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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 March 31, 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 OtherJurisdiction of
Incorporation orOrganization) |  | (I.R.S. EmployerIdentification 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 April 30, 2002, the Registrant had 9,456,905 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 I. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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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 -
March 31, 2002 and December 31, 2001                 | 3       
|          
|          
|          
|          
|           |  |                                                                                       | Condensed Statements of Operations -
Three months ended March 31, 2002 and 2001 | 4       
|          
|          
|          
|          
|           |  |                                                                                       | Condensed Statements of Cash Flows -
Three months ended March 31, 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 I     |  | 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)

|                                     |                                             |                            |        |             |        |              |        |        |        | 
|------------------------------------ | ------------------------------------------- | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | ------ | ------ | 
|                                     |                                             |                            |        | March 31,   |        | December 31,
|                                     |                                             |                            |        | 2002        |        | 2001*       
|                                     |                                             |                            |        |             |        |             
|                                     |                                             |                            |        | (unaudited) |        |              |        |       
|ASSETS                               |                                             |                            |        |             |        |              |        |       
|Current assets:                      |                                             |                            |        |             |        |              |        |       
|                                     | Cash and cash equivalents                   |                            | $      | 12,785      |        |              | $      | 16,765 |       
|                                     | Accounts receivable, net                    |                            |        | 733         |        |              |        | 640    |       
|                                     | Inventories                                 |                            |        | 2,218       |        |              |        | 2,465  |       
|                                     | Other current assets                        |                            |        | 1,359       |        |              |        | 2,061  |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total current assets       |        |             | 17,095 |              |        |        | 21,931 | 
|Property and equipment, net          |                                             |                            | 3,720  |             |        |              | 4,304  |       
|Investment in equity securities      |                                             |                            | 606    |             |        |              | 739    |       
|Other assets                         |                                             |                            | 1,857  |             |        |              | 1,866  |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | $                          | 23,278 |             |        | $            | 28,840 |       
|                                     |                                             |                            |        |             |        |              |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY |                                             |                            |        |             |        |              |        |       
|Current liabilities:                 |                                             |                            |        |             |        |              |        |       
|                                     | Accounts payable                            |                            | $      | 544         |        |              | $      | 611    |       
|                                     | Accrued compensation                        |                            |        | 869         |        |              |        | 980    |       
|                                     | Accrued liabilities                         |                            |        | 2,151       |        |              |        | 2,214  |       
|                                     | Deferred revenue                            |                            |        | 380         |        |              |        | 380    |       
|                                     | Income taxes payable                        |                            |        | 650         |        |              |        | 650    |       
|                                     | Current portion of capital lease obligation |                            |        | 916         |        |              |        | 899    |       
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total current liabilities  |        |             | 5,510  |              |        |        | 5,734  | 
|Long-term liabilities:               |                                             |                            |        |             |        |              |        |       
|                                     | Obligation under capital lease              |                            |        | 1,064       |        |              |        | 1,299  |       
|                                     | Deferred revenue                            |                            |        | 794         |        |              |        | 889    |       
|Stockholders equity:                |                                             |                            |        |             |        |              |        |       
|                                     | Preferred stock                             |                            |        |            |        |              |        |       |       
|                                     | Common stock                                |                            |        | 10          |        |              |        | 10     |       
|                                     | Additional paid-in capital                  |                            |        | 21,770      |        |              |        | 21,737 |       
|                                     | Retained earnings (accumulated deficit)     |                            |        | (4,502      | )      |              |        | 406    |       
|                                     | Accumulated other comprehensive income      |                            |        | 606         |        |              |        | 739    |       
|                                     | Treasury stock, at cost                     |                            |        | (1,974      | )      |              |        | (1,974 | )     
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | Total stockholders equity |        |             | 15,910 |              |        |        | 20,918 | 
|                                     |                                             |                            |        |             |        |              |        |       
|                                     |                                             | $                          | 23,278 |             |        | $            | 28,840 |       
|                                     |                                             |                            |        |             |        |              |        |       

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.

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COHESION TECHNOLOGIES, INC.

