<PAGE>   1
                       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 MARCH 31, 1999,

                                       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                                     (I.R.S. Employer
     Jurisdiction of                                   Identification No.)
    Incorporation or
      Organization)

                      2500 FABER PLACE, PALO ALTO, CA 94303
          (Address of Principal Executive Offices, including Zip Code)

       Registrant's telephone number, including area code: (650) 354-4300

        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
                         PREFERRED SHARE PURCHASE RIGHTS


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 month (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 April 30, 1999, Registrant had 8,363,660 shares of Common Stock
outstanding, exclusive of 515,100 shares held by the Registrant as treasury
stock.
<PAGE>   2

                                     PART I

                           COHESION Technologies, INC.

                                      INDEX
<TABLE>
<CAPTION>

PART I.        Financial Information                                           Page No.
------------------------------------                                           --------
<S>         <C>                                                                <C>
Item 1.     Financial Statements:

               Condensed Consolidated Balance Sheets -
               March 31, 1999 and June 30, 1998                                     3

               Condensed Consolidated Statements of Operations -
               Three and Nine months ended March 31, 1999 and 1998                  4

               Condensed Consolidated Statements of Cash Flows -
               Nine months ended March 31, 1999 and 1998                            5

               Notes to Condensed Consolidated Financial Statements              6-10

Item 2.     Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                  11-18

Item 3.     Quantitative and Qualitative Disclosure about Market Risk              19


PART II.       Other Information

Other Information                                                                  20

Signatures                                                                         21

</TABLE>


                                       2
<PAGE>   3

                           COHESION TECHNOLOGIES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                        MARCH 31,     JUNE 30,
                                                                          1999         1998*
                                                                        --------      --------
<S>                                                                     <C>            <C> 
ASSETS
Current assets:
  Cash and cash equivalents ........................................      $5,135         $591
  Short-term investments ...........................................          --        1,016
  Accounts receivable, net .........................................         388          473
  Inventories ......................................................       1,145           81
  Other current assets .............................................       1,591        1,254
                                                                        --------     --------
         Total current assets ......................................       8,259        3,415

Property and equipment, net ........................................       6,342        2,072
Intangible assets, net .............................................         842        1,184
Investment in Boston Scientific Corporation ........................      51,419       73,979
Other investments and assets .......................................      11,351       15,003
                                                                        --------     --------

                                                                         $78,213      $95,653
                                                                        ========     ========

LIABILITIES AND STOCKHOLDERS' AND PARENT COMPANY EQUITY

Current liabilities:
  Accounts payable .................................................      $1,521         $792
  Accrued compensation .............................................       1,243          953
  Other accrued liabilities ........................................       2,471        2,390
  Payable to Collagen Aesthetics, Inc. .............................         863          880
  Income taxes payable .............................................       2,834          300
                                                                        --------     --------
         Total current liabilities .................................       8,932        5,315

Deferred income taxes ..............................................      22,009       31,923

Commitments and contingencies

Stockholders' and parent company equity:
  Preferred stock, $.001 par value, authorized: 5,000,000 shares,
    issued  and  outstanding:  no shares at March 31,  1999 and June          
    30, 1998                                                                  --           --
  Common stock, $.001 par value, authorized: 15,000,000 shares;
    issued, March 31, 1999 - 8,878,760 shares; June 30, 1998 - 
    8,861,040 shares; outstanding, March 31, 1999 - 8,398,660 
    shares; June 30, 1998 - 8,861,040 shares .......................           9            9
  Additional paid-in capital .......................................      14,874        9,612
  Parent company equity ............................................          --        4,961
  Retained earnings (since August 19, 1998) ........................       4,816           --
  Accumulated other comprehensive income ...........................      29,408       43,833
  Treasury stock, at cost, 480,100 shares at March 31, 1999
      (None at June 30, 1998) ......................................      (1,835)          --
                                                                        --------     --------

         Total stockholders' and parent company equity .............      47,272       58,415
                                                                        --------     --------

                                                                         $78,213      $95,653
                                                                        ========     ========
</TABLE>

The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.

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

                                       3
<PAGE>   4


                           COHESION TECHNOLOGIES, INC.

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

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED       NINE MONTHS ENDED
                                                            MARCH 31,               MARCH 31,
                                                       ---------------------     ---------------------
                                                         1999         1998         1999         1998
                                                       --------     --------     --------     --------
<S>                                                    <C>          <C>          <C>          <C>     
Revenue-- product sales ...........................    $    428     $    238     $  1,651     $  1,472

           Costs and expenses:
  Cost of sales ...................................         398          124          993          816
  Research and development ........................       3,724        3,907       11,182       11,309
  Selling, general and administrative .............       1,712        1,229        4,931        3,820
  Compensation expense related to
       cancelled stock options ....................         498           --        2,945           --
  Purchased in-process research and development ...          --           --           --       10,530
                                                       --------     --------     --------     --------
          Total costs and expenses ................       6,332        5,260       20,051       26,475
                                                       --------     --------     --------     --------

Loss from operations ..............................      (5,904)      (5,022)     (18,400)     (25,003)

Other income (expense):
  Gain on sale of investments, principally
      Boston Scientific Corporation ...............      13,220        4,964       27,191       13,739
  Equity in losses of other affiliates ............          --           --           --           (9)
  Net interest income (expense) ...................          (6)          26           61          262
                                                       --------     --------     --------     --------

Income (loss) before provision for income taxes ...       7,310          (32)       8,852      (11,011)
Provision for income taxes ........................       2,925           --        3,541           --
                                                       --------     --------     --------     --------

Net income (loss) .................................    $  4,385     $    (32)    $  5,311     $(11,011)
                                                       ========     ========     ========     ========


Basic and diluted net income per share ............    $   0.52          n/a     $   0.62          n/a
                                                       ========     ========     ========     ========

Shares  used in  calculating  basic and diluted per
share information .................................       8,399          n/a        8,607          n/a
                                                       ========     ========     ========     ========

</TABLE>


The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.


                                       4
<PAGE>   5

                           COHESION TECHNOLOGIES, INC.

