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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K

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

                     For Fiscal year ended December 31, 2000

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1943

                   For the transition period from ________ to

                        Commission File Number 001-14027

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                            Anika Therapeutics, Inc.

             (Exact Name of Registrant as Specified in Its Charter)

                 Massachusetts                                    04-3145961
        (State or Other Jurisdiction of                       (I.R.S. Employer
         Incorporation or Organization)                      Identification No.)

236 West Cummings Park, Woburn, Massachusetts                       01801
  (Address of Principal Executive Offices)                        (Zip Code)

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       Registrant's Telephone Number, Including Area Code: (781) 932-6616

      Securities registered under Section 12 (b) of the Exchange Act: None

         Securities registered under Section 12 (g) of the Exchange Act:
                     Common Stock, par value $.01 per share

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

      Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

      The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 20, 2001 was $11,176,065 based on the closing price per
share of Common Stock of $1.125 as of such date as reported by the NASDAQ
National Market. At March 20, 2001 there were issued and outstanding 9,934,280
shares of Common Stock, par value $.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain information required in response to Items 10, 11, 12 and 13 of
Part III are hereby incorporated by reference from the Company's Proxy Statement
for the Annual Meeting to be held on June 6, 2001. Such Proxy Statement shall
not be deemed to be "filed" as part of this Annual Report on Form 10-K except
for the parts therein which have been specifically incorporated by reference
herein.



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                                    FORM 10-K
                            ANIKA THERAPEUTICS, INC.
                     For Fiscal Year Ended December 31, 2000

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. The words "believe," "expect", "seek,"
"plan", "develop", "anticipate," "intend," "estimate," "will" and other
expressions, which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. Forward-looking statements involve known and unknown risks,
uncertainties and other factors, including but not limited to statements
regarding: future sales, possible development of new products, clinical
trials, possible regulatory approval of ORTHOVISC(R) and INCERT(R)-S, and new
or potential products, capacity of manufacturing facilities and performance
under supply agreements. There can be no assurances that the Company will
continue to achieve increased sales of its ophthalmic products to Bausch &
Lomb and/or other companies sufficient to offset the effects of the price
reduction to Bausch & Lomb. In addition, there can be no assurance that the
termination of the distribution agreement with Zimmer will not have a
material adverse impact on sales or distribution of ORTHOVISC or effectively
transition the distribution of ORTHOVISC to such distributors, once engaged.
Furthermore, the Company may not be able to identify or engage appropriate
distribution or collaboration partners for sales of ORTHOVISC or INCERT-S.
The Company cannot make any assurances that (i) the investment of its Spanish
distributor in an additional human clinical trial for ORTHOVISC will render
positive results; (ii) it will submit an application for, or successfully
obtain, CE Mark registration approval for INCERT-S on a timely basis, or at
all; (iii) inventory management or other efforts will result in improved
gross margins by mid-2001 or ever; or (iv) the current levels of selling,
general and administrative expenses will not continue. Moreover, there can be
no assurances that the Company's investments or its increased emphasis in
clinical research and product development, such as its screening process of
potential opportunities and establishment of a pilot production laboratory,
as well as its currently contemplated clinical trials of ORTHOVISC and
INCERT, will lead to viable products or revenue growth. The Company's actual
results, performance or achievement could differ materially from anticipated
results, performance or achievement, expressed or implied in such
forward-looking statements. Certain factors that might cause such a
difference are discussed throughout this Annual Report on Form 10-K including
sections titled "Business" beginning on page 2, "Risk Factors and Certain
Factors Affecting Future Operating Results" beginning on page 19,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 13 and elsewhere in this Annual Report on Form
10-K. The Company undertakes no obligation to publicly update or revise any
forward-looking statement whether as a result of new information, future
events or otherwise.

PART I

ITEM 1. BUSINESS

      Anika Therapeutics, Inc. ("Anika" or the "Company") develops,
manufactures and commercializes therapeutic products and devices intended to
promote the repair, protection and healing of bone, cartilage and soft
tissue. These products are based on hyaluronic acid ("HA"), a
naturally-occurring, biocompatible polymer found throughout the body. Due to
its unique biophysical and biochemical properties, HA plays an important role
in a number of physiological functions such as the protection and lubrication
of soft tissues and joints, the maintenance of the structural integrity of
tissues and the transport of molecules to and within cells. The Company's
currently marketed products consist of ORTHOVISC(R), which is an HA product
used in the treatment of some forms of osteoarthritis in humans and
HYVISC(R), which is an HA product used in the treatment of equine
osteoarthritis. ORTHOVISC(R) is currently approved for sale and marketed in
Canada, Europe, Turkey, and Israel. In the U.S. ORTHOVISC(R) is currently
limited to investigational use and the Company commenced a Phase III clinical
trial in the U.S. and Canada in late February 2001. The Company manufactures
AMVISC(R) and AMVISC(R)Plus, which are HA products used as viscoelastic
supplements in ophthalmic surgery, for Bausch & Lomb Surgical. The Company is
currently developing INCERT(R), which is a family of HA-based products
designed for use in the prevention of post-surgical adhesions. In
collaboration with Orquest, Inc., Anika also has exclusive rights to produce
OSSIGEL(R)(1), an injectable formulation of basic fibroblast growth factor
combined with HA designed to accelerate the healing of bone fractures.

AMVISC PRODUCTS

      AMVISC(R) and AMVISC(R) Plus are high molecular weight HA products used as
viscoelastic agents in ophthalmic surgical procedures such as cataract
extraction and intraocular lens implantation. These products coat, lubricate and
protect sensitive tissues such as the endothelium and maintain the space between
them, thereby facilitating ophthalmic surgical procedures.

      Anika manufactures the AMVISC(R) product line for Bausch & Lomb. The
Company entered into a new supply agreement (the "BLS Agreement") with Bausch &
Lomb Surgical, a unit of Bausch & Lomb Incorporated, in July 2000. Under the
terms of the BLS Agreement, effective January 1, 2001, the Company became Bausch
& Lomb Surgical's exclusive provider of AMVISC(R) and AMVISC(R) Plus in the U.S.
and international market. The BLS Agreement expires December 31, 2007,
superseding an existing supply contract with Bausch & Lomb Surgical that was set
to expire December 31, 2001. The BLS Agreement is subject to early termination
and/or reversion to a non-exclusive basis under certain circumstances. The BLS
Agreement lifted certain contractual restrictions on the Company's sales of
certain

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(1) OSSIGEL(R) is a registered trademark of Orquest, Inc.


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ophthalmic products to other companies, subject to payment of royalties by
Anika. In exchange, the Company agreed to a reduction in unit selling prices
retroactively effective to April 1, 2000 and the elimination of minimum unit
purchase obligations by BLS. See "Risk Factors and Certain Factors Affecting
Future Operating Results - Dependence on Marketing Partners" and "--Reliance on
a Small Number of Customers."

ORTHOVISC(R)

      ORTHOVISC(R) is a high molecular weight, highly purified HA product
designed to relieve pain and improve joint mobility in patients suffering from
osteoarthritis of the knee. ORTHOVISC(R) is delivered by intra-articular
injection to supplement and restore the body's natural HA found in the synovial
fluid of joints.

      Osteoarthritis is a debilitating disease causing pain, inflammation and
restricted movement in joints. It occurs when the cartilage in a joint gradually
deteriorates due to the effects of mechanical stress, which can be caused by a
variety of factors including the normal aging process. In an osteoarthritic
joint, particular regions of articulating surfaces are exposed to irregular
forces, which result in the remodeling of tissue surfaces that disrupt the
normal equilibrium or mechanical function. As osteoarthritis advances, the joint
gradually loses its ability to regenerate cartilage tissue and the cartilage
layer attached to the bone deteriorates to the point where eventually the bone
becomes exposed. Advanced osteoarthritis often requires surgery and the possible
implantation of artificial joints. The current treatment options for
osteoarthritis before joint replacement surgery include analgesics,
non-steroidal anti-inflammatory drugs and steroid injections.

      ORTHOVISC(R) is approved for sale and marketed in Canada, Europe, Turkey,
and Israel. In Europe ORTHOVISC(R) is sold under Communaute Europeenne ("CE
mark") authorization. The CE mark, a certification required under European Union
("EU") medical device regulation, allows ORTHOVISC(R) to be marketed without
further approvals in most of the EU nations as well as other countries that
recognize EU device regulation.

      In the U.S., ORTHOVISC(R) is limited to investigational use. In October
1998, the Company was notified by the U.S. Food and Drug Administration (the
"FDA") that its Pre-Market Approval Application ("PMA") was not approvable and
that additional clinical data would be required to demonstrate the effectiveness
of ORTHOVISC(R). The PMA was submitted to the FDA in December 1997 and contained
clinical data collected from a 226 patient, randomized double blind clinical
study completed in June 1997. In late March 1999, the Company received an
Investigational Device Exemption ("IDE") approval and initiated a second Phase
III clinical study. This trial completed patient enrollment, totaling 385
patients at 22 centers in the U.S. and Canada in August 1999. The final patient
completed the six-month follow-up period on February 28, 2000. The statistical
analysis of the clinical trial failed to show sufficient efficacy in this
patient population to support the filing of a PMA application. In February 2001,
the Company commenced its third Phase III clinical trial of ORTHOVISC(R). The
trial is expected to be conducted in up to 20 centers in the U.S. and Canada,
with 360 patients expected to be enrolled, and with evaluation over a six-month
period following treatment. There can be no assurances that the results of this
third Phase III clinical study will be adequate to demonstrate the effectiveness
of ORTHOVISC(R) to obtain FDA approval.

      On November 10, 2000, the Company entered into an agreement to
terminate the ORTHOVISC(R) marketing and distribution agreement with Zimmer,
Inc., a subsidiary of Bristol-Myers Squibb Company. Under the terms of the
termination agreement, Zimmer had the right to continue to distribute from
its existing inventory through December 31, 2000 in the countries in which it
had previously sold ORTHOVISC(R). The Company has established interim
relationships with third party logistics firms so that Anika can continue to
supply ORTHOVISC(R) in Canada and the European countries previously covered
under the Zimmer Distribution Agreement. The Company will seek to establish
long-term distribution relationships in those and other regions, but can make
no assurances that it will be successful in doing so. The Company has
licensed ORTHOVISC(R) marketing and distribution rights to Grupo Ferrer,
Internacional for Spain and Portugal, and to RAFA Laboratories Ltd. in
Israel. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations Overview" beginning on page 13.

HYVISC(R)

      HYVISC(R) is a high molecular weight injectable HA product for the
treatment of joint dysfunction in horses due to non-infectious synovitis
associated with equine osteoarthritis. HYVISC(R) has viscoelastic properties
that lubricate and protect


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the tissues in horse joints. HYVISC(R) is distributed by Boehringer Ingelheim
Animal Health, Inc. in the United States under an agreement terminating May
2002.

Research and Development of Potential Products

      As discussed below in the section titled "Risk Factors and Certain Factors
Affecting Future Operating Results - Comprehensive Government Regulation; No
Assurance of FDA Approval" beginning on page 19, the Company has not obtained
FDA approval for the sales and marketing in the U.S. of the potential products
described below.

INCERT

      INCERT(R) is a family of chemically-modified, cross-linked forms of HA
designed to prevent surgical adhesions. Surgical adhesions occur when fibrous
bands of tissues form between adjacent tissue layers during the wound healing
process. Although surgeons attempt to minimize the formation of adhesions,
nevertheless they occur quite frequently after surgery. Adhesions in the
abdominal and pelvic cavity can cause particularly serious problems such as
intestinal blockage following abdominal surgery, and infertility following
pelvic surgery. Fibrosis following spinal surgery can complicate re-operation
and may cause pain. The Company has tested INCERT(R) in pre-clinical animal
studies.

      INCERT(R)-S is the Company's product designed to reduce post-surgical
fibrosis following spinal surgery. The Company has received an IDE approval from
the FDA and plans to commence clinical trials for the product in the first half
of 2001. The planned trial is expected to initially include up to 100 patients
in up to 20 centers in the U.S. and, if results from these patients support
further development, to expand patient recruitment to up to 380 patients. There
can be no assurance that: (i) the Company will begin or successfully complete
clinical trials of INCERT(R)-S; (ii) if completed, FDA approval for sales in the
U.S. will be received; or (iii) if regulatory approvals are obtained, meaningful
sales of INCERT(R) will be achieved.

      Anika co-owns an issued United States patent covering the use of INCERT(R)
for adhesion prevention.

OSSIGEL

      In June 1997, the Company executed a multi-year collaboration agreement
with Orquest, Inc. to develop and manufacture OSSIGEL(R), a formulation of basic
fibroblast growth factor and HA. OSSIGEL(R) has been shown in pre-clinical
animal models to accelerate the healing of bone fractures. Orquest commenced
human clinical testing of OSSIGEL(R) in Europe and the United States during
1998. Orquest has filed a patent application with the U.S. Patent and Trademark
Office for the use of OSSIGEL(R) in accelerating fracture healing.