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

|                                                        |                                                       |                          |        |                    |       |      |        |       |       | 
|------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | ---- | ------ | ----- | ----- | 
|                                                        |                                                       |                          |        | Three Months Ended
|                                                        |                                                       |                          |        | March 31,         
|                                                        |                                                       |                          |        |                   
|                                                        |                                                       |                          |        | 2002               |       | 2001
|                                                        |                                                       |                          |        |                    |       |     
|Revenue:                                                |                                                       |                          |        |                    |       |      |        |      
|                                                        | Product sales                                         |                          | $      | 1,031              |       |      | $      | 722   |      
|                                                        | Other revenue                                         |                          |        | 95                 |       |      |        | 87    |      
|                                                        |                                                       |                          |        |                    |       |      |        |      
|                                                        |                                                       |                          | 1,126  |                    |       |      | 809    |      
|Costs and expenses:                                     |                                                       |                          |        |                    |       |      |        |      
|                                                        | Cost of sales, including manufacturing start-up costs |                          |        | 1,749              |       |      |        | 1,849 |      
|                                                        | Research and development                              |                          |        | 1,231              |       |      |        | 2,299 |      
|                                                        | Selling, general and administrative                   |                          |        | 3,084              |       |      |        | 1,602 |      
|                                                        |                                                       |                          |        |                    |       |      |        |      
|                                                        |                                                       | Total costs and expenses |        |                    | 6,064 |      |        |       | 5,750 | 
|                                                        |                                                       |                          |        |                    |       |      |        |      
|Loss from operations                                    |                                                       |                          | (4,938 | )                  |       |      | (4,941 | )    
|Other income (expense):                                 |                                                       |                          |        |                    |       |      |        |      
|                                                        | Realized gain on investments, net                     |                          |        |                   |       |      |        | 44    |      
|                                                        | Interest income                                       |                          |        | 74                 |       |      |        | 260   |      
|                                                        | Interest expense                                      |                          |        | (44                | )     |      |        | (59   | )    
|                                                        |                                                       |                          |        |                    |       |      |        |      
|Loss before taxes                                       |                                                       |                          | (4,908 | )                  |       |      | (4,696 | )    
|Provision (benefit) for income taxes                    |                                                       |                          |       |                    |       |      | (1,685 | )    
|                                                        |                                                       |                          |        |                    |       |      |        |      
|Net loss                                                |                                                       | $                        | (4,908 | )                  |       | $    | (3,011 | )    
|                                                        |                                                       |                          |        |                    |       |      |        |      
|Net loss per common share  basic and diluted           |                                                       | $                        | (0.52  | )                  |       | $    | (0.32  | )    
|                                                        |                                                       |                          |        |                    |       |      |        |      
|Weighted average shares outstanding  basic and diluted |                                                       |                          | 9,456  |                    |       |      | 9,356  |      
|                                                        |                                                       |                          |        |                    |       |      |        |      

The accompanying notes to condensed consolidated 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)

|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |        |        |        |  
|------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------------- | ------ | ------------------ | ---- | ------ | ------ | ------ | ------ | -
|                                                 |                                                                             |                                           |                                                 |        | Three Months Ended
|                                                 |                                                                             |                                           |                                                 |        | March 31,         
|                                                 |                                                                             |                                           |                                                 |        |                   
|                                                 |                                                                             |                                           |                                                 |        | 2002               |      | 2001  
|                                                 |                                                                             |                                           |                                                 |        |                    |      |       
|Cash flows from operating activities:            |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 | Net loss                                                                    |                                           | $                                               | (4,908 | )                  |      | $      | (3,011 | )     
|                                                 | Adjustments to reconcile net loss
to net cash used in operating activities: |                                           |                                                 |        |                    |      |        |        |       
|                                                 |                                                                             | Depreciation and amortization             |                                                 |        | 461                |      |        |        | 475    |       
|                                                 |                                                                             | Loss on sale of property and equipment    |                                                 |        | 71                 |      |        |        |       |       
|                                                 |                                                                             | Realized gain on investments, net         |                                                 |        |                   |      |        |        | (44    | )     
|                                                 |                                                                             | Deferred revenue                          |                                                 |        | (95                | )    |        |        | (87    | )     
|                                                 |                                                                             | Decrease (increase) in assets:            |                                                 |        |                    |      |        |        |        |       
|                                                 |                                                                             |                                           | Accounts receivable                             |        |                    | (93  | )      |        |        | (192   | )
|                                                 |                                                                             |                                           | Inventories                                     |        |                    | 247  |        |        |        | 100    |  
|                                                 |                                                                             |                                           | Other                                           |        |                    | 715  |        |        |        | (1,634 | )
|                                                 |                                                                             | Increase (decrease) in liabilities:       |                                                 |        |                    |      |        |        |        |       
|                                                 |                                                                             |                                           | Accounts payable, accrued liabilities and other |        |                    | (241 | )      |        |        | (473   | )
|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 |                                                                             | Net cash used in operating activities     |                                                 |        | (3,843             | )    |        |        | (4,866 | )     
|Cash flows from investing activities:            |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 | Proceeds on maturity of equity collars                                      |                                           |                                                 |       |                    |      |        | 1,757  |       
|                                                 | Proceeds from sale of property and equipment                                |                                           |                                                 | 151    |                    |      |        |       |       
|                                                 | Expenditures for property and equipment                                     |                                           |                                                 | (99    | )                  |      |        | (263   | )     
|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 |                                                                             | Net cash provided by investing activities |                                                 |        | 52                 |      |        |        | 1,494  |       
|Cash flows from financing activities:            |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 | Proceeds from exercise of stock options                                     |                                           |                                                 | 30     |                    |      |        | 129    |       
|                                                 | Payment of capital lease obligation                                         |                                           |                                                 | (219   | )                  |      |        | (204   | )     
|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |       
|                                                 |                                                                             | Net cash used in financing activities     |                                                 |        | (189               | )    |        |        | (75    | )     
|Net decrease in cash and cash equivalents        |                                                                             |                                           | (3,980                                          | )      |                    |      | (3,447 | )     
|Cash and cash equivalents at beginning of period |                                                                             |                                           | 16,765                                          |        |                    |      | 15,271 |       
|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |       
|Cash and cash equivalents at end of period       |                                                                             | $                                         | 12,785                                          |        |                    | $    | 11,824 |       
|                                                 |                                                                             |                                           |                                                 |        |                    |      |        |       

