##### Table of Contents



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 September 30, 2002
|---- | --------------------------------------------------------------------------------------------------------------------------------

OR



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

Commission file number: 000-24103

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

|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 94-3274368                         
|(State or OtherJurisdiction of
Incorporation or Organization) |  | (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 October 31, 2002, the Registrant had 9,485,779 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                           
|                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | Item I. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|CERTIFICATION                



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##### Table of Contents



COHESION TECHNOLOGIES, INC.

FORM 10-Q

INDEX

|               |                                                                                      |                                                                                             |       |       |     |          |  | 
|-------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | ----- | ----- | --- | -------- |  | 
|               |                                                                                      |                                                                                             |       |       |     | Page No.
|               |                                                                                      |                                                                                             |       |       |     |         
|PART I.        |                                                                                      | Financial Information                                                                       |       |       |     |         
|              
|              
|              
|              
|Item 1.        | Financial Statements (unaudited):                                                    |                                                                                             |       |       |    
|              
|              
|              
|              
|               |                                                                                      | Condensed Balance
Sheets September 30, 2002 and December 31, 2001                          |       |       | 3   |         
|              
|              
|              
|              
|               |                                                                                      | Condensed
Statements of Operations Three and nine months ended September 30, 2002 and 2001 |       |       | 4   |         
|              
|              
|              
|              
|               |                                                                                      | Condensed
Statements of Cash Flows Nine months ended September 30, 2002 and 2001           |       |       | 5   |         
|              
|              
|              
|              
|               |                                                                                      | Notes to Condensed Financial Statements                                                     |       |       | 6-9 |         
|              
|              
|              
|              
|Item 2.        | Managements Discussion and Analysis of FinancialCondition and Results of Operations |                                                                                             |       | 10-16 |    
|              
|              
|              
|              
|Item 3.        | Quantitative and Qualitative Disclosures about Market Risk                           |                                                                                             |       | 17    |    
|              
|              
|              
|              
|Item 4.        | Controls and Procedures                                                              |                                                                                             |       | 17    |    
|              
|              
|              
|              
|PART II.       |                                                                                      | Other Information                                                                           |       |       |     |         
|              
|              
|              
|              
|Item 1.        | Legal Proceedings                                                                    |                                                                                             |       | 18    |    
|              
|              
|              
|              
|Item 6.        | Exhibits and Reports on Form 8-K                                                     |                                                                                             |       | 18    |    
|              
|              
|              
|              
|Signatures     |                                                                                      |                                                                                             | 19    |      
|              
|              
|              
|              
|Certifications |                                                                                      |                                                                                             | 20-21 |      

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




COHESION TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(In thousands)

|                                     |                                             |                            |        |               |       |              |        |        |        | 
|------------------------------------ | ------------------------------------------- | -------------------------- | ------ | ------------- | ----- | ------------ | ------ | ------ | ------ | 
|                                     |                                             |                            |        | September 30, |       | December 31,
|                                     |                                             |                            |        | 2002          |       | 2001*       
|                                     |                                             |                            |        |               |       |             
|                                     |                                             |                            |        | (unaudited)   |       |              |        |       
|ASSETS                               |                                             |                            |        |               |       |              |        |       
|Current assets:                      |                                             |                            |        |               |       |              |        |       
|                                     | Cash and cash equivalents                   |                            | $      | 4,844         |       |              | $      | 16,765 |       
|                                     | Accounts receivable, net                    |                            |        | 940           |       |              |        | 640    |       
|                                     | Inventories                                 |                            |        | 1,028         |       |              |        | 2,465  |       
|                                     | Other current assets                        |                            |        | 1,998         |       |              |        | 2,061  |       
|                                     |                                             |                            |        |               |       |              |        |       
|                                     |                                             | Total current assets       |        |               | 8,810 |              |        |        | 21,931 | 
|Property and equipment, net          |                                             |                            | 3,103  |               |       |              | 4,304  |       
|Investment in equity securities      |                                             |                            | 823    |               |       |              | 739    |       
|Other assets                         |                                             |                            | 1,411  |               |       |              | 1,866  |       
|                                     |                                             |                            |        |               |       |              |        |       
|                                     |                                             | $                          | 14,147 |               |       | $            | 28,840 |       
|                                     |                                             |                            |        |               |       |              |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY |                                             |                            |        |               |       |              |        |       
|Current liabilities:                 |                                             |                            |        |               |       |              |        |       
|                                     | Accounts payable                            |                            | $      | 370           |       |              | $      | 611    |       
|                                     | Accrued compensation                        |                            |        | 864           |       |              |        | 980    |       
|                                     | Accrued liabilities                         |                            |        | 2,235         |       |              |        | 2,214  |       
|                                     | Deferred revenue                            |                            |        | 380           |       |              |        | 380    |       
|                                     | Income taxes payable                        |                            |        | 650           |       |              |        | 650    |       
|                                     | Current portion of capital lease obligation |                            |        | 898           |       |              |        | 899    |       
|                                     |                                             |                            |        |               |       |              |        |       
|                                     |                                             | Total current liabilities  |        |               | 5,397 |              |        |        | 5,734  | 
|Long-term liabilities:               |                                             |                            |        |               |       |              |        |       
|                                     | Obligation under capital lease              |                            |        | 632           |       |              |        | 1,299  |       
|                                     | Deferred revenue                            |                            |        | 605           |       |              |        | 889    |       
|Stockholders equity:                |                                             |                            |        |               |       |              |        |       
|                                     | Preferred stock                             |                            |        |              |       |              |        |       |       
|                                     | Common stock                                |                            |        | 10            |       |              |        | 10     |       
|                                     | Additional paid-in capital                  |                            |        | 22,717        |       |              |        | 21,737 |       
|                                     | Retained earnings (accumulated deficit)     |                            |        | (14,063       | )     |              |        | 406    |       
|                                     | Accumulated other comprehensive income      |                            |        | 823           |       |              |        | 739    |       
|                                     | Treasury stock, at cost                     |                            |        | (1,974        | )     |              |        | (1,974 | )     
|                                     |                                             |                            |        |               |       |              |        |       
|                                     |                                             | Total stockholders equity |        |               | 7,513 |              |        |        | 20,918 | 
|                                     |                                             |                            |        |               |       |              |        |       
|                                     |                                             | $                          | 14,147 |               |       | $            | 28,840 |       
|                                     |                                             |                            |        |               |       |              |        |       

