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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)



|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------
|    |  | For the quarter ended June 30, 2002                                                    

OR



|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|----- |  | ----------------------------------------------------------------------------------------
|      |  | For the transition period from _______________ to _______________                       

Commission file number: 000-24103

COHESION TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3274368                          
|(State or Other
Jurisdiction of
Incorporation or
Organization) |  | (I.R.S. Employer
Identification No.)

2500 Faber Place, Palo Alto, CA 94303
(Address of Principal Executive Offices, including Zip Code)

Registrants telephone number, including area code: (650) 320-5500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.001 par value

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

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

As of July 31, 2002, the Registrant had 9,479,436 shares of common stock
outstanding, exclusive of 515,100 shares held by the Registrant as treasury
stock.





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TABLE OF CONTENTS



|                              |                                                                                               |                                         |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED FINANCIAL STATEMENTS
|                              | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.1                 



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COHESION TECHNOLOGIES, INC.

FORM 10-Q

INDEX

|           |                                                                                               |                                                                                               |      |         
|---------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---- | --------
|           |                                                                                               |                                                                                               |      | Page No.
|           |                                                                                               |                                                                                               |      |         
|PART I.    |                                                                                               | Financial Information                                                                         |      |         
|          
|Item 1.    | Financial Statements (unaudited):                                                             |                                                                                               |     
|          
|           |                                                                                               | Condensed Balance Sheets 
        June 30, 2002 and December 31, 2001                        |      | 3       
|          
|           |                                                                                               | Condensed Statements of Operations 
       Three and six months ended June 30, 2002 and 2001 |      | 4       
|          
|           |                                                                                               | Condensed Statements of Cash Flows 
       Six months ended June 30, 2002 and 2001           |      | 5       
|          
|           |                                                                                               | Notes to Condensed Financial
        Statements                                               |      | 6-8     
|          
|Item 2.    | Managements Discussion
        and Analysis of Financial Condition and Results of Operations |                                                                                               | 9-15
|          
|Item 3.    | Quantitative and Qualitative Disclosures
        about Market Risk                            |                                                                                               | 15  
|          
|PART II.   |                                                                                               | Other Information                                                                             |      |         
|          
|Item 1.    | Legal Proceedings                                                                             |                                                                                               | 16  
|          
|Item 6.    | Exhibits and Reports on Form 8-K                                                              |                                                                                               | 16  
|          
|Signatures |                                                                                               | 17                                                                                           

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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

COHESION TECHNOLOGIES, INC.




CONDENSED BALANCE SHEETS
(In thousands)

|                                     |                                             |                            |        |             |        |              |        |        |        | 
|------------------------------------ | ------------------------------------------- | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | ------ | ------ | 
|                                     |                                             |                            |        | June 30,    |        | December 31,
|                                     |                                             |                            |        | 2002        |        | 2001*       
|                                     |                                             |                            |        |             |        |             
|                                     |                                             |                            |        | (unaudited)
|ASSETS                               |                                             |                            |        |             |        |              |        |       
|Current assets:                      |                                             |                            |        |             |        |              |        |       
|                                     | Cash and cash equivalents                   |                            | $      | 9,174       |        |              | $      | 16,765 |       
|                                     | Accounts receivable, net                    |                            |        | 775         |        |              |        | 640    |       
|                                     | Inventories                                 |                            |        | 1,364       |        |              |        | 2,465  |       
|                                     | Other current assets                        |                            |        | 1,535       |        |              |        | 2,061  |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total current assets       |        |             | 12,848 |              |        |        | 21,931 | 
|Property and equipment, net          |                                             |                            | 3,514  |             |        |              | 4,304  |       
|Investment in equity securities      |                                             |                            | 748    |             |        |              | 739    |       
|Other assets                         |                                             |                            | 1,399  |             |        |              | 1,866  |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | $                          | 18,509 |             |        | $            | 28,840 |       
|                                     |                                             |                            |        |             |        |              |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY |                                             |                            |        |             |        |              |        |       
|Current liabilities:                 |                                             |                            |        |             |        |              |        |       
|                                     | Accounts payable                            |                            | $      | 452         |        |              | $      | 611    |       
|                                     | Accrued compensation                        |                            |        | 751         |        |              |        | 980    |       
|                                     | Accrued liabilities                         |                            |        | 2,166       |        |              |        | 2,214  |       
|                                     | Deferred revenue                            |                            |        | 380         |        |              |        | 380    |       
|                                     | Income taxes payable                        |                            |        | 650         |        |              |        | 650    |       
|                                     | Current portion of capital lease obligation |                            |        | 919         |        |              |        | 899    |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total current liabilities  |        |             | 5,318  |              |        |        | 5,734  | 
|                                    
|Long-term liabilities:               |                                             |                            |        |             |        |              |        |       
|                                     | Obligation under capital lease              |                            |        | 838         |        |              |        | 1,299  |       
|                                     | Deferred revenue                            |                            |        | 700         |        |              |        | 889    |       
|                                    
|Stockholders equity:                |                                             |                            |        |             |        |              |        |       
|                                     | Preferred stock                             |                            |        |            |        |              |        |       |       
|                                     | Common stock                                |                            |        | 10          |        |              |        | 10     |       
|                                     | Additional paid-in capital                  |                            |        | 21,816      |        |              |        | 21,737 |       
|                                     | Retained earnings (accumulated deficit)     |                            |        | (8,947      | )      |              |        | 406    |       
|                                     | Accumulated other comprehensive income      |                            |        | 748         |        |              |        | 739    |       
|                                     | Treasury stock, at cost                     |                            |        | (1,974      | )      |              |        | (1,974 | )     
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total stockholders equity |        |             | 11,653 |              |        |        | 20,918 | 
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | $                          | 18,509 |             |        | $            | 28,840 |       
|                                     |                                             |                            |        |             |        |              |        |       

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



|* |  | Amounts derived from audited financial statements at the date indicated.
|- |  | ------------------------------------------------------------------------

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COHESION TECHNOLOGIES, INC.




CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |       |        | 
|------------------------------------------------------- | ----------------------------------- | ------------------------ | ------ | ------------------ | ----- | ---------------- | ------ | ----- | ----- | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                        |                                     |                          |        | Three Months Ended |       | Six Months Ended
|                                                        |                                     |                          |        | June 30,           |       | June 30,        
|                                                        |                                     |                          |        |                    |       |                 
|                                                        |                                     |                          |        | 2002               |       | 2001             |        | 2002  |       | 2001
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |     
|Revenues:                                               |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                        | Product sales                       |                          | $      | 1,396              |       |                  | $      | 789   |       |      | $      | 2,427 |        |   | $      | 1,511 |       
|                                                        | Other revenue                       |                          |        | 95                 |       |                  |        | 112   |       |      |        | 190   |        |   |        | 199   |       
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                        |                                     |                          | 1,491  |                    |       |                  | 901    |       |       |      | 2,617  |       |        |   | 1,710  |      
|Costs and expenses:                                     |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                        | Cost of sales                       |                          |        | 1,612              |       |                  |        | 1,589 |       |      |        | 3,361 |        |   |        | 3,438 |       
|                                                        | Research and development            |                          |        | 988                |       |                  |        | 2,151 |       |      |        | 2,219 |        |   |        | 4,450 |       
|                                                        | Selling, general and administrative |                          |        | 3,350              |       |                  |        | 2,003 |       |      |        | 6,434 |        |   |        | 3,605 |       
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                        |                                     | Total costs and expenses |        |                    | 5,950 |                  |        |       | 5,743 |      |        |       | 12,014 |   |        |       | 11,493 | 
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Loss from operations                                    |                                     |                          | (4,459 | )                  |       |                  | (4,842 | )     |       |      | (9,397 | )     |        |   | (9,783 | )    
|                                                       
|Other income (expense):                                 |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|                                                        | Gains on investments, net           |                          |        |                   |       |                  |        | 9     |       |      |        |      |        |   |        | 53    |       
|                                                        | Interest income                     |                          |        | 54                 |       |                  |        | 170   |       |      |        | 128   |        |   |        | 430   |       
|                                                        | Interest expense                    |                          |        | (40                | )     |                  |        | (56   | )     |      |        | (84   | )      |   |        | (115  | )     
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Loss before provision for income taxes                  |                                     |                          | (4,445 | )                  |       |                  | (4,719 | )     |       |      | (9,353 | )     |        |   | (9,415 | )    
|Provision (benefit) for income taxes                    |                                     |                          |       |                    |       |                  | (2,946 | )     |       |      |       |       |        |   | (4,631 | )    
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Net loss                                                |                                     | $                        | (4,445 | )                  |       | $                | (1,773 | )     |       | $    | (9,353 | )     |        | $ | (4,784 | )    
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Net loss per common share  basic and diluted           |                                     | $                        | (0.47  | )                  |       | $                | (0.19  | )     |       | $    | (0.99  | )     |        | $ | (0.51  | )    
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      
|Weighted average shares outstanding  basic and diluted |                                     |                          | 9,465  |                    |       |                  | 9,369  |       |       |      | 9,455  |       |        |   | 9,363  |      
|                                                        |                                     |                          |        |                    |       |                  |        |       |       |      |        |       |        |   |        |      

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

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COHESION TECHNOLOGIES, INC.




CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
(Unaudited)

|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |        |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------- | ------ | ---------------- | ----- | ------ | ------ | ------ | ------ | -
|                                                 |                                                                             |                                           |                                                 |        | Six Months Ended
|                                                 |                                                                             |                                           |                                                 |        | June 30,        
|                                                 |                                                                             |                                           |                                                 |        |                 
|                                                 |                                                                             |                                           |                                                 |        | 2002             |       | 2001  
|                                                 |                                                                             |                                           |                                                 |        |                  |       |       
|Cash flows from operating activities:            |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 | Net loss                                                                    |                                           | $                                               | (9,353 | )                |       | $      | (4,784 | )     
|                                                 | Adjustments to reconcile net loss
to net cash used in operating activities: |                                           |                                                 |        |                  |       |        |        |       
|                                                 |                                                                             | Depreciation and amortization             |                                                 |        | 746              |       |        |        | 922    |       
|                                                 |                                                                             | Loss on sale of property and equipment    |                                                 |        | 67               |       |        |        | 55     |       
|                                                 |                                                                             | Realized gain on investments, net         |                                                 |        |                 |       |        |        | (53    | )     
|                                                 |                                                                             | Deferred revenue                          |                                                 |        | (189             | )     |        |        | 708    |       
|                                                 |                                                                             | Decrease (increase) in assets:            |                                                 |        |                  |       |        |        |        |       
|                                                 |                                                                             |                                           | Accounts receivable                             |        |                  | (135  | )      |        |        | (151   | )
|                                                 |                                                                             |                                           | Inventories                                     |        |                  | 1,100 |        |        |        | 594    |  
|                                                 |                                                                             |                                           | Other                                           |        |                  | 542   |        |        |        | (3,582 | )
|                                                 |                                                                             | Increase (decrease) in liabilities:       |                                                 |        |                  |       |        |        |        |       
|                                                 |                                                                             |                                           | Accounts payable, accrued liabilities and other |        |                  | (456  | )      |        |        | (1,956 | )
|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 |                                                                             | Net cash used in operating activities     |                                                 |        | (7,678           | )     |        |        | (8,247 | )     
|                                                
|Cash flows from investing activities:            |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 | Proceeds on maturity of equity collars                                      |                                           |                                                 |       |                  |       |        | 2,546  |       
|                                                 | Proceeds on from sale of restricted cash investments                        |                                           |                                                 | 460    |                  |       |        | 818    |       
|                                                 | Proceeds from sale of property and equipment                                |                                           |                                                 | 153    |                  |       |        | 136    |       
|                                                 | Expenditures for property and equipment                                     |                                           |                                                 | (162   | )                |       |        | (391   | )     
|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 |                                                                             | Net cash provided by investing activities |                                                 |        | 451              |       |        |        | 3,109  |       
|                                                
|Cash flows from financing activities:            |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 | Proceeds from exercise of stock option and stock purchase plans             |                                           |                                                 | 77     |                  |       |        | 378    |       
|                                                 | Payment of capital lease obligation                                         |                                           |                                                 | (441   | )                |       |        | (410   | )     
|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |       
|                                                 |                                                                             | Net cash used in financing activities     |                                                 |        | (364             | )     |        |        | (32    | )     
|                                                
|Net decrease in cash and cash equivalents        |                                                                             |                                           | (7,591                                          | )      |                  |       | (5,170 | )     
|Cash and cash equivalents at beginning of period |                                                                             |                                           | 16,765                                          |        |                  |       | 15,271 |       
|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |       
|Cash and cash equivalents at end of period       |                                                                             | $                                         | 9,174                                           |        |                  | $     | 10,101 |       
|                                                 |                                                                             |                                           |                                                 |        |                  |       |        |       