                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                             NINE MONTHS ENDED
                                                                 MARCH 31,
                                                             1999          1998
                                                           --------      ------
<S>                                                        <C>          <C>      
Cash flows from operating activities:
  Net income (loss) ...................................    $  5,311     $(11,011)

  Adjustments to reconcile net income (loss)
     to net cash used in operating activities:
     Depreciation and amortization ....................         876          514
     Gains on investments .............................     (27,191)     (13,739)
     Purchased in-process research and development ....          --       10,530
     Equity in losses of affiliates ...................          --            9
     Deferred income taxes ............................          --        1,436
     Decrease (increase) in assets:
       Accounts receivable ............................          85          (86)
       Inventories ....................................      (1,064)          17
       Other ..........................................        (175)         398
     Increase (decrease) in liabilities:
       Accounts payable, accrued liabilities and other          772          453
       Income taxes payable ...........................       2,534       (2,400)
                                                           --------     --------
  Total adjustments ...................................     (24,163)      (2,868)
                                                           --------     --------
     Net cash used in operating activities ............     (18,852)     (13,879)
                                                           --------     --------

Cash flows from investing activities:
  Proceeds from sales of Boston Scientific
     Corporation stock ................................      25,020       14,716
  Proceeds from sales of other affiliate stock ........         533          704
  Proceeds from sales and maturities of short-term
investments ...........................................       1,616           75
  Proceeds from equity collar investment ..............       2,769           --
  Expenditures for property and equipment .............      (4,803)        (510)
  Equity investments and loans to affiliates ..........          --         (650)
  Acquisition of shares of Cohesion Corporation, net of
      cash balances ...................................          --      (10,530)
                                                           --------     --------
     Net cash provided by investing activities ........      25,135        3,805
                                                           --------     --------

Cash flows from financing activities:
   Proceeds from short-term borrowings ................       3,250           --
   Repayment of short-term borrowings .................      (3,250)          --
   Proceeds from employee stock purchase plan .........          96           --
   Treasury stock purchase ............................      (1,835)          --
                                                           --------     --------
     Net cash used in financing activities ............      (1,739)          --
                                                           --------     --------

Net increase (decrease) in cash and cash equivalents ..       4,544      (10,074)
Cash and cash equivalents at beginning of period ......         591       13,706
                                                           --------     --------

Cash and cash equivalents at end of period ............    $  5,135     $  3,632
                                                           ========     ========
</TABLE>


The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.



                                       5
<PAGE>   6

                           COHESION TECHNOLOGIES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation

   Cohesion Technologies, Inc. ("Cohesion" or the "Company") was organized as a
Delaware corporation and a wholly owned subsidiary of Collagen Aesthetics, Inc.
formerly known as Collagen Corporation ("Collagen") in June 1997. In October
1997, Collagen announced that it would proceed to separate its Aesthetic
Technologies Group and its Collagen Technologies Group ("CTG") into two
independent, publicly traded companies. In connection with the separation of the
two groups, Collagen distributed as a dividend to its stockholders, one share of
the Company's Common Stock for each share of Collagen common stock outstanding
on August 18, 1998 (the "Distribution"). The Distribution was designed to
separate two distinct businesses with significant differences in their markets,
products, research needs, investment needs, employee retention and compensation
plans and plans for growth. Collagen's Board believed the separation into two
independent companies would enhance the ability of each to focus on strategic
initiatives and new business opportunities, improve cost structures and
operating efficiencies and create incentives that are more attractive and
appropriate for the recruitment and retention of key employees. As a
consequence, Collagen believed that investors would be able to evaluate better
the merits of the two groups of businesses and their future prospects.

   In March 1998, the Board of Directors of Collagen approved certain agreements
between the Company and Collagen (collectively, the "Intercompany Agreements")
which (i) provided for the transfer, effective January 1, 1998, of certain
assets and liabilities relating to the businesses previously conducted by
Collagen's CTG to the Company, and (ii) established contractual arrangements
between Collagen and the Company. CTG's business activities focused on the
design, development, manufacture and commercialization of innovative resorbable
biomaterials, adhesive technologies, and delivery systems in the fields of
tissue repair and regeneration.

   The condensed consolidated financial statements reflect the results of
operations, financial condition and cash flows of Cohesion as a component of
Collagen up through August 18, 1998 and as a separate stand-alone company
thereafter. The financial statements of the Company include the operating
results of Cohesion Corporation, a developer of proprietary products for
hemostasis and tissue adhesion, biosealants and adhesion barriers for surgical
applications, since the acquisition of Cohesion Corporation by Collagen in
fiscal 1996. Results prior to the distribution may not be indicative of the
actual results of operations and financial position of Cohesion under separate
ownership. The various assets, liabilities, revenues and expenses associated
with CTG have been allocated to the historical financial statements of Cohesion
in a manner consistent with the Intercompany Agreements. Management believes
that the consolidated statements of operations include a reasonable allocation
of costs incurred by Collagen which benefit Cohesion. These allocations of
corporate expenses include, in aggregate, approximately 30% to 35% of the
general and administrative expenses of Collagen for the periods presented, with
the exception of certain former Chief Executive Officer ("CEO") expenses in
fiscal 1998. The CEO expenses have been allocated to Cohesion based on the CEO's
level of involvement in Cohesion during fiscal 1998. Costs and expenses
associated with cost of sales and research and development were generally
allocated to Cohesion on a specific identification basis.

   In connection with the asset transfer discussed above, $10.9 million of cash,
cash equivalents and short-term investments remained with Collagen and the
remaining cash, cash equivalents and short-term investments were transferred to
the Company at December 31, 1997. Each debt security was




                                       6
<PAGE>   7

allocated between the companies pro rata to the total allocation of such
investments. Substantially all investments in affiliates, including Boston
Scientific Corporation of Natick, Massachusetts ("Boston Scientific") and
Innovasive Devices, Inc. of Marlborough, Massachusetts ("Innovasive Devices")
were allocated to Cohesion. Trade receivables, notes receivable, loans to
officers and employees, fixed assets and employee related liabilities were
allocated based on specific identification. All equity accounts, with the
exception of the additional paid-in-capital related to Target Therapeutics,
Inc., remained with Collagen. For any assets or liabilities where it was not
practical to use the specific identification method, Cohesion was allocated 30%
of these assets and liabilities. The 30% allocation was based on a review of the
characteristics and activity of these assets and liabilities and business
objectives. The intercompany receivable/payable balances resulting from
Cohesion's participation in Collagen's central cash management system, after
consideration of the December 31, 1997 contribution of cash, cash equivalents
and short-term investments, is a component of Collagen's contributed capital on
Cohesion's balance sheet. The officer separation agreement with Collagen's
former CEO and the costs associated with the agreement have been allocated to
Cohesion.

