---

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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# FORM 10-Q

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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

OR

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

# COMMISSION FILE NO. 000-31519

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# CURON MEDICAL, INC.

(Exact name of registrant as specified in its charter)

---

|Delaware                                                      |  | 77-0470324                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                             
|735 Palomar Avenue                                           
|Sunnyvale, CA 94085                                          
|(Address of principal executive offices, including zip code) 
|                                                             
|(408) 733-9910                                               
|(Registrants telephone number, including area code)         

---

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

As
of November 8, 2002, 19,993,384 shares of the Registrants Common Stock were
outstanding.

---

# CURON
MEDICAL, INC.

# INDEX

|               |                       |                                                                                                                        | Page
|-------------- | --------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----
|PART I.        | FINANCIAL INFORMATION
|              
|               | Item 1.               | Financial Statements (unaudited)                                                                                      
|              
|               |                       | Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001                                   | 3   
|              
|               |                       | Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2002 and 2001 | 4   
|              
|               |                       | Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2002 and 2001           | 5   
|              
|               |                       | Notes to Condensed Consolidated Financial Statements                                                                   | 6   
|              
|               | Item 2.               | Management's Discussion and Analysis of Financial Condition and Results of Operations                                  | 9   
|              
|               | Item 3.               | Quantitative and Qualitative Disclosures of Market Risk                                                                | 23  
|              
|               | Item 4.               | Controls and Procedures                                                                                                | 23  
|              
|PART II.       | OTHER INFORMATION    
|              
|               | Item 1.               | Legal Proceedings                                                                                                      | 23  
|              
|               | Item 2.               | Changes in Securities and Use of Proceeds                                                                              | 24  
|              
|               | Item 5.               | Other Information                                                                                                      | 24  
|              
|               | Item 6.               | Exhibits and Reports on Form 8-K                                                                                       | 24  
|              
|SIGNATURES     | 25                   
|              
|CERTIFICATIONS | 26                   

2

PART I    FINANCIAL INFORMATION
Item 1.  Financial Statements

# CURON MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

|Assets                                                                                          | September 30, 2002 | December 31, 2001
|----------------------------------------------------------------------------------------------- | ------------------ | -----------------
|Current assets:                                                                                
|Cash and cash equivalents                                                                       | $                  | 8,445            
|Marketable securities                                                                           |                    | 16,285           
|Accounts receivable, net of allowance for doubtful accounts of $40 and $20,
       respectively |                    | 622              
|Inventories, net                                                                                |                    | 1,403            
|Related party notes receivable                                                                  |                    | 19               
|Prepaid expenses and other current assets                                                       |                    | 1,091            
|                                                                                                |                    |                  
|Total current assets                                                                            |                    | 27,865           
|Long term investments                                                                           |                    | 2,069            
|Related party notes receivable                                                                  |                    | --               
|Property and equipment, net                                                                     |                    | 917              
|Intangible assets, net of amortization of $903 and $770, respectively                           |                    | --               
|Other assets                                                                                    |                    | 92               
|                                                                                                |                    |                  
|Total assets                                                                                    | $                  | 30,943           
|                                                                                                |                    |                  
|Current liabilities:                                                                           
|Accounts payable                                                                                | $                  | 641              
|Accrued liabilities                                                                             |                    | 944              
|Notes payable                                                                                   |                    | 85               
|                                                                                                |                    |                  
|Total current liabilities                                                                       |                    | 1,670            
|Other liabilities                                                                               |                    | 56               
|                                                                                                |                    |                  
|Total liabilities                                                                               |                    | 1,726            
|                                                                                                |                    |                  
|Contingencies (Note 4)                                                                         
|                                                                                               
|Stockholders' equity:                                                                          
|Common stock                                                                                    |                    | 20               
|Additional paid-in capital                                                                      |                    | 90,069           
|Deferred stock compensation                                                                     |                    | (288             
|Accumulated deficit                                                                             |                    | (60,503          
|Treasury stock                                                                                  |                    | (117             
|Accumulated other comprehensive income                                                          |                    | 36               
|                                                                                                |                    |                  
|Total stockholders' equity                                                                      |                    | 29,217           
|                                                                                                |                    |                  
|Total liabilities and stockholders' equity                                                      | $                  | 30,943           
|                                                                                                |                    |                  
|See accompanying notes to condensed consolidated financial statements                          

3

# CURON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)

|For the Three Months Ended                                            | For the Nine Months Ended
|--------------------------------------------------------------------- | -------------------------
|                                                                      |                          
|Revenues                                                              | $                        
|Cost of goods sold                                                    |                          
|                                                                      |                          
|Gross loss                                                            |                          
|                                                                      |                          
|Operating expenses:                                                  
|Research and development                                              |                          
|Clinical and regulatory                                               |                          
|Sales and marketing                                                   |                          
|General and administrative                                            |                          
|                                                                      |                          
|Total operating expenses                                              |                          
|                                                                      |                          
|Operating loss                                                        |                          
|                                                                     
|Interest income, net                                                  |                          
|                                                                      |                          
|Net loss                                                              | $                        
|                                                                      |                          
|Net loss per share, basic and diluted                                 | $                        
|                                                                      |                          
|Shares used in computing net loss per share, basic and diluted        |                          
|                                                                      |                          
|See accompanying notes to condensed consolidated financial statements

4

# CURON MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

|For the Nine Months Ended                                                  
|---------------------------------------------------------------------------
|                                                                           
|Cash Flows From Operating Activities                                       
|Net loss                                                                   
|Adjustments to reconcile net loss to net cash used in operating activities:
|Depreciation and amortization                                              
|Forgiveness of related party notes receivable                              
|Amortization of acquired technology                                        
|Amortization of stock-based compensation                                   
|Accretion of discount on securities, net                                   
|Loss on disposal of fixed assets                                           
|Changes in assets and liabilities:                                         
|Accounts receivable, net                                                   
|Inventories, net                                                           
|Prepaid expenses and other current assets                                  
|Accounts payable                                                           
|Accrued liabilities                                                        
|Other long-term assets and liabilities                                     
|                                                                           
|Net cash used in operating activities                                      
|                                                                           
|Cash Flows From Investing Activities                                       
|Purchase of property and equipment                                         
|Purchase of marketable securities                                          
|Proceeds from maturities of marketable securities                          
|                                                                           
|Net cash provided by investing activities                                  
|                                                                           
|Cash Flows From Financing Activities                                       
|Principal payments on notes payable                                        
|Proceeds from issuance of notes payable                                    
|Proceeds from related party notes receivable                               
|Payments on related party notes receivable                                 
|Proceeds from issuance of common stock, net of issuance costs              
|Purchase of treasury stock                                                 
|                                                                           
|Net cash provided by financing activities                                  
|                                                                           
|Net increase (decrease) in cash and cash equivalents                       
|Cash and cash equivalents at beginning of period                           
|                                                                           
|Cash and cash equivalents at end of period                                 
|                                                                           
|See accompanying notes to condensed consolidated financial statements      

5

# CURON MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, tabular amounts in thousands, except share and per share data)

September 30, 2002

NOTE 1.   The Company and Summary of Significant Accounting Policies

The Company

Curon Medical, Inc. (the "Company") was incorporated in the State of Delaware on May 1, 1997. The Company develops,
manufactures and markets proprietary products for the treatment of gastrointestinal disorders.

The Company has sustained operating losses and negative cash flows from operations
and expects such losses to continue in the foreseeable future. The Company
intends to finance its operations primarily through its cash and cash
equivalents, marketable securities, future financing and future revenues,
however, there can be no assurance that such efforts will succeed or that
sufficient funds will be made available.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of all intercompany balances
and transactions. Certain reclassifications have been made to prior year amounts
in order to conform to current year presentation.

The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X
promulgated by the Securities and Exchange Commission (SEC).
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited interim condensed consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and,
in the opinion of management, contain all adjustments (all of which are normal
and recurring in nature) necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods indicated.
Interim results of operations are not necessarily indicative of the results to
be expected for the full year or any other interim periods.

These condensed consolidated financial statements should be read in conjunction with
the audited financial statements included in the Annual Report on Form 10-K for
the year ended December 31, 2001, as filed with the SEC.

Net Loss Per Share

|Basic and diluted net loss per share is calculated as follows:          
|------------------------------------------------------------------------
|                                                                        
|Numerator:                                                              
|Net loss                                                                
|                                                                        
|Denominator:                                                            
|Weighted average shares outstanding                                     
|Weighted average unvested common shares subject to
    repurchase       
|                                                                        
|Weighted average shares used in basic and diluted net loss
    per share
|                                                                        
|Net loss per share                                                      
|                                                                        

6

During 1999, the Company granted to certain employees and non-employees, options which
were immediately exercisable into common stock, subject to repurchase by the
Company based on the same remaining vesting schedule as the related option.
Shares are subject to repurchase at the original option exercise price.