MANUFACTURING OF HYALURONIC ACID

      The Company has been manufacturing HA since 1983 in its manufacturing
facility located in Woburn, Massachusetts. This facility is approved by the FDA
for the manufacture of medical devices and drugs. The Company has developed a
proprietary HA manufacturing process for the extraction and purification of HA
from rooster combs that yield high molecular weight, highly purified HA.

      The Company believes that a substantial supply of rooster combs is readily
available and that all the other materials required for the manufacture of its
HA products are also readily available from a number of sources. The Company
obtains syringes used to deliver certain of its HA products from a single
supplier; however, it keeps sufficient syringes in its inventory to meet
anticipated demand for at least six months.

PATENT AND PROPRIETARY RIGHTS

      The Company has a policy of seeking patent protection for patentable
aspects of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and the Company solely owns patents
covering certain manufacturing processes. The Company also holds an exclusive
license from Tufts University to use technologies claimed in a United States
patent which relates to the anti-metastasis applications of HA oligosaccharides.
The Company's issued patents expire between 2007


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and 2015 and the license expires upon expiration of all related patents. The
Company intends to seek patent protection with respect to products and processes
developed in the course of its activities when it believes such protection is in
its best interest and when the cost of seeking such protection is not
inordinate. However, no assurance can be given that any patent application will
be filed, that any filed applications will result in issued patents or that any
issued or licensed patents will provide the Company with a competitive advantage
or will not be successfully challenged by third parties. The protections
afforded by patents will depend upon their scope and validity, and others may be
able to design around the Company's patents. The Company's issued patents and
any patents which arise from the Company's licensed application would provide
competitive protection, if at all, only in the United States.

      Other entities have filed patent applications for or have been issued
patents concerning various aspects of HA-related products or processes. There
can be no assurance that the products or processes developed by the Company
will not infringe the patent rights of others in the future. Any such
infringement may have a material adverse effect on the Company's business,
financial condition, and results of operations. In particular, in 1995, the
Company received notice from the PTO that a third party may attempt to
provoke a patent interference with respect to one of the Company's co-owned
patents covering the use of INCERT(R) for post-surgical adhesion prevention.
The existence of an interference proceeding may have a negative impact on the
marketing of the INCERT(R) product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the third
party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's sales, use,
and marketing of the INCERT(R) product may be materially and adversely
affected and the third party may enforce patent rights against the Company
which could prohibit the sale and use of the INCERT(R) products, which could
have a material adverse effect on the Company's future operating results.

      The Company also relies upon trade secrets and proprietary know-how for
certain non-patented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such information.
There can be no assurance that these agreements provide meaningful protection or
that they will not be breached; that the Company would have adequate remedies
for any such breach; or that the Company's trade secrets, proprietary know-how,
and technological advances will not otherwise become known to others. In
addition, there can be no assurance that, despite precautions taken by the
Company, others have not and will not obtain access to the Company's proprietary
technology. Further, there can be no assurance that third parties will not
independently develop substantially equivalent or better technology.

      The Company has granted Bausch & Lomb Surgical a royalty-free, worldwide,
exclusive license to the Company's manufacturing and product inventions which
relate to the AMVISC(R) products, effective upon the earlier of (i) the
termination date of the BLS Agreement or (ii) the loss of exclusivity there
under.

GOVERNMENT REGULATION

      Anika's research, development, manufacturing activities, and the future
marketing of products by Anika are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, devices and drugs are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act governs the testing, safety, effectiveness,
clearance, approval, manufacture, labeling, packaging, storage, record keeping,
reporting, advertising, and promotion of Anika's products.

      Product development and approval within the FDA regulatory framework takes
a number of years and involves the expenditure of substantial resources to
demonstrate safety and effectiveness. There can be no assurance that this
regulatory framework will not change or that additional regulation will not
arise at any stage of Anika's product development process, which may affect
approval of, or delay an application, or require additional expenditures by
Anika.

      Furthermore, Anika or the FDA may suspend clinical trials at any time
for a number of reasons, including, among other things, failure to comply
with applicable requirements; or if there is reason to believe that the risks
to subjects are not outweighted by the anticipated benefits to subjects and
the importance of the knowledge to be gained, or informed consent is
inadequate, or the investigation is scientifically unsound, or there is
reason to believe that the device, as used, is ineffective;

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or if an unanticipated adverse device effect presents an unreasonable risk to
subjects.. If clinical studies are suspended, Anika may be unable to continue
the development of the investigational products affected.

      In addition to the FDA approval processes for products, manufacturing
facilities for drugs, biologics, and devices, subject to PMA requirements, are
subject to approval by the FDA. Among the conditions for such approval is the
requirement that quality control and manufacturing procedures conform to the
FDA's Good Manufacturing Practices/Quality System Regulations ("GMP/QSR"), which
must be followed at all times. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full technical compliance.
The FDA enforces compliance with these GMP/QSR through periodic inspections; and
other federal, state, and local agencies may inspect manufacturing
establishments as well.

      In addition to regulations enforced by the FDA, Anika is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other existing and potential future federal, state and local
regulations of foreign governments. Federal, state and foreign regulations
regarding the manufacture and sale of medical products are subject to change.
Anika cannot predict what impact, if any, such changes might have on its
business.

      For marketing outside the United States, Anika will continue to be subject
to FDA regulations regarding the export of products within its jurisdiction and
to foreign regulatory requirements governing, among other things, human clinical
trials and marketing approval for medical products and devices. The requirements
relating to the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country. The process of obtaining
approvals from the FDA and foreign regulatory authorities can be costly, time
consuming, and subject to unanticipated delays. There can be no assurance that
approvals of Anika's products, processes or facilities will be granted or that
Anika will obtain the financing needed to develop certain of such products. Any
failure or delay in obtaining such approvals could adversely affect the ability
of Anika to market its products in other countries.

      Medical products regulated by the FDA are generally classified as drugs,
biologics, and/or medical devices. AMVISC(R) is approved as a Class III device
in the United States for ophthalmic surgical procedures in intraocular use in
humans. HYVISC(R) is approved as an animal drug for intra-articular injection in
horse joints to treat degenerative joint disease associated with synovitis. In
the past, most HA products for human use have been regulated as medical devices.
Anika believes that if FDA approval is obtained, its ORTHOVISC(R) and INCERT(R)
products will have to meet the regulatory requirements of Class III devices.

Devices

      The steps required to qualify a medical device for marketing in the United
States are complex. Unless a medical device is exempted from premarket
submission and clearance, FDA approval or clearance is required before the
products can be marketed in the U.S. Medical devices are classified as Class I,
II, or III devices. In general, Class I devices require compliance with labeling
GMP/QSR and record keeping regulations and are subject to other general
controls. Class II devices may be subject to special controls, such as post
market surveillance and are subject to general controls. Most Class I devices
are exempt from premarket notification and most Class II devices are subject to
it. Class II devices also may be subject to clinical testing for purposes of
premarket notification to the FDA and clearance for marketing. Class III devices
require clinical testing to assure safety and effectiveness prior to marketing
and distribution. Most Class III devices also require PMA approval from the FDA.

      At least 90 days prior to marketing, unless exempt, devices must be
subject to a premarket notification to the FDA to determine the product's
classification and regulatory status. If a product is found to be "substantially
equivalent" to a Class I or Class II device, or a Class III device not subject
to a PMA requirement, it may be marketed without further FDA review. However,
none of the Company's products have been found to be "substantially equivalent"
to a Class I or Class II device, nor have any of them been found to be a Class
III device not subject to a PMA requirement. The FDA may require the submission
of clinical data as a basis for determining whether a device is "substantially
equivalent." If a device is found to be "not substantially equivalent,"
typically, the device manufacturer must file a PMA application with the FDA
based on preclinical and clinical testing intended to demonstrate that the
product is both safe and effective. HA-based products have in the past, and will
likely continue to require the approval of a PMA from the FDA prior to
commercial sale.


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      The PMA approval process is lengthy, expensive, and typically requires,
among other things, extensive data from pre-clinical testing and a
well-controlled clinical trial or trials that demonstrate a reasonable assurance
of safety and effectiveness. The performance of human clinical trials must be
done under an IDE. Upon completion of required clinical trials, results are
presented to the FDA in a PMA application. In addition to the results of
clinical investigations, the PMA applicant must submit other information
relevant to the safety and effectiveness of the device, including, among other
things, the results of non-clinical tests; a full description of the device and
its components; a full description of the methods, facilities and controls used
for manufacturing; and proposed labeling. The FDA staff then determines whether
to accept the application for filing. If accepted for filing, the application is
further reviewed by the FDA and then often reviewed by an FDA scientific
advisory panel of people with expertise in the relevant field. The FDA will also
conduct an inspection to determine whether an applicant conforms with the FDA's
current GMP/QSR. If the FDA's evaluation is favorable, the FDA will subsequently
publish an order granting the PMA for the device. Although the initial PMA
review process is required to be completed within 180 days from the date when
the PMA application is accepted for filing, the FDA in many cases raises
additional issues which must be addressed prior to the approval of a PMA, which
may significantly extend the review process. There is no assurance that review
will result in timely or any PMA approval, and there may be significant
conditions on approval, including limitations on labeling and advertising claims
and the imposition of post-market testing, tracking, or surveillance
requirements.

Drugs

      Medical devices may meet both the definition of a medical device and a
drug or biologic. In these instances, the FDA may regulate these products as
drugs or biologics or as both medical devices and drugs or biologics. The steps
required before a drug or biologic may be marketed in the United States include
(i) preclinical laboratory and animal tests; (ii) submission to the FDA of an
Investigational New Drug application ("IND"), which must become effective before
human clinical trials may commence; (iii) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug; (iv)
submission of a New Drug Application ("NDA") or Biologics License Application
("BLA") to the FDA; and (v) FDA approval of the NDA or BLA prior to any
commercial sales or shipment of the drug. A clinical study program designed to
demonstrate the safety and effectiveness of a drug usually proceeds in three
phases:

      o     Phase I involves testing the drug for, among other things, safety
            and tolerance in a small group of healthy patients or volunteers.

      o     Phase II involves testing for efficacy and identifying possible side
            effects in a target patient group.

      o     Phase III involves additional testing for efficacy and safety with
            an expanded patient group, preferably using a comparative control
            agent.

      The results of the clinical testing, together with manufacturing
information, are then submitted to the FDA in the form of an NDA or a BLA.
Anika's HA products have not historically been classified as drugs or biologics.
In the event however, Anika's products are classified in the future as drugs or
biologics, it may take five to ten years from discovery to approval, which
typically would be substantially longer than the development process for devices
and would be substantially more expensive. There is no assurance that such a
regulatory path would result in timely or any product approval.

COMPETITION

      The Company competes with many companies, including, among others, large
pharmaceutical firms and specialized medical products companies. Many of these
companies have substantially greater financial and other resources, larger
research and development staffs, more extensive marketing and manufacturing
organizations and more experience in the regulatory process than the Company.
The Company also competes with academic institutions, governmental agencies and
other research organizations, which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete successful clinical studies and obtain FDA marketing and foreign
regulatory approvals prior to its competitors. There can be no assurance that
the Company will be able to compete against current or future competitors or
that competition will not have a material adverse effect on the Company's
business, financial condition, and results of operations.


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      The Company is aware of several companies, including Pharmacia, Alcon,
Genzyme Biosurgery (successor to Biomatrix, Inc.), Hyal Pharmaceutical Corp.,
Q-Med AB, Fidia s.p.a., LifeCore Biomedical, Inc., Smith & Nephew plc and
Seikagaku Corporation, that are developing and/or marketing products utilizing
HA for a variety of human applications. In some cases, competitors have obtained
product approvals, submitted applications for approval or have commenced human
clinical studies, either in the United States or in certain foreign countries.
Major competing products for the use of HA in ophthalmic surgery include Healon
(manufactured by Pharmacia) and Provisc and Viscoat (distributed by Alcon).
Three HA products for the treatment of osteoarthritis in the knee, Hyalgan,
Synvisc and Supartz have received FDA approval and are being marketed in the
U.S. Hyalgan is manufactured by Fidia s.p.a. and is distributed by Sanofi
Pharmaceuticals. In addition, Fidia s.p.a. is selling the product in select
markets in Europe. Synvisc is manufactured by Genzyme Biosurgery and is
distributed in the United States by Wyeth-Ayerst Laboratories, a division of
American Home Products Corp. Synvisc is also marketed in Canada, Europe, Latin
America, Australia and other countries utilizing various other distribution
partners. Supartz is manufactured by Seikagaku Corporation and is distributed in
Japan, Spain, Sweden, the U.S. and other countries. Genzyme has received
marketing approvals in Europe and the U.S. for a chemically modified HA for the
prevention of post-surgical adhesions under the brand name of Seprafilm.
LifeCore Biomedical has completed a Phase III human clinical trial on its HA
product INTERGEL(TM) to prevent surgical adhesions and has filed a PMA with the
FDA. Smith & Nephew has licensed Supartz from Seikagaku Corporation for
distribution in the U.S., Europe, and other countries.

RESEARCH AND DEVELOPMENT

      The Company intends to continue development of its existing product
candidates, to expand the therapeutic applications of its existing products, and
to develop new therapeutic applications for its HA-based technology.