   Under the terms of the services and supply agreements between Cohesion and
Collagen, Collagen will supply certain products to Cohesion for a fee. The cost
of sales amounts included in the financial statements are based on historical
costs for the periods presented through January 1, 1998. The Intercompany
Agreements provide for cost to be determined on a defined formula. If such
prospective arrangements had been in place during the periods presented, cost of
sales would have decreased by $48,000 in the nine months ended March 31, 1998.

   Under the terms of the recombinant technology and development license
agreement between Cohesion and Collagen, Cohesion and Collagen will collaborate
to develop recombinant human collagen and will share the costs of the project
until certain milestones are met. The research and development ("R&D") expenses
included in the financial statements are based on historical costs for the
periods presented through January 1, 1998. The Intercompany Agreements provide
for costs to be equally shared. If such prospective arrangements had been in
place during the periods presented, R&D expenses, net of reimbursements from
Collagen, would have decreased by $1.0 million in the nine months ended March
31, 1998.

   The condensed consolidated financial statements include the accounts of
Cohesion and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Cohesion operates
in one industry segment focusing on the development and sale of medical devices.
Investments in unconsolidated subsidiaries, and other equity investments in
which Cohesion has a 20% to 50% interest or otherwise has the ability to
exercise significant influence, are accounted for under the equity method.

   Unrestricted available-for-sale equity securities in which Cohesion has a
less than 20% interest, which includes holdings in Boston Scientific and the
unrestricted portion of the Company's holdings in Innovasive Devices are carried
at fair value with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. Restricted equity securities in
which Cohesion has less than a 20% interest are carried at cost or estimated
realizable value, if less, and are included in "other investments" in the
accompanying balance sheets. (See Note 2.) The cost of securities sold is based
on the specific identification method. The fair value of public equity
securities held is based upon quoted closing market prices. The fair value of
private equity securities held approximates the carrying value based on quoted
market prices for similar securities.

   The condensed consolidated balance sheet as of March 31, 1999, the condensed
consolidated statements of operations for the three and nine months ended March
31, 1999 and 1998, and the condensed consolidated statements of cash flows for
the nine months ended March 31, 1999 and 1998, 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 March
31, 1999 and for all periods presented. Interim results are not necessarily
indicative of results for a full fiscal year. The consolidated balance sheet as
of June 30, 1998 has been derived from the audited consolidated 


                                       7
<PAGE>   8

financial statements at that date.

   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 consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.


2. COMPREHENSIVE INCOME

   As of July 1, 1998, the Company adopted Financial Accounting Standard No. 130
("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this statement had no impact on the Company's net
income (loss) or stockholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities which prior to adoption
were reported separately in stockholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.

   The components of comprehensive income (loss), net of related tax, for the
three and nine months ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                         Three Months Ended         Nine Months Ended
                                             March 31,                March 31,
                                       ---------------------     ---------------------
                                         1999         1998         1999         1998
                                       --------     --------     --------     --------
<S>                                    <C>          <C>          <C>          <C>      
Net income (loss) .................    $  4,385     $    (32)    $  5,311     $(11,011)
Change in unrealized gains (losses)
    on securities .................        (865)       6,016      (14,425)      (4,263)
                                       --------     --------     --------     --------

Comprehensive income (loss) .......    $  3,520     $  5,984     $ (9,114)    $(15,274)
                                       ========     ========     ========     ========
</TABLE>



3. EQUITY INVESTMENTS

   Boston Scientific Corporation

   During the three and nine months ended March 31, 1999, Cohesion sold 400,000
and 800,000 shares (post-split), respectively, of Boston Scientific common stock
for a pre-tax gain of approximately $10.9 million and $23.3 million,
respectively. Boston Scientific's common stock split 2:1 as of November 30,
1998. Boston Scientific is a leading manufacturer of catheter-based devices that
can be inserted through small body openings and are used in heart surgery and
other operations. Boston Scientific common stock is quoted on the New York Stock
Exchange under the symbol BSX. On March 31, 1999, the closing price of Boston
Scientific common stock was $40.625 per share. At March 31, 1999, the Company
held 1.3 million shares (post-split) of Boston Scientific, representing less
than 1% ownership interest.

   Cohesion's shares of Boston Scientific common stock are classified as
available-for-sale and have been recorded at the estimated fair value. The
unrealized gains (estimated fair value less cost) on these available-for-sale
securities have been reported as a separate component of stockholders' equity,
net of tax. The following is a summary of the aggregate estimated fair value,
gross unrealized gains and amortized cost of the Company's investment in Boston
Scientific common stock:



                                       8
<PAGE>   9

3. EQUITY INVESTMENTS (CONTINUED)

   Boston Scientific Corporation

<TABLE>
<CAPTION>
                                   MARCH 31,    JUNE 30,
                                     1999        1998
                                   -------      -------
                                      (IN THOUSANDS)
<S>                                <C>          <C>   
Amortized Cost..............       $ 2,737      $ 4,468
Gross Unrealized Gains......        48,682       69,511
                                   -------      -------
Estimated Fair Value........       $51,419      $73,979
                                   =======      =======
</TABLE>


   To hedge against fluctuations in the market value of a portion of the Boston
Scientific common stock, Cohesion entered into costless collar instruments that
expire quarterly from August 1998 through May 2001 and will require settlement
in cash. At March 31, 1999, 1.2 million shares were hedged under these collars.
The call options are collateralized by shares of Boston Scientific common stock
held by Cohesion. During the three and nine months ended March 31, 1999, the
Company received $1.7 million and $2.8 million, respectively from the expiration
of collars. The fair value of the equity collars at March 31, 1999 was $2.7
million.


   Innovasive Devices, Inc.