During the quarter ended September 30, 2002, 124,000 shares of restricted stock were vested
under the terms of the severance agreement with John Morgan, the former President and CEO of the Company.

Equity instruments that could dilute basic earnings per share in the future, that were
not included in the computation of diluted earnings per share as their effect is
antidilutive, are as follows:

|                                                      | September 30, 2002 |  | September 30, 2001
|----------------------------------------------------- | ------------------ |  | ------------------
|Unvested common shares (shares subject to repurchase) | 40,000             |  | 317,000           
|Shares issuable upon exercise of stock options        | 2,617,000          |  | 1,899,000         
|Shares issuable upon exercise of warrants             | 569,000            |  | 569,000           
|                                                      |                    |  |                   
|Total                                                 | 3,226,000          |  | 2,785,000         
|                                                      |                    |  |                   

Revenue Recognition

Revenue from product sales is recognized on product shipment against a signed purchase
order or sales quote provided no significant obligations remain and collection
of the receivables is deemed probable for both sales of control modules and
catheters. Revenues for extended warranty contracts are recognized over the
extended warranty period. To date, post-sale customer support and training have
not been significant.

The Company may sell products under a purchase commitment, with delivery of the
control module at inception of the contract and catheters generally delivered
over a period of six months. Revenue for the control module is deferred and
recognized ratably over shipment of catheters under contract. Revenue on the
catheters is recognized upon shipment at an amount representing their fair value
based on verifiable objective evidence of such.

Shipping and handling costs charged to customers are recognized as revenue and the
associated costs incurred by the Company are
expensed under cost of goods sold.

Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, (Issue 94-3)
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue
94-3 was recognized at the date of an entitys commitment to an exit plan.
This Statement also establishes that fair value is the objective for initial
measurement of the liability. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact, if any, on the Companys financial position or
results of operations.

7

NOTE 2.   Inventories

|Inventories:            | September 30, 2002 |       | December 31, 2001
|----------------------- | ------------------ | ----- | -----------------
|Raw materials           | $                  | 1,146 |                  
|Work-in-process         |                    | 27    |                  
|Finished goods          |                    | 325   |                  
|                        |                    |       |                  
|Total gross inventories |                    | 1,498 |                  
|                        |                    |       |                  
|Less reserves           |                    | (95   | )                
|                        |                    |       |                  
|Total inventories, net  | $                  | 1,403 |                  
|                        |                    |       |                  

NOTE 3.   Deferred Stock Compensation

Stock-based compensation included in the Condensed Consolidated Statements of Operations is as follows:

|Three Months Ended
September 30, | Nine Months Ended
September 30,
|-------------------------------- | -------------------------------
|                                 |                                
|Cost of goods sold               | $                              
|Research and development         |                                
|Clinical and regulatory          |                                
|Sales and marketing              |                                
|General and administrative       |                                
|                                 |                                
|                                 | $                              
|                                 |                                

NOTE 4.   Contingencies

In June 2001, a civil action was filed against the Company in the United States
District Court, Western District of Kentucky, Louisville Division, alleging that
the Plaintiff sustained a nerve injury and damage to his gastrointestinal tract
during a Stretta procedure caused by the defective design and manufacture of the
Companys product. Plaintiffs allegations against the Company include
strict liability for a product that was in a defective and unreasonably
dangerous condition, negligence in the design and manufacturing of the product,
breach of implied warranty of merchantability, and loss of consortium. Plaintiff
was a subject in a randomized clinical trial and
 had been provided with an approved Informed Consent form and counselling by
the physician.  Prior to treatment, the subject provided consent to proceed.
Plaintiff is seeking a trial by jury
and unspecified damages. Trial date is currently set in September 2003. The
Company believes Plaintiffs claim is without merit.

In September 2001, a civil action was filed against a number of defendants,
including the Company, in the Superior Court of the State of California in and
for the City and County of Santa Clara, alleging that the Plaintiff sustained
injury when undergoing a procedure utilizing the Stretta System, caused by defects
in design and manufacture. Plaintiff also alleges negligence in the design,
manufacture, advertising and sale of the Stretta System and that its warnings,
instructions and directions for use were inadequate. Additional defendants
include the treating physicians and the associated medical institutions, which
it is alleged, were medically negligent in treatment of Plaintiff. Plaintiff is
seeking unspecified damages. Defendants are currently being deposed; no trial
date has been set. The Company believes Plaintiffs claim is without merit.

8

In June 2002, a civil action was filed against a number of defendants, including
the Company, in the Court of Common Pleas, Philadelphia County, in the State of
Pennsylvania, alleging that the Plaintiff sustained injury during a Secca
procedure caused by the device being defective and/or in an unreasonably
dangerous condition. Plaintiff was a subject in a clinical trial and
 had been provided with an approved Informed Consent form and counselling by
the physician.  Prior to treatment, the subject provided consent to proceed.
Additional defendants include the treating physician, the associated medical institution
who, it is alleged, were medically negligent in treatment of Plaintiff, and the
members of the Institutional Review Board who approved the protocol for the
clinical trial. Plaintiff has demanded a trial by jury and unspecified damages.
The case has since been moved to the United States District Court for the Eastern
District of Pennsylvania.
The Company believes Plaintiffs claim against the Company is without
merit.

These matters are in their early stages and the Company believes that the resolution
of any of these matters will not have a material effect, if any, on its
business, financial position, and results of operations and cash flows.

NOTE 5.   Notes Payable

The Company has a short-term note payable in the amount of $85,000 at September 30,
2002. This relates to a note financing the 2002 renewal of corporate insurance
policies in the amount of $140,000 in June 2002. The remaining balance on the
previous insurance note payable was paid in full in June 2002.

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

The following discussion should be read in conjunction with the attached financial
statements and notes thereto, and with our audited financial statements and
notes thereto for the fiscal year ended December 31, 2001.

This quarterly report, including the following sections, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements include statements relating to our expectations as to the
timing and success of our clinical trials and regulatory submissions, the mix of
our sales and revenues derived from generators and disposable devices, the rate
of growth and success of our international sales and marketing efforts, our
expectations regarding increased operating expenses and net losses as our
business expands, the timing of new product introductions, and our ability to
maintain current and planned operations through at least the next twelve months
without raising additional funds. These forward-looking statements involve risks
and uncertainties. The cautionary statements set forth below and those contained
in Factors That May Affect Future Results, commencing on page 14,
identify important factors that could cause actual results to differ materially
from those predicted in any such forward-looking statements. Such factors
include, but are not limited to, failure to obtain regulatory approvals as
anticipated, a slower rate of market acceptance of our products than expected,
increased competition, continued adverse changes in general economic conditions
in the United States and internationally, including adverse changes in the
specific markets for our products, adverse changes in customer order patterns,
pricing pressures, risks associated with foreign operations, failure to reduce
costs or improve operating efficiencies, and our ability to attract, hire and
retain key and qualified employees.

Overview

We were incorporated in May 1997. Business activities before January 1998 were
negligible. In 1998, our primary activity was developing the Curon Control
Module and Stretta Catheter for the treatment of gastroesophageal reflux disease
(GERD). Prior to December 31, 2000 we were in the development stage
and until that time, we had devoted substantially all of our efforts to raising
capital and developing, marketing and selling our products.

In early 1999, we began a multi-center clinical trial of the
Stretta® System in the United States. We also developed our
manufacturing capability to support the production of Stretta Catheters and
Curon Control Modules for the clinical trial. Based on the data acquired in the
trial, we submitted a 510(k) notification to the FDA in January 2000 for
clearance to market the Stretta System for treatment of GERD. We received 510(k)
clearance in April 2000. In October 1999, we received CE Mark approval of the
Stretta System, indicating that the Stretta System meets European medical device
standards allowing us to market it within the European Union. In May 2000, we
launched the Stretta System commercially at Digestive Disease Week, a large
professional gastroenterology conference. Also, in May 2000, we initiated a
randomized controlled trial of the Stretta System in the United States. In this
trial, patients received either the Stretta procedure or a placebo procedure,
and results were compared. The data generated is being used to influence
physician adoption rates, facilitate reimbursement approvals and enhance
marketing activity. The active clinical portion of this trial was completed in
the quarter ended March 31, 2001. The abstracted data was presented in a plenary
session at the Digestive Disease Week Conference in May 2002.