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



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|* |  | 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 |       | Nine Months Ended
|                                                        |                                         |                          |        | September 30,      |       | September 30,    
|                                                        |                                         |                          |        |                    |       |                  
|                                                        |                                         |                          |        | 2002               |       | 2001              |        | 2002   |       | 2001
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |     
|Revenues:                                               |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |       
|                                                        | Product sales                           |                          | $      | 1,765              |       |                   | $      | 684    |       |      | $       | 4,192  |        |   | $       | 2,195  |       
|                                                        | Other revenue                           |                          |        | 94                 |       |                   |        | 95     |       |      |         | 284    |        |   |         | 294    |       
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|                                                        |                                         |                          | 1,859  |                    |       |                   | 779    |        |       |      | 4,476   |        |        |   | 2,489   |       
|Costs and expenses:                                     |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |       
|                                                        | Cost of sales                           |                          |        | 1,495              |       |                   |        | 1,550  |       |      |         | 4,856  |        |   |         | 5,005  |       
|                                                        | Research and development                |                          |        | 981                |       |                   |        | 2,731  |       |      |         | 3,200  |        |   |         | 7,157  |       
|                                                        | Selling, general and administrative (a) |                          |        | 4,511              |       |                   |        | 2,583  |       |      |         | 10,945 |        |   |         | 6,195  |       
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|                                                        |                                         | Total costs and expenses |        |                    | 6,987 |                   |        |        | 6,864 |      |         |        | 19,001 |   |         |        | 18,357 | 
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|Loss from operations                                    |                                         |                          | (5,128 | )                  |       |                   | (6,085 | )      |       |      | (14,525 | )      |        |   | (15,868 | )     
|Other income (expense):                                 |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |       
|                                                        | Gains on investments, net               |                          |        |                   |       |                   |        | 16,032 |       |      |         |       |        |   |         | 16,085 |       
|                                                        | Investment impairment                   |                          |        |                   |       |                   |        | (5,293 | )     |      |         |       |        |   |         | (5,293 | )     
|                                                        | Interest income                         |                          |        | 48                 |       |                   |        | 184    |       |      |         | 176    |        |   |         | 614    |       
|                                                        | Interest expense                        |                          |        | (36                | )     |                   |        | (52    | )     |      |         | (120   | )      |   |         | (167   | )     
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|Income (loss) before income taxes                       |                                         |                          | (5,116 | )                  |       |                   | 4,786  |        |       |      | (14,469 | )      |        |   | (4,629  | )     
|Provision (benefit) for income taxes                    |                                         |                          |       |                    |       |                   | 1,330  |        |       |      |        |        |        |   | (3,301  | )     
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|Net income (loss)                                       |                                         | $                        | (5,116 | )                  |       | $                 | 3,456  |        |       | $    | (14,469 | )      |        | $ | (1,328  | )     
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|Net income (loss) per common share  basic and diluted  |                                         | $                        | (0.54  | )                  |       | $                 | 0.37   |        |       | $    | (1.53   | )      |        | $ | (0.14   | )     
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       
|Weighted average shares outstanding  basic and diluted |                                         |                          | 9,479  |                    |       |                   | 9,423  |        |       |      | 9,462   |        |        |   | 9,421   |       
|                                                        |                                         |                          |        |                    |       |                   |        |        |       |      |         |        |        |   |         |        |       