   Prior to October 1996, Cohesion's 843,936 shares of common stock of
Innovasive Devices were valued at cost or $4.1 million due to restrictions that
prevented the sale of any of such shares. At March 31, 1999, these restrictions
were no longer applicable on 331,300 shares of Innovasive Devices common stock
held by Cohesion. Cohesion carries the portion of its investment in Innovasive
Devices which can be sold within one year, as an available-for-sale investment
at market value, or $1.1 million at March 31, 1999, reflecting an unrealized
loss of $500,000 ($1.1 million estimated fair value less $1.6 million cost),
which has been included in a separate component of stockholders' equity, net of
tax. The remaining 512,636 restricted shares of common stock continued to be
valued at cost of $2.5 million. The investment in Innovasive Devices is included
in "other investments" in the accompanying balance sheets.

   During the quarter ended March 31, 1999, Cohesion did not sell any of its
shares of common stock of Innovasive Devices. Innovasive Devices common stock is
quoted on The Nasdaq Stock Market under the symbol IDEA. The closing price of
Innovasive Devices' common stock at March 31, 1999, was $3.313 per share. At
March 31, 1999, Cohesion held approximately a 9% ownership position in
Innovasive Devices.


   Pharming, B.V.

   Prior to July 1998, Cohesion's investment in Pharming B.V. ("Pharming") was
valued at cost or $7.0 million. In July 1998, Pharming became a publicly traded
company, at which time the Company's shares were converted into 838,512 shares
of Pharming common stock. The Pharming common stock held by the Company was
restricted from sale until December 31, 1998. Cohesion's shares of Pharming
common stock are classified as an available-for-sale investment at market value,
or $5.1 million at March 31, 1999, reflecting an unrealized loss of $1.9 million
($5.1 million estimated fair value less $7.0 million cost), which has been
included in a separate component of stockholders' equity, net of tax. The
investment in Pharming is included in "other investments" in the accompanying
balance sheets.


   Pharming common stock is quoted on The EASDAQ Stock Market under the symbol
PHAR. The 


                                       9
<PAGE>   10

closing price of Pharming common stock at March 31, 1999, was $6.035
per share. At March 31, 1999, Cohesion held approximately a 6% ownership
position in Pharming.


4. SHORT-TERM DEBT

   The Company has a short-term borrowing arrangement with a securities broker.
The interest rate on the demand loan is based on LIBOR + 1-1/8% and the debt is
collateralized by the Boston Scientific common stock. At March 31, 1999 there
was no balance outstanding under the arrangement.


5. STOCKHOLDERS' AND PARENT COMPANY EQUITY

  Parent Company Equity

    Cohesion's equity account with its parent company, Collagen, was closed out
to Additional Paid-in Capital as of the Distribution date. Retained earnings has
been established thereafter, and includes net income for the Company since
August 19, 1998.


   Cohesion Corporation Stock Options

   In September 1998, the Company's Board of Directors approved a program to
cancel options to purchase shares of the common stock of Cohesion Corporation, a
majority-owned subsidiary of the Company. In connection with such program, the
Company offered to pay each holder of these canceled options a per share amount
equal to the excess of $16.70 over the exercise price of the canceled option.
The Company will make this option payment ratably over the original vesting
period of the canceled option so long as the former holder thereof remains an
employee or consultant of the Company or Cohesion Corporation. The Company
recorded $498,000 and $2.9 million of compensation expense related to these
canceled options during the three and nine months ended March 31, 1999 and
expects to records an additional $2.9 million over fiscal years 1999 through
2001.


6. INCOME TAXES

   The effective tax rate for the nine months ended March 31, 1999 was 40%.
There was no tax provision for the prior year based on fiscal year 1998
projections at that time.


7.  EARNINGS PER SHARE

   Historical per share data for the quarter and nine months ended March 31,
1998 has not been presented as no common shares were outstanding until June 25,
1998.

   For the three and nine months ended March 31, 1998, basic and diluted pro
forma net loss per share was $0.01 and $1.13, respectively, based on 8,989,000
(basic) and 9,071,000 (diluted), and 8,901,000 (both basic and diluted) shares,
respectively, assuming the distribution of shares of the Company's Common Stock
to Collagen's stockholders had occurred on July 1, 1997 based on the number of
Collagen common shares and common equivalent shares outstanding for that period,
assuming a one-for-one exchange ratio in the Distribution.



                                       10
<PAGE>   11

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS



    The following information should be read in conjunction with the Condensed
Consolidated Financial Statements and the notes thereto. This quarterly report
on Form 10-Q, and in particular the Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking
statements regarding future events or the future performance of the Company that
involve certain risks and uncertainties including those discussed in "Factors
That May Affect Future Results of Operations" below and as more fully described
in "Risk Factors" in the Company's Form 10-K for the year ended June 30, 1998.
In this report, the words "anticipates", "believes", "expects", "future" and
similar expressions identify forward-looking statements. Actual events or the
actual future results of the Company may differ materially from any
forward-looking statements due to such risks and uncertainties. The Company
assumes no obligation to update these forward-looking statements to reflect
actual results or changes in factors or assumptions affecting such
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements, which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. For a more detailed discussion of these and
other business risks, see "-- Factors That May Affect Future Results of
Operations."

    The financial information of the Company set forth in this Form 10-Q is
theoretical in nature and not necessarily indicative of the future results of
operations or financial position of the Company or the results of operations and
financial position which would have resulted had the Company been a stand-alone
company during the periods presented.


OVERVIEW

   Cohesion Technologies, Inc. ("Cohesion" or the "Company") was organized as a
Delaware corporation and wholly owned subsidiary of Collagen Aesthetics, Inc.,
formerly known as Collagen Corporation ("Collagen"), in June 1997. In October
1997, Collagen announced that it would proceed to separate its Aesthetic
Technologies Group and its Collagen Technologies Group ("CTG") into two
independent, publicly-traded companies. Effective January 1, 1998, Collagen
contributed its research and development programs for hemostatic devices,
biosealants, orthopedics products and programs, adhesion barriers and
recombinant human collagen and thrombin and other related businesses of CTG (the
"Transferred Businesses") to the Company. Collagen also contributed various
equity investments to the Company, including all of its holdings in Boston
Scientific Corporation ("Boston Scientific") and Innovasive Devices, Inc.
("Innovasive Devices"), which together had an aggregate market value of $55.0
million at March 31, 1999. In connection with the separation of the two groups,
Collagen distributed as a dividend to its stockholders on August 18, 1998, one
share of the Company's Common Stock for each share of Collagen common stock
outstanding (the "Distribution"). The Company and Collagen have entered into
various agreements (the "Intercompany Agreements") to provide for an orderly
transition of matters and to govern certain ongoing matters between the two
entities and provide a mechanism for transitioning license, supply,
distribution, research and development, tax, service and other agreements in
connection with the Distribution. A description of the assets and liabilities
contributed by Collagen to the Company is contained in Note 1 of Notes to
Condensed Consolidated Financial Statements.