9

In April 1999, we began developing the Secca® System for the
treatment of fecal incontinence. In November 1999, we conducted a 10-patient
human clinical pilot study outside the United States and, in July 2000, we began
a U.S. multi-center clinical trial of the Secca System under an Investigational
Device Exemption. In September 2001, we received CE Mark approval of the Secca
System, indicating that the Secca System meets European medical device standards,
allowing us to market it within the European Union. Our multi-center clinical
trial was completed, and the results were used to support a 510(k) submission to
the FDA in December 2001. We received 510(k) clearance from the FDA in March
2002 to market the system for the treatment of fecal incontinence in patients
who have failed more conservative therapies such as diet modification and
biofeedback. In May 2002, we initiated a randomized controlled trial in the U.S.
for the Secca System. In this trial, patients will receive either the Secca
procedure or a placebo procedure, and results will be compared. The data
generated will be used to influence physician adoption rates, facilitate
reimbursement approvals and enhance marketing activity. We made our first sales
of the Secca System in June 2002.

To date, we have generated limited revenues. Our revenues are, and will be, derived
from the sale of radiofrequency generators and our disposable devices, such as
the Stretta Catheter and Secca Handpiece. We expect that disposable sales will
form the basis of a recurring revenue stream. However, domestic disposable sales
continue to grow more slowly than expected primarily due to difficulties
encountered by our physician customers in easily obtaining reimbursement for the
Stretta procedure on a case-by-case basis. Some of our customers also find the
45 minutes necessary to perform a Stretta procedure to be a limiting issue,
as their endoscopy unit schedule is typically dominated by short diagnostic
procedures. Although disposable sales from outside the United States are
increasing, they are not yet sufficient to offset the current domestic
situation. Our strategies of pursuing national reimbursement coverage,
focusing on entrenching the therapy to promote repeat catheter sales
and incorporating technical improvements to our systems to reduce treatment times
are designed to address these issues and we expect that our revenue from
disposables will increase on implementation.

Initially, we are focusing our sales efforts in the United States through a direct sales
force. In international markets, we rely primarily on third-party distributors.
In November 2000, we incorporated a subsidiary company in Belgium and hired a
European manager to support European distributors sales, marketing and
clinical efforts. At September 30, 2002, this subsidiary had three employees. In
the quarter ended September 30, 2002, we entered into distribution agreements in
Spain and France, giving us a total of 15 international distributors, who have
all received shipments of product. Our gross margins on sales through
international third-party distributors will be lower than our gross margins on
U.S. sales as a result of distributor discounts.

Our costs of revenues represent the cost of producing generators and disposable
devices. We also license a technology used in the generators that we sell. In
addition to the up-front payment to license the technology, we are required to
pay licensing fees based on the sales price of the units. We believe that there
are alternative technologies that could be utilized should we choose to do so.
Research and development expenses consist primarily of personnel costs,
professional services, patent application and maintenance costs, materials,
supplies and equipment. Clinical and regulatory expenses consist primarily of
expenses associated with the costs of clinical trials, clinical support
personnel, the collection and analysis of the results of these trials, and the
costs of submission of the results to the FDA. Sales and marketing expenses
consist of personnel related costs, advertising, public relations and attendance
at selected medical conferences. General and administrative expenses consist
primarily of the cost of corporate operations and personnel, legal, accounting
and other general operating expenses of our company. Through September 30, 2002,
we recorded limited product sales while incurring cumulative net losses of $60.5
million. In addition to increasing expenditures related to continuing selling
activities of the Stretta System, we anticipate that our expenses will increase
as we continue to develop new products, conduct clinical trials, commercialize
our products and acquire additional technologies as opportunities arise. As a
result, we expect our operating expenses and cumulative net losses to increase.

10

RESULTS OF OPERATIONS

Periods of three and nine months ended September 30, 2002 and 2001.

Revenues

Revenues for the quarter ended September 30, 2002, were $746,000 compared to $826,000 for the same
quarter in 2001. The decrease in sales was primarily due to the sales and
marketing efforts involved in repositioning the Stretta product as an
alternative to anti-reflux surgery and therefore targeting
primarily
surgeons as opposed
to gastroenterologists by refocusing the domestic sales force. Stretta
System products accounted for 93% and Secca System products 7% of the
quarters revenues. In the same quarter of 2001, all sales were of Stretta
products. The Stretta Control Module and Catheter
accounted for 44% and 51%, respectively, of the Stretta product line sales for the quarter ended
September 30, 2002, compared to 50% and 45%, respectively, for the same period in 2001.
International sales accounted for $88,000 in the third quarter of 2002, compared
to $13,000 in the same quarter of 2001.

For the nine months ended
September 30, 2002 and 2001, revenues were $2.6 million.
Stretta System products accounted for 96% and Secca System
products for 4% of the nine months revenue in 2002. In the same period in
2001, all sales were of Stretta products. The Stretta Control
Module and Catheter accounted for 51% and 44%, respectively, of the Stretta product line sales
for the nine months ended September 30, 2002, compared to 50% and 45%, respectively, for the
same period in 2001. International sales accounted for $319,000 in the first
nine months of 2002 compared to $105,000 for the same period in 2001.

Reimbursement remains an
issue for many of our domestic customers and we continue to pursue national
coverage by obtaining state-by-state coverage decisions. Sales of
catheters to existing domestic customers in the third quarter of 2002, however,
increased 50% and 77% over similar sales in the second and first quarters of
2002, respectively.

Cost of goods sold

In the quarter ended September 30, 2002, cost of goods sold was $1.1 million,
compared to $1.3 million for the same quarter in 2001. For the nine months ended
September 30, 2002, cost of goods sold was $3.4 million, and $3.8 million for
the same period in 2001. As sales volume increases, we expect gross profit to
become positive and increase accordingly. Our sales have not yet reached a level
which absorbs our manufacturing capacity to the extent that we would experience
positive gross profit.

Research and development expenses

Research
and development expenses were $630,000 in the quarter ended September 30, 2002,
and $653,000 for the same period in 2001. For the nine months ended September
30, 2002, research and development expenses were $2.3 million, and $2.0 million
for the same period in 2001. Expenses for the nine months ended September 30, 2002 increased
primarily due to increases in patent and trademark legal expense of $303,000 as
compared to the same period in 2001. In addition, pilot manufacturing expenses
related to the Secca System were $235,000 for the nine months ended September
30,2002. There was no pilot manufacturing of new products in 2001. The Secca
System was commercialized in June of 2002, with the first sales being made in
that month. Increases
in research and development expenses
in the nine months
ended September 30, 2002 were offset by
decreases of $190,000 in Secca development costs as compared to the same period in
2001. Amortization of stock-based compensation accounted for $3,000 in the
quarter ended September 30, 2002, and $70,000 for the same period in 2001. For
the nine months ended September 30, 2002 and 2001, amortization of stock-based
compensation was $49,000 and $129,000, respectively.
During the quarter ended September 30, 2002, research and development personnel
were reduced from ten to seven.  Termination costs paid in the quarter were $83,000.

11

Clinical and regulatory expenses

Clinical
and regulatory expenses were $395,000 in the quarter ended September 30, 2002,
and $411,000 for the same period in 2001. For the nine months ended September
30, 2002, clinical and regulatory expenses were $1.0 million, and $1.4 million
for the same period in 2001. The decrease in spending in 2002 over 2001 was due
to costs involved in the U.S. Secca trial and the Stretta randomized control
trial, which were both ongoing in 2001, and have been completed as of 2002.
Clinical trial costs include payments to hospitals, and the related travel
expense for Curon employees. Clinical efforts on the Secca randomized trial
began in May 2002, and the related spending has been limited to date.
Amortization of stock-based compensation accounted for $13,000 in the quarter
ended September 30, 2002 and $27,000 for the same period in 2001. For the nine
months ended September 30, 2002 and 2001, amortization of stock-based compensation was
$45,000 and $91,000, respectively.
In the quarter ended September 30, 2002, $147,000 was charged to clinical and
regulatory expenses in respect of forgiveness of a loan to Dr. David Utley, M.D.,
Chief Medical Officer.  The balance of the $150,000 principal plus accrued interest
thereon will be forgiven in the fourth quarter of 2002 pursuant to an agreement
made in January 2001.  During the quarter ended September 30, 2002, clinical personnel
were reduced from four to three. Termination costs paid in the quarter were $13,000.

Sales and marketing expenses

Sales
and marketing expenses were $1.7 million in the quarters ended September 30,
2002 and 2001. For the nine months ended
September 30, 2002, sales and marketing expenses were $5.6 million, and $5.2
million for the same period in 2001. Spending for the first nine months of 2002
has increased over the same period in 2001 due to increased personnel costs of
$560,000, partially offset by a recruiting cost decrease of $213,000.
 Amortization of stock-based
compensation was $21,000 in the quarter ended September 30, 2002, and $66,000
for the same period in 2001. For the nine months ended September 30, 2002 and 2001,
amortization of stock-based compensation was $26,000 and $239,000, respectively.
During the quarter ended September 30, 2002, sales and marketing personnel
were reduced from 28 to 26.  Termination costs paid in the quarter were $147,000.