---

|(a) |  | Operating loss for the September 2002 quarter includes approximately $1.9
million of financing costs
associated with a cancelled private placement of common stock.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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COHESION TECHNOLOGIES, INC.

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

|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |        |         |        |  
|------------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------- | ------- | ----------------- | ----- | ------ | ------ | ------- | ------ | -
|                                                 |                                                                             |                                                                 |                                                 |         | Nine Months Ended
|                                                 |                                                                             |                                                                 |                                                 |         | September 30,    
|                                                 |                                                                             |                                                                 |                                                 |         |                  
|                                                 |                                                                             |                                                                 |                                                 |         | 2002              |       | 2001  
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |       
|Cash flows from operating activities:            |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 | Net loss                                                                    |                                                                 | $                                               | (14,469 | )                 |       | $      | (1,328 | )      
|                                                 | Adjustments to reconcile net loss
to net cash used in operating activities: |                                                                 |                                                 |         |                   |       |        |        |        
|                                                 |                                                                             | Depreciation and amortization                                   |                                                 |         | 1,106             |       |        |        | 1,324   |       
|                                                 |                                                                             | Net gain on sale of property and equipment                      |                                                 |         | (20               | )     |        |        | 55      |       
|                                                 |                                                                             | Stock-based compensation related to cancelled private placement |                                                 |         | 902               |       |        |        |        |       
|                                                 |                                                                             | Gain on investments, net                                        |                                                 |         |                  |       |        |        | (10,792 | )     
|                                                 |                                                                             | Deferred revenue                                                |                                                 |         | (284              | )     |        |        | 613     |       
|                                                 |                                                                             | Decrease (increase) in assets:                                  |                                                 |         |                   |       |        |        |         |       
|                                                 |                                                                             |                                                                 | Accounts receivable                             |         |                   | (300  | )      |        |         | (16    | )
|                                                 |                                                                             |                                                                 | Inventories                                     |         |                   | 1,436 |        |        |         | 944    |  
|                                                 |                                                                             |                                                                 | Other                                           |         |                   | 161   |        |        |         | (950   | )
|                                                 |                                                                             | Increase (decrease) in liabilities:                             |                                                 |         |                   |       |        |        |         |       
|                                                 |                                                                             |                                                                 | Accounts payable, accrued liabilities and other |         |                   | (338  | )      |        |         | (2,721 | )
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 |                                                                             | Net cash used in operating activities                           |                                                 |         | (11,806           | )     |        |        | (12,871 | )     
|Cash flows from investing activities:            |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 | Proceeds on maturity of equity collars                                      |                                                                 |                                                 |        |                   |       |        | 2,546  |        
|                                                 | Proceeds from sale of investments                                           |                                                                 |                                                 |        |                   |       |        | 13,697 |        
|                                                 | Proceeds on from sale of restricted cash investments                        |                                                                 |                                                 | 466     |                   |       |        | 818    |        
|                                                 | Proceeds from sale of property and equipment                                |                                                                 |                                                 | 153     |                   |       |        | 136    |        
|                                                 | Expenditures for property and equipment                                     |                                                                 |                                                 | (142    | )                 |       |        | (509   | )      
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 |                                                                             | Net cash provided by investing activities                       |                                                 |         | 477               |       |        |        | 16,688  |       
|Cash flows from financing activities:            |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 | Proceeds from exercise of stock option and stock purchase plans             |                                                                 |                                                 | 77      |                   |       |        | 389    |        
|                                                 | Payment of capital lease obligation                                         |                                                                 |                                                 | (669    | )                 |       |        | (669   | )      
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|                                                 |                                                                             | Net cash used in financing activities                           |                                                 |         | (592              | )     |        |        | (280    | )     
|Net decrease in cash and cash equivalents        |                                                                             |                                                                 | (11,921                                         | )       |                   |       | 3,537  |       
|Cash and cash equivalents at beginning of period |                                                                             |                                                                 | 16,765                                          |         |                   |       | 15,271 |       
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |       
|Cash and cash equivalents at end of period       |                                                                             | $                                                               | 4,844                                           |         |                   | $     | 18,808 |       
|                                                 |                                                                             |                                                                 |                                                 |         |                   |       |        |       

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

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COHESION TECHNOLOGIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

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

Certain 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. Certain amounts in the financial
statements for the prior fiscal period have been reclassified to conform with
the current year presentation.