   The Company's historical financial position and results of operations reflect
the historical operations of the Transferred Businesses contributed by Collagen
to the Company. Prior to being contributed to the Company by Collagen, the
Transferred Businesses were part of the Collagen Technologies Group. In
particular, this Management's Discussion and Analysis of Financial Condition and
Results of Operations reflects the historical results of that operating group
for all periods presented through January 1, 1998, as if the contribution of the
Transferred Businesses by Collagen 


                                       11
<PAGE>   12

to the Company had occurred on July 1, 1997. (See Note 1 of Notes to Condensed
Consolidated Financial Statements.)

   The Company is focused on developing and commercializing proprietary surgical
products, including bioresorbable hemostatic devices and biosealants for tissue
repair and regeneration. CoStasis surgical hemostat, the Company's lead
hemostatic product, is designed for use initially in cardiothoracic indications.
The Company completed a multi-site, randomized, pivotal clinical trial in Europe
and received European Community Certification ("CE Mark") for CoStasis in
September 1998. The Company launched CoStasis in Europe during the quarter ended
March 31, 1999. The Company has received an Investigational Device Exemption
("IDE") from the United States Food and Drug Administration ("FDA") for CoStasis
and has commenced U.S. pivotal trials targeting cardiac, hepatic, orthopedic and
general surgery indications. The Company is completing a feasibility study in
Europe with CoSeal(TM) surgical sealant, the Company's lead biosealant product
designed for sealing organs and other tissues resulting from surgical wounds and
incisions. The Company is beginning an expanded clinical study with CoSeal(TM)
in Europe. The Company believes its surgical products will provide several
distinct advantages over currently available technologies, including ease of
preparation and use, novel delivery systems, improved safety profiles and
clinical effectiveness. The Company also sells Collagraft implant, an orthopedic
product, and has research and development programs in other orthopedic areas and
in recombinant human collagen and thrombin. The Company's products and programs
are based on a platform of proprietary technologies centered around collagen and
hydrophilic polymers that quickly polymerize in-vivo and bind to tissue.


RESULTS OF OPERATIONS

Three and Nine Months Ended March 31, 1999 and 1998

   Product sales of $428,000 during the three months ended March 31, 1999,
increased by approximately $190,000 or 80%, compared to product sales of
$238,000 for the same prior-year period. Product sales of $1.7 million during
the nine months ended March 31, 1999, increased by approximately $200,000 or
13.0%, compared to product sales of $1.5 million for the same prior-year period.
Sales of Collagraft of $255,000 during the three months ended March 31, 1999,
increased by approximately $119,000 or 88%, compared to sales of $136,000 for
the same prior-year period. The increase is due to the timing of shipments to
Zimmer. Sales of Collagraft of $1.2 million during the nine months ended March
31, 1999, increased by approximately $100,000 or 9%, compared to sales of $1.1
million for the same prior-year period. The Company expects sales of Collagraft
in fiscal 1999 to be at levels slightly higher than those of fiscal 1998 due to
anticipated product launches by Zimmer in Japan and by the Company in certain
European countries.

   A number of uncertainties exist surrounding the marketing and distribution of
Collagraft bone graft products. The Company's primary means of distribution for
these products in the United States and Japan is through Zimmer, a third-party
firm. The Company's business and financial results could be adversely affected
in the event that Zimmer is unable to market the product 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 sales were 93% and 58% for the three and
nine months ended March 31, 1999, respectively, compared to 52% and 54% for the
same prior-year period. For the three months ended March 31, 1999, cost of sales
as a percentage of sales of 93% is the result of high initial production costs
for CoStasis. Cost of sales as a percentage of sales for fiscal 1999 is expected
to be comparable to fiscal 1998 as cost of sales will reflect the cost of goods
for CoStasis as well as a full year's impact of the supply agreement with
Collagen, which provides for cost to be determined on a defined formula.

   Research and development ("R&D") expenses were $3.7 million and $3.9 million
for the three months ended March 31, 1999 and 1998, respectively. R&D expenses
for the nine months ended 

                                       12
<PAGE>   13

March 31, 1999 was comparable to the same prior-year period. The 5% decrease in
R&D spending for the three months ended March 31, 1999 compared to the three
months ended March 31, 1998, was primarily due to lower spending in the
recombinant human collagen program which was partially offset by increased
spending in the tissue adhesive and biosealant programs. R&D expense for fiscal
1999 is reflected net of reimbursement from Collagen for the recombinant human
collagen program in accordance with the Intercompany Agreements. The Company
expects R&D spending in fiscal 1999 to be at levels comparable to fiscal 1998.

   Selling, general and administrative ("SG&A") expenses of $1.7 million during
the three months ended March 31, 1999, increased by approximately $500,000 or
42%, compared to SG&A expenses of $1.2 million for the same prior-year period.
SG&A expenses of $4.9 million during the nine months ended March 31, 1999,
increased by approximately $1.1 million or 29%, compared to SG&A expenses of
$3.8 million for the same prior-year period. The SG&A expense increased over the
prior-year is due primarily to increased marketing costs associated with the
anticipated launch of CoStasis in Europe. SG&A costs for the periods presented
include expenses related to Collagen's former CEO, Mr. Palefsky. The Company
made cash payments of $575,000 to Mr. Palefsky in fiscal 1998, and made cash
payments to Mr. Palefsky during fiscal 1999 totaling $218,750. The Company also
agreed to forgive all indebtedness, aggregating $1.6 million, owed by Mr.
Palefsky to Collagen (and assumed by the Company effective January 1, 1998)
subject to certain conditions. (See Note 1 of Notes to Condensed Consolidated
Financial Statements) Such indebtedness was fully reserved during fiscal 1997.
SG&A expenses are expected to remain relatively constant in fiscal 1999 due to
reductions in costs associated with the Distribution, and expenses associated
with Mr. Palefsky, offset by anticipated increased expenses associated with
operating as a public company. Future levels of SG&A spending will depend on
various factors, including the level of product sales.