General and administrative expenses

General
and administrative expenses were $1.2 million in the quarter ended September 30,
2002, and $1.1 million for the same period in 2001. For the nine months ended
September 30, 2002, general and administrative expenses were $3.2 million, and
$3.3 million for the same period in 2001. Spending for the quarter ended
September 30, 2002 increased by approximately $547,000 due to
 expenses related to
the resignation of
the former President and CEO, John Morgan, offset by a $113,000 decrease in
amortization of acquired technology, and personnel spending decreases of
$100,000 as compared to the same period in 2001. Amortization of stock-based
compensation accounted for a benefit of $109,000 in the quarter ended September
30, 2002, and an expense of $193,000 for the same period in 2001. For the nine
months ended September 30, 2002 and 2001, amortization of stock-based compensation was
$77,000 and $547,000, respectively.
During the quarter ended September 30, 2002, general and administrative personnel
were reduced from nine to seven.  Termination costs incurred in the quarter were $555,000.

Interest Income, net

During
the quarter ended September 30, 2002, compared to the quarter ended September
30, 2001, net interest income decreased by $345,000. The decrease was due to an
approximate cash and investment decrease of $15.4 million, and a decrease in
investment yields from approximately 4% to 2%. For the nine months ended
September 30, 2002, compared to the same period in 2001, net interest income
decreased by $1.2 million. Interest expense was not material.

LIQUIDITY AND CAPITAL RESOURCES

Since
inception, we have funded our operations and capital investments with the
proceeds from our initial public offering completed in September 2000 totaling
$55.0 million, the partial exercise of the underwriters over-allotment
provision totaling $5.2 million, the private sale of equity securities totaling
$22.0 million, the issuance of convertible notes totaling $11.8 million and bank
equipment line financing totaling $780,000. At September 30, 2002, we had $26.2
million in working capital and our primary source of liquidity was $24.7 million
in cash and cash equivalents and marketable securities. In addition, we had $2.1
million invested in long term securities at that date. We intend to finance our
operations primarily through our cash and cash equivalents, marketable
securities, future financing and future revenues. We believe we have enough cash
to fund operations for
 over twelve months, and that alternative financing is
available, if needed, however, there can be no assurance that such efforts will
succeed or that sufficient funds will be made available.

12

Cash
used in operating activities was $11.1 million in the nine month period ended
September 30, 2002, and $10.5 million for the same period in 2001. Our loss for
the first nine months of 2002 was $12.2 million, compared to a loss of $11.1
million for the same period in 2001. Cash spent on operations has remained
relatively stable between the two years, with interest income being the primary
difference in total loss. Expenses related to the resignation of John Morgan,
the former President and CEO, were partially offset by savings resulting from
the reduction in work force in late July. During the quarter ended September 30,
2002, $419,000 of notes receivable and the related interest receivable were
forgiven. Of this amount, $272,000 related to John Morgans resignation.
The balance of the notes receivable and interest forgiven related to the note
receivable from David Utley, Chief Medical Officer, which was forgiven based on
a prior contractual agreement.

The Company leases office space under noncancelable operating leases expiring in September 2003. Future minimum payments due
under operating leases are as follows:

|Remainder of 2002                             | $ | 139
|--------------------------------------------- | - | ---
|2003                                          |   | 409
|                                              |  
|Total future minimum operating lease payments | $ | 547
|                                              |  

Cash
provided by investing activities amounted to $12.0 million in the nine months
ended September 30, 2002, which consisted primarily of proceeds from net
maturities and sales of marketable securities of $12.3 million, partially offset
by expenditures of $259,000 for property and equipment. As of September 30,
2002, we had no material commitments for capital expenditures. For the nine
months ended September 30, 2001, net cash provided by investing activities was
$6.7 million, which consisted primarily of $7.2 million provided by net
maturities and sales of marketable securities, partially offset by expenditures
of $510,000 for property and equipment. Higher property and equipment investment
in 2001 was related to the headcount increases in the sales department.

Cash
provided by financing activities was $25,000 in the nine months ended September
30, 2002, primarily related to $176,000 from the sale of stock through both the
Employee Stock Purchase Plan and Stock Option Plan and $88,000 of net proceeds
received on related party notes receivable, offset by net payments on notes
payable of $122,000. In addition, in the quarter ended September 30, 2002,
$117,000 was used to purchase treasury stock in a stock repurchase program. For
the nine months ended September 30, 2001, net cash provided by financing
activities was $130,000, primarily related to $251,000 from sale of stock
through the Employee Stock Purchase Plan and Stock Option Plan, offset by net
increases in related party notes receivable of $121,000. Related party notes
receivable are loans to officers of the Company.

We
expect to acquire additional capital equipment on an ongoing basis as we
increase capacity and improve capabilities. We have not planned any significant
capital expenditures during fiscal 2002. We expect that our existing capital
resources and interest income will enable us to maintain current and planned
operations through at least the next twelve months. In the event that we require
additional funding at any point in the future, we will seek to raise such
additional funding from other sources, including the public equity market,
private financings, collaborative arrangements and debt. If additional capital
is raised through the issuance of equity or securities convertible into equity,
our stockholders may experience dilution, and such securities may have rights,
preferences or privileges senior to those of the holders of our common stock.
Additional financing may not be available to us on favorable terms, if at all.
If we are unable to obtain financing, or to obtain it on acceptable terms, we
may be unable to execute our business plan.

In
August 2002, we announced that our Board of Directors had authorized a stock
repurchase program permitting the purchase of up to 1,000,000 shares of our
Common Stock in open market transactions at prices deemed appropriate by
Management, and administered pursuant to Rule 10b-18 of the Securities Exchange
Act of 1934. As of October 31, 2002, we have repurchased 326,000 shares at an
aggregate cost of approximately $234,000.

13

Factors That May Affect Future Results

We may never achieve or maintain significant revenues or profitability.

We
have only a limited operating history upon which you can evaluate our business.
We have incurred losses every year since we began operations. In particular, we
incurred net losses of $15.4 million in 2001, $15.8 million in 2000, $14.1
million in 1999 and $12.2 million for the nine months ended September 30, 2002.
As of September 30, 2002, we had an accumulated deficit of approximately $60.5
million. We have generated limited revenues from the sale of our products, and
it is possible that we will never generate significant revenues from product
sales in the future. Even if we do achieve significant revenues from our product
sales, we expect to incur significant net losses over the next several years and
these losses may increase. It is possible that we will never achieve profitable
operations.

Recent changes in our management and workforce may negatively impact our ability to manage our business.

Since the resignation of our former chief executive officer on July 17, 2002, our
interim chief executive officer and board of directors have been searching for a
new chief executive officer. The search for a new chief executive officer could
divert managements resources away from running the business and could
negatively affect our operating results. Once a new chief executive officer is
identified, the transition to new management could be disruptive to our
business. In addition, we recently announced costs saving actions, which
included a reduction in our workforce and additional operating expense cuts, as
part of our effort to achieve operational savings throughout the organization.
We can provide no assurance that the actions taken to cut costs will result in
the anticipated savings. A reduction in our workforce and reallocation of
employee duties also may make it difficult to motivate and retain existing
employees which would affect our ability to deliver products and negatively
impact our revenues.

If we fail to take adequate action to remedy problems that have adversely affected our operations our future performance may be
harmed.

In the past, we became aware of some issues that negatively impacted our earnings.
For example, we learned that it is time consuming to obtain purchase commitments
for our products because of the number of individuals at hospitals who need to
approve the purchase. As a result, we changed our sales and marketing models to
more effectively address this issue. We also became aware of misinformation in
the marketplace regarding past adverse events associated with our procedure. In
response, we dedicated resources to educating physicians regarding the use of
our products to combat this misinformation. Our efforts to rectify these
situations may not be sufficient. In addition, the cost of our efforts in
addressing these matters diverts resources that could be allocated to increasing
revenues. In the future, we may experience similar problems and if we are unable
to take appropriate action and take it quickly our results of operations and our
financial performance will be harmed.

We may fail to meet the
Nasdaq continued listing standards which would result in a listing on a lesser
known market within Nasdaq or a delisting altogether. Any change in market
listing may adversely affect our ability to raise capital.

Our stock is currently trading at less than $1.00. Under the continued listing
standards for inclusion of our stock on the Nasdaq National Market, our stock
cannot close below $1.00 for 30 consecutive trading days. We can give no
assurance that our stock will trade above $1.00 in the future. If we cannot
maintain Nasdaq maintenance standards we may be transferred from the Nasdaq
National Market to the Nasdaq Small Cap or pink sheets or delisted altogether.
If our stock is removed from the Nasdaq National Market, the liquidity and price
of our stock may be adversely affected. As a result, there may be less demand
for our stock and we may be unable to raise sufficient capital to fund our
operations.