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

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COHESION TECHNOLOGIES, INC.




NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The condensed balance sheet as of June 30, 2002, the condensed statements
of operations for the three and six months ended June 30, 2002 and 2001, and
the condensed statements of cash flows for the six months ended June 30, 2002
and 2001, have been prepared by the Company and are unaudited. In the opinion
of management, all necessary adjustments (which include only normal recurring
adjustments) have been made to present fairly the financial position, results
of operations, and cash flows at June 30, 2002 and for all periods presented.
Interim results are not necessarily indicative of results for a full fiscal
year. The condensed balance sheet as of December 31, 2001 has been derived from
the audited consolidated financial statements at that date.

Certain amounts in the financial statements for the prior fiscal period
have been reclassified to conform with the current year presentation. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed financial statements should be read in
conjunction with the audited consolidated financial statements and notes
included in the Companys Transition Report on Form 10-K for the six months
ended December 31, 2001.

The financial statements have been prepared on a going concern basis.
The Company has historically incurred annual operating losses that are in
excess of its current financial resources. Management anticipates that the
December 2001 FDA approval of the Companys CoSeal product will contribute to
increased revenues during 2002. Management expects this anticipated increase
in revenues to have a positive impact on gross margins and reduce the operating
loss, as compared to prior periods. For the six months ended June 30, 2002,
the Companys revenues increased 53% and operating loss decreased 4% as
compared to the comparable period in 2001. In addition, management implemented
restructuring plans during 2001 that are expected to reduce primarily research
and development expenses from historical levels. For the six months ended
June 30, 2002, the Companys research and development expenses decreased 50% as
compared to the comparable period in 2001. The decrease in research and
development expenses are expected to be offset by increases in sales and
marketing expenses as the Company continues to build a direct sales force.
Based upon these anticipated improvements in operating results, management
believes that the Companys existing financial resources are sufficient to meet
its operating requirements through at least the next six months.

In July 2002, the Company entered into an agreement, subject to
stockholder approval, for a private placement of approximately 8.2 million
shares of common stock and issued warrants to purchase up to an additional
approximately 911,000 shares of common stock. The per share purchase price to
be paid by the new investors will be the lower of (1) approximately $1.61,
which represents a 10% discount to the 15-day average closing price of the
common stock ending on July 19, 2002 (the third trading day prior to the date
on which the Company entered into the definitive agreement) or (2) the 15-day
average closing price of the common stock ending on the third trading day prior
to the date on which the proxy statement is first mailed to the stockholders
multiplied by 90%. Assuming a per share price of $1.61, the net proceeds of
the transaction to the Company will be approximately $12.4 million. The net
proceeds to the Company will be less if the average closing price per share for
the 15 trading day period ending on the third trading day prior to the mailing
date of a proxy statement to stockholders is less than $1.79 per share. The
cash proceeds will be used to fund operations, including the expansion of our
direct sales force, the initiation of an adhesion prevention clinical study in
the United States, and for general corporate purposes. The proposed

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financing is expected to close in the quarter ended December 31, 2002,
assuming stockholder approval, which is not assured.

In December 2001, the Company changed its fiscal year end from June 30 to
December 31, effective with the six months ended December 31, 2001.

Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share (EPS) is calculated using
the weighted average number of common shares outstanding for the period. The
computation of diluted EPS excludes the effects of stock options as their
effect is antidilutive for the periods presented.

2. Inventories

Inventories are valued at the lower of cost, determined on a standard cost
basis, which approximates average cost, or market. Inventories are comprised
of the following:

|                |  |                |       |              |  |   |       | 
|--------------- |  | -------------- | ----- | ------------ |  | - | ----- | 
|                |  | June 30,       |       | December 31,
|                |  | 2002           |       | 2001        
|                |  |                |       |             
|                |  | (In thousands)
|Raw materials   |  | $              | 417   |              |  | $ | 861   | 
|Work-in-process |  |                | 598   |              |  |   | 1,237 | 
|Finished goods  |  |                | 349   |              |  |   | 367   | 
|                |  |                |       |              |  |   |       | 
|                |  | $              | 1,364 |              |  | $ | 2,465 | 
|                |  |                |       |              |  |   |       | 

3. Equity Investments

The following is a summary of the aggregate estimated fair value, gross
unrealized gains and losses and cost of the Companys investment in equity
securities which consists of an investment in Pharming, N.V.:

|                       |  |                |     |              |  |   |     | 
|---------------------- |  | -------------- | --- | ------------ |  | - | --- | 
|                       |  | June 30,       |     | December 31,
|                       |  | 2002           |     | 2001        
|                       |  |                |     |             
|                       |  | (In thousands)
|Cost                   |  | $              |    |              |  | $ |    | 
|Gross unrealized gains |  |                | 748 |              |  |   | 739 | 
|                       |  |                |     |              |  |   |     | 
|Estimated fair value   |  | $              | 748 |              |  | $ | 739 | 
|                       |  |                |     |              |  |   |     | 

The Company determines the appropriate classification of marketable
securities at the time of purchase and re-evaluates such designation as of each
balance sheet date. The Companys investments in equity securities were
classified as available-for-sale at June 30, 2002 and December 31, 2001.