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.

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. The trend of operating losses
raises substantial doubt regarding the Companys ability to continue as a going
concern, as indicated in our independent auditors report in our Transition
Report on Form 10-K for the period ended December 31, 2001. Management
anticipates that the December 2001 FDA approval of the Companys CoSeal product
will contribute to increased revenues during 2002. Management expects this
anticipated increase in revenues to have a positive impact on gross margins and
reduce the operating loss, as compared to prior periods. For the nine months
ended September 30, 2002, the Companys revenues increased 80% and the
operating loss decreased 8% as compared to the comparable period in 2001. In
addition, management implemented restructuring plans during 2001 that are
expected to reduce primarily research and development expenses from historical
levels. For the nine months ended September 30, 2002, the Companys research
and development expenses decreased 55% as compared to the comparable period in
2001. The decrease in research and development expenses is expected to be
offset by increases in sales and marketing expenses as the Company continues to
build a direct sales force. Based upon these anticipated improvements in
operating results, management believes that the Companys existing financial
resources are sufficient to meet its operating requirements through at least
December 31, 2002. However, during this period and thereafter, the Company
will require financing and intends to maintain liquidity through public or
private equity financing, borrowings, merger or acquisition, or other
arrangements.

On September 27, 2002, the Company entered into an agreement with
Angiotech Pharmaceuticals, Inc. (Angiotech) for Angiotech to acquire Cohesion
in an all stock merger transaction. The purchase price is approximately $42.0
million (including in the money options and warrants), or approximately $4.05
per common share of Cohesion, subject to adjustment by a collar provision
with respect to the trading price of Angiotechs shares. The transaction is
expected to close during the first quarter of 2003, subject to stockholder
approval and other customary closing conditions. In connection with

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entering into the agreement with Angiotech, the Company terminated an
agreement entered into in July 2002 for a private placement of its common stock
and recorded a nonrecurring charge of $1.9 million, which is included in
selling, general and administrative expenses during the three and nine months
ended September 30, 2002.

Earnings (Loss) Per Share

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

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, issued
FAS 141 on Business Combinations and FAS 142 on Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. FAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and also specifies the criteria for
the recognition of intangible assets separately from goodwill. Under the new
rules, goodwill will no longer be amortized but will be subject to an
impairment test at least annually. Separately identified and recognized
intangible assets resulting from business combinations completed before July 1,
2001 that do not meet the new criteria for separate recognition of intangible
assets will be subsumed in goodwill upon adoption. FAS 141 specifically
identified assembled workforce as an intangible asset that is not to be
recognized apart from goodwill. Other intangible assets that meet the new
criteria will continue to be amortized over their useful lives. We have not
been a party to a business combination that resulted in the recognition of
goodwill or other intangible assets. Accordingly, the adoption of FAS 141 and
142 on January 1, 2002 did not have an impact on our financial position.

2. Inventories

Inventories are valued at the lower of cost, determined on a standard cost
basis, which approximates average cost, or market. Work-in-process includes
inventory stored at a stage preceeding final assembly and packaging.
Inventories are comprised of the following:

|                |  |                |       |              |  |   |       | 
|--------------- |  | -------------- | ----- | ------------ |  | - | ----- | 
|                |  | September 30,  |       | December 31,
|                |  | 2002           |       | 2001        
|                |  |                |       |             
|                |  | (In thousands)
|Raw materials   |  | $              | 410   |              |  | $ | 861   | 
|Work-in-process |  |                | 451   |              |  |   | 1,237 | 
|Finished goods  |  |                | 167   |              |  |   | 367   | 
|                |  |                |       |              |  |   |       | 
|                |  | $              | 1,028 |              |  | $ | 2,465 | 
|                |  |                |       |              |  |   |       | 

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3. Equity Investments

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

|                       |  |                |     |              |  |   |     | 
|---------------------- |  | -------------- | --- | ------------ |  | - | --- | 
|                       |  | September 30,  |     | December 31,
|                       |  | 2002           |     | 2001        
|                       |  |                |     |             
|                       |  | (In thousands)
|Cost                   |  | $              |    |              |  | $ |    | 
|Gross unrealized gains |  |                | 823 |              |  |   | 739 | 
|                       |  |                |     |              |  |   |     | 
|Estimated fair value   |  | $              | 823 |              |  | $ | 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 September 30, 2002 and December 31, 2001.

