit facility with LaSalle Business Credit, Inc. The
Company currently intends to use the remaining proceeds for working capital
purposes. Additionally, as required pursuant to a letter agreement
among the Company, ComVest and Medtronic, before November 2, 2002, the Companys management and
its Executive Committee delivered to each of ComVest and Medtronic an operating
plan and budget (including its working capital needs) reflecting its business
following the sale of Stepic and a proposal for the use of proceeds from the
sale of Stepic. This operating plan and budget, together with the use of
proceeds, are subject to the approval of ComVest and Medtronic and must be
ratified by the Companys board of directors. If its board of directors fails
to ratify the proposed use of proceeds (as agreed to by ComVest and Medtronic),
then this failure shall constitute an Event of Default under the Note Purchase
Agreement. In no event will the proposed use of proceeds result in the amount
of the Companys cash on hand being less than its senior debt outstanding after
application of the proposed use of proceeds. In connection with this sale, the
Company received the consent of LaSalle and the requisite noteholders under the
Note Purchase Agreement.

Arrow paid $1.1 million of the cash purchase price into escrow, which sum
will be distributed either to the Company or to Arrow in accordance with the
terms of the asset purchase agreement and escrow agreement entered into in
connection with the Stepic sale. Finally, Arrow issued to the Company a
promissory note in the principal amount of $500,000, which bears interest at an
annual rate of 5% and is payable as follows:



| |  |  | $250,000, plus accrued interest thereon, is due and payable 10
days after the post-closing determination of the value of the net
assets transferred (subject to possible offset of this payment and the
note related to a shortfall in the value of the assets sold); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the balance is due and payable six months after the closing.                                                                                                                                                                                                             

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As of the date of this filing, the Company has received $1,051,317 plus
interest of $904 and Arrow has received $48,683 from the escrow account in
accordance with the terms of the asset purchase agreement and escrow agreement.
In addition, the Company has submitted to Arrow the Companys calculation of
the closing date net assets. Once the Company has received a response from
Arrow on the Companys calculation and the parties come to a mutually agreed
upon amount, the Company will receive the payment of $250,000 under the
promissory note plus an additional purchase price amount based on the final net
asset calculation.

As of the date of this filing, the Company has complied with all the
requirements of the Loan Agreement and currently does not have any borrowings
under the Revolving Loan, nor does it expect to borrow under the Revolving Loan
before year end 2002. The Company believes it has available cash resources to
meet its working capital needs through fiscal year 2002.

As a result of the Recapitalization, the BofA Credit Facility, the
Forbearance Agreement with Bank of America, and all subsequent amendments were
terminated. However, because those agreements were significant to the
capitalization and liquidity of the Company in 2001, the terms of those
agreements are briefly summarized as follows:

On March 30, 2001, the Company entered into a Forbearance Agreement and a
First Amendment to the Forbearance Agreement wherein Bank of America agreed to
forbear from exercising its rights and remedies under the BofA Credit Facility
due to certain defaults. The Company was in default at that time for violating
certain restrictive covenants and for failing to make principal payments when
due. All of the defaults were forborne as provided for in the Forbearance
Agreement, and revised restrictive covenants were set. By September 30, 2001,
the Company was in default under the Forbearance Agreement for failing to
comply with some of the revised covenants, including minimum net worth, debt
service coverage, leverage and minimum EBITDA.

On October 15, 2001, the Company entered into the Second Amendment to the
Forbearance Agreement. The Second Amendment amended the Forbearance Agreement
as follows: (i) changed the termination date of the Forbearance Agreement from
March 31, 2002 to January 15, 2002 (the period from March 30, 2001 through
January 15, 2002 being defined as the Forbearance Period); (ii) required the
Company to maintain a general operating account with Bank of America and
restricted the use of funds in an calendar month to payments equal to or less
than a monthly budget submitted to Bank of America; (iii) required the Company
to pay any accrued or unpaid interest (but not principal) on the B of A Note on
the first day of each month and allow interest to continue to accrue at the
Bank of America Prime Rate plus two and one-half percent (2.5%) per annum; and
(iv) required the Company to furnish Bank of America with certain financial
reports.