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4. Comprehensive Income (Loss)

The components of comprehensive income (loss), net of related income tax,
for the three and six months ended June 30, 2002 and 2001 are as follows (in
thousands):

|                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                |  | Three Months Ended |        | Six Months Ended
|                                                                |  | June 30,           |        | June 30,        
|                                                                |  |                    |        |                 
|                                                                |  | 2002               |        | 2001             |  | 2002 |        | 2001
|                                                                |  |                    |        |                  |  |      |        |     
|Net loss                                                        |  | $                  | (4,445 | )                |  | $    | (1,773 | )    |  | $ | (9,353 | ) |  | $ | (4,784 | )
|Increase (decrease) in unrealized gains on
securities           |  |                    | 142    |                  |  |      | (131   | )    |  |   | 9      |   |  |   | 1,318  |  
|Adjustment for realized gains, net                              |  |                    |       |                  |  |      | 77     |      |  |   |       |   |  |   | 77     |  
|Adjustment for hedged item carrying amount for fair
value hedge |  |                    |       |                  |  |      | (3,403 | )    |  |   |       |   |  |   | (1,646 | )
|                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  
|Comprehensive income (loss)                                     |  | $                  | (4,303 | )                |  | $    | (5,230 | )    |  | $ | (9,344 | ) |  | $ | (5,035 | )
|                                                                |  |                    |        |                  |  |      |        |      |  |   |        |   |  |   |        |  

5. Restructuring & Asset Impairment

In November 2001, the Company announced and implemented a plan to redirect
the focus of its resources on technology platforms specific to its first two
products, CoStasis and CoSeal. Given its financial resources at that time,
the Company concluded it could no longer continue to fund all existing research
and development programs while building the sales and marketing infrastructure
needed to support direct sales of CoSeal in the U.S. As a result, certain
research and development activities were curtailed by December 31, 2001. The
Company reduced its workforce by approximately 20%, or 17 employees, which
affected primarily research and development personnel. The majority of affected
employees were terminated as of that date, with certain employees having later
termination dates through March 2002. Severance payments will be made over a
specified period of time, not to exceed one year. The Company also incurred
costs to shutdown a clinical trial, and certain fixed assets associated with
curtailed R&D programs were identified as impaired. The Company reported a
$640,000 charge for restructuring and other costs in the quarter ended December
31, 2001, which was comprised of $405,000 for restructuring costs ($385,000 for
severance and related costs and $20,000 for other shutdown costs) and $235,000
for fixed asset writedowns. As of June 30, 2002, approximately $396,000 had
been paid for severance and other related shutdown costs. All remaining
restructuring payments were made in July 2002. The Company also began selling
the impaired fixed assets in the March 2002 quarter, resulting in losses
recognized totaling approximately $40,000 during the six months ended June 30,
2002, and expects to dispose of the remaining equipment by the end of calendar
2002.

6. NeuColl, Inc.

In February 1999, the Company formed a new subsidiary, NeuColl, Inc., to
commercialize products in the orthopedics field, which included Collagraft®
Bone Graft Matrix. Cohesions ownership interest in NeuColl is currently below
50% and as a result, the Company reports its share of NeuColls operating
results under the equity method of accounting. The Company holds a warrant to
purchase an additional 3.0 million shares of common stock in NeuColl, which
expires in February 2006. In June 2002, the Company extended NeuColl a
short-term bridge loan of $200,000, which may be converted into equity through
exercise of the warrant. In addition to the loan, the Companys receivable
balance from NeuColl was approximately $4,017 and $4,000 as of June 30, 2002
and December 31, 2001, respectively, with no carrying value assigned to the
investment.

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

Overview

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes and the other
information included elsewhere in this quarterly report and our transition
report on Form 10-K for the six months ended December 31, 2001. Some of the
statements in this Managements Discussion and Analysis of Financial Condition
and Results of Operations are forward-looking. The words may, will,
could, should, continue, anticipates, projects, believes,
expects, future, plans, might, intends, seeks, estimates, and
similar expressions identify forward-looking statements. These forward-looking
statements are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These risks include completion of
our recently announced private placement of common stock, product performance,
the rate of product adoption by customers, usage, order and re-order rates,
competition from other products, performance of third-party sales
representatives, ability to hire and the performance of a direct sales force,
the timing and effectiveness of product introductions and launches, the success
of scaling up product production, ability to achieve product revenue targets or
market share, commencement and continuation of product sales in the United
States and in additional countries outside of the United States, the timing and
terms of sales arrangements with other companies, receipt of regulatory and
marketing approvals, including approvals, quality system regulation inspections
and panel reviews from the FDA, clinical efficacy of and market demand for our
products, assessment of market size and opportunity, including the applicable
numbers of procedures, our position in the market, enrollment in and results of
clinical studies and potential unfavorable publicity regarding our company or
our products. These differences may be based upon factors within our control,
such as strategic planning decisions by management and reallocation of internal
resources, or on factors outside our control, such as scientific advances by
third parties, court decisions in lawsuits filed by us, introduction of
competitive products and delays by regulatory authorities, including approvals
from the FDA. For a more detailed discussion of these and other business
risks, see   Additional Factors that Might Affect Future Results, and
Business  Government Regulation and Business  Competition in our
transition report on Form 10-K for the six months ended December 31, 2001.