4. Comprehensive Income (Loss)

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

|                                                                |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                |  | Three Months Ended |        | Nine Months Ended
|                                                                |  | September 30,      |        | September 30,    
|                                                                |  |                    |        |                  
|                                                                |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                                |  |                    |        |                   |  |      |        |     
|Net income (loss)                                               |  | $                  | (5,116 | )                 |  | $    | 3,456  |      |  | $ | (14,469 | ) |  | $ | (1,328  | )
|Increase in unrealized gains on securities                      |  |                    | 75     |                   |  |      |       |      |  |   | 84      |   |  |   | 1,318   |  
|Adjustment for realized gains, net                              |  |                    |       |                   |  |      | (8,548 | )    |  |   |        |   |  |   | (8,471  | )
|Adjustment for hedged item carrying amount
for fair value hedge |  |                    |       |                   |  |      |       |      |  |   |        |   |  |   | (1,646  | )
|                                                                |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Comprehensive income (loss)                                     |  | $                  | (5,041 | )                 |  | $    | (5,092 | )    |  | $ | (14,385 | ) |  | $ | (10,127 | )
|                                                                |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  

5. Restructuring & Asset Impairment

In November 2001, the Company announced and implemented a plan to redirect
the focus of its resources on technology platforms specific to its first two
products, CoStasis and CoSeal. Given its financial resources at that time,
the Company concluded it could no longer continue to fund all existing research
and development programs while building the sales and marketing infrastructure
needed to support direct sales of CoSeal in the U.S. As a result, certain
research and development activities were curtailed by December 31, 2001. The
Company reduced its workforce by approximately 20%, or 17 employees, which
affected primarily research and development personnel. The majority of affected
employees were terminated as of that date, except for three employees having
later termination dates through March 2002. Severance payments were made over
a specified period of time, not to exceed one year. The Company also incurred
costs to shutdown a clinical trial, and identified certain fixed assets
associated with curtailed R&D programs as impaired. The Company reported a
$640,000 charge for restructuring and other costs in the quarter ended December
31, 2001, which was

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comprised of $385,000 for severance and related costs, $21,000 for
clinical trial shutdown costs and $235,000 for fixed asset writedowns. As a
result of the restructuring activities for the curtailed programs, the Company
expects to reduce annual research and development and administrative expenses
by approximately $1.5 million during 2002, which is expected be more than
offset by increases in sales expenditures required to build internal direct
sales capabilities.

As of September 30, 2002, all employees subject to the restructuring plan
were terminated and all related payments made. In the March 2002 quarter, the
Company also commenced sales of impaired fixed assets, which were classified as
held for disposal. The carrying amount of the impaired fixed assets was $-0-
as of September 30, 2002 and $14,000 as of December 31, 2001. For the three
and nine months ended September 30, 2002, there were $-0- adjustments
reflecting revisions in estimates of fair value less cost to sell. The
year-to-date gain on sale of the impaired assets recognized on the condensed
statement of operations is $77,000. The Company expects to dispose of the
remaining equipment by the end of calendar 2002.

6. NeuColl, Inc.

In February 1999, the Company formed a new subsidiary, NeuColl, Inc., to
commercialize products in the orthopedics field, which included Collagraft®
Bone Graft Matrix. Cohesions ownership interest in NeuColl is currently below
50% and as a result, the Company reports its share of NeuColls operating
results under the equity method of accounting. The Company holds a warrant to
purchase an additional 3.0 million shares of common stock in NeuColl, which
expires in February 2006. In June 2002, the Company extended NeuColl a
short-term bridge loan of $200,000, which may be converted into equity through
exercise of the warrant. For the three months ended September 30, 2002,
NeuColl reported profitable operations. In addition to the loan, the
Companys receivable balance from NeuColl was approximately $4,005 and $4,000
as of September 30, 2002 and December 31, 2001, respectively, with no carrying
value assigned to the equity investment.

7. Warrant

In connection with a cancelled financing arrangement, the Company issued a
warrant for approximately 911,000 shares of common stock with an exercise price
of $1.61, which is exercisable through September 2007. The fair value of the
warrant, approximately $902,000 determined using the Black-Scholes valuation
model, was charged to operations as a result of the cancellation of the
financing.