The Second Amendment also amended the Termination Events as defined in
the Forbearance Agreement to include the following: (i) the Company fails to
execute and deliver or to cause the Companys CEO, Marshall B. Hunt and Hunt
LLLP to execute and deliver within 10 days from the effective date of the
Second Amendment a pledge to Bank of America of all the stock owned by Hunt and
documentation to amend the current Pledge Agreement between Hunt, Hunt LLLP and
the Company. The pledge documents will be held in escrow and will be released
only in the event that Hunt interferes with the daily operations of the Company
determinable at the Bank of Americas discretion at any point prior to January
1, 2005; (ii) the Company fails to engage and hire within five days from the
effective date of the Second Amendment competent crisis and turn around
management and a new Chief Executive Officer who shall report directly to the
independent members of the Companys Board of Directors; (iii) the Company
fails to provide Bank of America within five days from the effective date of
the Second Amendment a copy of resolutions confirming Hunts resignation as an
officer and director of the Company and that no further salary or bonuses shall
be paid to Hunt; (iv) the Company fails to make efforts to refinance the
amounts outstanding under the BofA Credit Facility and fails to provide weekly
status reports; (v) on or before December 15, 2001, the Company fails to
provide Bank of America evidence that the Company has engaged an investment
banking firm to begin marketing the sale of the assets of the Company if the
amounts outstanding under the BofA Credit Facility are not paid off by the
Termination Date; or (vi) the Company fails to execute and deliver to Bank of
America within 24 hours of Bank of Americas request a consent order consenting
to the appointment of a receiver in the event of a Termination Event.

In addition, the Second Amendment reduced the Working Capital Sublimit to
$5,000,000 and limited the Working Capital Loan to the smaller of the Working
Capital Sublimit or an amount equal to the Borrowing Base, as defined in the
BofA Credit Facility. The Second Amendment also amended several of the
financial covenants previously contained in the Forbearance Agreement.

The Forbearance Agreement provided for the payment of Excess Cash Flow, as
defined in the BofA Credit Facility, on the ninetieth day following the last
day of each fiscal year. There was no Excess Cash Flow payment required for
fiscal year 2001. In addition, the Forbearance Agreement required an additional
principal payment in the amount of the greater of $150,000 or the gross
proceeds payable to the Company in connection with the Companys sale of the
IFM product line (see Note 14 to the Companys consolidated financial
statements contained in the Form 10-K).

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The Forbearance Agreement further required payments of $300,000 each on
the BofA Bridge Loan on May 31, 2001, August 31, 2001, and November 30, 2001.
All of the installments under the BofA Bridge Loan were paid. The Forbearance
Agreement also provided for a forbearance and restructuring fee of $10,000 plus
related expenses and interest at the rate then in effect plus 6% upon a
Termination Event, as defined in the Forbearance Agreement.

In connection with the Forbearance Agreement, the Company issued a warrant
to Bank of America to acquire 435,157 shares of the Companys common stock for
$.05 per share. The warrant was exercisable by Bank of America during a
three-year period without regard to the status of the BofA Credit Facility or
the BofA Bridge Loan. The Company recorded the estimated fair value of the
warrant as of December 31, 2001 of $260,000, determined using the Black-Scholes
Model (using weighted average assumptions as follows: dividend yield of 0%,
expected life of five years, expected volatility of 107.6% and a risk free
interest rate of 4.44%) as a deferred cost and amortized the deferred cost over
the Forbearance Period. As with the BofA Credit Facility and other related
agreements, the warrant was cancelled pursuant to the Recapitalization.

The Forbearance Agreement also required the Company to hire on or before
June 30, 2001 a new chief operating officer, restricted the repayment of
principal debt to junior lien holders, and to either i) sell the assets of IFM
or ii) obtain an agreement from the seller of the IFM product line to defer all
payments under the related promissory note (see below) through the Termination
Date (see Note 7 to the Companys interim condensed consolidated financial
statements included elsewhere in this Form 10-Q regarding the sale of the IFM
product line). The Company hired a Chief Operating Officer in April 2001 who
was terminated in June 2001, and the Company did not hire a replacement. The
Company sold the assets of the IFM product line as of March 30, 2001 (see Note
7).

On December 15, 2001, the Company entered into a Third Amendment to the
Forbearance Agreement under which Bank of America consented to the increase in
payments of $8,000 per month to certain former shareholders of Stepic.