      The Company's research and development efforts consist primarily of the
development of new medical applications for its HA-based technology and the
management of clinical trials for product candidates and the preparation and
processing of applications for regulatory approvals at all relevant stages of
development. The Company's development of new products is accomplished primarily
through in-house research and development personnel and resources as well as
with collaboration with other companies and scientific researchers. For the
years ended December 31, 2000, 1999 and 1998, research and development expenses
were $3.3 million, $4.2 million, and $2.0 million, respectively. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future. As of December 31, 2000, the Company had ten
employees engaged primarily in research and development. Given its current plans
for commencing two clinical trials in 2001, the Company expects its investments
in research and development in 2001 to be roughly twice the level of such
spending in 2000.

      There can be no assurances that the Company's efforts will be successful
in developing its existing product candidates, expanding the therapeutic
applications of its existing products, or result in new applications for its HA
technology, or that the Company will be able to obtain regulatory approval for
any new applications it develops. Furthermore, even if all regulatory approvals
are obtained, there can be no assurances that the Company will achieve
meaningful sales of such products or applications.

EMPLOYEES

      As of December 31, 2000, the Company had approximately 64 full-time
employees. The Company considers its relations with its employees to be good. No
employees are represented by labor unions.

ENVIRONMENTAL LAWS

      The Company believes that it is in compliance with all federal, state and
local environmental regulations with respect to its manufacturing facilities and
that the cost of ongoing compliance with such regulations does not have a
material effect on the Company's operations. The Company's leased manufacturing
facility is located within the Wells G&H Superfund site in Woburn, MA. The
Company has not been named and is not a party to any such legal proceedings
regarding the Wells G&H Superfund site.

PRODUCT LIABILITY

      The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no assurance
that substantial product liability claims will not be asserted against the
Company.


                                       8
<PAGE>

Although the Company has not received any material product liability claims to
date and has coverage under its insurance policy of $5,000,000 per occurrence
and $5,000,000 in aggregate, there can be no assurance that if material claims
arise in the future, that the Company's insurance will be adequate to cover all
situations. Moreover, there can be no assurance that such insurance, or
additional insurance, if required, will be available in the future or, if
available, will be available on commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition, and results of operation.

ITEM 2. PROPERTIES

      The Company leases 35,000 square feet of space at 236 West Cummings Park,
Woburn, Massachusetts for its corporate headquarters and manufacturing facility.
This facility has received all FDA and state regulatory approvals to operate as
a sterile device and drug manufacturer. The lease for this facility terminates
in February 2004. The Company also leases (i) approximately 9,000 square feet of
administrative and research and development space in Woburn, Massachusetts under
a lease terminating in October 2001 and (ii) approximately 9,000 square feet of
warehouse space in Woburn, Massachusetts under a lease terminating in January
2004. For the year ended December 31, 2000 the Company had aggregate lease costs
of approximately $647,000.

ITEM 3. LEGAL PROCEEDINGS

      Securities and Exchange Commission Investigation. The SEC has issued a
formal order of investigation and has required the Company to provide
information in connection with certain revenue recognition matters. These
matters, relating to the Company's historical accounting for sales of its
product under a long-term supply and distribution agreement with Zimmer, Inc.,
were also the subject of the Company's March 15, 2000 disclosure concerning an
informal SEC inquiry and the restatement of results for 1998 and the first three
quarters of 1999. The Company has been cooperating fully. However, the Company
is not in a position to predict the probable outcome of this matter or its
potential impact on the Company's business or operations.

      Putative Class Action Complaints. Three putative class action complaints
have been filed against the Company, J. Melville Engle, and Sean Moran, the
Company's former chief financial officer, in the United States District Court
for the District of Massachusetts (the "Court") on behalf of all purchasers of
the Company's shares between April 15, 1998 and May 30, 2000 (the "Class"). The
first, filed on or about June 8, 2000, is captioned Casazza, et al. v. Anika
Therapeutics, Inc., J. Melville Engle and Sean Moran, Civil Action No.
00-11127-WGY. The second, filed on or about June 26, 2000, is captioned
Nemeth-Coslett, et al. v. Anika Therapeutics, Inc., J. Melville Engle and Sean
Moran, Civil Action No. 00-11257-WGY. The third, filed on or about August 2,
2000, is captioned Rockefeller, et al. v. Anika Therapeutics, Inc., J. Melville
Engle and Sean Moran, Civil Action No. 00-11540-WGY. Each of these putative
class action complaints encompasses the same class period and covers almost
identical allegations.

      On or about August 7, 2000, David and Vivian West, alleged members of the
Class, filed a motion to appoint themselves lead plaintiffs and their law firm
lead counsel, as well as a motion for consolidation of the above cases. On or
about September 13, 2000, the Court granted David and Vivian West's motions,
consolidated the cases and recaptioned the case In re Anika Therapeutics, Inc.
Securities Litigation, Civil Action No. 00-11127-WGY. On or about October 30,
2000, lead plaintiffs filed a consolidated amended complaint. The complaint
alleges that the Company and the individual defendants violated the federal
securities laws by, inter alia, making material misrepresentations and omissions
in certain public disclosures during the period between April 15, 1998 and May
30, 2000. The alleged misrepresentations and omissions relate to the Company's
historical revenue recognition policies and its restatement of revenues for 1998
and the first three quarters of 1999. The complaint seeks an unspecified amount
of monetary damages, costs and expenses, and equitable and/or injunctive relief
to restrict the defendants from disposing of various assets in order to assure
adequate funds are available for the claimed damages. On December 14, 2000, the
Company, Mr. Engle and Mr. Moran each filed motions to dismiss the consolidated
amended complaint. On January 29, 2001, plaintiffs' counsel filed oppositions to
defendants' motions to dismiss. The Defendants filed reply briefs on February
12, 2001. The Company is vigorously defending the lawsuit. The Company is not
able to predict the probable outcome of this matter or its potential impact on
the Company's business or operations.


                                       9
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matter was submitted to a vote of the security holders during the
fourth quarter of the fiscal year covered by this report.


                                       10
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK INFORMATION

      The Company's common stock par value $0.01 per share (the "Common Stock")
has traded on the Nasdaq National Market since November 25, 1997 under the
symbol "ANIK". The following table sets forth, for the periods indicated, the
high and low bid prices of the Common Stock on the Nasdaq National Market. These
prices represent prices between dealers and do not include retail mark-ups,
markdowns, or commissions and may not represent actual transactions.

                                                                Bid Range
                                                                ---------
Year Ended December 31, 1999                                High         Low
----------------------------                                ----         ---

First Quarter............................................. $5.50        $4.50
Second Quarter............................................  9.00         4.69
Third Quarter.............................................  8.75         5.00
Fourth Quarter............................................  7.69         5.50

                                                                Bid Range
                                                                ---------
Year Ended December 31, 2000                                High         Low
----------------------------                                ----         ---

First Quarter.............................................$12.00        $6.00
Second Quarter............................................  9.97         1.38
Third Quarter.............................................  1.88         1.22
Fourth Quarter............................................  1.81         0.69

      At December 31, 2000, there were 309 holders of record of Common Stock.

      The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, for use in its
business and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Payment of future dividends, if any, on the Common Stock
will be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's financial condition, operating
results, anticipated cash needs, and plans for expansion.


                                       11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

                         Statements of Operations Data:
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                    Four month
                                                                                                   Transitional
                                                                                                   Period Ended   Year ended
                                                                    Years ended December 31,        December 31,  August 31,
                                                          ----------------------------------------  ------------  ----------
                                                            2000       1999       1998      1997        1996         1996
                                                            ----       ----       ----      ----        ----         ----
<S>                                                        <C>       <C>         <C>       <C>         <C>          <C>
Product revenue                                            $12,935   $ 13,083    $11,773   $ 9,255     $ 1,212      $ 4,613
Licensing revenue                                            3,400        400      1,500     2,700          --           --
                                                           -------   --------    -------   -------     -------      -------
Total revenue                                               16,335     13,483     13,273    11,955       1,212        4,613
Cost of sales                                                9,871      6,440      6,014     4,744       1,309        4,472
                                                           -------   --------    -------   -------     -------      -------
Gross profit (loss)                                          6,464      7,043      7,259     7,211         (97)         141
Total operating expenses                                     7,448      7,184      4,687     4,050       2,619        3,104
Income (loss) before cumulative effect of
change in accounting principle                                 174      1,129      3,752     3,344      (2,658)      (2,849)
Cumulative effect of change in accounting principle             --     (3,625)        --        --          --           --
                                                           -------   --------    -------   -------     -------      -------
Net income (loss)                                          $   174   $ (2,496)   $ 3,752   $ 3,344     $(2,658)     $(2,849)
                                                           =======   ========    =======   =======     =======      =======
Diluted income (loss) per common share:
  Income (loss) before cumulative effect of
  change in accounting principle                           $  0.02   $   0.11    $  0.34   $  0.44     $ (0.56)     $ (0.76)
  Cumulative effect of change in accounting principle           --      (0.35)        --        --          --           --
                                                           -------   --------    -------   -------     -------      -------
Net income (loss)                                          $  0.02   $  (0.24)   $  0.34   $  0.44     $ (0.56)     $ (0.76)
                                                           =======   ========    =======   =======     =======      =======

Diluted common shares outstanding                           10,042     10,221     11,006     7,587       4,905        4,053
</TABLE>

                               Balance Sheet Data:
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                December 31,                       August 31,
                                         -------------------------------------------------------   ----------
                                           2000        1999        1998        1997       1996        1996
                                           ----        ----        ----        ----       ----        ----
<S>                                      <C>         <C>         <C>         <C>         <C>        <C>
Cash and cash equivalents                $  8,266    $  6,441    $ 10,713    $ 22,680    $ 2,705    $ 3,651
Investments in Marketable Securities       10,040      13,743      12,008          --         --         --
Working capital                            23,083      18,973      26,480      25,329      4,226      5,858
Total assets                               28,979      32,511      32,393      28,749      6,920      8,580

Redeemable convertible preferred stock         --          --          --          --      2,603      2,523
Accumulated deficit                        (4,599)     (4,773)     (2,277)     (6,029)    (9,374)    (6,716)
Treasury stock                               (280)       (960)     (1,890)         --         --         --
Stockholder's equity                       26,712      25,712      29,298      26,224      2,369      4,415
</TABLE>


                                       12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following section of this Annual Report on Form 10-K titled
"Management's Discussion and Analysis of Financial condition, and Results of
Operations" contains statements that are not statements of historical fact
and are forward-looking statements within the meaning of the federal
securities laws. These statements involve known and unknown risks,
uncertainties, and other factors that may cause the Company's actual results,
performance, or achievement to differ materially from anticipated results,
performance, or achievement, expressed or implied in such forward-looking
statements. These statements reflect our current views with respect to future
events and are based on assumptions and subject to risks and uncertainties.
We discuss many of these risks and uncertainties at the beginning of this
Annual Report on Form 10-K and under the heading "Risk Factors and Certain
Factors Affecting Future Operating Results" beginning on page 19. The
following discussion should also be read in conjunction with the Consolidated
Financial Statements of Anika Therapeutics, Inc. and the Notes thereto
appearing elsewhere herein.

Overview

      The Company develops, manufactures and commercializes therapeutic products
and devices intended to promote the repair, protection and healing of bone,
cartilage and soft tissue. These products are based on hyaluronic acid ("HA"), a
naturally-occurring, biocompatible polymer found throughout the body. Due to its
unique biophysical and biochemical properties, HA plays an important role in a
number of physiological functions such as the protection and lubrication of soft
tissues and joints, the maintenance of the structural integrity of tissues, and
the transport of molecules to and within cells. The Company's currently marketed
products consist of ORTHOVISC(R), which is an HA product used in the treatment
of some forms of osteoarthritis in humans; and HYVISC(R), which is an HA product
used in the treatment of equine osteoarthritis. ORTHOVISC(R) is currently
approved for sale and marketed in Canada, Europe, Turkey, and Israel. In the
U.S., ORTHOVISC(R) is currently limited to investigational use. The Company
commenced a Phase III clinical trial in the U.S. and Canada in February 2001.
The Company manufactures AMVISC(R) and AMVISC(R)Plus, which are HA products used
as viscoelastic supplements in ophthalmic surgery, for Bausch & Lomb. The
Company is currently developing INCERT(R), which is an HA-based product designed
for use in the prevention of post-surgical adhesions, and in March 2001, the
Company received IDE approval to commence a clinical trial. In collaboration
with Orquest, Inc., Anika also has exclusive rights to produce OSSIGEL(R), an
injectable formulation of basic fibroblast growth factor combined with HA
designed to accelerate the healing of bone fractures.

      The Company receives a substantial portion of its revenue from the sale of
AMVISC(R) and AMVISC(R)Plus to Bausch & Lomb. For the years ended December 31,
2000 and 1999, AMVISC(R) sales accounted for 54.1% and 63.9% of product revenue,
respectively.