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

Overview

The following discussion should be read in conjunction with our
consolidated financial statements and the related notes and the other
information included elsewhere in this quarterly report and our transition
report on Form 10-K for the six months ended December 31, 2001. Some of the
statements in this Managements Discussion and Analysis of Financial Condition
and Results of Operations are forward-looking. The words may, will,
could, should, continue, anticipates, projects, believes,
expects, future, plans, might, intends, seeks, estimates, and
similar expressions identify forward-looking statements. These forward-looking
statements are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. These risks include completion of
our recently announced agreement to be acquired by Angiotech Pharmaceuticals,
Inc. and the impact of the acquisition on our operations, 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, the ability to hire and the performance of a direct sales
force, the timing and effectiveness of product introductions and launches, the
success of scaling up product production, ability to achieve product revenue
targets or market share, commencement and continuation of product sales in the
United States and in additional countries outside of the United States, the
timing and terms of sales arrangements with other companies, receipt of
regulatory and marketing approvals, including approvals, quality system
regulation inspections and panel reviews from the FDA, clinical efficacy of and
market demand for our products, assessment of market size and opportunity,
including the applicable numbers of procedures, our position in the market,
enrollment in and results of clinical studies and potential unfavorable
publicity regarding our company or our products. These differences may be
based upon factors within our control, such as strategic planning decisions by
management and reallocation of internal resources, or on factors outside our
control, such as scientific advances by third parties, court decisions in
lawsuits filed by us or others, introduction of competitive products, delays by
regulatory authorities, including approvals from the FDA, and potential
disruption that may result from the pending merger. 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 control 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 September 1998 and received FDA approval in June 2000 to market the product
in the United States. In November 1999, we announced an agreement with U.S.
Surgical, a business unit of Tyco Healthcare Group and Tyco International
(U.S. Surgical/Tyco), for the marketing and distribution of CoStasis. The
U.S. Surgical/Tyco territories include the United States, European Union,
Eastern Europe, Latin America, Middle East, Australia, New Zealand and India.
The CoStasis agreement originally granted U.S. Surgical exclusive distribution
rights in assigned territories requiring minimum aggregate purchases of
CoStasis product

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each calendar year. To date, U.S. Surgical/Tyco has failed to purchase
sufficient CoStasis product to maintain exclusive distribution rights and 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. In January
2002, we also began selling CoStasis through our own direct sales organization
in the United States and are considering potential marketing and distribution
agreements for CoStasis with other parties that might offer an opportunity to
increase CoStasis sales to focused specialty groups of physicians.

CoSeal Surgical Sealant, our second biosurgical product, is designed for
sealing vascular grafts and other tissues and sites of incision and incision
repair. In February 2000, we received a CE Mark for CoSeal, allowing product
sales to commence in Europe. CoSeal is currently being sold outside of the
U.S. through distributors, including Tyco Healthcare Group and other specialty
distributors. As with CoStasis, the CoSeal agreement granted Tyco Healthcare
Group exclusive distribution rights in assigned territories requiring minimum
aggregate purchases of CoSeal product each fiscal year; however, to date, the
minimum purchases have not been met and Tyco has elected not to make a payment
that would allow for the maintenance of exclusivity. We filed a PMA
application with the FDA for CoSeal in April 2001, received approval from the
FDA in December 2001 to market CoSeal in the United States, and launched the
product in the United States in January 2002 through our direct sales
organization.

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

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

On September 27, 2002, we entered into an agreement with Angiotech
Pharmaceuticals, Inc. for Angiotech to acquire Cohesion in an all stock merger
transaction. The purchase price is approximately $42.0 million (including in
the money options and warrants), or approximately $4.05 per common share of
Cohesion, subject to adjustment by a collar provision with respect to the
trading price of Angiotechs shares. The transaction is expected to close
during the first quarter of 2003, subject to stockholder approval and other
customary closing conditions.

Results of Operations

Three and Nine Months Ended September 30, 2002 and 2001

Revenues were $1.9 million and $0.8 million for the three months ended
September 30, 2002 and 2001, respectively, including other revenue of $94,000
and $95,000, respectively, which related to the recognition of upfront license
fees and milestone payments pursuant to our marketing and distribution
agreements with U.S. Surgical and Tyco Healthcare Group. Revenues for the
nine months ended