14

The Stretta System is currently our primary marketed product. If physicians do not generally adopt our Stretta System, we will not
achieve future sales growth.

We commercially introduced our Stretta System, which consists of a radiofrequency
generator and a disposable handheld device, in May 2000. We are highly dependent
on Stretta System sales because we anticipate that the Stretta System will
account for substantially all our revenue through at least 2002. To achieve
increasing sales, our product must continue to gain recognition and adoption by
physicians who treat gastrointestinal disorders. The Stretta System represents a
significant departure from conventional GERD treatment methods. We believe that
physicians will not use our Stretta System unless they determine, based on
published peer-reviewed journal articles, long-term clinical data and their
professional experience, that the Stretta System provides an effective and
attractive alternative to conventional means of treatment for GERD. Currently,
there are eight peer-reviewed journal articles, limited peer-reviewed clinical
reports and 12-month clinical follow-up data on our Stretta System. Physicians
are traditionally slow to adopt new products and treatment practices, partly
because of perceived liability risks and uncertainty of third-party
reimbursement. For example, we believe that physician adoption rates were
negatively impacted by adverse events and a voluntary market withdrawal, which
occurred early in the launch of the Stretta System. Future adverse events or
recalls would also impact future acceptance rates. If physicians do not adopt
our Stretta System, we may never achieve significant revenues or profitability.

If the effectiveness and safety of our products are not supported by long-term data, our sales could decline and we could be subject
to liability.

If we do not produce clinical data supported by the independent efforts of
clinicians, our products may never be accepted. We received clearance from the
FDA for the use of the Stretta System to treat GERD based upon the study of 47
patients. Safety and efficacy data presented to the FDA for the Stretta System
was based on six month follow-up studies on 44 of these patients. Although the
twelve-month follow-up data supports the six-month data, we may find that data
from longer-term patient follow-up studies is inconsistent with those indicated
by our relatively short-term data. However, if longer-term patient studies or
clinical experience indicate that treatment with the Stretta System does not
provide patients with sustained benefits or that treatment with our product is
less effective or less safe than our current data suggests, our sales could
decline and we could be subject to significant liability. Further, we may find
that our data is not substantiated in studies involving more patients, in which
case we may never achieve significant revenues or profitability.

We received clearance from the FDA for the use of the Secca System to treat fecal
incontinence, for patients who have failed more conservative treatments such as
diet modification or biofeedback. This clearance was based upon the study of 50
patients. Safety and efficacy data presented to the FDA for the Secca System was
based on six month follow-up studies on these patients. We may find that data
from longer-term patient follow-up studies is inconsistent with those indicated
by our relatively short-term data. However, if longer-term patient studies or
clinical experience indicate that treatment with the Secca System does not
provide patients with sustained benefits or that treatment with our product is
less effective or less safe than our current data suggests, our sales could
decline and we could be subject to significant liability. Further, we may find
that our data is not substantiated in studies involving more patients, in which
case we may never achieve significant revenues or profitability. If patient
studies or clinical experience do not meet our expectations regarding the
benefits of the Secca System, our expected revenues from this product may never
materialize.

Any failure in our physician education efforts could significantly reduce product sales.

It is important to the success of our sales efforts to educate physicians in the
techniques of using our products. We rely on physicians to spend their time and
money to attend pre-sale educational sessions. Positive results using the
Stretta and Secca Systems are highly dependent upon proper physician technique.
If physicians use either system improperly, they may have unsatisfactory patient
outcomes or cause patient injury, which may give rise to negative publicity or
lawsuits against us, any of which could have a material adverse effect on our
sales and profitability.

Because we have only recently shifted our marketing strategy to reposition the Stretta product as an alternative
to anti-reflux surgery, targeting surgeons as opposed to
gastroenterologists, we cannot predict the effect this shift will have on our future sales.

Because we are a young company, we are determining how best to market our Stretta system.
We initially focused our marketing efforts toward gastroenterologists, but have recently shifted
toward selling to general surgeons.  There can be no assurance that this will result in increased sales.

15

If health care providers
are not adequately reimbursed for the procedures that use our products, or for
the products themselves, we may never achieve significant revenues.

Although the Center for Medicare and Medicaid Services (CMS) granted a new specific
APC providing higher reimbursement levels for the Stretta Procedure for
Medicare purposes on October 1, 2001, there is no assurance that private,
third-party payers will conform to this. Physicians, hospitals and other health
care providers are unlikely to purchase our products if they are not adequately
reimbursed for the Stretta procedure or the products. To date, only a limited
number of private third-party payers have agreed to reimburse for the cost of
the Stretta procedure or products. Until a sufficient amount of positive
peer-reviewed clinical data has been published, insurance companies and other
payers may refuse to provide reimbursement for the cost of the Stretta procedure
or may reimburse at levels that are not acceptable to providers. Some payers may
refuse adequate reimbursement even upon publication of peer-reviewed data. If
users of our products cannot obtain sufficient reimbursement from health care
payers for the Stretta procedure or the Stretta System disposables, then it is
unlikely that our product will ever achieve significant market acceptance. The
Secca procedure has not yet received any coding decision and no tests have yet
been made of the willingness of third party health care payers to reimburse the
costs of the procedure. We cannot assure you that the procedure will ever be
reimbursed. Failure to achieve reimbursement will have a serious negative effect
on our revenues.

Reimbursement from
third-party health care payers is uncertain due to factors beyond our control
and changes in third-party health care payers policies could adversely
affect our sales growth.

Even if third-party payers provide adequate reimbursement for the Stretta procedure,
adverse changes in third-party payers policies toward reimbursement could
preclude market acceptance for our products and have a material adverse effect
on our sales and revenue growth. We are unable to predict what changes will be
made in the reimbursement methods used by third-party health care payers.

For example, some health care payers are moving toward a managed care system in
which providers contract to provide comprehensive health care for a fixed cost
per person. We cannot assure you that in a prospective payment system, which is
used in many managed care systems, the cost of our products will be incorporated
into the overall payment for the procedure or that there will be adequate
reimbursement for our products separate from reimbursement for the procedure.

Internationally, market acceptance of our products will be dependent upon the availability of
adequate reimbursement within prevailing health care payment systems.
Reimbursement and health care payment systems in international markets vary
significantly by country and include both government-sponsored health care and
private insurance. Although we are seeking international reimbursement
approvals, we cannot assure you that any such approvals will be obtained in a
timely manner or at all. If foreign third-party payers do not adequately
reimburse providers for the Stretta procedure and the products used with it,
then our sales and revenue growth may be limited.

We face competition from
more established GERD treatments and from competitors with greater resources,
which will make it difficult for us to achieve significant market penetration.

Companies that have well-established products, reputations and resources
dominate the market for the treatment of GERD. When our primary marketing strategy was
directed at gastroenterologists, we competed directly with large pharmaceutical
manufacturers of anti-reflux drugs.  Because we have shifted our marketing focus to
general surgeons, our primary competitors are now large medical
device manufacturers such as Ethicon Endosurgical and United States Surgical,
manufacturers of instrumentation for anti-reflux surgery, and C.R. Bard, which
manufactures an endoscopic sewing device for GERD. Other large, established
companies have experimental products that may, in the future, provide
competition for the Stretta procedure. These include Boston Scientific and
Medtronic, Inc. who have experimental injectable products being studied for the treatment of
GERD. Other, yet undisclosed, competitive devices may be developed.

16

These larger companies enjoy several competitive advantages over us, which may include:

- existing anti-reflux surgical procedures and devices for the treatment of GERD;
- established reputations within the surgical and gastroenterological community;
- established distribution networks that permit these companies to introduce new products
and have such products accepted by the physician community promptly;
- established relationships with health care providers and
payers that can be used to facilitate reimbursement for new treatments; and
- greater resources for product development and sales and marketing.

We do not feel that we
compete directly with large pharmaceutical companies, such as AstraZeneca,
Takeda Abbott Pharmaceutical, Wyeth Laboratories and Eisai, because candidate
patients for Stretta have, by definition, failed, or only partially responded to,
drug therapy. However, these companies have an established relationship with the
gastroenterology community and over $6 billion in annual U.S. revenues from the
proton pump inhibitor drug class. We could be adversely affected if one or more
pharmaceutical companies elects to market aggressively against our product, or
if a new, more effective pharmaceutical product is developed. For example,
AstraZeneca has developed a new proton pump inhibitor, Nexium, for the
treatment of GERD, which doctors may prescribe in lieu of recommending the
Stretta Procedure. Further, less expensive, generic drugs will be introduced to
treat GERD as AstraZenecas patent for Prilosec, the leading prescription
medication for the treatment of GERD, expired in 2001, although pending lawsuits
may delay the significant availability of competition until early in 2003. If we
cannot compete effectively in this highly competitive market, we may not be able
to achieve our expected revenue growth.