      The Company currently manufactures AMVISC(R) for Bausch & Lomb under the
BLS Agreement. Under the terms of the BLS Agreement, effective January 1, 2001,
the Company became Bausch & Lomb Surgical's exclusive provider of AMVISC(R) and
AMVISC(R) Plus, ophthalmic viscoelastic products, in the U.S. and certain
international markets. The BLS Agreement expires December 31, 2007, superseding
an existing supply contract with Bausch & Lomb Surgical that was set to expire
December 31, 2001. The BLS Agreement is subject to early termination and/or
reversion to a non-exclusive basis under certain circumstances. The BLS
Agreement lifts contractual restrictions on the Company's sales of certain
ophthalmic products to other companies, subject to payment of royalties by
Anika. In exchange, the Company agreed to a reduction in unit selling prices
effective to April 1, 2000 and the elimination of minimum unit purchase
obligations by BLS. (See "Risk Factors and Certain Factors Affecting Future
Operating Results--Dependence Upon Marketing Partners" beginning on page 19.)

      In November 1997, the Company entered into a marketing and distribution
agreement with Zimmer, Inc., which was subsequently amended in June 1998 and
June 1999 (the "Zimmer Distribution Agreement"), and terminated in November
2000. The Zimmer Distribution Agreement provided Zimmer with exclusive marketing
and distribution rights to ORTHOVISC(R) in the United States, Canada, Latin
America, Asia and most of Europe. Following an informal inquiry by the
Securities and Exchange Commission, the Company and its independent auditors
conducted a review of its revenue recognition policy for revenue received under
the Zimmer Distribution Agreement. As a result of this review, and after
consultation with the SEC, Anika revised its revenue recognition policy for
ORTHOVISC(R) sales to Zimmer and restated its operating results for 1998 and the
first three quarters of 1999. (This restatement was previously announced on
March


                                       13
<PAGE>

15, 2000 and was disclosed in the Company's Form 10-K for the year ended
December 31, 1999.) Under the revised revenue recognition policy, revenue was
recognized at the time of shipment to Zimmer based upon the minimum per unit
price under the Zimmer Distribution Agreement at the time of sale to Zimmer.
Anika had previously recognized revenue for ORTHOVISC(R) sales to Zimmer based
upon an estimate of the average selling price, which was obtained by Zimmer upon
sale of ORTHOVISC(R) to its customers, as specified under the Zimmer
Distribution Agreement. Anika had also previously recognized revenue in 1998 and
the first three quarters of 1999 for ORTHOVISC(R) from sales of units which had
previously been purchased and paid for by Zimmer, but was being held in Anika's
refrigerators at Zimmer's request. Under the Company's revised revenue
recognition policy, this revenue was recorded when the ORTHOVISC(R) being held
was shipped to Zimmer from Anika's refrigerators. Amounts paid by Zimmer, in
excess of the amount recognized under the revised revenue recognition policy,
were recorded by Anika as deferred revenue.

      On November 10, 2000 the Company entered into an agreement with Zimmer,
Inc. to terminate the Zimmer Distribution Agreement for ORTHOVISC(R). Under
the terms of the termination agreement, Zimmer had rights to distribute
ORTHOVISC(R) through the end of the year in the countries where it was
previously sold. As a result of the termination of the Zimmer Distribution
Agreement, Anika recognized $4,249,000 of revenue in the fourth quarter of
2000 for amounts previously received from Zimmer, which included a one-time
payment under the termination agreement. The termination eliminated all
obligations under the distribution agreement with respect to milestone
payments, minimum purchases, unit pricing adjustments based on market prices
and provided for the disposal by January 31, 2001 of all units previously
purchased by Zimmer, including units held in Anika's refrigerators at
Zimmer's request. See "Risk Factors and Certain Factors Affecting Future
Operating Results - Dependence on Marketing Partners" and "--Reliance on a
Small Number of Customers."

      The Company also adopted the provisions of SEC Staff Accounting
Bulletin 101 (SAB 101) in its restated 1999 operating results. SAB 101
changed revenue recognition practices for non-refundable up-front payments
received as part of broad supply, distribution and marketing agreements, and
is applicable to $2,500,000 and $1,500,000 payments received from Zimmer in
the fourth quarter of 1997 and the second quarter of 1998, respectively.
These amounts were previously recognized in the period received. In
accordance with SAB 101, the Company recorded the cumulative effect of the
change in accounting principle of $3,625,000 as a charge in the first quarter
of 1999. Under the new revenue recognition policy prescribed by SAB 101,
these payments were recognized as revenue ratably over the 10-year term of
the Zimmer Distribution Agreement. The amount received and deferred to future
periods, $2,925,000 at September 30, 2000, was recorded as licensing revenue
in the fourth quarter of 2000 as a result of the early termination of the
Zimmer Distribution Agreement. Also, included in revenue in the fourth
quarter of 2000 is a one-time payment received from Zimmer upon termination
of the Zimmer Distribution Agreement.

                                       14
<PAGE>

Results of Operations

Year ended December 31, 2000 compared to year ended December 31, 1999

                         Statement of Operations Detail

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                                          2000            1999
<S>                                                                   <C>             <C>
Product revenue                                                       $ 12,935,222    $ 13,082,662
Licensing revenue                                                        3,400,000         400,000
                                                                      ----------------------------
Total revenue                                                           16,335,222      13,482,662
Cost of product revenue                                                  9,870,559       6,440,166
                                                                      ----------------------------
Gross profit                                                             6,464,663       7,042,496
Operating expenses:
Research and development                                                 3,259,984       4,154,479
Selling, general and administrative                                      4,188,044       3,029,394
                                                                      ----------------------------
Total operating expenses                                                 7,448,028       7,183,873
                                                                      ----------------------------
Income (loss) from operations                                             (983,365)       (141,377)
Interest income, net                                                     1,172,859       1,068,430
Gain on sale of securities                                                      --         233,633
                                                                      ----------------------------
Income before provision for income taxes                                   189,494       1,160,686
Provision for Income taxes                                                  15,940          31,412
                                                                      ----------------------------
Income before cumulative effect of change in accounting principle          173,554       1,129,274
Cumulative effect of change in accounting principle                             --      (3,625,000)
                                                                      ----------------------------
Net income (loss)                                                     $    173,554    $ (2,495,726)
                                                                      ============================
</TABLE>

      Product Revenue. Product revenue for the year ended December 31, 2000 was
$12,935,222, a decrease of $147,440 or 1%, compared with $13,082,662 recorded in
the prior year. The decrease was partially attributable to reduced sales of
AMVISC(R) products to Bausch & Lomb of $1,363,968 compared with the prior year,
reflecting lower prices effective April 1, 2000 under the BLS Agreement. The
Company expects unit volumes to increase in 2001 but will be partially offset by
lower unit selling prices. Product revenue associated with ORTHOVISC(R)
increased by $943,484 compared to 1999 as a result of the recognition of
approximately $1.1 million of revenue upon termination of the Zimmer
Distribution Agreement as described above, and was partially offset by decreased
sales to the Company's Turkish distributor. The Company does not expect to
recognize additional revenue from Zimmer in future periods. Also, ORTHOVISC(R)
product revenue may be impacted by economic uncertainties associated with the
Turkish market. Furthermore, future sales of ORTHOVISC(R) to our Turkish
distributor will be at lower unit selling prices, as negotiations to establish a
new long-term distribution agreement for this territory are ongoing. The
Company's sales of HYVISC(R) also increased by $304,680 during 2000 as compared
with 1999.

      Licensing Revenue. Licensing revenue of $3,400,000 for the year ended
December 31, 2000 includes: (i) $100,000 per quarter of amortization of
milestone payments received in 1997 and 1998 under the Zimmer Distribution
Agreement, in accordance with SAB 101; (ii) deferred revenue recapture of
$2,925,000 in the fourth quarter of 2000; and (iii) a one-time payment
received as a result of the termination of the Zimmer Distribution Agreement
referred to above. The Company does not anticipate that it will receive any
licensing revenue in 2001.

      Gross Profit. Gross profit for the year ended December 31, 2000 was
$6,464,663, a decrease of $577,833 or 8% from $7,042,496 recorded in the prior
year. Excluding the effects of the termination of the Zimmer Distribution
Agreement, gross profit for 2000 was $2,765,000, or 23% of adjusted revenue,
compared with a gross profit of 52% in 1999. The decrease was primarily
attributable to two factors. First, after learning of unfavorable results from a
clinical trial of ORTHOVISC(R) announced on May 31, 2000, the Company suspended
certain manufacturing activities in an effort to reduce work in process
inventory of HA. Total inventory was reduced from $7.2 million at June 30, 2000
to $4.7 million at December 31, 2000. Cost of sales during the second half of
2000 included charges of approximately $2.1 million to reflect this
underutilization of manufacturing capacity. The company's gross margin is
expected to continue to be adversely affected


                                       15
<PAGE>

by underutilization of manufacturing capacity in 2001. Second, the price
reduction associated with the BLS Agreement, effective April 1, 2000, reduced
gross margin by approximately $2.2 million, as compared to the prior year. The
Company expects to continue to experience reduced gross margins through 2001,
reflective of the reduced unit selling price under the BLS Agreement and the
reduced per unit selling prices of ORTHOVISC(R) to its Turkish distributor.

      Research and Development. Research and development expenses for the year
ended December 31, 2000 decreased by $894,495 to $3,259,984 from $4,154,479
recorded in the prior year. The decrease in research and development during 2000
was primarily attributable to lower clinical trial costs as the prior
ORTHOVISC(R) Phase III trial was completed during the first half of 2000. Costs
of new trials during 2000 were minimal. Research and development expenses during
2001 are expected to be approximately twice the level of spending in 2000 due to
the commencement of clinical trials for ORTHOVISC(R) and INCERT(R), as well as
expected additions to headcount.

      Selling, General and Administrative. Selling, general and administrative
expenses for the year ended December 31, 2000 increased by $1,158,650 or 44% to
$4,188,044 from $3,029,394 in the prior year. The increase was primarily due to
increased professional fees associated with the SEC's investigation of certain
revenue recognition matters, a shareholder class action suit, contractual
negotiations relating to various distribution agreements and other matters.

      Net Interest Income and Gain on Sale of Securities. The Company's net
interest income increased by $104,429 to $1,172,859 for the year ended December
31, 2000 from $1,068,430 in the prior year. The increase is attributable to
higher market interest rates during 2000, offset by lower average cash balances
on hand in 2000 versus 1999. During the fourth quarter of 1999, the Company
recorded a gain of approximately $233,633, net of expenses, on the sale of
equity securities purchased in the second quarter of 1999. Interest income in
2001 is expected to be adversely affected by lower market interest rates as well
as lower average cash and investment balances.

      Income Taxes. The Company recorded tax expense for the year ended December
31, 2000 of $15,940, and $31,412 for the year ended December 31, 1999. The tax
provisions primarily represent state income taxes on investment income. For
federal income tax purposes, the Company has had net operating losses available
to offset otherwise taxable income. The Company has federal and state net
operating loss carry-forwards of $4,629,000 and $1,403,000, respectively that
may be available to offset future taxable income, if any. The Internal Revenue
Code (IRC) contains provisions that may limit the amount of net operating loss
and credit carry-forwards that the Company may utilize in any one year in the
event of certain cumulative changes in ownership over a three-year period. In
the event that the Company has had a change of ownership, as defined in IRC
Section 382, utilization of the carry-forwards may be restricted.


                                       16
<PAGE>

Year ended December 31, 1999 compared to year ended December 31, 1998

                         Statement of Operations Detail

<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                                         1999           1998
<S>                                                                 <C>             <C>
Product revenue                                                     $ 13,082,662    $11,773,343
Licensing revenue                                                        400,000      1,500,000
                                                                    ---------------------------
Total revenue                                                         13,482,662     13,273,343
Cost of product revenue                                                6,440,166      6,014,181
                                                                    ---------------------------
Gross profit                                                           7,042,496      7,259,162
Operating expenses:
Research and development                                               4,154,479      1,955,940
Selling, general and administrative                                    3,029,394      2,731,142
                                                                    ---------------------------
Total operating expenses                                               7,183,873      4,687,082
                                                                    ---------------------------
Income (loss) from operations                                           (141,377)     2,572,080
Interest income, net                                                   1,068,430      1,307,825
Gain on sale of securities                                               233,633             --
                                                                    ---------------------------
Income before provision for income taxes                               1,160,686      3,879,905
Provision for Income taxes                                                31,412        127,557
                                                                    ---------------------------
Income before cumulative effect of change in accounting principle      1,129,274      3,752,348
Cumulative effect of change in accounting principle                   (3,625,000)            --
                                                                    ---------------------------
Net income (loss)                                                   $ (2,495,726)   $ 3,752,348
                                                                    ===========================
</TABLE>

      Product Revenue. Product revenue for the year ended December 31, 1999 was
$13,082,662, an increase of $1,309,319 or 11.1%, over the $11,773,343 recorded
in the prior year. The increase was primarily attributable to an increase of
$805,352, or 22.0% in sales of ORTHOVISC(R). See "Risk Factors And Certain
Factors Affecting Future Operating Results--Reliance on a Small Number of
Customers." Sales of AMVISC(R) products increased by $294,606 or 3.7%.

      Licensing Revenue. For the year ended December 31, 1999, licensing revenue
of $400,000 represents the annual amortization of amounts received in 1997 and
1998 in accordance with the Company's change in accounting for such fees. The
$1,500,000 included in licensing fees in 1998 was received from Zimmer for the
extension of marketing rights for ORTHOVISC(R) to include most of Europe and
Latin America under the Zimmer Distribution Agreement. This amount, along with
$2,500,000 received in 1997, underlies the charge against earnings in 1999 under
the caption "Cumulative effect of change in accounting principle."