   During the three and nine months ended March 31, 1999, the Company recorded
$498,000 and $2.9 million, respectively, of compensation expense in connection
with the cancellation of the remaining stock options of Cohesion Corporation. In
September 1998, the Company's Board of Directors approved a program to cancel
options to purchase shares of the common stock of Cohesion Corporation (the
"Canceled Options"). In connection with such program, the Company offered to pay
each holder of Canceled Options a per share amount equal to the excess of $16.70
over the exercise price of the Canceled Option (the "Option Payment"). The
Company will make this Option Payment ratably over the original vesting period
of the Canceled Option so long as the former holder thereof remains an employee
or consultant of the Company or Cohesion Corporation. The Company expects to
record an additional $2.9 million of compensation expense with respect to the
cash-out of Canceled Options, which will be recognized during fiscal years 1999
through 2001.

   Gains on sales of investments were $13.2 million and $27.2 million for the
three and nine months ended March 31, 1999, respectively, compared to $5.0
million and $13.7 million for the same prior-year period. During the three and
nine months ended March 31, 1999, the Company sold 400,000 and 800,000 shares
(post-split), respectively, of Boston Scientific common stock which provided
cash proceeds of $11.8 million and $25.0 million, respectively. Also included in
the gain on sales of investments for the three and nine months ended March 31,
1999, was proceeds of $1.7 million and $2.8 million, respectively, from the
expiration of equity collar investments. The timing and number of additional
shares of Boston Scientific common stock sold will depend on market conditions
and the anticipated cash needs of the Company.

   For the three months ended March 31, 1999, net interest expense was $6,000
compared to $26,000 of net interest income for the same prior-year period. Net
interest income for the nine months ended March 31, 1999 and 1998, was $61,000
and $262,000, respectively. For the three and nine months ended March 31, 1999,
interest expense totaled $8,000 and $12,000, respectively (See Note 3 of Notes
to Condensed Consolidated Financial Statements). In addition to interest on
short-term borrowings, the decrease in net interest income for the nine months
ended March 31, 1999, was mainly due to lower average cash, cash equivalent, and
short-term investment balances in the current fiscal year.


                                       13
<PAGE>   14

   The Company recorded a provision for income taxes of 40% for the nine months
ended March 31, 1999. There was no provision for income taxes recorded for the
prior year based on projections at that time for the fiscal year 1998.


LIQUIDITY AND CAPITAL RESOURCES

   On January 1, 1998, Collagen contributed to the Company cash, cash
equivalents and short-term investments of $1.8 million, certain equity
investments, including Boston Scientific common stock and common stock of
Innovasive Devices, as well as the agreement with Zimmer regarding the
distribution of Collagraft products. The Company expects to rely upon proceeds
from the sale of these investments, as well as revenues from the sale of
Collagraft, for future working capital, capital expenditures and other corporate
purposes.

   At March 31, 1999, cash, cash equivalents and short-term investments were
$5.1 million. Net cash used in operating activities was $18.9 million for the
nine months ended March 31, 1999. For the nine months ended March 31, 1999, cash
provided by investing activities was $25.1 million and was primarily related to
proceeds of $25.0 million from the sale of 800,000 shares (post-split) of Boston
Scientific common stock and proceeds of $4.9 million from the sales of
short-term and other investments, including $533,000 of other affiliated stock,
partially offset by capital expenditures of $4.8 million. Cash proceeds from
financing activities of $3.3 million were received primarily from borrowings,
offset by $3.3 million to payback the borrowings and $1.8 million used to
purchase shares of the Company's common stock. The Company anticipates capital
expenditures to be approximately $6.0 million in fiscal 1999.

   In September 1998, the Company's Board of Directors approved a stock
repurchase program to repurchase up to 1.0 million shares of the Company's
Common Stock at a price of up to $4.25 per share. As of March 31, 1999, the
Company had repurchased an aggregate of 480,100 shares of Common Stock under
this program.

   The Company's principal sources of working capital include sales of Boston
Scientific common stock and its cash, cash equivalents, short-term investments
and short-term borrowing arrangement. The Company anticipates that sales of
Boston Scientific common stock will be made from time to time, with the
objective of generating cash for, among other things, further investments in
both current and new affiliated companies. The Company may defer sales of Boston
Scientific common stock for tax planning purposes, although decisions concerning
prospective Boston Scientific common stock sales will also be affected by the
then-current market price of Boston Scientific common stock. As another source
of financing, the Company may in the near term establish a credit facility,
although there can be no assurance that a line of credit will be available to
the Company on acceptable terms, if at all.

   The Company's capital requirements will depend on numerous factors, including
the progress of the Company's clinical research and product development
programs, the extent to which the Company enters into collaborative
relationships with third parties and the scope of the Company's obligations in
any of such relationships, the receipt of, and the time required to obtain,
regulatory clearances and approvals, the resources required to protect the
Company's intellectual property and other factors. The timing and amount of such
capital requirements cannot be accurately predicted.

   The Company believes that its current sources of liquidity should be adequate
to fund its anticipated capital requirements through at least the next two
fiscal years. However, during this period and thereafter, the Company may
require additional financing. The Company does not anticipate significant
capital expenditures in the near term other than what is noted above; however,
it may make investments in businesses and technologies that are necessary to
support its objectives. There can be no assurance that additional financing will
be available to the Company on acceptable terms, if at all. Furthermore, any
additional equity financing may be dilutive to stockholders and additional debt
financing, if available, may involve restrictive covenants.

                                       14
<PAGE>   15

   On February 1, 1999, Cohesion formed a new company, NeuColl, Inc.
("NeuColl"), a wholly owned subsidiary, in order to commercialize products in
the orthopedics field, which include Collagraft and NeuVisc(TM), a
collagen-based intra-articular implant. In connection with the formation,
Cohesion granted NeuColl an exclusive license to certain patents relating to
collagen and polymer technology for orthopedic applications. Cohesion will
initially provide funding to NeuColl, however, the Company expects that NeuColl
will eventually seek third-party funding.



YEAR 2000

    The Year 2000 issue refers to problems that computer programs may have in
determining the correct century; for example, time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar business activity. The Company
has developed a plan to address potential exposures related to the Year 2000
issue and is taking reasonable steps to ensure that its systems, software and
equipment involving date-related information will continue to function properly
after December 31, 1999. The Company's plan encompasses compliance with
regulatory guidelines on the Year 2000 issue.