In January 2002, the Company entered into a Fourth Amendment to the
Forbearance Agreement with Bank of America, pursuant to which Bank of America
agreed to extend the Forbearance Period until March 15, 2002 (the Expiration
Date) in order for the Company to consider its strategic alternatives. On
March 15, 2002, the BofA Credit Facility was assigned from BofA to ComVest. On
March 16, 2002, the Company issued the Convertible Notes in an aggregate amount
of $15 million to ComVest, Medtronic and the Additional Note Purchasers. On
March 18, 2002, the Company entered into the LaSalle Credit Facility.

Recently Issued Accounting Standards

Note 1 and Note 9 of the interim condensed consolidated financial
statements included elsewhere in this Form 10-Q describes the recently issued
accounting standards and, where applicable, the effects of such standards on
the Company.

Forward-looking Statements

Certain statements made in this quarterly report, and other written or
oral statements made by or on behalf of the Company, may constitute
forward-looking statements within the meaning of the federal securities laws.
Statements regarding future events and developments and the Companys future
performance, as well as managements expectations, beliefs, plans, estimates or
projections relating to the future, are forward-looking statements within the
meaning of these laws. All forward-looking statements are subject to certain
risks and uncertainties that could cause actual events to differ materially
from those projected. Such risks and uncertainties include, among others, the
possible inadequacy of the Companys cash flow from operations and cash
available from external financing, the possibility of a breach of covenants in
the Companys senior credit facility, the satisfaction of which cannot be
objectively determined, the Companys limited manufacturing experience, the
inability to efficiently manufacture different products, the possible failure
to successfully commence the manufacturing of new products, the possible
failure to maintain or increase production volumes of new or existing products
in a timely or cost-effective manner, the possible failure to maintain
compliance with applicable licensing or regulatory requirements, the dependence
on patents, trademarks, licenses and proprietary rights, the Companys
potential exposure to product liability, the inability to introduce new
products, the Companys reliance on a few large customers, the Companys
dependence on key personnel, the fact that the Company is subject to control by
certain shareholders, pricing pressure related to healthcare reform and managed
care and other healthcare provider organizations, the possible failure to
comply with applicable federal, state or foreign laws or regulations,
limitations on third-party reimbursement, the highly competitive and fragmented
nature of the medical devices industry, deterioration in general economic
conditions and the Companys ability to pay its indebtedness. Management
believes that these forward-looking statements are reasonable. However, you
should not place undue reliance on such statements. These statements are based
on current expectations and speak only as of the date of such statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of future events,

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new information or otherwise. Additional information concerning the risks
and uncertainties listed above, and other factors that you may wish to
consider, is contained in Managements Discussion and Analysis of Financial
Condition and Results of Operations above and is also contained in the Form
10-K and Form S-1/A under the section entitled Risk Factors and elsewhere and
in the Companys filings from time to time pursuant to the Securities Exchange
Act of 1934, as amended.




ITEM  3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Like other companies, the Company is exposed to market risks relating to
fluctuations in interest rates. Borrowings under the LaSalle Credit Facility
accrue interest at annual rate of prime plus 2%, plus an additional 2% upon the
occurrence of an event of default. As of September 30, 2002, the Company had
approximately $1.7 million outstanding under the LaSalle Credit Facility. If
market interest rates were to increase immediately and uniformly by 10% from
levels as of September 30, 2002, the additional interest expense would be
considered immaterial to the Companys interim condensed consolidated financial
position, results of operations and cash flows.




ITEM 
4.   CONTROLS AND PROCEDURES.

The Company maintains
disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules, regulations and forms, and
that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and
principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. Within 90 days prior to the
date of this quarterly report, the Company carried out an evaluation,
under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer
along with the Companys principal financial officer, on the
effectiveness of the Companys disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon the
foregoing, the Companys Chief Executive Officer along with the
Companys principal financial officer concluded that the
Companys disclosure controls and procedures are effective in
timely and effectively alerting them to material information relating
to the Company required to be included in the Companys Exchange
Act reports.

There have been no
significant changes in the Companys internal controls or in
other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

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##### Table of Contents






PART II. OTHER INFORMATION




ITEM  1.   LEGAL PROCEEDINGS

See Item 3. Legal Proceedings in the Form 10-K for a discussion of legal
proceedings affecting the Company. Except for the settlement in August 2002
relating to the Georgia case filed in September 2001 referenced in Note 7 to
the Companys interim condensed consolidated financial statements contained
herein, there have been no material developments in such legal proceedings
since the filing of the Form 10-K.