      Gross Profit. Gross profit for the year ended December 31, 1999 was
$7,042,496, a decrease of $216,666 or 3.0% from $7,259,162 recorded in the prior
year. The decrease was primarily due a the decrease in licensing fees. Gross
profit from product revenues increased as a percentage of product revenue to
50.8% for the year ended December 31, 1999 as compared to 48.9% in the prior
year. The increase in the gross profit percentage on product revenues primarily
reflects the impact of capital spending and resulting scale-up efforts during
1998 and 1999 to increase manufacturing capacity and other efforts to improve
efficiencies.

      Research and Development. Research and development expenses for the year
ended December 31, 1999 increased by $2,198,539 to $4,154,479 from $1,955,940
recorded in the prior year. The increase in research and development during 1999
was primarily for the cost of ORTHOVISC(R) Phase III trials.

      Selling, General and Administrative. Selling, general and administrative
expenses for the year ended December 31, 1999 increased by $298,252 or 10.9% to
$3,029,394 from $2,731,142 in the prior year. The increase was primarily
attributable to ORTHOVISC(R) selling and marketing costs, headcount increases,
and the amortization of deferred stock compensation.


                                       17
<PAGE>

      Net Interest Income and Gain on Sale of Securities. The Company's net
interest income decreased by $239,395 to $1,068,430 for the year ended December
31, 1999 from $1,307,825 in the prior year. The decrease is attributable to
lower average cash balances on hand in 1999 versus 1998 and lower average
interest rates. During the fourth quarter of 1999, the Company recorded a gain
of approximately $233,633, net of expenses, on the sale of equity securities
purchased in the second quarter of 1999.

      Income Taxes. The Company recorded tax expense for the year ended December
31, 1999 of $31,412 and $127,557 for the year ended December 31, 1998. The
Company has utilized net operating loss and credit carry-forwards to offset
taxable income earned during these years.

LIQUIDITY AND CAPITAL RESOURCES

      At December 31, 2000, the Company had cash, cash equivalents and
investments in marketable securities of $18.3 million versus cash, cash
equivalents and investments in marketable securities of $20.2 million at
December 31, 1999. During 2000, the Company's net income plus depreciation and
amortization of unearned stock compensation, less the change in deferred revenue
used $3.3 million of cash. During fiscal year 2000, this utilization of cash was
partially offset by a reduction of cash utilized in working capital items,
primarily inventories and accounts receivable, amounting to $1.4 million.

      During 2000, the Company utilized $505,000 for capital expenditures.
Proceeds from the exercise of stock options were $540,000. Capital expenditures
in 2001 are expected to include approximately $500,000 to construct certain
manufacturing and laboratory facilities as well as customary capital spending
for manufacturing, laboratory, and office equipment.

      In October 1998, the Board of Directors approved a stock repurchase
program under which the Company was authorized to repurchase up to $4 million of
Anika common stock with the total number of shares repurchased under the plan
not to exceed 9.9% of the total issued and outstanding shares. Through December
31, 1999, the Company had repurchased 762,100 shares at an average cost per
share of $5.08 for an aggregate cash purchase price of approximately $3,873,000.
No shares of the Company's stock were repurchased during 2000.

      The Company has announced plans for increased research and product
development spending, including two clinical trials, during 2001. Such currently
planned expenditures will increase the Company's aggregate utilization of its
cash resources. In addition, as described in the section entitled "Legal
Proceedings" elsewhere in this document, the Company is a defendant in a
shareholder class action lawsuit, which if settled, may require the Company to
contribute funds. However, the Company believes that its cash and investments on
hand will be sufficient to meet its requirements through at least 2002.

      The Company's future capital requirements and the adequacy of available
funds will depend, however, on numerous factors, including market acceptance of
its existing and future products; the successful commercialization of products
in development; progress in its product development efforts; the magnitude and
scope of such efforts; progress with pre-clinical studies, clinical trials and
product clearances by the FDA and other agencies; the cost, timing requirements
of its efforts to expand its manufacturing capabilities; the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; competing technological and market developments; and the
development of strategic alliances for the marketing of certain of its products.
There can be no assurance that the Company will record profits in future
periods. See "Risk Factors and Certain Other Factors Affecting Future
Operating Results - History of Losses; Uncertainty of Future Profitability."

      The terms of any future equity financings may be dilutive to the Company's
stockholders and the terms of any debt financings may contain restrictive
covenants, which limit the Company's ability to pursue certain courses of
action. The ability of the Company to obtain financing is dependent on the
status of the Company's future business prospects as well as conditions
prevailing in the relevant capital markets. No assurance can be given that any
additional financing will be made available to the Company or will be available
on acceptable terms should such a need arise. The Company's estimate of the time
period for which cash and cash equivalents will be adequate to fund operations
is a forward looking statement within the meaning of the Private Securities
Litigation Reform Act of 1995 and is subject to risks and uncertainties. Actual
results may differ materially from those contemplated in such forward-looking
statements. In addition to those described above, factors which may cause such a
difference are set forth under the caption "Risk Factors and Certain Factors
Affecting Future Operating Results" as well as in this Annual Report on Form
10-K generally.


                                       18
<PAGE>

Risk Factors and Certain Factors Affecting Future Operating Results

      Comprehensive Government Regulation; No Assurance of FDA Approval. The
Company's products, product development activities, manufacturing processes, and
current and future sales and marketing are subject to extensive and rigorous
regulation by the FDA and comparable agencies in foreign countries. In the
United States, the FDA regulates the marketing, advertising, promotion, and
distribution of medical devices, drugs, and biologics, as well as testing,
safety, effectiveness, clearance, approval, manufacturing, labeling, packaging,
storage, record keeping, and reporting activities for such products.

      Medical products regulated by the FDA are generally classified as medical
devices, drugs and/or biologics. Product development and approval within the FDA
framework takes a number of years and involves the expenditure of substantial
resources. There can be no assurance that the FDA will grant approval for the
Company's new products on a timely basis or at all, or that FDA review will not
involve delays that will adversely affect the Company's ability to commercialize
additional products or expand permitted uses of existing products, or that the
regulatory framework will not change, or that additional regulation will not
arise at any stage of the Company's product development process which may
adversely affect approval of or delay an application or require additional
expenditures by the Company. In the event the Company's future products are
regulated as human drugs or biologics, the FDA review process typically would be
substantially longer and more expensive than the review process to which they
are currently subject as devices.

      The Company's ORTHOVISC(R) product will have to meet regulatory
requirements of a Class III device by the FDA. Class III devices are those that
generally must receive pre-market approval (PMA) by the FDA (e.g.
life-sustaining, life-supporting and implantable or new devices which have not
been found to be substantially equivalent to legally marketed devices) and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution. In order for the Company to commercially
distribute ORTHOVISC(R) in the U.S., it must obtain FDA approval of a PMA. The
PMA approval process can be expensive, uncertain and lengthy. A number of
devices for which pre-market approval has been sought have never been approved
for marketing. The review of an application often occurs over a protracted time
period and may take two years or more from the filing date to complete. The
Company submitted a PMA for ORTHOVISC(R) in December 1997. In October 1998, the
Company was notified by the FDA that the Company's PMA application for
ORTHOVISC(R) was not approvable and that additional clinical data would be
required to demonstrate the effectiveness of ORTHOVISC(R). The Company submitted
an IDE to the FDA in February 1999 and received approval in late March 1999 to
commence a second Phase III clinical study. The Company received initial results
from the Phase III clinical trial in late May 2000 that the Company determined
did not show sufficient efficacy to support the filing of a PMA application. The
Company has evaluated available information and announced its intention to
pursue further clinical trials. In February 2001, the Company commenced another
Phase III clinical trial of ORTHOVISC(R). The trial is expected to be conducted
in up to 20 centers in the U.S. and Canada, with 360 patients expected to be
enrolled, and with evaluation over a six-month period following treatment. There
can be no assurance that (i) any additional clinical data will support the
efficacy of ORTHOVISC(R), (ii) the Company will complete any additional clinical
trials of ORTHOVISC(R), (iii) the Company will be able to successfully complete
the FDA approval process, or (iv) additional clinical trials will support a PMA
application and/or FDA approval in a timely manner or at all. There also can be
no assurance that any delay in receiving FDA approvals will not adversely affect
the Company's competitive position. Furthermore, even if the Company were to
receive a PMA approval, (i) the approval may include significant limitations on
the indications and other claims sought for use for which the product may be
marketed; (ii) the approval may include other significant conditions to approval
such as post-market testing, tracking, or surveillance requirements; and (iii)
the Company may not be able to achieve meaningful sales in the U.S.

      The Company's HA products under development, including INCERT(R)-S have
not obtained regulatory approval in the U.S. for commercial marketing and sale.
The Company believes that INCERT(R)-S will be regulated as a Class III medical
device and will require FDA approval of a PMA prior to marketing. The Company
has received IDE approval from the FDA and plans to commence clinical trials for
INCERT(R)-S in the first half of 2001. The planned trial is expected to
initially include up to 100 patients in up to 20 centers in the U.S. and, if
results from these patients support further development, to expand patient
recruitment to up to 380 patients. There can be no assurance that (i) the
Company will begin or successfully complete clinical trials of INCERT(R)-S; (ii)
the clinical data will support the efficacy of


                                       19
<PAGE>

INCERT(R)-S; (iii) it will be able to successfully complete the FDA approval
process; or (iv) additional clinical trials will support a PMA application
and/or FDA approval in a timely manner or at all. There also can be no assurance
that any delay in receiving FDA approvals will not adversely affect our
competitive position. Furthermore, even if we received FDA approval, (i) the
approval may include significant limitations on the indications and other claims
sought for use for which the product may be marketed (ii) the approval may
include other significant conditions of approval such as post-market testing,
tracking, or surveillance requirements; and /or (iii) meaningful sales of
INCERT(R)-S may never be achieved.

      Orquest has not received regulatory approval in the U.S. for the
commercial marketing and sale of OSSIGEL(R). OSSIGEL(R) will be regulated as a
Class III medical device with the FDA's Center of Biologics Research and Review
as the lead review center and will require PDA approval prior to marketing.
There can be no assurance that clinical trials of OSSIGEL(R) will demonstrate
that OSSIGEL(R) is safe and effective or otherwise satisfies FDA requirements.

      Once obtained, marketing approval can be withdrawn by the FDA for a number
of reasons, including, among other things, the failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial approval.
The Company may be required to make further filings with the FDA under certain
circumstances. The FDA's regulations require agency approval of a PMA supplement
for certain changes if they affect the safety and effectiveness of an approved
device, including, but not limited to, new indications for use, labeling
changes, the use of a different facility to manufacture, process or package the
device, and changes in performance or design specifications. Changes in
manufacturing that effect safety and effectiveness, may be deemed approved after
a 30-day notice unless the FDA requests a supplement. Failure by the Company to
receive approval of a PMA supplement regarding the use of a different
manufacturing facility or any other change affecting the safety or effectiveness
of an approved device on a timely basis, or at all, would have a material
adverse effect on the Company's business, financial condition, and results of
operations. The FDA could also limit or prevent the manufacture or distribution
of the Company's products and has the power to require the recall of such
products. Significant delay or cost in obtaining, or failure to obtain FDA
approval on clearance to market products, any FDA limitations on the use of the
Company's products, or any withdrawal or suspension of approval or rescission of
clearance by the FDA could have a material adverse effect on the Company's
business, financial condition, and results of operations.

      In addition, all FDA approved or cleared products manufactured by the
Company must be manufactured in compliance with FDA's GMP regulations and, for
medical devices, FDA's GMP/QSR. Ongoing compliance with GMP/QSR and other
applicable regulatory requirements is enforced through periodic inspection by
state and federal agencies, including the FDA. The FDA may inspect the Company
and its facilities from time to time to determine whether the Company is in
compliance with regulations relating to medical device and manufacturing
companies, including regulations concerning manufacturing, testing, quality
control and product labeling practices. There can be no assurance that the
Company will be able to comply with current or future FDA requirements
applicable to the manufacture of products.

      FDA regulations depend heavily on administrative interpretation and there
can be no assurance that the future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of new
governmental regulations or policies could prevent or delay regulatory approval
of the Company's products.

      Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, refusal of
the FDA to grant pre-market clearance or pre-market approval for devices,
withdrawal of approvals and criminal prosecution.

      In addition to regulations enforced by the FDA, the Company is subject to
other existing and potential future federal, state, local and foreign
regulations. International regulatory bodies often establish regulations
governing product standards, packing requirements, labeling requirements, import
restrictions, tariff regulations, duties and tax requirements. To enable the
Company to market ORTHOVISC(R) in Europe, the Company was required to receive a
"CE" marking certification, an international symbol of quality and compliance
with the applicable European medical device directive. In October 1996, the
Company received an EC Design Examination and an EC Quality System Certificate
from a European Notified Body, which entitled the Company to affix a CE marking
for ORTHOVISC(R) as a viscoelastic supplement or a replacement for synovial
fluid in human joints. There can be no assurance that the Company will be able
to achieve and/or maintain compliance required for CE marking or other foreign
regulatory approvals for any or all of its products or that it


                                       20
<PAGE>

will be able to produce its products in a timely and profitable manner while
complying with applicable requirements. Federal, state, local and foreign
regulations regarding the manufacture and sale of medical products are subject
to change. The Company cannot predict what impact, if any, such changes might
have on its business. The requirements relating to the conduct of clinical
trials, product licensing, pricing and reimbursement also vary widely from
country to country.