We are focused on developing and commercializing proprietary surgical
products, including bioresorbable hemostatic devices and biosealants for tissue
repair and regeneration, which can increase the effectiveness of, and minimize
complications following, open and minimally invasive surgeries. Our products
and programs are based on a platform of proprietary technologies centered
around collagen and hydrophilic polymers that quickly polymerize in-vivoand
bind to tissue. We have also previously conducted research programs in
recombinant human collagen and thrombin, with the ultimate goal of developing
recombinant sources of human collagen and thrombin but have curtailed
activities in this area as described below.

Hemostatic devices are used to stop bleeding during surgeries. Bleeding
must be controlled to ensure effective closure of surgical wounds and to avoid
serious or life-threatening complications, including blood loss, tissue damage,
infection and excessive scarring. CoStasis Surgical Hemostat, our hemostatic
product, is designed for use in cardiovascular, urologic, orthopedic and
general surgery indications. We received a CE Mark for CoStasis in fiscal 1999
and received FDA approval in June 2000 to market the product in the United
States. In November 1999, we announced an agreement with U.S. Surgical, a
business unit of Tyco Healthcare Group and Tyco International (U.S.
Surgical/Tyco), for the marketing and distribution of CoStasis. The U.S.
Surgical/Tyco territories include the United States, European Union, Eastern
Europe, Latin America, Middle East, Australia, New Zealand and India. The
CoStasis agreement originally granted U.S. Surgical exclusive distribution
rights in assigned territories requiring minimum aggregate purchases of
CoStasis product each calendar year. To date, U.S. Surgical/Tyco has failed
to purchase sufficient CoStasis product to maintain exclusive distribution
rights. In addition, U.S. Surgical/Tyco has thus far elected not to make

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a payment that would allow for the maintenance of exclusivity in the
absence of meeting minimum product purchases. Accordingly, we are discussing
potential modifications to our current agreements with U.S. Surgical/Tyco,
including possible changes in territories, and the duration and financial terms
of our agreements. In January 2002, we also began selling CoStasis through
our own direct sales organization in the United States and are considering
potential marketing and distribution agreements for CoStasis with other
parties that might offer an opportunity to increase CoStasis sales to focused
specialty groups of physicians.

CoSeal Surgical Sealant, our second biosurgical product, is designed for
sealing vascular grafts and other tissues and sites of incision and incision
repair. In February 2000, we received a CE Mark for CoSeal, allowing product
sales to commence in Europe. CoSeal is currently being sold outside of the
U.S. through distributors, including Tyco Healthcare Group and other specialty
distributors. We filed a PMA application with the FDA for CoSeal in April
2001, received approval from the FDA in December 2001 to market CoSeal in the
United States, and launched the product in the United States in January 2002
through our direct sales organization.

In November 2001, we announced and implemented a restructuring program to
redirect the focus of our resources on technology platforms specific to our
first two products, CoStasis and CoSeal. Given our financial resources at
that time, we could no longer continue to fund all existing research and
development programs while building the sales and marketing infrastructure
needed to support direct sales of CoSeal in the United States. As a result,
certain research and development activities were curtailed by December 31,
2001, including our recombinant human collagen research program. On November
14, 2001, we reduced our workforce by approximately 20%, which affected
primarily research and development personnel. We also incurred costs to shut
down a clinical trial in Europe, and certain fixed assets associated with
curtailed research and development programs were identified as impaired. In
light of the redirected focus of our company, we expect our ongoing research
and development resources will be allocated to primarily support our existing
commercial products, CoStasis and CoSeal, to conduct limited clinical
evaluations of our adhesion prevention barrier, and to continue low level
activity on internal adhesives. Although we eliminated the majority of the
internal research and development personnel involved in the recombinant
programs, we have endeavored to retain essential knowledge and expertise to
permit continuing management of this effort through outside parties, to
continue to support the related intellectual property position, and to be in a
position to re-initiate the program internally should additional funding for
this program become available.

In December 2001, we changed our fiscal year end from June 30 to December
31, effective with the six months ended December 31, 2001.

Results of Operations

Three and Six Months Ended June 30, 2002 and 2001

Revenues were $1.5 million and $0.9 million for the three months ended
June 30, 2002 and 2001, respectively, and included other revenue of $95,000 and
$112,000, respectively, related to the recognition of upfront license fees and
milestone payments pursuant to our marketing and distribution agreements with
U.S. Surgical and Tyco Healthcare Group. Revenues for the six months ended
June 30, 2002 and 2001 were $2.6 million and $1.7 million, respectively.
Product sales were $1.4 million and $0.8 million for the three months ended
June 30, 2002 and 2001, respectively. The increase in product sales was due
primarily to U.S. sales of CoSeal, which was launched in January 2002. The
increase of product sales to $2.4 million for the six months ended June 30,
2002 from $1.5 million for the comparable period in 2001, respectively, was
also driven by CoSeal sales in the United States. A number of uncertainties
exist surrounding the marketing and distribution of our products where a
significant portion of distribution is through third party firms, such as U.S.
Surgical/Tyco Healthcare. Our business and financial results could be adversely
affected in the event that either we or these third

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party firms are unable to market the products effectively, anticipate
customer demand accurately, or effectively manage industry-wide pricing and
cost containment pressures in health care.

Cost of sales as a percentage of product sales was 115% and 201% for the
three months ended June 30, 2002 and 2001, respectively, and 138% and 228% for
the six months ended June 30, 2002 and 2001, respectively. Gross margins
continued to remain negative through the June 2002 quarter, but improved over
the prior periods. The negative gross margins reflect a high level of fixed
manufacturing costs that are relatively independent of sales volume in each of
these periods.