On August 8, 2002, the Company received a subpoena from the Office of
Inspector General of the Department of Health & Human Services requesting
documents relating to the Companys agreement with a group purchasing
organization. The Company is cooperating fully with the request.




ITEM  2.   CHANGES IN SECURITIES AND USE OF FUNDS.

In the third quarter of 2002, the Company issued an aggregate of
7,937,500 shares of its common stock in connection with the Recapitalization.
On September 26, 2002, the Company issued warrants to purchase 25,000 shares of
the Companys common stock to Epoch Financial Group, Inc., at an exercise price
of $1.22. These warrants expire in 2011. Also on September 26, 2002, the
Company issued warrants to purchase 50,000 shares of the Companys common stock
to Lippert/Heilshorn & Associates, at an exercise price of $0.93. These
warrants expire in 2005. The issuance of these warrants was exempt from
registration under the Securities Act of 1933, as amended (the Securities
Act), pursuant to Section 4(2) of the Securities Act. See Note 4 to the
Companys interim condensed consolidated financial statements contained herein.




ITEM  3.   DEFAULTS UPON SENIOR SECURITIES.

Not applicable.




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



| | (a) |  | The Companys Annual Meeting of Shareholders was held on September 17, 2002.
| | --- |  | ----------------------------------------------------------------------------
|
| | (b) |  | Not applicable.                                                             
|
| | (c) |  | The following proposals were
submitted to the shareholders of the Company:  
|



| |  |  | (i) |  | The election of two directors. The vote on this proposal was:
| |  |  | --- |  | -------------------------------------------------------------

|                 |  |     |            |         |  |  |        | 
|---------------- |  | --- | ---------- | ------- |  |  | ------ | 
|                 |  | For |            | Abstain
|                 |  |     |            |        
|Robert D. Tucker |  |     | 14,607,513 |         |  |  | 93,521 | 
|T. Lee Provow    |  |     | 14,607,513 |         |  |  | 93,521 | 



| |  |  | (ii) |  | A proposal to amend the Companys Restated and Amended Articles of
Incorporation to declassify the Companys Board of Directors and provide that
each director will serve a one-year term, ending at the 2003 annual meeting of
shareholders. The vote on this proposal was:
| |  |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|12,841,404 |  |         | 118,900 |         |  |  | 18,700 | 



| |  |  | (iii) |  | A proposal to amend the Companys Restated and Amended Articles of
Incorporation to increase the total number of authorized shares of common stock
from 50,000,000 shares to 100,000,000 shares. The vote on this proposal was:
| |  |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|14,425,266 |  |         | 237,628 |         |  |  | 22,450 | 

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##### Table of Contents





| |  |  | (iv) |  | A proposal to amend the Companys Amended and Restated Bylaws to
eliminate the business combinations and fair price provisions contained
therein. The vote on this proposal was:
| |  |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|          |  |         |         |         |  |  |        | 
|--------- |  | ------- | ------- | ------- |  |  | ------ | 
|For       |  | Against |         | Abstain
|          |  |         |         |        
|3,378,010 |  |         | 114,246 |         |  |  | 29,462 | 



| |  |  | (v) |  | A proposal to approve the issuance of up to 27,000,000 shares of the
Companys common stock which may be issued upon conversion of a portion of the
Companys Convertible Notes issued in the Recapitalization. The vote on this
proposal was:
| |  |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|12,770,176 |  |         | 179,578 |         |  |  | 21,750 | 



| |  |  | (vi) |  | A proposal to increase the number of shares of the Companys common
stock authorized and reserved for issuance under the Companys 1998 Stock
Incentive Plan from 1,400,000 shares to 6,000,000 shares. The vote on this
proposal was:
| |  |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|12,489,029 |  |         | 402,025 |         |  |  | 22,750 | 



| |  |  | (vii) |  | A proposal to approve the grant of stock options to Marshall B. Hunt
to purchase an aggregate of 3,500,000 shares of the Companys common stock and
to William E. Peterson, Jr. to purchase an aggregate of 1,000,000 shares of the
Companys common stock. The vote on this proposal was:
| |  |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |         |         |  |  |        | 
|---------- |  | ------- | ------- | ------- |  |  | ------ | 
|For        |  | Against |         | Abstain
|           |  |         |         |        
|12,353,550 |  |         | 511,894 |         |  |  | 29,140 | 