      The process of obtaining approvals from the FDA and other regulatory
authorities can be costly, time consuming, and subject to unanticipated delays.
There can be no assurance that approvals or clearances of the Company's products
will be granted or that the Company will have the necessary funds to develop
certain of such products. Any failure to obtain, or delay in obtaining such
approvals or clearances could adversely affect the ability of the Company to
market its products.

      History of Losses; Uncertainty of Future Profitability. From its inception
up until December 31, 1996 and in 1999 and 2000, the Company incurred annual
operating losses. As of December 31, 2000, the Company had an accumulated
deficit of $4,599,000. The continued development of the Company's products will
require the commitment of substantial resources to conduct research and
preclinical and clinical development programs and to establish sales and
marketing capabilities or distribution arrangements. The ability of the Company
to reach sustained profitability is highly uncertain. To achieve sustained
profitability the Company must, among other things, successfully complete
development of certain of its products, obtain regulatory approvals, and
establish sales and marketing capabilities or distribution arrangements for
certain of its products. Increased spending in 2001 on clinical trials and
research and development efforts is expected to result in a net loss for the
year.

      Competition. The Company competes with many companies, including, among
others, large pharmaceutical companies and specialized medical products
companies. Many of these companies have substantially greater financial and
other resources, larger research and development staffs, more extensive
marketing and manufacturing organizations and more experience in the regulatory
process than the Company. The Company also competes with academic institutions,
governmental agencies and other research organizations, which may be involved in
research, development and commercialization of products. Because a number of
companies are developing HA products for similar applications, the successful
commercialization of a particular product will depend in part upon the ability
of the Company to successfully complete clinical studies and obtain FDA
marketing and foreign regulatory approvals prior to its competitors. There can
be no assurance that the Company will be able to compete against current or
future competitors or that competition will not have a material adverse effect
on the Company's business, financial condition, and results of operations. The
Company is currently experiencing pricing pressures in the Turkish market from
increased competition, which may hinder its ability to effectively compete in
that market. As a result, we have decreased our prices to our Turkish
distributor.

      Uncertainty Regarding Success of Clinical Trials. Several of the Company's
products, including ORTHOVISC(R), as well as the products of the Company's
collaborative partners, including OSSIGEL(R), will require clinical trials to
determine their safety and efficacy for U.S. and international marketing
approval by regulatory bodies, including the FDA. In late May 2000, the
Company's initial analysis of the results of its second Phase III clinical trial
of ORTHOVISC(R) did not show sufficient efficacy to support the filing of a PMA
application to obtain FDA approval. The Company has evaluated available
information and announced the commencement of further clinical trials. In order
to undertake clinical trials in the U.S. to support a PMA of INCERT-S(R), the
Company has received from the FDA approval of an IDE. There can be no assurance
that (i) any additional clinical data will support the efficacy of ORTHOVISC(R),
(ii) the Company will begin clinical trials of INCERT(R)- S or complete any
additional clinical trials of ORTHOVISC(R) or INCERT(R)- S (iii) it will be able
to successfully complete the FDA approval process for either ORTHOVISC(R) or
INCERT(R)- S, or (iv) additional ORTHOVISC(R) or INCERT(R)- S clinical trials
will support a PMA application and/or FDA approval in a timely manner or at all.
There can be no assurance that the Company or its collaborative partners will
not encounter problems that will cause it to delay, suspend or terminate
clinical trials. In addition, the Company cannot provide any assurance that such
clinical trials, if completed, will ultimately demonstrate these products to be
safe and efficacious.

      Dependence Upon Marketing and Distribution Partners. The Company's success
will be dependent upon the efforts of its marketing partners and the terms and
conditions of the Company's relationships with such marketing partners.


                                       21
<PAGE>

      In addition, there can be no assurances that such marketing partners will
not seek to renegotiate their current agreements on terms less favorable to the
Company. Under the terms of the BLS Agreement, effective January 1, 2001, the
Company became Bausch & Lomb Surgical's exclusive provider of AMVISC(R) and
AMVISC(R) Plus, ophthalmic viscoelastic products, in the U.S. and international
markets. The BLS Agreement expires December 31, 2007, superseding an existing
supply contract with Bausch & Lomb Surgical that was set to expire December 31,
2001. The BLS Agreement is subject to early termination and/or reversion to a
non-exclusive basis under certain circumstances. The BLS Agreement lifts
contractual restrictions on the Company's sales of certain ophthalmic products
to other companies, subject to payment of royalties by Anika. In exchange, the
Company agreed to a reduction in unit selling prices retroactively effective to
April 1, 2000 and the elimination of minimum unit purchase obligations by BLS.

      The Company has not achieved incremental sales of its ophthalmic products
to Bausch & Lomb Surgical and/or other companies sufficient to offset the
effects of the price reduction to Bausch & Lomb Surgical and there can be no
assurances that the Company will be able to do so in the future. The Company
expects that, at least through 2001, the reduction in unit prices will result in
a decrease in the Company's revenue and gross margin from Bausch & Lomb
Surgical. In addition, under certain circumstances, (i) Bausch & Lomb Surgical
may have the right to terminate the agreement and/or (ii) the agreement may
revert to a non-exclusive basis; in each case, the Company cannot make any
assurances that such circumstances will not occur. For the years ended December
31, 2000 and 1999, sales of AMVISC(R) products to Bausch & Lomb Surgical
accounted for 54.1% and 63.9% of product revenues, respectively. Although the
Company intends to seek new opthalmic product customers, there can be no
assurances that the Company will be successful in obtaining new customers and
increased sales.

      The Zimmer Distribution Agreement provided Zimmer with exclusive marketing
and distribution rights to ORTHOVISC(R) in the United States, Canada, Latin
America, Asia and most of Europe. On November 10, 2000, the Company reached an
agreement with Zimmer, Inc. for an early termination of its marketing and
distribution agreement for ORTHOVISC(R). Under the terms of the termination
agreement, Zimmer had the right to distribute ORTHOVISC(R) from its existing
inventory through the end of 2000 in the countries where it was heretofore sold.
The early termination agreement also eliminated, among other things, all
obligations with respect to additional milestone payments, minimum purchases,
unit pricing adjustments and provided for the disposal of Zimmer units held on
Anika premises. The termination may have a material adverse effect on the
Company's ability to market ORTHOVISC(R), which may have a material adverse
effect on the Company's future operating results. ORTHOVISC(R) sales to Zimmer
accounted for 16.4% of product revenue for the year ended December 31, 2000. The
Company has relationships with logistics service providers in order to
distribute ORTHOVISC(R) to customers in Canada and European countries previously
served by Zimmer. The Company is seeking to establish long-term relationships
with new distribution partners in these countries where Zimmer previously sold
the product. There can be no assurance that the Company will be able to identify
or engage appropriate distribution or collaboration partners or strategic
investment opportunities.

      The Company will need to obtain the assistance of additional marketing
partners for new products, which are brought to market for the replacement of
certain marketing partners, such as Zimmer, and for existing products brought to
new markets. There can be no assurance that such additional partners will be
available or that such partners will agree to market the Company's products on
acceptable terms. The failure to establish strategic partnerships for the
marketing and distribution of the Company's products on acceptable terms would
have a material adverse effect on the Company's business, financial condition,
and results of operations.

      As a result of the termination of the Zimmer Distribution Agreement, the
Company will not earn any additional milestone payments under the Zimmer
Distribution Agreement. In addition, there can be no assurance that the Company
will obtain European or other reimbursement approvals or, if such approvals are
obtained, they will be obtained on a timely basis or at a satisfactory level of
reimbursement. Furthermore, Anika may experience some difficulties or delays in
the transfer of existing business relationships and reimbursement approvals from
Zimmer.

      Uncertainty of Market Acceptance of Future Products. The Company's success
will depend in part upon the acceptance of the Company's future products by the
medical community, hospitals and physicians and other health care providers, and
third-party payers. Such acceptance may depend upon the extent to which the
medical community perceives the Company's products as safer, more effective or
cost-competitive than other similar products. Ultimately, for the Company's new
products to gain general market acceptance, it will also be necessary for the
Company to develop marketing partners for the distribution of its products.
There can be no assurance that the Company's new products will achieve
significant market acceptance on a timely basis, or at all. Failure of some or
all of the Company's future products


                                       22
<PAGE>

to achieve significant market acceptance could have a material adverse effect on
the Company's business, financial condition, and results of operations.

      Dependence on Patents and Proprietary Technology. The Company's success
will depend, in part, on its ability to obtain and enforce patents, protect
trade secrets, obtain licenses to technology owned by third parties when
necessary, and conduct its business without infringing on the proprietary rights
of others. The patent positions of pharmaceutical, medical products and
biotechnology firms, including the Company, can be uncertain and involve complex
legal and factual questions. There can be no assurance that any patent
applications will result in the issuance of patents or, if any patents are
issued, whether they will provide significant proprietary protection or
commercial advantage, or will not be circumvented by others. In the event a
third party has also filed one or more patent applications for any of its
inventions, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office ("PTO") to determine priority
of invention (see below), which could result in failure to obtain or the loss of
patent protection for the inventions and the loss of any right to use the
inventions. Even if the eventual outcome is favorable to the Company, such
interference proceedings could result in substantial cost to the Company. Filing
and prosecution of patent applications, litigation to establish the validity and
scope of patents, assertion of patent infringement claims against others and the
defense of patent infringement claims by others can be expensive and time
consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity covered
by the disputed rights. If a third party is found to have rights covering
products or processes used by the Company, the Company could be forced to cease
using the technologies or marketing the products covered by such rights, could
be subject to significant liabilities to such third party, and could be required
to license technologies from such third party. Furthermore, even if the
Company's patents are determined to be valid, enforceable, and broad in scope,
there can be no assurance that competitors will not be able to design around
such patents and compete with the Company using the resulting alternative
technology.

      The Company has a policy of seeking patent protection for patentable
aspects of its proprietary technology. The Company co-owns certain United States
patents with claims relating to the chemical modification of HA and certain
adhesion prevention and drug delivery uses of HA. Two patents in this portfolio
have issued in the year 2000. The Company also solely owns patents directed to
certain manufacturing processes. The Company holds an exclusive license from
Tufts University to use technologies claimed in a United States patent
application which has been granted a Notice of Allowance from the U.S. Patent
Office for the anti-metastasis applications of HA oligosaccharides. The
Company's patents expire between 2007 and 2015 and the license expires upon
expiration of all related patents. The Company intends to seek patent protection
with respect to products and processes developed in the course of its activities
when it believes such protection is in its best interest and when the cost of
seeking such protection is not inordinate. However, no assurance can be given
that any patent application will be filed, that any filed applications will
result in issued patents or that any issued patents will provide the Company
with a competitive advantage or will not be successfully challenged by third
parties. The protections afforded by patents will depend upon their scope and
validity, and others may be able to design around the Company's patents. The
Company's issued patents and any patents, which arise from the Company's
licensed application, would provide competitive protection, if at all, only in
the United States. The Company has not, to date, pursued foreign patents
equivalent to those issued or applied for in the United States.

      Other entities have filed patent applications for or have been issued
patents concerning various aspects of HA-related products or processes. There
can be no assurance that the products or processes developed by the Company will
not infringe on the patent rights of others in the future. Any such infringement
may have a material adverse effect on the Company's business, financial
condition, and results of operations. In particular, the Company received notice
from the PTO in 1995 that a third party was attempting to provoke a patent
interference with respect to one of the Company's co-owned patents covering the
use of INCERT(R) for post-surgical adhesion prevention. It is unclear whether an
interference will be declared. If an interference is declared it is not possible
at this time to determine the merits of the interference or the effect, if any,
the interference will have on the Company's marketing of INCERT(R) for this use.
The existence of the interference proceeding may have a negative impact on the
marketing of the INCERT(R) product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the
third-party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT(R) product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of INCERT(R) products, which could have a material adverse effect
on the Company's future operating results.


                                       23
<PAGE>

      The Company also relies upon trade secrets and proprietary know-how for
certain non-patented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such information.
There can be no assurance that these agreements provide meaningful protection or
that they will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how,
and technological advances will not otherwise become known to others. In
addition, there can be no assurance that, despite precautions taken by the
Company, others have not and will not obtain access to the Company's proprietary
technology. Further, there can be no assurance that third parties will not
independently develop substantially equivalent or better technology.