We have limited sales
and marketing experience, and failure to continue to build and manage our sales
force or to market and distribute our products effectively will hurt our
revenues and profits.

We have limited sales and marketing experience. As of September 30, 2002, we relied
on 12 direct sales employees to sell our Stretta System in the United States. We
must manage this sales team over the next 24 months to achieve our market share
and revenue growth goals. Since we have only recently launched the Secca System,
our sales force has little experience marketing the product, and we cannot
predict how successful they will be in selling the product. There are
significant risks involved in building and managing our sales force and
marketing our products, including our:

- Inability to hire a sufficient number of qualified sales people
with the skills and understanding to sell the Stretta and Secca Systems
effectively;
- Failure to adequately train our sales force in the use and benefits of our products, making them less effective
promoters; and
- Failure to accurately price our products as attractive
alternatives to conventional treatments.

Internationally, we rely
on third-party distributors to sell our products, and we cannot assure you that
these distributors will commit the necessary resources to effectively market and
sell our products or that they will be successful in selling our products.

Internationally,
we rely on a network of distributors to sell our products. We depend on these
distributors in such markets and we will need to attract additional distributors
to grow our business and expand the territories into which we sell our products.
Distributors may not commit the necessary resources to market and sell our
products to the level of our expectations. If current or future distributors do
not perform adequately, we may not realize expected international revenue
growth.

We have limited experience manufacturing our products in commercial quantities, which could adversely impact the rate at which we
grow.

Because
we have only limited experience in manufacturing our products in commercial
quantities, we may encounter unforeseen situations that would result in delays
or shortfalls. For example, in December 2000, we voluntarily withdrew certain of
our catheters from the market because of manufacturing issues. We may encounter
difficulties and delays in manufacturing our products for the following
additional reasons:

17

- We have limited experience manufacturing our products in
compliance with the FDAs Quality System Regulation;
- To increase our manufacturing output significantly, we will have to attract and
retain qualified employees, who are in short supply, for the assembly and testing operations; and
- Some of the components and materials necessary for manufacturing
our products are currently provided by a single and/or sole supplier.

Although
we believe that our current manufacturing facility will be adequate to support
our commercial manufacturing activities for the foreseeable future, we may be
required to expand our manufacturing facilities to begin large-scale
manufacturing. If we are unable to provide customers with high-quality products
in a timely manner, we may not be able to achieve market acceptance for our
Stretta or Secca Systems. Our inability to successfully manufacture or
commercialize our devices could have a material adverse effect on our product
sales.

If we lose our
relationship with any individual suppliers of product components, we will face
regulatory requirements with regard to replacement suppliers that could delay
the manufacture of our products.

Third-party
suppliers provide materials and components used in our products. If these
suppliers become unwilling or unable to supply us with our requirements,
replacement or alternative sources might not be readily obtainable due to
regulatory requirements applicable to our manufacturing operations. Obtaining
components from a new supplier may require a new or supplemental filing with
applicable regulatory authorities and clearance or approval of the filing before
we could resume product sales. This process may take a substantial period of
time, and we cannot assure you that we would be able to obtain the necessary
regulatory clearance or approval. This could create supply disruptions that
would reduce our product sales and revenue.

If we or our suppliers fail to comply with the FDA quality system regulation, manufacturing operations could be delayed and our
business could be harmed.

Our
manufacturing processes are required to comply with the quality system
regulation, or QSR, which covers the methods and documentation of the design,
testing, production, control, quality assurance, labeling, packaging and
shipping of our products. The FDA enforces the QSR through inspections. In May
2001, we received the report on our first QSR inspection, which was completed in
March 2001. There were no significant findings. If we fail any future QSR
inspections, our operations could be disrupted and our manufacturing delayed.
Failure to take corrective action in response to a QSR inspection could force a
shut-down of our manufacturing operations and a recall of our products, which
would have a material adverse effect on our product sales, revenues, and
expected revenues and profitability. Furthermore, we cannot assure you that our
key component suppliers are, or will continue to be, in compliance with
applicable regulatory requirements, will not encounter any manufacturing
difficulties, or will be able to maintain compliance with regulatory
requirements. Any such event could have a material adverse effect on our
available inventory and product sales.

Our failure to obtain or maintain necessary FDA clearances or approvals could hurt our ability to commercially distribute and market
our products in the United States.

Our
products are considered medical devices and are subject to extensive regulation
in the United States and in foreign countries where we intend to do business.
Unless an exemption applies, each medical device that we wish to market in the
United States must first receive either 510(k) clearance or premarket approval
from the FDA. Either process can be lengthy and expensive. The FDAs 510(k)
clearance process usually takes from four to twelve months, but may take longer.
The premarket application (PMA) approval process is much more
costly, lengthy and uncertain. It generally takes from one to three years or
even longer. Delays in obtaining regulatory clearance or approval will adversely
affect our revenues and profitability.

Although
we have obtained 510(k) clearance for both the Stretta System, for use in
treating GERD, and the Secca System, for treatment of fecal incontinence in
patients who have failed more conservative therapies such as diet modification
and biofeedback, our clearance can be revoked if postmarketing data demonstrates
safety issues or lack of effectiveness. Moreover, we will need to obtain 510(k)
clearance or PMA approval to market any other new products. We cannot assure you
that the FDA will not impose the more burdensome PMA approval process upon this
technology in the future. More generally, we cannot assure you that the FDA will
ever grant 510(k) clearance or premarket approval for any product we propose to
market. If the FDA withdraws or refuses to grant approvals, we will be unable to
market such products in the United States.

18

If we market our products for uses that the FDA has not approved, we could be subject to FDA enforcement action.

Our
Stretta and Secca Systems are cleared by the FDA; the Stretta System for the
treatment of GERD and the Secca System for the treatment of fecal incontinence
in patients who have failed more conservative therapies such as diet
modification and biofeedback. FDA regulations prohibit us from promoting or
advertising either system, or any future cleared or approved devices, for uses
not within the scope of our clearances or approvals, and prohibit us from making
unsupported safety and effectiveness claims. These determinations can be
subjective, and the FDA may disagree with our promotional claims. If the FDA
requires us to revise our promotional claims or takes enforcement action against
us based upon our labeling and promotional materials, our sales could be
delayed, our profitability could be harmed and we could be required to pay
significant fines or penalties.

Modifications to our
marketed devices may require new 510(k) clearances or PMA approvals or require
us to cease marketing or recall the modified devices until such clearances are
obtained.

Any
modification to an FDA 510(k)-cleared device that could significantly affect its
safety or effectiveness, or that would constitute a major change in its intended
use, requires a new FDA 510(k) clearance or, possibly, PMA approval. The FDA
requires every manufacturer to make this determination in the first instance,
but the FDA can review any such decision. We have modified aspects of our
Stretta System, but we believe that new 510(k) clearances are not required. We
may modify future products after they have received clearance or approval, and,
in appropriate circumstances, we may determine that new clearance or approval is
unnecessary. We cannot assure you that the FDA would agree with any of our
decisions not to seek new clearance or approval. If the FDA requires us to seek
510(k) clearance or PMA approval for any modification to a previously cleared
product, we also may be required to cease marketing or recall the modified
device until we obtain such clearance or approval. Also, in such circumstances,
we may be subject to significant regulatory fines or penalties.

Complying with FDA and other regulations is an expensive and time-consuming process, and any failure to comply could result in
substantial penalties.

Our
products are medical devices that are subject to extensive regulation. FDA
regulations are wide-ranging and govern, among other things:

- product design, development, manufacture and testing;
- product labeling;
- product storage;
- premarket clearance or approval;
- advertising and promotion; and
product sales and distribution.

Noncompliance
with applicable regulatory requirements can result in enforcement action which
may include recalling products, ceasing product marketing, paying significant
fines and penalties, and similar FDA actions which could limit product sales,
delay product shipment, and adversely affect our profitability.

19

We face risks related to our international operations, including the need to obtain necessary foreign regulatory approvals.