The accompanying notes to condensed consolidated 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 March 31, 2002, the condensed
statements of operations for the three months ended March 31, 2002
and 2001, and the condensed statements of cash flows for the three
months ended March 31, 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 March 31, 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
recent 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. In addition, management implemented
restructuring plans during 2001 that are expected to reduce research and
development and general and administrative expenses from historical levels.
Based upon these anticipated improvements in operating results, management
believes that the Company has sufficient financial resources to meet its
operating requirements for the next six to nine months. The Company also
intends to seek additional funds through public or private equity financing,
borrowings, or other arrangements. Such financing may not be available on
terms that are acceptable to the Company.

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, warrants and
convertible preferred stock as their effect is antidilutive for the periods
presented.

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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:

|                |  |                |       |              |  |   |       | 
|--------------- |  | -------------- | ----- | ------------ |  | - | ----- | 
|                |  | March
31,      |       | December 31,
|                |  | 2002           |       | 2001        
|                |  |                |       |             
|                |  | (In thousands)
|Raw materials   |  | $              | 718   |              |  | $ | 861   | 
|Work-in-process |  |                | 1,116 |              |  |   | 1,237 | 
|Finished goods  |  |                | 384   |              |  |   | 367   | 
|                |  |                |       |              |  |   |       | 
|                |  | $              | 2,218 |              |  | $ | 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 investments in equity
securities which consists of an investment in Pharming, N.V.:

|                       |  |                |     |              |  |   |     | 
|---------------------- |  | -------------- | --- | ------------ |  | - | --- | 
|                       |  | March 31,      |     | December 31,
|                       |  | 2002           |     | 2001        
|                       |  |                |     |             
|                       |  | (In thousands)
|Cost                   |  | $              |    |              |  | $ |    | 
|Gross unrealized gains |  |                | 606 |              |  |   | 739 | 
|                       |  |                |     |              |  |   |     | 
|Estimated fair value   |  | $              | 606 |              |  | $ | 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 March 31, 2002 and December 31, 2001.

4. Comprehensive Income (Loss)

The components of comprehensive income (loss), net of related income tax,
for the three months ended March 31, 2002 and 2001 are as follows (in
thousands):

|                                                               |  |                              |        |      |  |   |        |  
|-------------------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------ | -
|                                                               |  | Three Months Ended March 31,
|                                                               |  |                             
|                                                               |  | 2002                         |        | 2001
|                                                               |  |                              |        |     
|Net loss                                                       |  | $                            | (4,908 | )    |  | $ | (3,011 | )
|Increase (decrease) in unrealized gains on
securities          |  |                              | (133   | )    |  |   | 1,449  |  
|Adjustment of hedged item carrying
amount for fair value hedge |  |                              |       |      |  |   | 1,757  |  
|                                                               |  |                              |        |      |  |   |        |  
|Comprehensive income (loss)                                    |  | $                            | (5,041 | )    |  | $ | 195    |  
|                                                               |  |                              |        |      |  |   |        |  

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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 then financial resources, the
Company concluded it could no longer continue to fund all existing research and
development programs while at the same time, build 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
March 31, 2002, approximately $327,000 had been paid for severance and other
related shutdown costs. The remaining restructuring payments are expected to
be paid by July 2002. The Company also began selling the impaired fixed assets,
resulting in losses recognized totaling $71,000 during the quarter ended March
31, 2002, and expects to dispose the remaining equipment
by the end of calendar 2002.