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September 30, 2002 and 2001 were $4.5 million and $2.5 million,
respectively. Product sales were $1.8 million and $0.7 million for the three
months ended September 30, 2002 and 2001, respectively. The increase in
product sales was due primarily to U.S. sales of CoSeal, which was launched in
the United States in January 2002. The increase of product sales to $4.2
million for the nine months ended September 30, 2002 from $2.2 million for the
comparable period in 2001 was also driven by increases in CoSeal sales in the
United States. A number of uncertainties exist surrounding the marketing and
distribution of our products where a significant portion of distribution is
through third party firms, such as U.S. Surgical/Tyco Healthcare. Our business
and financial results could be adversely affected in the event that either we
or these third 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 85% and 227% for the
three months ended September 30, 2002 and 2001, respectively, and 116% and 228%
for the nine months ended September 30, 2002 and 2001, respectively. We
reported positive gross margins for the quarter ended September 30, 2002 as we
reached the point where sales levels began to cover our fixed manufacturing costs.
The negative gross margins prior to the current quarter reflect a high level of
fixed manufacturing costs that are relatively independent of sales volume in
each of these periods.

Research and development (R&D) expenses were $1.0 million and $2.7
million for the three months ended September 30, 2002 and 2001, respectively,
and $3.2 million and $7.2 million for the nine months ended September 30, 2002
and 2001, respectively. The R&D spending decrease from the prior year
periods is primarily due to completion of the CoSeal clinical trial and a
refocus on core programs, including the reduction in headcount as part of the
November 2001 restructuring.

Selling, general and administrative (SG&A) expenses were $4.5 million
and $10.9 million for the three and nine months ended September 30, 2002,
respectively, and included $1.9 million of financing costs associated with a
cancelled private placement of common stock. Excluding these financing
costs, SG&A spending for the three months ended September 30, 2002 was flat
compared to $2.6 million in the prior year quarter, which included $0.4 million
of severance costs that were offset by $0.6 million of higher spending
primarily for the buildup of a direct sales force. SG&A spending for the
nine months ended September 30, 2002 increased $2.8 million over the comparable
prior year period, excluding the financing cost, primarily due to the buildup
of our sales and marketing infrastructure to support direct sales of our
products in the U.S.

Net realized gain on investments was $16.0 million and $16.1 million for
the three and nine months ended September 30, 2001, respectively, which is
primarily due to the sale of Boston Scientific common stock. Investment
impairment of $5.3 million in the prior year periods was related to the
writedown of our investment in Pharming, N.V.

Interest income was $48,000 and $184,000 for the three months ended
September 30, 2002 and 2001, respectively, and $176,000 and $614,000 for the
nine months ended September 30, 2002 and 2001, respectively. The decreases in
both periods were due to lower interest rates and lower average cash balances
in the current year periods.

Interest expense of $36,000 and $52,000 for the three months ended
September 30, 2002 and 2001, respectively, and $120,000 and $167,000 for the
nine months ended September 30, 2002 and 2001, respectively, was related to the
capital lease obligation.

We recorded no benefit for income taxes during the three and nine months
ended September 30, 2002 and a $1.3 million provision for income taxes during
the three months ended September 30, 2001 for the write off of deferred tax
assets. As a result of expected future operating losses, we do not expect to
recover additional tax benefits until we reach profitability. The $3.3
million benefit for income taxes for the nine months ended September 30, 2001
included a partial benefit for an anticipated refund for income taxes from the
carryback of our fiscal year ended June 30, 2001 net loss.

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Liquidity and Capital Resources

At September 30, 2002, cash, cash equivalents and investments were $5.7
million compared to $17.5 million at December 31, 2001, including the carrying
value of $0.8 million and $0.7 million at period end, respectively, for
Pharming common stock. Net cash used in operating activities was $11.8
million for the nine months ended September 30, 2002, compared to $12.9 million
used in the same prior-year period. For the nine months ended September 30,
2002, inventories decreased by $1.4 million primarily due to more effective
management of inventory at current year sales levels.

For the nine months ended September 30, 2002, cash provided by investing
activities of $0.5 million was primarily related to proceeds from the sale of
restricted cash investments of $466,000 and from the sale of equipment of
$153,000, offset by capital expenditures of $142,000. Currently, we anticipate
that capital expenditures will not exceed $0.5 million in 2002. Net cash used
in financing activities for the nine months ended September 30, 2002 was
approximately $0.6 million primarily due to payments for our capital lease
obligation.

Our principal sources of liquidity include cash and cash equivalents. In
August 2001, one of our 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
September 30, 2002, it is uncertain at this time what the recoverable value
will be.

On September 27, 2002, we entered into an agreement with Angiotech
Pharmaceuticals, Inc., for Angiotech to acquire Cohesion in an all stock merger
transaction. The purchase price is approximately $42.0 million (including in
the money options and warrants), or approximately $4.05 per common share of
Cohesion, subject to adjustment by a collar provision with respect to the
trading price of Angiotechs shares. The transaction is expected to close
during the first quarter of 2003, subject to stockholder approval and other
customary closing conditions.