In the quarter ended September 30, 2002, we entered into distribution
agreements in France and Spain, and to date have international distribution
agreements in 15 countries. We are training these distributors and only began
selling our products in international markets in April 2001. To successfully
market our products internationally, we must address many issues with which we
have little or no experience. We have obtained regulatory clearance to market
the Stretta System in the European Union, Australia and Canada and to market the
Secca System in the European Union, but we have not obtained any other
international regulatory approvals for other markets or products. We cannot
assure you that we will be able to obtain or maintain such approvals.
Furthermore, although contracts already signed with European distributors
specify payment in U.S. dollars, future international sales may be made in
currencies other than the U.S. dollar. As a result, currency fluctuations may
impact the demand for our products in countries where the U.S. dollar has
increased compared to the local currency. Engaging in international business
involves the following additional risks:

- export restrictions, tariff and trade regulations, and foreign tax laws;
- customs duties, export quotas or other trade restrictions;
- economic or political instability;
- shipping delays;
- and longer payment cycles

In
addition, contracts may be difficult to enforce and receivables difficult to
collect through a foreign countrys legal system, and the protection of
intellectual property in foreign countries may be more difficult to enforce.
Once we begin selling our products internationally, any of these factors could
cause our international sales to decline, which would impact our expected sales
and growth rates.

Product liability suits against us could result in expensive and time-consuming litigation, payment of substantial damages and an
increase in our insurance rates.

The
development, manufacture and sale of medical products involves a significant
risk of product liability claims. The use of any of our products may expose us
to liability claims, which could divert managements attention from our
core business, be expensive to defend, and result in substantial damage awards
against us. For example, we are currently a party to three product liability
lawsuits where there are allegations that our products are defectively designed
and that we were negligent in manufacturing our products. We maintain product
liability insurance at coverage levels which we believe to be commercially
acceptable; however there can be no assurance that product liability or other
claims will not exceed such insurance coverage limits or that such insurance
will continue to be available on the same or substantially similar terms, or at
all. We re-evaluate annually whether we need to obtain additional product
liability insurance. Even if we obtain additional product liability insurance
there can be no assurance that it would not have a material adverse effect on
our business, financial condition, and results of operations. Any product
liability claims brought against us, with or without merit, could increase our
product liability insurance rates or prevent us from securing any coverage in
the future. Even in the absence of a claim, our insurance rates may rise in the
future to a point where we decide not to carry any insurance.

20

We have limited
protection for our intellectual property. If our intellectual property does not
sufficiently protect our products, third parties will be able to compete against
us more directly and more effectively.

As
of September 30, 2002, we had 43 issued or allowed U.S. patents and 37 pending
U.S. patent applications; this includes 20 issued U.S. patents and 15 pending
U.S. patent applications licensed in from third-parties. We rely on patent,
copyright, trade secret and trademark laws to protect our products, including
our Stretta Catheter, our Secca Handpiece and our Curon Control Module, from
being duplicated by competitors. However, these laws afford only limited
protection. Our patent applications and the notices of allowance we have
received may not issue as patents or, if issued, may not issue in a form that
will be advantageous to us. Patents we have obtained and may obtain in the
future may be challenged, invalidated or legally circumvented by third parties.
We may not be able to prevent the unauthorized disclosure or use of our
technical knowledge or other trade secrets by consultants, vendors, former
employees or current employees, despite the existence of nondisclosure and
confidentiality agreements and other contractual restrictions. Furthermore, the
laws of foreign countries may not protect our intellectual property rights to
the same extent as the laws of the United States. If our intellectual property
rights do not adequately protect our commercial products, our competitors could
develop new products or enhance existing products to compete more directly and
effectively with us and harm our product sales and market position.

Because,
in the United States, patent applications are secret unless and until issued as
patents, or corresponding applications are published in other countries, and
because publication of discoveries in the scientific or patent literature often
lags behind actual discoveries, we cannot be certain that we were the first to
file patent applications for such inventions. Litigation or regulatory
proceedings, which could result in substantial cost and uncertainty, may also be
necessary to enforce patent or other intellectual property rights or to
determine the scope and validity of other parties proprietary rights.
There can be no assurance that we will have the financial resources to defend
our patents from infringement or claims of invalidity.

Because of our reliance
on unique technology to develop and manufacture innovative products, we depend
on our ability to operate without infringing or misappropriating the proprietary
rights of others.

There
is a substantial amount of litigation over patent and other intellectual
property rights in the medical device industry. Because we rely on unique
technology to develop and manufacture innovative products, we are especially
sensitive to the risk of infringing intellectual property rights. While we
attempt to ensure that our products do not infringe other parties patents
and proprietary rights, our competitors may assert that our products and the
methods they employ may be covered by patents held by them or invented by them
before they were invented by us. Although we may seek to obtain a license or
other agreement under a third partys intellectual property rights to bring
an end to certain claims or actions asserted against us, we may not be able to
obtain such an agreement on reasonable terms or at all. If we were not
successful in obtaining a license or redesigning our products, our product sales
and profitability could suffer, and we could be subject to litigation and
potentially substantial damage awards.

Also,
one or more of our products may now be infringing inadvertently on existing
patents. As the number of competitors in our markets grows, the possibility of a
patent infringement claim against us increases. Whether a product infringes a
patent involves complex legal and factual issues, the determination of which is
often uncertain. Infringement and other intellectual property claims, with or
without merit, can be expensive and time-consuming to litigate and divert
managements attention from our core business. If we lose in this kind of
litigation, a court could require us to pay substantial damages or grant
royalties, and prohibit us from using technologies essential to our products.
This kind of litigation is expensive to all parties and consumes large amounts
of managements time and attention. In addition, because patent
applications can take many years to issue, there may be applications now pending
of which we are unaware and which may later result in issued patents that our
products may infringe.

If we lose our rights to
intellectual property that we have licensed we may be forced to develop new
technology and we may not be able to develop that technology or may experience
delays in manufacturing as a result.

Our
license with Gyrus Group PLC, a public company incorporated and existing under
the laws of England and Wales, allows us to manufacture and sell our products
using their radiofrequency generator technology. In addition, the University of
Kansas license allows us to apply radiofrequency energy to tissue. To the extent
these license interests become jeopardized through termination or material
breach of the license agreements, our operations may be harmed. We may have to
develop new technology or license other technology. We cannot provide any
assurance that we will be able to develop such technology or that other
technology will be available for license. Even if such technology is available,
we may experience delays in our manufacturing as we transition to a different
technology.

21

If we are unable to attract and retain qualified personnel, we will be unable to expand our business.

We
believe our future success will depend upon our ability to successfully manage
our growth, including attracting and retaining engineers and other highly
skilled personnel. Our employees are at-will employees and are not subject to
employment contracts. The loss of services of one or more key employees could
materially adversely affect our growth. In addition, hiring qualified management
and technical personnel will be difficult due to the intense competition for
qualified professionals within the medical device industry. In the past, we have
experienced difficulty in recruiting qualified personnel. Failure to attract and
retain personnel, particularly management and technical personnel, would
materially harm our ability to grow our business rapidly and effectively.

Our directors, executive officers and principal stockholders have significant voting power and may take actions that may not be in
the best interests of our other stockholders.

Our
officers, directors and principal stockholders holding more than 5% of our
common stock together control over 50% of our outstanding common stock. As a
result, these stockholders, if they act together, will be able to control the
management and affairs of our company and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control and might adversely affect the market
price of our common stock. This concentration of ownership may not be in the
best interest of our other stockholders.

Our stockholder rights plan, certificate of incorporation, bylaws and Delaware law contain provisions that could discourage a
takeover.

In
November 2001, we adopted a stockholder rights plan. The purpose of the plan is
to assure fair value in the event of a future unsolicited business combination
or similar transaction involving Curon. If an individual or entity accumulates
15% of our stock, or 20% in the case of certain existing stockholders, the
rights become exercisable for additional shares of our common stock or, if
followed by a merger or other business combination where Curon does not survive,
additional shares of the acquirors common stock. The intent of these
rights is to force a potential acquiror to negotiate with the Board to increase
the consideration paid for our stock. The existence of this plan, however, may
deter a potential acquiror, which could negatively impact shareholder value.

In
addition, our basic corporate documents and Delaware law contain provisions that
might enable our management to resist a takeover. Any of the above provisions
might discourage, delay or prevent a change in the control of our company or a
change in our management. The existence of these provisions could adversely
affect the voting power of holders of common stock and limit the price that
investors might be willing to pay in the future for shares of our common stock.

We expect that the price of our common stock will fluctuate substantially.

The market price for the common stock may be affected by a number of factors, including:

- the announcement of new products or product enhancements by us or our competitors;
- quarterly variations in our or our competitors' results of operations;
- changes in earnings estimates or recommendations by securities analysts, or our failure to achieve analyst earnings
estimates;
- developments in our industry; and
- general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of our
competitors.

22

In
addition, the stock prices of many companies in the medical device industry have
experienced wide fluctuations that have often been unrelated to the operating
performance of such companies. Such factors and fluctuations may materially and
adversely affect the market price of our common stock, which, in turn, may
negatively affect our ability to raise capital and to acquire technologies in
the future.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If
our stockholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. Such sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem reasonable or appropriate.