Research and development (R&D) expenses were $1.0 million and $2.2
million for the three months ended June 30, 2002 and 2001, respectively, and
$2.2 million and $4.4 million for the six months ended June 30, 2002 and 2001,
respectively. The R&D spending decrease from the prior year periods is
primarily due to completion of the CoSeal clinical trial and a refocus on core
programs, including the reduction in headcount as part of the November 2001
restructuring.

Selling, general and administrative (SG&A) expenses were $3.4 million
and $6.4 million for the three and six months ended June 30, 2002,
respectively. SG&A spending in the comparable prior year periods were $2.0
million and $3.6 million, respectively. SG&A expenses increased primarily due
to increases in sales and marketing resources to support direct sales efforts
of CoStasis and CoSeal in the United States.

Net realized gain on investments was $9,000 and $53,000 for the three and
six months ended June 30, 2001 and represents the ineffective portion of the
equity collar hedge.

Interest income was $54,000 and $170,000 for the three months ended June
30, 2002 and 2001, respectively, and $128,000 and $430,000 for the six months
ended June 30, 2002 and 2001, respectively. The decreases in both periods were
due to lower interest rates and lower average cash balances in the current
fiscal quarter.

Interest expense of $40,000 and $56,000 for the three months ended June
30, 2002 and 2001, respectively, and $84,000 and $115,000 for the six months
ended June 30, 2002 and 2001, respectively, was related to the capital lease
obligation.

We recorded no benefit for income taxes during the three and six months
ended June 30, 2002. As a result of expected future operating losses, we do
not expect to recover additional tax benefits until we reach profitability.
For the three and six months ended June 30, 2001, we recorded a benefit for
income taxes as we anticipated a refund for income taxes from the carryback of
our fiscal year ended June 30, 2001 net loss.

Liquidity and Capital Resources

At June 30, 2002, cash, cash equivalents and investments were $9.9 million
compared to $17.5 million at December 31, 2001, including the carrying value of
$0.7 million for Pharming common stock at both period ends. Net cash used in
operating activities was $7.7 million for the six months ended June 30, 2002
compared to $8.2 million used in the same prior-year period.

For the six months ended June 30, 2002, cash provided by investing
activities of $0.5 million was primarily related to proceeds from the sale of
restricted cash investments of $460,000 and from the sale of equipment of
$153,000, offset by capital expenditures of $162,000. Currently, we anticipate
that capital expenditures will not exceed $1.0 million in 2002. Net cash used
in financing activities for the six months ended June 30, 2002 was
approximately $0.4 million primarily due to payments for our capital lease
obligation.

Our principal sources of liquidity include cash and cash equivalents. In
August 2001, one of our

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investments, Pharming N.V., filed for receivership. As a result, we
recorded a $5.3 million loss, the cost basis of our Pharming common stock
investment, for the writedown of this investment in the September 2001 quarter.
Although our Pharming investment has a stated market value at June 30, 2002,
it is uncertain at this time what the recoverable value will be, if any.

In July 2002, we entered into an agreement, subject to stockholder
approval, for a private placement of approximately 8.2 million shares of common
stock and issued warrants to purchase up to an additional approximately 911,000
shares of common stock. The per share purchase price to be paid by the new
investors will be the lower of (1) approximately $1.61, which represents a 10%
discount to the 15-day average closing price of the common stock ending on July
19, 2002 (the third trading day prior to the date on which the Company entered
into the definitive agreement) or (2) the 15-day average closing price of the
common stock ending on the third trading day prior to the date on which the
proxy statement is first mailed to the stockholders multiplied by 90%.
Assuming a per share price of $1.61, the net proceeds of the transaction to us
will be approximately $12.4 million. The net proceeds to us will be less if
the average closing price per share for the 15 trading day period ending on the
third trading day prior to the mailing date of a proxy statement to
stockholders is less than $1.79 per share. The cash proceeds will be used to
fund operations, including the expansion of our direct sales force, the
initiation of an adhesion prevention clinical study in the United States, and
for general corporate purposes. The proposed financing is expected to close
in the quarter ended December 31, 2002, assuming stockholder
approval, which is not assured.

We believe that our current sources of liquidity, excluding the proposed
private placement, should be adequate to fund our anticipated operating and
capital expenditure requirements through at least the next six months. Our
capital requirements will depend on numerous factors, including the achievement
of targeted sales levels, progress of our clinical research and product
development programs, the extent to which we enter into collaborative
relationships with third parties and the scope of our obligations in such
relationships, the receipt of and the time required to obtain, regulatory
clearances and approvals, the resources required to protect our intellectual
property and other factors. We cannot accurately predict the timing and amount
of such capital requirements. Additional financing may not be available to us
on acceptable terms, if at all.

In September 1998, our Board of Directors approved a stock repurchase
program to buy back up to 1.0 million shares of common stock at a price of up
to $4.25 per share. As of June 30, 2002, we had repurchased 515,100 shares of
our common stock under this program, none of which were repurchased in the
quarter ended June 30, 2002.

In February 1999, we formed a new subsidiary, NeuColl, Inc., to
commercialize products in the orthopedics field, which included Collagraft®
Bone Graft Matrix. Our ownership interest in NeuColl is currently below 50%;
however, we hold a warrant to purchase an additional 3.0 million shares of
common stock in NeuColl, which expires in February 2006. In June 2002, we
extended NeuColl a short-term bridge loan of $200,000, which may be converted
into equity through exercise of our warrant. There is no carrying value
assigned to our investment.

Additional Factors That May Affect Future Results of Operations

For a discussion of other risks and uncertainties involving our business,
see Business in our transition report on Form 10-K for the six months ended
December 31, 2001.

We have a history of operating losses and anticipate continued operating
losses.