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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 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. In addition, we may not
prevail in our patent infringement lawsuit claiming patent infringement by
Fusion Medical Technologies, Inc. The risks related to this lawsuit that
could cause our actual results to differ materially from those described in
forward-looking statements include that the court may rule against us on the
issue of infringement, we may not be awarded damages and/or permanent
injunctive relief, the court could limit our ability to enforce our patent, we
could be served with a counter suit, our patent could be declared invalid or
the substantial cost and length of time and unpredictability associated with
litigation. 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.

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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 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.

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.

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 then existing remaining
financial resources, we could no longer continue to fund all existing research
and development programs while at the same time, build 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, and to continue limited clinical
evaluations of our adhesion prevention barrier, and 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 Months Ended March 31, 2002 and 2001

Revenues were $1.1 million and $0.8 million for the three months ended
March 31, 2002 and 2001, respectively, and included contract revenue of $95,000
and $87,000, 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. Product sales were $1.0 million
and $0.7 million for the three months ended March 31, 2002 and 2001,
respectively. The increase in product sales was due to an increase in both
CoStasis and CoSeal sales. A number of uncertainties exist surrounding the
marketing and distribution of our products where the primary means of
distribution is through third party firms, such as U.S. Surgical. Our business
and financial results could be adversely

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affected in the event that either we or these third 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 170% and 256% for the
three months ended March 31, 2002 and 2001, respectively. Gross margins
continue to remain negative and 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 $1.2 million and $2.3
million for the three months ended March 31, 2002 and 2001, respectively. R&D
spending decreased 46% 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 $3.1 million
for the quarter ended March 31, 2002, an increase of 92% from $1.6 million
during the prior year quarter. 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 and legal expenses related to our
patent infringement lawsuit against Fusion Medical.

Net realized gain on investments was $44,000 in the quarter ended March
31, 2001 and represents the ineffective portion of the equity collar hedge.

Interest income was $74,000 and $260,000 for the three months ended March
31, 2002 and 2001, respectively. The decrease is due to lower interest rates
and lower average cash balances in the current fiscal quarter.

Interest expense of $44,000 and $59,000 for the three months ended March
31, 2002 and 2001, respectively, was related to the capital lease obligation.

We recorded no benefit for income taxes during the quarter ended March 31,
2002. As a result of expected future operating losses, we do not expect to
recover additional tax benefits until we reach profitability. For the
quarter ended March 31, 2001, we recorded a benefit for income taxes of 35% 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 March 31, 2002, cash, cash equivalents and investments were $13.4
million compared to $17.5 million at December 31, 2001, including the
unrealized gain of $0.6 million and $0.7 million, respectively, for Pharming
common stock. Net cash used in operating activities was $3.8 million for the
three months ended March 31, 2002 compared to $4.8 million used in the same
prior-year period.

For the three months ended March 31, 2002, cash provided by investing
activities of $52,000 was primarily related to proceeds of $151,000 from the
sale of equipment offset by capital expenditures of $99,000. Currently, we
anticipate that capital expenditures will not exceed $1.0 million in calendar
2002. Net cash used by financing activities for the three months ended March
31, 2002 was approximately $229,000 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 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
March 31, 2002, it is uncertain at this time what the recoverable value will
be, if any.

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We believe that our current sources of liquidity should be adequate to
fund our anticipated operating and capital expenditure requirements through the
next six to nine months. However, during this period and thereafter, we will
require additional financing which may include attempting to sell equity
securities or to secure debt financing or other financing arrangements. 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 March 31, 2002, we had repurchased 515,100 shares of
our common stock under this program, none of which were repurchased in the
quarter ended March 31, 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.

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 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 commercializing and marketing our products
and developing sales and marketing capabilities for our products in Europe, the
United States and other markets. 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 will need to obtain additional financing to fund operations.

We believe that our current sources of liquidity should be adequate to
fund our anticipated capital requirements through the next six to nine months.
However, during this period and thereafter, we will 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.

If additional capital is raised through the issuance of equity securities,
the percentage ownership

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of our existing stockholders will decline, stockholders may 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.

We must develop and commercialize our products to generate revenues.

Except for CoStasis, CoSeal, and our line of 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 many 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 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

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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 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 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.

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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 I. Legal Proceedings

On December 19, 2000, we filed a Complaint against Fusion Medical
Technologies, Inc. in the Northern District of California. We claim that
Fusion Medical Technologies, Inc. infringes 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 would require a holding that Fusions FloSeal product does not
infringe either patent. The parties entered into a Stipulation and Judgment on
April 11, 2002 of non-infringement based upon the Courts Claim Construction
Order. We will appeal the ruling and Judgment to the Court of Appeals for the
Federal Circuit.




Item 6. Exhibits and Reports on Form 8-K

A. Reports on Form 8-K

None

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

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