    The Company has started its assessment of information technology business
systems, product, operating equipment, and third party interfaces, including
suppliers. To date, the Company has not identified any significant problems. The
Company plans to use Collagen's computer systems until June 30, 1999 under one
of the Intercompany Agreements. Some of Collagen's older computer programs were
written using two digits rather than four to define the applicable year.
Collagen has completed an assessment and has notified the Company that it will
modify or replace portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company will incur no costs related to ensuring that Collagen's computer systems
are year 2000 compliant. Accordingly, the Company estimates that its costs
associated with the year 2000 issue will be immaterial. Subsequent to June 30,
1999, the Company expects to utilize its own recently purchased computer system,
which the Company believes is Year 2000 compliant. The Company implemented a new
financial information system during fiscal 1999.

    With respect to third party interfaces, the Company has and will continue to
confirm the Year 2000 readiness of those third parties through January 1, 2000.
However, the Company cannot reasonably estimate the potential impact on its
financial condition and operations if critical third parties do not become Year
2000 ready on a timely basis.



FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

   For a more complete discussion of risks and uncertainties involving the
Company's business, please see the risk factors described under the heading
"Risk Factors" set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.


Uncertainties Related to Clinical Trials and Lack of Extensive Clinical Data

    Although the Company received a CE Mark in Europe for its lead product
candidate, CoStasis, and is currently in clinical trials in the United States,
clinical data obtained to date has been insufficient to demonstrate the safety
and efficacy of any of the Company's product candidates under applicable FDA
regulatory guidelines. Significant additional clinical data will be required
prior to submission of a premarket approval ("PMA") application for any of such
prospective products in the United States. 


                                       15
<PAGE>   16

Such obstacles could delay progress in the development and commercialization of
the Company's current product candidates. Adverse events related to the use of
the Company's product candidates may occur during clinical trials, and any such
events may require suspension or termination of clinical trials, and the filing
of reports with the FDA and other applicable U.S. and international regulatory
authorities. Such events could negatively impact the Company's ability to
achieve successful development and commercialization of its products.


Uncertainties Related to Development and Commercialization

    The development and commercialization of new products, such as the Company's
surgical sealant CoSeal, are highly uncertain, as is the timing associated with
these activities. Among other things, potential products that may appear to the
Company 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. If any of the Company's 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, the Company's business, financial
condition and results of operations will be materially and adversely affected.


Uncertainties of Market Acceptance

   There can be no assurance that the Company's products will gain commercial
acceptance among physicians, patients and health care payors, even if necessary
international and U.S. marketing approvals are obtained. The Company believes
that recommendations and endorsements by physicians will be essential for market
acceptance of its surgical products, and there can be no assurance that any such
recommendations or endorsements will be obtained. Acceptance among physicians
may also depend upon the Company's ability to train surgeons and other potential
users of the Company's products in the application of sprayable surgical
products, which they typically have not used, and the willingness of such users
to learn these new techniques. Additional factors in achieving market acceptance
may include the Company's ability to address competition from U.S. and
international medical device, pharmaceutical and biopharmaceutical companies, to
develop a marketing and sales force, to form strategic partnerships and to
manufacture price- and cost-effective products. Failure of the Company's
products to achieve significant market acceptance will have a material adverse
effect on the Company's business, financial condition and results of operations.


Intense Competition

   The Company competes with many domestic and foreign medical device,
pharmaceutical and biopharmaceutical companies and organizations across each of
its product categories and areas in which it is conducting research and
development activities. In the hemostatic and biosealant areas, the Company
believes that it will face strong competition in the United States 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. In the United States,
there are several fibrin sealants under development, including a fibrin sealant
product which was recently approved by the FDA. In addition to conventional
fibrin sealants, there are a number of other products in late-stage development
using either collagen or polymer technologies, as well as another class of
sealants called cyanoacrylates. In the orthopedics area, the Company's
Collagraft bone graft products face competition from synthetic bone graft
substitutes.

   Many of these companies and organizations have or may have substantially
greater financial, technological, research and development, regulatory and
clinical, marketing and sales and personnel 


                                       16
<PAGE>   17

resources than the Company. They may also have greater experience in developing
products, conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing such products. They may also develop alternative
technologies and products that are more effective, easier to use or more
economical than those which have been or are being developed by the Company or
that render the Company's technology and products obsolete and non-competitive.
There can be no assurance that the Company's current competitors or other
parties will not succeed in developing alternative technologies and products
that are more effective, easier to use or more economical than those which have
been or are being developed by the Company or that would render the Company's
technology and products obsolete and uncompetitive. Competitors may also obtain
approval or clearance by the FDA or foreign regulatory approval organizations,
achieve product commercialization or obtain patent protection earlier than the
Company. Also, to the extent the Company commences manufacturing activities, it
will also face competition with respect to manufacturing efficiency and
marketing capabilities, areas in which it currently has limited experience.


Uncertainty of Future Profitability

   The Company's operating losses have resulted primarily from expenses incurred
in connection with the Company's research and development activities, including
preclinical and clinical trials, development of manufacturing processes and
general and administrative expenses, and the Company expects that such expenses
will continue to increase for the foreseeable future. The Company's ability to
achieve and sustain operating profitability is highly dependent upon obtaining
in a timely and efficient fashion regulatory approval for its products in
development and successfully commercializing such products, particularly the
CoStasis atraumatic hemostatic device and the CoSeal surgical sealant. The
Company must also develop sales and marketing capabilities for its product
candidates, both in Europe, the United States and other markets. There can be no
assurance that the Company will obtain required regulatory approvals in a timely
fashion, if at all, or successfully develop, manufacture, commercialize and
market products or that the Company will ever record significant product
revenues or achieve operating profitability. Operating profitability, if
achieved, may not be sustained.