Our operating losses have resulted primarily from expenses incurred in
connection with research and development activities, including preclinical and
clinical trials, development of manufacturing processes and general and
administrative expenses, and we expect that these expenses may

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continue to increase for the foreseeable future, particularly in light of
the anticipated increase in sales and marketing expenses related to the
establishment and expansion of a sales organization in the United States and
related infrastructure. Our ability to achieve and sustain operating
profitability is highly dependent upon successfully developing sales and
marketing capabilities for our products in Europe, the United States and other
markets at appropriate selling prices and costs to manufacture. We cannot
assure you that we will successfully manufacture, commercialize and market our
products or that we will ever record significant product revenues or achieve
operating profitability.

We may need to obtain additional financing to fund operations beyond our
proposed private placement arrangement.

We believe that our current sources of liquidity should be adequate to
fund our anticipated capital requirements through at least the next six months.
In July 2002, we entered into an agreement, subject to stockholder approval,
for a private placement of approximately 8.2 million shares of common stock and
issued warrants to purchase up to an additional approximately 911,000 shares of
common stock. The per share purchase price to be paid by the new investors
will be the lower of (1) approximately $1.61, which represents a 10% discount
to the 15-day average closing price of the common stock ending on July 19, 2002
(the third trading day prior to the date on which the Company entered into the
definitive agreement) or (2) the 15-day average closing price of the common
stock ending on the third trading day prior to the date on which the proxy
statement is first mailed to the stockholders multiplied by 90%. Assuming a
per share price of $1.61, the net proceeds of the transaction to us will be
approximately $12.4 million. The net proceeds to us will be less if the
average closing price per share for the 15 trading day period ending on the
third trading day prior to the mailing date of a proxy statement to
stockholders is less than $1.79 per share. The proposed financing is expected
to close in the quarter ended December 31, 2002, assuming stockholder
approval, which is not assured. We may still require additional financing which may not
be available on acceptable terms or at all. If we cannot raise necessary
additional capital on acceptable terms, we may have to significantly reduce our
expenses and may not be able to effectively market our products, continue our
clinical research and product development programs, achieve targeted sales
levels, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which would adversely affect our
prospects, business, financial condition and results of operations.

Additional capital raised through the issuance of equity securities,
including in connection with the proposed private placement, will decrease the
percentage ownership of our existing stockholders, and existing stockholders
will experience dilution in net book value per share, or these equity
securities may have rights, preferences or privileges senior to those of the
holders of our outstanding common stock. Any debt financing, if available,
used to raise additional capital may involve covenants limiting or restricting
our operations or future opportunities.

We depend on a small number of customers for a substantial portion of our
revenues and the loss of one of more of our significant customers could
substantially reduce our revenues and prevent us from achieving operating
profitability.

We anticipate that for the foreseeable future we will continue to be
primarily dependent on a small number of customers for our revenues. We
currently are largely dependent on U.S. Surgical for the distribution of
CoStasis, and we are dependent upon Tyco Healthcare for the distribution of
CoSeal in the majority of international countries. While we have recently
implemented a direct selling organization in the United States focused
primarily on CoSeal, we anticipate that U.S. Surgical will continue to sell
CoStasis, and may also sell CoSeal, in the United States. The loss of U.S.
Surgical, Tyco Healthcare, or one or more of our other significant customers,
for any reason, or reduced orders from our significant customers without
replacement customers or orders would significantly reduce our revenues and
adversely affect our ability to achieve operating profitability.

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We must develop and commercialize our products to generate revenues.

Except for CoStasis, CoSeal, and our line of collagen-based materials for
research applications, (Intermediate Products), our other products are in
research or preclinical or clinical development and are not currently
generating revenue. The development and commercialization of new products is
highly uncertain, as is the timing associated with these activities. Potential
products that may appear to be promising may not reach the market for a number
of reasons, including the possibilities that the potential products will be
found to be ineffective or to cause harmful side effects during preclinical
testing or clinical trials, will fail to receive necessary regulatory
approvals, will be difficult to manufacture on a commercial scale, will be
uneconomical, will fail to achieve market acceptance or will be precluded from
commercialization by the proprietary rights of third parties. We cannot assure
you that any of our development programs will be successfully completed, or
that clinical trials will generate anticipated results or will commence or be
completed as planned. Additionally, we cannot assure you that we will be able
to obtain additional CE Marks in Europe, on a timely basis, if at all, or that
any PMA application submitted by us will be accepted or ultimately approved by
the FDA on a timely basis, if at all, or that any products for which approval
is obtained will be commercially successful. If any of our development programs
are not successfully completed in a timely fashion, required regulatory
approvals are not obtained in a timely fashion, or products for which approvals
are obtained are not commercially successful, our prospects, business,
financial condition and results of operations will be materially and adversely
affected.

We operate in an intense competitive environment.

We compete with a number of domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies and organizations across each of
our product categories and areas in which we are conducting research and
development activities. In the hemostatic and biosealant areas in the United
States, we face strong competition from existing methodologies for controlling
bleeding and sealing wounds resulting from surgery, such as hemostatic powders
and sponges, collagen-based hemostats and traditional sutures and staples
marketed by companies such as Ethicon, Inc. and Tyco Healthcare Group. In
addition, Baxter Healthcare Corporation is the largest seller of fibrin sealant
products in the United States and Europe. We also face competition from
more recent products and technologies, including those developed by Cryolife,
Inc., Genzyme Biosurgery, which recently acquired Focal, Inc., and Baxter
Healthcare Corporation, which recently acquired Fusion Medical Technologies,
Inc. In the United States, there are several additional biosurgery products
under development by these companies, as well as the American Red Cross and
Haemacure Corporation. Additionally, several companies and institutions are
engaged in the development of collagen-based or hydrophilic polymer-based
materials, techniques, procedures and products for use in medical applications
we anticipate addressing with our current and proposed products and research
programs, such as a next generation adhesion prevention barrier. We believe
such a product, if marketed commercially, will offer advantageous benefits in
terms of performance and deliverability compared to currently marketed adhesion
prevention products, and would compete with products from Genzyme Biosurgery,
Lifecore Biomedical and Confluent Surgical, among others.