      Pursuant to the BLS Agreement, the Company has agreed to transfer to
Bausch & Lomb Surgical, upon expiration of the term of the agreement on December
31, 2007, or in connection with earlier termination in certain circumstances,
the Company's manufacturing process, know-how and technical information, which
relate to AMVISC(R) products. Upon expiration of the BLS Agreement, there can be
no assurance that Bausch & Lomb Surgical will continue to use the Company to
manufacture AMVISC(R) and AMVISC(R) Plus. If Bausch & Lomb Surgical discontinues
the use of the Company as a manufacturer after such time, the Company's
business, financial condition, and results of operations would likely be
materially and adversely affected.

      Risks Associated with Manufacturing. The Company's results of operations
are dependent upon the continued operation of its manufacturing facility in
Woburn, Massachusetts. The operation of biomedical manufacturing plants involves
many risks, including the breakdown, failure or substandard performance of
equipment, natural and other disasters, and the need to comply with the
requirements of directives of government agencies, including the FDA. In
addition, the Company relies on a single supplier for syringes and a small
number of suppliers for a number of other materials required for the
manufacturing and delivery of its HA products. Furthermore, manufacturing
processes and research and development efforts of the Company involve animals
and products derived from animals. The utilization of animals in research and
development and product commercialization is subject to increasing focus by
animal rights activists. The activities of animal rights groups and other
organizations that have protested animal based research and development programs
or boycotted the products resulting from such programs could cause an
interruption in the Company's manufacturing processes and research and
development efforts. The occurrence of material operational problems, including
but not limited to the events described above, could have a material adverse
effect on the Company's business, financial condition, and results of operations
during the period of such operational difficulties.

      No Assurance of Growth or Ability to Manage Growth. The Company's future
success depends on substantial growth in product sales. There can be no
assurance that such growth can be achieved or, if achieved, can be sustained.
There can be no assurance that even if substantial growth in product sales and
the demand for the Company's products is achieved, the Company will be able to
(i) develop the necessary manufacturing capabilities; (ii) obtain the assistance
of additional marketing partners; (iii) attract, retain and integrate the
required key personnel; or (iv) implement the financial, accounting and
management systems needed to manage growing demand for its products, should it
occur. Failure of the Company to successfully manage future growth could have a
material adverse effect on the Company's business, financial condition, and
results of operations.

      Third Party Reimbursement and Health Care Cost Containment Initiatives. In
the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's products,
generally rely on third party payers, including Medicare, Medicaid and other
health insurance and managed care plans, to reimburse all or part of the cost of
the health care product. The Company depends upon the distributors for its
products to secure reimbursement and reimbursement approvals. Reimbursement by
third party payers may depend on a number of factors, including the payer's
determination that the use of the Company's products is clinically useful and
cost-effective, medically necessary and not experimental or investigational.
Since reimbursement approval is required from each payor individually, seeking
such approvals can be a time consuming and costly process which, in the future,
could require the Company or its marketing partners to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third party
payers are increasingly attempting to contain the costs of health care products
and services by limiting both coverage and the level of reimbursement for new
therapeutic products and by refusing in some cases to provide coverage for uses
of approved products for disease indications for which the FDA has not granted
marketing approval. In addition, Congress and certain state legislatures have
considered reforms that may affect current reimbursement practices, including
controls on health care spending through limitations on the growth of Medicare


                                       24
<PAGE>

and Medicaid spending. There can be no assurance that third party reimbursement
coverage will be available or adequate for any products or services developed by
the Company. Outside the U.S., the success of the Company's products is also
dependent in part upon the availability of reimbursement and health care payment
systems. Lack of adequate coverage and reimbursement provided by governments and
other third party payers for the Company' products and services could have a
material adverse effect on the Company's business, financial condition, and
results of operations.

      Needs for Additional Funds; Liquidity. The Company had cash, cash
equivalents and short-term investments of $18.3 million as of December 31, 2000.
The Company's future capital requirements and the adequacy of available funds
will depend, however, on numerous factors, including market acceptance of its
existing and future products; the successful commercialization of products in
development; progress in its product development efforts; the magnitude and
scope of such efforts; progress with preclinical studies, clinical trials and
product clearances by the FDA and other agencies; the cost and timing of its
efforts to improve its manufacturing capabilities and cost efficiency; the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; costs associated with shareholder litigation
matters; competing technological and market developments; and the development of
strategic alliances for the marketing of certain of its products. To the extent
that funds generated from the Company's operations, together with the Company's
existing capital resources are insufficient to meet future requirements, the
Company will be required to obtain additional funds through equity or debt
financings, strategic alliances with corporate partners and others, or through
other sources. The terms of any future equity financings may be dilutive to the
Company's stockholders and the terms of any debt financings may contain
restrictive covenants, which may limit the Company's ability to pursue certain
courses of action. The ability of the Company to obtain financing is dependent
on the status of the Company's future business prospects as well as conditions
prevailing in the relevant capital markets. No assurance can be given that any
additional financing will be made available to the Company or will be available
on acceptable terms should such a need arise.

      Exposure to Product Liability Claims. The testing, marketing and sale of
human health care products entail an inherent risk of allegations of product
liability, and there can be no assurance that substantial product liability
claims will not be asserted against the Company. Although the Company has not
received any material product liability claims to date and has an insurance
policy of $5,000,000 per occurrence and $5,000,000 in the aggregate to cover
such claims should they arise, there can be no assurance that material claims
will not arise in the future or that the Company's insurance will be adequate to
cover all situations. Moreover, there can be no assurance that such insurance,
or additional insurance, if required, will be available in the future or, if
available, will be available on commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition, and results of operations.

      Dependence upon Key Personnel. The Company is highly dependent on the
members of its management and scientific staff, the loss of one or more of
who could have a material adverse effect on the Company. In addition, the
Company believes that its future success will depend in large part upon its
ability to attract and retain highly skilled, scientific, managerial and
manufacturing personnel. The Company faces significant competition for such
personnel from other companies, research and academic institutions,
government entities and other organizations. There can be no assurance that
the Company will be successful in hiring or retaining the personnel it
requires. In particular, the Company can provide no assurances that the
results from the recent Phase III clinical trial of ORTHOVISC(R) will not
impact its ability to attract the personnel it requires. The failure to hire
and retain such personnel could have a material adverse effect on the
Company's business, financial condition, and results of operations.

      Environmental Regulation. The Company is subject to a variety of local,
state and federal government regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of toxic, or other
hazardous substances used in the manufacture of the Company's products. Any
failure by the Company to control the use, disposal, removal or storage of
hazardous chemicals or toxic substances could subject the Company to significant
liabilities, which could have a material adverse effect on the Company's
business, financial condition, and results of operations.

      Risks Relating to International Operations. During the year ended December
31, 2000 and 1999, approximately 20% and 30%, respectively, of the Company's
product sales were generated in international markets through marketing
partners. The Company's representatives, agents and distributors, which sell
products in international markets, are subject to the laws and regulations of
the foreign jurisdictions in which they operate and in which the


                                       25
<PAGE>

Company's products are sold. A number of risks are inherent in international
sales and operations. For example, the volume of international sales may be
limited by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs,
difficulties in managing international operations, import restrictions and
fluctuations in foreign currency exchange rates. Furthermore, the economic
conditions in Turkey may have a material adverse effect on the volume of
sales of our Turkish distributor, who accounted for 17.7% of product revenues
in 2000. Such changes in the volume of sales by any of our customers may have
an adverse effect on the Company's business, financial condition, and results
of operations.

      Potential Volatility of Stock Price; No Control Over Market Making. The
market price of shares of the Company's Common Stock may be highly volatile.
Factors such as announcements of new commercial products or technological
innovations by the Company or its competitors, disclosure of results of clinical
testing or regulatory proceedings, governmental regulation and approvals,
developments in patent or other proprietary rights, public concern as to the
safety of products developed by the Company and general market conditions may
have a significant effect on the market price of the Company's Common Stock. In
particular, the Company's stock price declined significantly in October 1998
following the Company's announcement that the FDA had notified the Company that
its PMA for ORTHOVISC(R) was not approvable and that additional clinical data
would be required to demonstrate the effectiveness of ORTHOVISC(R) and again in
May 2000 following the Company's announcements that initial analysis of results
from the Phase III clinical trial of ORTHOVISC(R) did not show sufficient
efficacy to support the filing of a PMA application to obtain FDA approval and
that the SEC had issued a formal order of investigation and required the Company
to provide information in connection with certain revenue recognition matters.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements by the Company or its competitors,
governmental regulatory action, conditions in the health care industry generally
or in the medical products industry specifically, or other events or factors,
many of which are beyond the Company's control. In addition, the stock market
has experienced extreme price and volume fluctuations which have particularly
affected the market prices of many medical products companies and which often
have been unrelated to the operating performance of such companies. The
Company's operating results in future quarters may be below the expectations of
equity research analysts and investors. In such event, the price of the Common
Stock would likely decline, perhaps substantially.

      No person is under any obligation to make a market in the Common Stock or
publish research reports on the Company, and any person making a market in the
Common Stock or publishing research reports on the Company may discontinue
market making or publishing such reports at any time without notice. There can
be no assurance that an active public market in the Common Stock will be
sustained.

      Possible Adverse Effect of Certain Anti-Takeover Provisions. Certain
provisions of the Company's Restated Articles of Organization and Amended and
Restated By-laws could have the effect of discouraging a third party from
pursuing a non-negotiated takeover of the Company and preventing certain changes
in control. These provisions include a classified Board of Directors, advance
notice to the Board of Directors of stockholder proposals, limitations on the
ability of stockholders to remove directors and to call stockholder meetings,
and the provision that vacancies on the Board of Directors be filled by a
majority of the remaining directors. In addition, the Board of Directors adopted
a Shareholders Rights Plan in April 1998. The Company also is subject to Chapter
110F of the Massachusetts General Laws which, subject to certain exceptions,
prohibits a Massachusetts corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
These provisions could discourage a third party from pursuing a takeover of the
Company at a price considered attractive by many stockholders, since such
provisions could have the effect of preventing or delaying a potential acquirer
from acquiring control of the Company and its Board of Directors.

      SEC Investigation and Securities Class Action Litigation. The SEC has
issued a formal order of investigation and has required the Company to provide
information in connection with certain revenue recognition matters. These
matters, relating to the Company's historical accounting for sales of its
product under a long-term supply and distribution agreement with Zimmer, Inc.,
were also the subject of the Company's March 15, 2000 disclosure concerning an
informal SEC inquiry and the restatement of results for 1998 and the first three
quarters of 1999. The Company has been cooperating fully. However, the Company
is not in a position to predict the probable outcome of this matter or its
potential impact on the Company's business or operations. Three putative class
action lawsuits were filed against the Company. These lawsuits have been
consolidated. The consolidated lawsuit is described more fully in Part II under
Legal Proceedings. The Company is not able to predict the probable outcome of
this matter or its potential impact on the Company's business or operations.


                                       26
<PAGE>

      Reliance On A Small Number of Customers. The Company has historically
derived the majority of its revenues from a small number of customers, most of
who resell its products to end users and most of who are significantly larger
companies. The Company's failure to generate as much revenue as expected from
these customers or the failure of these customers to purchase Anika's products
would seriously harm Anika's business. For the year ended December 31, 2000,
Bausch & Lomb Surgical accounted for 54.1% of product revenues and 39% of the
accounts receivable balance and Biomeks, Anika's distributor in Turkey,
accounted for 17.7% of product revenues and 35% of the accounts receivable
balance. Accordingly, if present and future customers terminate their purchasing
arrangements with the Company, significantly reduce or delay their orders or
seek to renegotiate their agreements on terms less favorable to the Company, the
Company will be adversely affected. If the Company accepts terms less favorable
than the terms of the current agreement, such renegotiations may have a material
adverse affect on Anika's business, financial condition, and/or results of
operations. Furthermore, the Company may be subject to the perceived or actual
leverage the customers may have given their relative size and importance to the
Company in any future negotiations. Any termination, change, reduction or delay
in orders could seriously harm the Company's business, financial condition, and
results of operations. Accordingly, unless and until the Company diversifies and
expands its customer base, Anika's future success will significantly depend upon
the timing and size of future purchases by its largest customers and the
financial and operational success of these customers. Product revenue in the
future may continue to be impacted by economic uncertainties associated with the
Turkish market. Furthermore, 2001 sales to our Turkish distributor are at
lowered prices and negotiations are ongoing to establish a new long-term
distribution agreement for this territory.

      The loss of any one of the Company's major customers or the delay of
significant orders from such customers, even if only temporary, could reduce or
delay the Company's recognition of revenues, harm its reputation in the
industry, and reduce its ability to accurately predict cash flow, and, as a
consequence, could seriously harm the Company's business, financial condition,
and results of operations. Revenue from sales of ORTHOVISC(R) to Zimmer,
including recognition in revenue of previously deferred amounts in connection
with the termination of the Zimmer agreement in the fourth quarter of 2000,
amounted to $5,522,000 and $770,000 in 2000 and 1999, respectively.

      The Company distributes ORTHOVISC(R) in territories such as Spain,
Portugal, Turkey and Israel. Due to the result of the unfavorable results of
the U.S. ORTHOVISC(R) Phase III clinical trial announced on May 31, 2000,
marketing efforts in these countries may be negatively affected. There can be
no assurance that past ORTHOVISC(R) sales levels will be maintained or that
sales will occur at all in these countries.