Dependence on Boston Scientific Stock to Fund Operations

   The Company has implemented a "protect" strategy based on purchases of put
options and sales of call options in combination, commonly known as an "equity
collar," covering 1.2 million shares of its Boston Scientific stock holdings as
of March 31, 1999. While the strategy is designed to minimize downside risk of
loss should the stock price decline below approximately $31.00 (post-split) and
allow for limited upside participation should the stock price rise above
approximately $49.00 (post-split), there can be no assurance that the Company
will be able to sell the remaining unhedged shares of Boston Scientific stock at
attractive prices if, when and as needed. Failure to achieve such sales could
jeopardize the Company's ability to fund its operations and require it to engage
in additional financing alternatives, some of which might be dilutive. The
market price of Boston Scientific common stock is highly volatile and, as a
medical device manufacturer, the Company believes that Boston Scientific is
subject to a number of the same factors affecting its operations as the Company,
as well as additional factors not applicable to the Company. Any significant
downward fluctuation in the market price for Boston Scientific common stock
could adversely impact the Company's earnings due to lower amounts realized on
any sales by the Company of such stock.


No Assurance of Regulatory Approvals

   The Company's existing and proposed products, research and development and
planned commercialization activities are subject to regulation by numerous
governmental authorities, principally the FDA and corresponding state and
foreign regulatory agencies. Product development and 


                                       17
<PAGE>   18

approval within this regulatory framework takes a number of years and involves
the expenditure of substantial resources. Any failure by the Company to comply
with applicable regulatory requirements could result in the detention or seizure
of products, issuance of an enjoinment of future product activities and the
assessment of civil and criminal penalties against the Company, its officers and
its employees. Failure to comply with the regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations.

   In order for the Company to market its products in Europe and other foreign
countries, the Company and/or its partners, if any, must obtain required
regulatory approvals and comply with extensive regulations governing safety,
quality and manufacturing processes. These regulations vary significantly from
country to country. The time required to obtain approval to market the Company's
products outside the United States may be longer or shorter than that required
in the United States. In order to market the products being developed by the
Company in the member countries of the European Union, the Company will be
required to obtain CE Mark certification.

   The Company anticipates that its products currently in development will be
regulated as Class III medical devices and will require a PMA prior to being
marketed in the United States. There can be no assurance that the FDA will agree
that the clinical study results for CoStatis or CoSeal, once submitted, will
have adequately demonstrated the safety and effectiveness of such products.


Limited Manufacturing Capacity

   Cohesion expects to manufacture and package the final CoStasis and CoSeal
products and that it will use outside contractors for other functions, such as
non-proprietary, high-volume processes. There can be no assurance that the
Company will be able to manufacture commercial quantities of its planned
products in a timely manner, or at all, and at commercially reasonable costs on
a timely basis. There can also be no assurance that the Company or its suppliers
or contract manufacturers will not experience materials shortages in the future.
Any of these factors could have a material adverse effect on the Company's
ability to develop and commercialize its products, which in turn would have a
material adverse effect on the Company's business, financial condition and
results of operations.

   The Company is required to register as a medical device manufacturer with the
FDA and to list its products with the FDA. In addition, prior to international
commercialization, the Company will be required to attain and maintain
compliance with ISO 9001 standards. Failure to either attain or maintain
compliance with the applicable regulatory requirements of various regulatory
agencies would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has not yet undergone
an FDA quality system regulation ("QSR") inspection and does not anticipate that
it will undergo such an inspection until after submission of its initial PMA
application for its CoStasis product.


Lack of Marketing and Sales Capabilities

   The Company currently has no experience in marketing or selling its products
under development and does not have a significant marketing and sales staff. In
order to achieve commercial success for any product approved by the FDA, the
Company must either develop a marketing and sales force or enter into
arrangements with third parties to market and sell its products. If the Company
develops its own marketing and sales capabilities, it will compete with other
companies that currently have experienced and well-funded marketing and sales
operations. To the extent that the Company enters into co-promotion or other
marketing and sales arrangements with other companies, any revenues to be
received by the Company will be dependent on the efforts of others, and there
can be no assurance that such efforts will be successful.


                                       18
<PAGE>   19


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    As part of its strategic alliance efforts, the Company invests in equity
instruments of biotechnology or biomedical device companies that are subject to
fluctuations in market value from changes in stock prices and thus has material
equity investments at March 31, 1999 with related market risks.

    The table below provides information about the Company's equity investment
portfolio (in thousands):
<TABLE>
<CAPTION>
                               FAIR VALUE AT
EQUITY INVESTMENTS             MARCH 31, 1999
------------------------------ ----------------
                                 (IN THOUSANDS)
<S>                            <C>    
Boston Scientific                       $51,420
Innovasive                                2,796
Medarex                                   2,590
Pharming                                  5,061
                                        -------
    Total Portfolio                     $61,867
                                        =======
</TABLE>

   To hedge against fluctuations in the market value of a portion of the Boston
Scientific common stock, Cohesion entered into costless collar instruments that
expire quarterly from August 1998 through May 2001 and will require settlement
in cash. At March 31, 1999, 1.2 million shares were hedged under these collars.
The call options are collateralized by shares of Boston Scientific common stock
held by Cohesion. During the three and nine months ended March 31, 1999, the
Company received $1.7 million and $2.8 million, respectively from the expiration
of collars. The fair value of the equity collars at March 31, 1999 was $2.7
million.




                                       19
<PAGE>   20

                           PART II. OTHER INFORMATION

                           COHESION TECHNOLOGIES, INC.



Item 1.  Legal Proceedings

         Not Applicable



Item 2.    Changes in Securities and Use of Proceeds

               None



Item 3.    Defaults Upon Senior Securities

               None



Item 4.   Submission of Matters to a Vote of Security Holders

               None



Item 5.  Other Information

               None



Item 6.  Exhibits and Reports on Form 8-K

A.      Exhibits



             Exhibit 27      Financial Data Schedule



         B.  Reports on Form 8-K

             None


                                       20
<PAGE>   21

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: May 17, 1999                    s/   Sharon Kokubun 
                                       ----------------------------------------
                                       Sharon Kokubun
                                       Vice President, Financial Operations
                                       (Principal Accounting Officer)



                                       21
<PAGE>   22

                           COHESION TECHNOLOGIES, INC.

         FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 1999


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
                                                                                  Sequentially
  Exhibit                                                                        Numbered Page
  Number                                  Exhibit
------------------------------------------------------------------------------------------------
<S>        <C>                                                                   <C>
    27     Financial Data Schedule (EDGAR version only) 
    27.1   Financial Data Schedule (EDGAR version only) 
    27.2   Financial Data Schedule (EDGAR version only)

</TABLE>

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