We believe that our current sources of liquidity, excluding the proposed
merger transaction, should be adequate to fund our anticipated operating and
capital expenditure requirements through at least December 31, 2002. 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. If the proposed merger transaction with
Angiotech is not completed on the currently anticipated schedule or at all, we
will need to obtain financing on an expedited basis, which 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 September 30, 2002, we had repurchased 515,100
shares of our common stock under this program, none of which were repurchased
in the quarter ended September 30, 2002.

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

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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 will need to obtain financing to fund operations if the proposed merger with
Angiotech is not approved by our stockholders.

We believe that our current sources of liquidity should be adequate to
fund our anticipated capital requirements through at least December 31, 2002.
On September 27, 2002, we entered into an agreement with Angiotech
Pharmaceuticals, Inc., for Angiotech to acquire Cohesion in an all stock merger
transaction. The purchase price is approximately $42.0 million (including in
the money options and warrants), or approximately $4.05 per common share of
Cohesion, subject to adjustment by a collar provision with respect to the
trading price of Angiotechs shares. The transaction is expected to close
during the first quarter of 2003, subject to stockholder approval and other
customary closing conditions. We cannot assure you that the merger will be
completed on the anticipated schedule or at all. If the merger is not
completed on the anticipated schedule, we will have severe liquidity problems
and will need to obtain financing on an expedited basis that may not be
available on acceptable terms or at all. If we cannot raise the necessary
capital on acceptable terms, we will have to significantly reduce our expenses
and may not be able to effectively market our products, continue our clinical
research and product development programs, achieve targeted sales levels, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which would adversely affect our prospects,
business, financial condition and results of operations.

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

We 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 developing sales and marketing capabilities
for our products in Europe, the United States and other markets at appropriate
selling prices and costs to manufacture. We cannot assure you that we will
successfully manufacture, commercialize and market our products or that we will
ever record significant product revenues or achieve operating profitability.

We 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/Tyco Healthcare Group for the
distribution of CoStasis in the United States, and CoSeal in the majority of
international countries. Sales to U.S. Surgical/Tyco Healthcare Group
comprised approximately 75% of product sales during fiscal year 2001 and the
six months ended December 31, 2001. While we have recently implemented a
direct selling organization in the United States focused primarily on

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

We operate in an intense competitive environment.

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

Many of our competitors have substantially greater financial,
technological, research and development, regulatory and clinical, marketing and
sales, and personnel resources than we do. They may also have greater
experience in developing products, conducting clinical trials, obtaining
regulatory approvals, and manufacturing and marketing their products. They may
also develop alternative technologies and products that are more effective,
easier to use or more economical than those that have been or are being
developed by us or that render our technology and products

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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.

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.

16



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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.




Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Accounting Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and the
Companys Chief Accounting Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on the
foregoing, the Companys Chief Executive Officer and Chief Accounting Officer
concluded that the Companys disclosure controls and procedures were effective.

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

17



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##### Table of Contents






PART II. OTHER INFORMATION

COHESION TECHNOLOGIES, INC.




Item I. Legal Proceedings




Item 6. Exhibits and Reports on Form 8-K



| | A. |  | Reports on Form 8-K                                                                                                                                                                                 
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Current Report on Form 8-K dated July 24, 2002 disclosing under Item
5 the Common Stock Purchase Agreement to sell shares of common stock
to certain investors in a private placement transaction.  
|
| |    |  | Current Report on Form 8-K dated August 14, 2002 filing the
certifications required by Section 906 of the Sarbanes-Oxley Act of
2002 to accompany the Form 10-Q for the quarter ended June 30, 2002.
|
| |    |  | Current Report on Form 8-K dated September 27, 2002 disclosing the
proposed merger between Angiotech Pharmaceuticals, Inc. and
Cohesion Technologies, Inc.                                          
|
| | B. |  | Exhibits                                                                                                                                                                                            
|
| |    |  | None                                                                                                                                                                                                

18



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##### Table of Contents






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

19



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##### Table of Contents






CERTIFICATION

I, William Mavity, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Cohesion
Technologies, Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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





|Dated: November 14, 2002 | /s/ William MavityWilliam Mavity
Chief Executive Officer, President & Director
|------------------------ | ------------------------------------------------------------------------------

20



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##### Table of Contents



CERTIFICATION

I, Sharon Kokubun, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Cohesion
Technologies, Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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





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

21