Item 3.  Quantitative and Qualitative Disclosures of Market Risk

We
invest our excess cash primarily in U.S. government securities and marketable
debt securities of financial institutions and corporations with strong credit
ratings. These instruments have maturities of eighteen months or less when
acquired, with an average maturity date of less than three months. We do not
utilize derivative financial instruments, derivative commodity instruments or
other market risk sensitive instruments, positions or transactions in any
material fashion. Accordingly, we believe that while the instruments we hold are
subject to changes in the financial standing of the issuer of such securities,
we are not subject to any material risks arising from changes in interest rates,
foreign currency exchange rates, commodity prices, equity prices or other market
changes that affect market risk sensitive instruments.

Item 4.  Controls and Procedures

With the participation of management, our President and
Chief Executive Officer and our Vice President of Finance and
Chief Financial Officer evaluated our disclosure controls and
procedures within 90 days of the filing date of this quarterly report. Based upon
this evaluation, our President and Chief Executive Officer and
our Vice President of Finance and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in ensuring
that material information required to be disclosed is included in our reports
that we file with the Securities and Exchange Commission.

There were no significant changes our internal controls or, to
the knowledge of our management, in other factors that
could significantly affect these controls subsequent to the evaluation date.

## PART II    OTHER INFORMATION

Item 1.   Legal Proceedings

In
June 2001, Hershel E. Fancher et al (Fancher) filed a civil action
against us in the United States District Court, Western District of Kentucky,
Louisville Division, alleging that he sustained a nerve injury and damage to his
gastrointestinal tract during a Stretta procedure caused by the defective design
and manufacture of our product. Fanchers allegations against us include
strict liability for a product that was in a defective and unreasonably
dangerous condition, negligence in the design and manufacturing of the product,
breach of implied warranty of merchantability, and loss of consortium. Fancher
was a subject in a randomized clinical trial and
 had been provided with an approved Informed Consent form and counselling by
the physician.  Prior to treatment, Fancher provided consent to proceed.
Fancher is seeking a trial by jury
and unspecified damages.
The trial date is currently set in September 2003.
We believe Fanchers claim is without merit.

In
September 2001, Diana Conklin (Conklin) filed a civil action against
a number of defendants, including Curon, in the Superior Court of the State of
California in and for the City and County of Santa Clara, alleging that she
sustained injury when undergoing a procedure utilizing the Stretta System, caused by
defects in design and manufacture. Conklin also alleges negligence in the
design, manufacture, advertising and sale of the Stretta System and that its
warnings, instructions and directions for use were inadequate. Additional
defendants include the treating physicians and the associated medical
institutions, who, it is alleged, were medically negligent in treatment of
Conklin. Conklin is seeking unspecified damages.
Defendants are currently being deposed; no trial date has been set.
We believe Conklins claim
against us is without merit.

23

In
June 2002, Eileen Guckin et al (Guckin) filed a civil action against
a number of defendants, including Curon, in the Court of Common Pleas,
Philadelphia County, in the State of Pennsylvania, alleging that she sustained
injury during a Secca procedure caused by the device being defective and/or in
an unreasonably dangerous condition. Guckin was a subject in a clinical trial
and
 had been provided with an approved Informed Consent form and counselling by
the physician.  Prior to treatment, Guckin provided consent to proceed.
Additional defendants include the treating physician, the associated medical
institution who, it is alleged, were medically negligent in treatment of Guckin,
and the members of the Institutional Review Board who approved the protocol for
the clinical trial. Guckin has demanded a trial by jury and unspecified damages.
The case has since been moved to the United States District Court for the Eastern District of Pennsylvania.
We believe Guckins claim against us is without merit.

Item 2.   Changes in Securities and Use of Proceeds

On
September 26, 2000, we completed the sale of 5,000,000 shares of our common
stock at a per share price of $11.00 in a firm commitment underwritten public
offering. The offering was effected pursuant to a Registration Statement on Form
S-1 (Registration No. 333-37866), which the United States Securities and
Exchange Commission declared effective on September 21, 2000. On October 24,
2000, we completed the sale of an additional 475,000 shares of our common stock
at a per share price of $11.00 pursuant to the exercise of the over-allotment
option by the underwriters. Of the approximately $54.8 million in net offering
proceeds, through September 30, 2002, we have used approximately $12.0 million
for the repayment of debt and accrued interest, $7.0 million for research and
development, $8.0 million for the manufacture of products, $3.0 million for
clinical expense and reimbursement efforts, $12.8 million for sales and
marketing initiatives to support the commercialization of the Stretta System and
$8.4 million for general corporate purposes. All amounts represent estimates of
direct or indirect payments of amounts to third parties.

We
made a loan of $259,000 to John W. Morgan, our former President and Chief
Executive Officer. As a result of Mr. Morgans severance agreement, the
loan and accrued interest were forgiven, in the total amount of $272,000. In
January 2001, we made a $150,000 loan to David S. Utley, M.D., our Chief
Medical Officer. Amounts due under the loan are forgiven over time based upon
Dr. Utleys continued employment, and forgiven in full on January 4, 2003
or upon an earlier change in control. To date, $131,000 of principle and $16,000
of interest have been forgiven and expensed related to Utleys note. Other
than these loans, no amounts were paid directly or indirectly for the above
purposes to directors or officers of the Company, to persons owning ten percent
or more of any class of equity securities of the Company, or to affiliates of
the Company, other than amounts related to the repayment of debt and accrued
interest, which amounts matured less than one year from the date of issuance.
The use of proceeds described above do not represent a material change in the
use of proceeds describe in the Offering prospectus.

Item 5.   Other Information

On
July 17, 2002, John W. Morgan announced his resignation as our
Chief Executive Officer, President and Board member. Michael Berman, Chairman of
the Board, has assumed the position of interim Chief Executive Officer while we
conduct a search for a new President and Chief Executive Officer. Under
the terms of the severance agreement, Mr. Morgan received a $275,000 lump sum
payment and six months accelerated vesting of his stock options, and his
loan and accrued interest, in the amount of $272,000, were forgiven.

In
accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002 (the Act), we
are required to disclose the non-audit services approved by our Audit Committee
to be performed by PricewaterhouseCoopers LLP, our external auditor. Non-audit
services are defined in the Act as services other than those provided in
connection with an audit or a review of the financial statements of a company.
The Audit committee has approved the engagement of PricewaterhouseCoopers LLP
for the following non-audit services: the preparation of federal and state tax
returns.

Item 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits. None.

(b)  There were no reports on Form 8-K during the quarter ended September 30, 2002.

24

# CURON MEDICAL, INC.

# SIGNATURES

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

|                        | CURON MEDICAL, INC.
|----------------------- | -------------------
|                        | (Registrant)       
|Date: November 12, 2002 | By:                
|                        |                    
|                        |                    
|                        | By:                
|                        |                    

25

# CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Berman, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Curon Medical, Inc.,                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|5. | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|Date: November 12, 2002 | By: | /s/  MICHAEL BERMAN                                                         
|----------------------- | --- | ----------------------------------------------------------------------------
|                        |     | Michael Berman
Interim Chief Executive Officer
(Principal Executive Officer)

26

# CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alistair F. McLaren, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Curon Medical, Inc.,                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|5. | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                          
|6. | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|Date: November 12, 2002 | By: | /s/  ALISTAIR F. MCLAREN                                                                                                         
|----------------------- | --- | ---------------------------------------------------------------------------------------------------------------------------------
|                        |     | Alistair F. McLaren
Vice President of Finance
Chief Financial Officer and Chief
Information Officer
(Principal Financial Officer)

27

# CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Berman, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that the Quarterly Report of Curon Medical, Inc. on
Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Quarterly Report on Form 10-Q fairly
presents in all material respects the financial condition and results of
operations of Curon Medical, Inc.

| | By: | /s/  MICHAEL BERMAN                                                         
| | --- | ----------------------------------------------------------------------------
| |     | Michael Berman
Interim Chief Executive Officer
(Principal Executive Officer)

I, Alistair F. McLaren,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Curon Medical,
Inc. on Form 10-Q for the fiscal quarter ended September 30, 2002 fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that information contained in such Quarterly Report on Form 10-Q
fairly presents in all material respects the financial condition and results of
operations of Curon Medical, Inc.

| | By: | /s/  ALISTAIR F. MCLAREN                                                                                                         
| | --- | ---------------------------------------------------------------------------------------------------------------------------------
| |     | Alistair F. McLaren
Vice President of Finance
Chief Financial Officer and Chief
Information Officer
(Principal Financial Officer)

28