| |  |  | (viii) |  | A proposal to ratify the appointment of PricewaterhouseCoopers LLP
as the Companys independent auditors for 2002. The vote on this proposal was:
| |  |  | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |         |        |         |  |  |        | 
|---------- |  | ------- | ------ | ------- |  |  | ------ | 
|For        |  | Against |        | Abstain
|           |  |         |        |        
|14,651,979 |  |         | 46,135 |         |  |  | 21,330 | 

Each proposal referenced above obtained the requisite number of votes for
passage, except for the proposal outlined in (iv) above, which required the
affirmative vote of a majority of disinterested shares (as defined under
Georgia corporate law).




ITEM  5.   OTHER INFORMATION



| |  |  | Not applicable.
| |  |  | ---------------




ITEM  6.   EXHIBITS AND REPORTS ON FORM 8-K.



| | (a) |  | Exhibits.
| | --- |  | ---------

|        |  |   |  |                                                                                                                                                                                                                                                                                                                                            
|------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                                            
|Number  |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                    
|        |  |   |  |                                                                                                                                                                                                                                                                                                                                            
|3.1     |  |  |  | Amended and Restated Articles of Incorporation of the Company,
as amended to date.                                                                                                                                                                                                                                                         
|3.2     |  |  |  | Amended and Restated Bylaws of the Company, as amended to date.                                                                                                                                                                                                                                                                            
|4.1     |  |  |  | See Articles II, III, VII and IX of the Amended and
Restated Articles of Incorporation filed as Exhibit 3.1
and Articles I, VII, VIII and IX of the Amended and
Restated Bylaws filed as Exhibit 3.2, filed as Exhibit
4.1 to the Registrants Form S-1 dated April 14, 1998
(SEC File No. 333-46349) and incorporated herein by reference.

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##### Table of Contents



|        |  |   |  |                                                                                                                                                                                                                                                                                                                  
|------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                                                                                                                                  
|Number  |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                          
|        |  |   |  |                                                                                                                                                                                                                                                                                                                  
|4.2     |  |  |  | Specimen Common Stock Certificate, filed as Exhibit 4.2
to the Registrants Form S-1 dated April 14, 1998 (SEC
File No. 333-46349) and incorporated herein by reference.                                                                                                                                         
|4.3     |  |  |  | Rights Agreement dated April 9, 1998 by and between the
Company and Tapir Investments (Bahamas) Ltd., filed as
Exhibit 4.3 to the Registrants Form 10-K dated March 31,
1999 (SEC File No. 000-24025) and incorporated herein by
reference.                                                                     
|10.1    |  |  |  | Amendment to Employment Agreement between the Registrant and
William E. Peterson, Jr., dated September 16, 2002.                                                                                                                                                                                                 
|10.2    |  |  |  | Common Stock Purchase Warrant, dated as of September 26, 2002, by
and between the Registrant and Epoch Financial Group, Inc.                                                                                                                                                                                     
|10.3    |  |  |  | Common Stock Purchase Warrant, dated as of September 26, 2002, by
and between the Registrant and Lippert/Heilshorn & Associates, Inc.                                                                                                                                                                            
|10.4    |  |  |  | Amendment No. 2 to the Note Purchase Agreement, dated as of July 29,
2002, by and among the Registrant, ComVest Venture Partners, L.P.,
and the Additional Note Purchasers (incorporated by reference to Exhibit
10.3 to the Registrants Quarterly Report on Form 10-Q for the three
months
ended June 30, 2002)
|10.5    |  |  |  | Asset Purchase Agreement, dated as of August 23, 2002, by and among
Stepic Corporation, the Registrant, and Arrow International, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrants Current
Report on Form 8-K, filed with the Commission on September 11, 2002.                                 
|10.6    |  |  |  | Letter Agreement among the Registrant, ComVest Venture Partners, L.P.
and Medtronic, Inc., dated August 30, 2002 (incorporated by reference
to Exhibit 10.1 to the Registrants Current Report on From 8-K, filed
with the Commission on September 11, 2002).                                                    
|10.7    |  |  |  | Employment Letter between the Registrant and George L. Cavagnaro,
effective September 1, 2002 (incorporated by reference to Exhibit 10.2
to the Registrants Current Report on Form 8-K, filed with the
Commission
on September 11, 2002).                                                                       
|99.1    |  |  |  | Certification of the Chief Executive Officer of the
Company pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                            
|99.2    |  |  |  | Certification of the Principal Financial Officer of the
Company pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                        