Many of our competitors have substantially greater financial,
technological, research and development, regulatory and clinical, marketing and
sales, and personnel resources than we do. They may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory approvals, and manufacturing and marketing their products. They may
also develop alternative technologies and products that are more effective,
easier to use or more economical than those that have been or are being
developed by us or that render our technology and products obsolete and
non-competitive. Recently developed technologies or procedures are, or may in
the future be, the basis of competitive products. We cannot assure that our
current competitors or other parties will not succeed in developing alternative
technologies or products that are more effective, easier to use or more
economical than the technologies and products that we have been or are
developing or that would render our technology and products obsolete or
uncompetitive. If our current competitors or other parties succeed in
developing these alternative technologies or products, our

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prospects, business, financial condition and results of operations would
be materially and adversely affected. Our competitors may also obtain approval
or clearance by the FDA or foreign regulatory approval organizations, achieve
product commercialization or obtain patent protection earlier than we do.
Additionally, we cannot assure that any marketing or other strategic partners
that we may engage will not pursue parallel development of technologies or
products relating to, or competitive with, our current or planned product
portfolio. We also face competition with respect to manufacturing efficiency
and marketing capabilities, areas in which we currently have limited
experience. Failure to successfully address these factors and circumstances
could have a material adverse impact on our prospects, business, our financial
condition and results of operations.

The market may not accept our products.

CoStasis Surgical Hemostat is a product designed to control diffuse
capillary and small vein bleeding, and CoSeal Surgical Sealant is a product
designed to seal anastomoses and sites of incision, in connection with surgery.
We cannot assure that either of these products will gain commercial acceptance
among physicians, patients and health care payors, even if necessary
international and U.S. marketing approvals are maintained. We believe that
recommendations and endorsements by physicians will be essential for market
acceptance of our surgical products, and we cannot assure you that these
recommendations or endorsements will be obtained. We believe that surgeons will
not use our products unless they determine, based on clinical data and other
factors, that our products represent an effective means of controlling bleeding
and sealing anastomoses and sites of incision, and that the clinical benefits
to patients and cost savings achieved through use of our products outweigh
their cost. Acceptance among physicians may also depend upon our ability to
train surgeons and other potential users of our products in the application of
sprayable surgical products, and the willingness of such users to learn these
relatively new techniques. Additional factors in achieving market acceptance
may include our ability to address competition from U.S. and international
medical device, pharmaceutical and biopharmaceutical companies, to successfully
develop an effective direct marketing and sales force, to form strategic
partnerships and to manufacture cost-effective products. Failure of our
products to achieve significant market acceptance will have a material adverse
effect on our prospects, business, financial condition and results of
operations.

We have limited marketing and sales capabilities.

We currently have limited experience in marketing and selling our products
and we have only recently initiated a significant direct marketing and sales
capability in the United States. In order to achieve commercial success for
our approved products, we must either develop an effective marketing and sales
force or enter into arrangements with third parties to market and sell our
products. As we attempt to develop our own marketing and sales capabilities, we
will be competing with other companies that currently have experienced and
well-funded marketing and sales operations. To the extent that we enter into
co-promotion or other marketing and sales arrangements with other companies,
any revenues we receive will be dependent on the efforts of others, and we
cannot assure that these efforts will be successful. Failure to further
develop and expand our direct sales and marketing force or enter into
arrangements with other companies to market and sell our products will reduce
our ability to generate revenues.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in our market risk compared to
disclosures in Item 7A in our transition report on Form 10-K for the six months
ended December 31, 2001.

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PART II. OTHER INFORMATION

COHESION TECHNOLOGIES, INC.




Item 1. Legal Proceedings

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 19, 2000, we filed a Complaint against Fusion Medical
Technologies, Inc. in the Northern District of California, claiming that
Fusion Medical Technologies, Inc. infringed U.S. Patent Nos. 6,110,484 and
No. 6,277,394. The Court held a claim construction hearing on March 25,
2002 and the Court issued a claim construction order on April 1, 2002.
Although the Court adopted most of our proposed constructions, portions of
the Courts construction required a holding that Fusions FloSeal product
did not infringe either patent. Cohesion and Fusion, who was recently
acquired by Baxter International, Inc., entered into a Stipulation and
Judgment on April 11, 2002 of non-infringement based upon the Courts
Claim Construction Order. On May 31, 2002, the parties agreed to terms of
a settlement, resulting in our agreeing to drop our appeal while
continuing to retain all rights to the two patents. No cash payments were
made by either company.




Item 6. Exhibits and Reports on Form 8-K



| | A. |  | Reports on Form 8-K
| | -- |  | -------------------

| |     
| | ----
| | None



| | B. |  | Exhibits
| | -- |  | --------

| |              |  |                                                                                                                       
| | ------------ |  | ----------------------------------------------------------------------------------------------------------------------
| | Exhibit 10.1 |  | Research and License Agreement between Zycos, Inc. and Cohesion
Technologies, Inc. (Confidential treatment requested.)

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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.



| | COHESION TECHNOLOGIES, INC.
| | ---------------------------



|Dated: August 14, 2002 | /s/     Sharon Kokubun
Sharon Kokubun
Vice President, Finance and Controller
(Principal Accounting Officer)
|---------------------- | -----------------------------------------------------------------------------------------------------------

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EXHIBIT INDEX

|            |  |                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                           
|           
|10.1        |  | Research and License Agreement between Zycos, Inc. and Cohesion
Technologies, Inc. (Confidential treatment requested.)