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------

On July 3, 2002, the Company filed an amended Current Report on Form 8-K
relating to the filing of a revised version of the Note Purchase Agreement to
include Annex 1, identifying certain Additional Note Purchasers, and Exhibit C,
outlining the conversion features applicable to the Convertible Notes issued in
the Recapitalization. On August 14, 2002, the Company filed a Current Report
on Form 8-K, filing as an exhibit a press release relating to the Companys
filing of a Form 10-Q/A for the first quarter 2002. On September 11, 2002, the
Company filed a Current Report on Form 8-K relating to the sale of the
Companys Stepic business.

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##### Table of Contents



HORIZON MEDICAL PRODUCTS, INC.




SIGNATURE

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.

|                  |                                                                                                                 
|----------------- | ----------------------------------------------------------------------------------------------------------------
|                  | HORIZON MEDICAL PRODUCTS, INC.                                                                                  
|                  |                                                                                                                 
|                  | (Registrant)                                                                                                    
|                  |                                                                                                                 
|November 14, 2002 | /s/ Julie F. Lancaster                                                                                          
|                  | Vice President  Finance (Principal
Financial Officer, Principal Accounting
Officer and Duly Authorized Officer)

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##### Table of Contents






CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Marshall B. Hunt, Chairman of the Board and Chief Executive Officer of
Horizon Medical Products, Inc. (the registrant), certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of the registrant
for the quarterly period ended September 30, 2002;                                                                                                                                                                                                       
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;                   
|
| | 4. |  | The other certifying officers of the registrant and I:                                                                                                                                                                                                                                                                        



| |  |  | (a) |  | are responsible for establishing and maintaining disclosure controls
and procedures for the registrant;                                                                                      
| |  |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) |  | have designed such disclosure controls and procedures to ensure that
material information is made known to them, particularly during the period in
which the periodic report is being prepared;
|
| |  |  | (c) |  | have evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of
the report; and                                
|
| |  |  | (d) |  | have presented in the report their conclusions about the effectiveness
of the disclosure controls and procedures based on the required evaluation as
of that date;                             
|

| | 5. |  | The other certifying officers of the registrant and I have disclosed to
the registrants auditors and to the audit committee of the board of directors:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



| | 6. |  | The other certifying officers of the registrant and I have indicated in
the report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                                     
|----------------------- |  | --------------------------------------------------------------------
|Date: November 14, 2002 |  | /s/ Marshall B. Hunt                                                
|                        |  | Marshall B. Hunt
(Chairman of the Board and
Chief Executive Officer)

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##### Table of Contents






CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Julie F. Lancaster, Vice President  Finance and principal financial officer
of Horizon Medical Products, Inc. (the registrant), certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of the registrant
for the quarterly period ended September 30, 2002;                                                                                                                                                                                                       
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;                   
|
| | 4. |  | The other certifying officers of the registrant and I:                                                                                                                                                                                                                                                                        



| |  |  | (a) |  | are responsible for establishing and maintaining disclosure controls
and procedures for the registrant;                                                                                      
| |  |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) |  | have designed such disclosure controls and procedures to ensure that
material information is made known to them, particularly during the period in
which the periodic report is being prepared;
|
| |  |  | (c) |  | have evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of
the report; and                                
|
| |  |  | (d) |  | have presented in the report their conclusions about the effectiveness
of the disclosure controls and procedures based on the required evaluation as
of that date;                             



| | 5. |  | The other certifying officers of the registrant and I have disclosed to
the registrants auditors and to the audit committee of the board of directors:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



| | 6. |  | The other certifying officers of the registrant and I have indicated in
the report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |                                                                              
|----------------------- | -----------------------------------------------------------------------------
|Date: November 14, 2002 | /s/ Julie F. Lancaster                                                       
|                        |                                                                              
|                        | Julie F. Lancaster
Vice President  Finance and (Principal
Financial Officer)

-34-