ITEM 7A. DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, and
         DERIVATIVE COMMODITY INSTRUMENTS

      As of December 31, 2000, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. All of the Company's
investments consist of money market funds and commercial paper that are carried
on the Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.

Primary Market Risk Exposures

      The Company's primary market risk exposures are in the areas of interest
rate risk and foreign currency exchange rate risk. The Company's investment
portfolio of cash equivalent and short-term investments is subject to interest
rate fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. The Company's exposure to currency
exchange rate fluctuations is specific to certain sales to a foreign customer
and is expected to continue to be modest. The impact of currency exchange rate
movements on sales to this foreign customer was immaterial for the year ended
December 31, 2000. Currently, the Company does not engage in foreign currency
hedging activities.


                                       27
<PAGE>

Item 8. Financial Statements.

                    ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants                                     29

Consolidated Balance Sheets as of December 31, 2000 and 1999                 30

Consolidated Statements of Operations for the Years Ended
     December 31, 2000, 1999 and 1998                                        31

Consolidated Statements of Stockholders' Equity for the Years
     Ended December 31, 2000, 1999 and 1998                                  32

Consolidated Statements of Cash Flows for the Years Ended
     December 31, 2000, 1999 and 1998                                        33

Notes to Consolidated Financial Statements                                   34


                                       28
<PAGE>

                    Report of Independent Public Accountants

The Board of Directors and Shareholders
Anika Therapeutics, Inc.:

      We have audited the accompanying consolidated balance sheets of Anika
Therapeutics, Inc. (the "Company") and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anika Therapeutics, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.

      As explained in Note 2 to the consolidated financial statements, effective
January 1, 1999, the Company changed its method of accounting for revenue
recognition for non-refundable up-front payments through the adoption of Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.


                                                             ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 14, 2001


                                       29
<PAGE>

                    Anika Therapeutics, Inc. and Subsidiaries
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                        2000            1999
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                                         $  8,265,936    $  6,440,705
  Short term marketable securities                                    10,039,849       8,184,870
  Accounts receivable, net of reserves of $124,000 and
     $61,000, at December 31, 2000 and 1999                            1,692,457       2,106,452
  Inventories                                                          4,737,645       5,493,701
  Prepaid expenses  and other receivables                                612,890         721,207
                                                                    ------------    ------------
      Total current assets                                            25,348,777      22,946,935

Property and equipment, at cost                                        8,621,579       8,116,233
Less: accumulated depreciation                                        (5,498,455)     (4,587,692)
                                                                    ------------    ------------
                                                                       3,123,124       3,528,541
Long term marketable securities                                               --       5,558,029
Long term deposits                                                       124,600         124,600
Notes receivable from officers                                           382,000         353,000
                                                                    ------------    ------------
Total Assets                                                        $ 28,978,501    $ 32,511,105
                                                                    ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                  $    870,502    $    629,080
  Accrued expenses                                                     1,395,677       1,552,661
  Deferred revenue, current portion                                           --       1,792,505
                                                                    ------------    ------------
      Total current liabilities                                        2,266,179       3,974,246
Long term deferred revenue                                                    --       2,825,000

Commitments and contingencies (Notes 8 and 15)                                --              --

Stockholders' equity:
  Redeemable convertible preferred stock, $.01 par value
    Authorized 750,000 shares, no shares issued and outstanding               --              --
  Undesignated preferred stock, $.01 par value
    Authorized 1,250,000 shares, no shares issued and outstanding             --              --
  Common stock, $.01 par value: Authorized 30,000,000 shares;
    Issued  9,991,943 shares                                              99,919          99,919
  Additional paid-in capital                                          31,735,660      31,959,316
  Treasury stock (at cost, 57,663 shares and 200,863 shares
     respectively)                                                      (279,756)       (959,869)
  Deferred compensation                                                 (244,549)       (615,001)
  Accumulated deficit                                                 (4,598,952)     (4,772,506)
                                                                    ------------    ------------
      Total stockholders' equity                                      26,712,322      25,711,859
                                                                    ------------    ------------
Total Liabilities & Stockholder's Equity                            $ 28,978,501    $ 32,511,105
                                                                    ============    ============
</TABLE>

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


                                       30
<PAGE>

                    Anika Therapeutics, Inc. and Subsidiaries
                      Consolidated Statements of Operations
                        For the Years Ended December 31,

<TABLE>
<CAPTION>
                                                                                        2000            1999           1998
                                                                                    ------------    ------------    -----------
<S>                                                                                 <C>             <C>             <C>
Product revenue                                                                     $ 12,935,222    $ 13,082,662    $11,773,343
Licensing revenue                                                                      3,400,000         400,000      1,500,000
                                                                                    ------------    ------------    -----------
  Total revenue                                                                       16,335,222      13,482,662     13,273,343
Cost of product revenue                                                                9,870,559       6,440,166      6,014,181
                                                                                    ------------    ------------    -----------
        Gross profit                                                                   6,464,663       7,042,496      7,259,162
Operating expenses:
   Research & development                                                              3,259,984       4,154,479      1,955,940
   Selling, general & administrative                                                   4,188,044       3,029,394      2,731,142
                                                                                    ------------    ------------    -----------
Total operating expenses                                                               7,448,028       7,183,873      4,687,082

Income (loss) from operations                                                           (983,365)       (141,377)     2,572,080
   Interest income                                                                     1,172,859       1,068,430      1,307,825
   Gain on sale of securities                                                                 --         233,633             --
                                                                                    ------------    ------------    -----------
Income before provision for income taxes                                                 189,494       1,160,686      3,879,905
Provision for income taxes                                                                15,940          31,412        127,557
                                                                                    ------------    ------------    -----------
Income before cumulative effect of change in accounting principle                        173,554       1,129,274      3,752,348
Cumulative effect of change in accounting principle                                           --      (3,625,000)            --
                                                                                    ------------    ------------    -----------
   Net income (loss)                                                                $    173,554    $ (2,495,726)   $ 3,752,348
                                                                                    ============    ============    ===========

Basic income (loss) per share:
 Income before cumulative effect of change in accounting principle                  $       0.02    $       0.12    $      0.38
Cumulative effect of change in accounting principle                                           --           (0.38)            --
                                                                                    ------------    ------------    -----------
   Net income (loss)                                                                $       0.02    $      (0.26)   $      0.38
                                                                                    ============    ============    ===========

Basic weighted average common shares outstanding                                       9,895,725       9,740,560      9,885,724
                                                                                    ============    ============    ===========

Diluted income (loss) per share:
   Income before cumulative effect of change in
     accounting principle                                                           $       0.02    $       0.11    $      0.34

Cumulative effect of change in accounting principle                                           --           (0.35)            --
                                                                                    ------------    ------------    -----------
   Net income (loss)                                                                $       0.02    $      (0.24)   $      0.34
                                                                                    ============    ============    ===========

Diluted weighted average common shares and potential common shares outstanding        10,041,855      10,220,584     11,006,276
                                                                                    ============    ============    ===========
</TABLE>

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


                                       31
<PAGE>

                    Anika Therapeutics, Inc. and Subsidiaries
                 Consolidated Statements of Stockholders' Equity
                        For The Years Ended December 31,

<TABLE>
<CAPTION>
                                                           Common Stock        Additional
                                                      Number of    $.01 Par     Paid-in       Deferred
                                                       Shares       Value       Capital     Compensation
<S>                                                  <C>           <C>       <C>             <C>
Balance, December 31, 1997                           9,691,091     $96,911   $ 32,156,504    $        --

Exercise of common stock options                        97,152         971        368,098             --
Exercise of common stock warrants                      203,700       2,037        666,099             --
Expenses from sale of common stock in 1997, net             --          --       (107,293)            --
Unearned stock compensation                                 --          --      1,356,267     (1,074,699)
Purchase of common stock                                    --          --             --             --
Net income                                                  --          --             --             --
                                                     ---------------------------------------------------
Balance, December 31, 1998                           9,991,943      99,919     34,439,675     (1,074,699)

Exercise of common stock options                            --          --     (2,363,125)            --
Amortization of deferred compensation                       --          --             --        342,464
Purchase of common stock                                    --          --             --             --
Reversal of 1998 unearned stock compensation                --          --       (117,234)       117,234
Net loss                                                    --          --             --             --
                                                     ---------------------------------------------------
Balance, December 31, 1999                           9,991,943      99,919     31,959,316       (615,001)

Exercise of common stock options                            --          --       (140,181)            --
Amortization of deferred compensation                       --          --             --        286,977
Reversal of 1998 unearned stock compensation                --          --        (83,475)        83,475
Net income                                                  --          --             --             --
                                                     ---------------------------------------------------
Balance, December 31, 2000                           9,991,943     $99,919   $ 31,735,660    $  (244,549)
                                                     ===================================================

<CAPTION>
                                                          Treasury Stock                             Total
                                                     Number of                   Accumulated    Stockholders'
                                                       Shares       At Cost        Deficit          Equity
<S>                                                   <C>         <C>            <C>            <C>
Balance, December 31, 1997                                  --    $        --    $(6,029,128)   $ 26,224,287

Exercise of common stock options                       (15,000)        34,025             --         403,094
Exercise of common stock warrants                           --             --             --         668,136
Expenses from sale of common stock in 1997, net             --             --             --        (107,293)
Unearned stock compensation                                 --             --             --         281,568
Purchase of common stock                               359,500     (1,923,818)            --      (1,923,818)
Net income                                                  --             --      3,752,348       3,752,348
                                                    --------------------------------------------------------
Balance, December 31, 1998                             344,500     (1,889,793)    (2,276,780)     29,298,322

Exercise of common stock options                      (546,237)     2,878,913             --         515,788
Amortization of deferred compensation                       --             --             --         342,464
Purchase of common stock                               402,600     (1,948,989)            --      (1,948,989)
Reversal of 1998 unearned stock compensation                --                            --              --
Net loss                                                    --             --     (2,495,726)     (2,495,726)
                                                    --------------------------------------------------------
Balance, December 31, 1999                             200,863       (959,869)    (4,772,506)     25,711,859

Exercise of common stock options                      (143,200)       680,113             --         539,932
Amortization of deferred compensation                       --             --             --         286,977
Reversal of 1998 unearned stock compensation                --             --             --              --
Net income                                                  --             --        173,554         173,554
                                                    --------------------------------------------------------
Balance, December 31, 2000                              57,663    $  (279,756)   $(4,598,952)   $ 26,712,322
                                                    ========================================================
</TABLE>

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


                                       32
<PAGE>

                    Anika Therapeutics, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            For the Years Ended December 31,
                                                                        2000            1999            1998
                                                                    ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>
Cash flows from operating activities:

Net income (loss)                                                   $    173,554    ($ 2,495,726)   $  3,752,348
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
            Depreciation and amortization                                910,763         777,969         484,402
            Amortization of deferred compensation                        286,977         342,464         281,568
            Provision for doubtful accounts                               63,000          12,000          57,000
            Advance rent payment                                              --         (50,215)        (53,697)
            Changes in operating assets and liabilities:
                  Accounts receivable                                    350,994         914,285      (1,171,444)
                  Inventories                                            756,056      (1,971,682)       (980,467)
                  Prepaid expenses                                       108,316        (471,183)        360,341
                  Accounts payable                                       241,423        (262,413)        (76,493)
                  Accrued expenses                                      (156,983)        196,075         103,433
                  Deferred revenue                                    (4,617,505)      3,821,137         596,368
                                                                    --------------------------------------------
Net cash (used for) provided by operating activities                  (1,883,405)        812,711       3,353,359
                                                                    --------------------------------------------
Cash flows from investing activities:
          Proceeds of short-term marketable securities                49,914,742      38,902,548      27,824,571
          Purchase of short term marketable securities               (46,211,692)    (35,079,915)    (39,832,074)
          Purchase of property and equipment                            (505,346)     (1,740,410)     (2,238,040)
          Notes receivable from officers                                 (29,000)       (160,000)       (118,000)
          Deposits                                                            --         (16,100)          2,765
          Proceeds from long-term marketable securities                       --              --              --
          Purchase of long term marketable securities                         --      (5,558,029)             --
                                                                    --------------------------------------------
Net cash (used for) provided by investing activities                   3,168,704      (3,651,906)    (14,360,778)
                                                                    --------------------------------------------
Cash flows from financing activities:
          Expenses from 1997 issuance of stock                                --              --        (107,293)
          Purchase of  treasury stock                                         --      (1,948,989)     (1,923,818)
          Proceeds from exercise of stock options and warrants           539,932         516,369       1,071,230
                                                                    --------------------------------------------
Net cash provided by (used for) financing activities                     539,932      (1,432,620)       (959,881)
                                                                    --------------------------------------------

Increase (decrease) in cash and cash equivalents                       1,825,231      (4,271,815)    (11,967,300)
Cash and cash equivalents at beginning of period                       6,440,705      10,712,520      22,679,820

                                                                    --------------------------------------------
Cash and cash equivalents at end of year                            $  8,265,936    $  6,440,705    $ 10,712,520
                                                                    ============================================

Supplemental disclosure of cash flow information:                   --------------------------------------------
          Cash paid for taxes                                       $         --    $    131,206    $     75,000
                                                                    --------------------------------------------
</TABLE>

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


                                       33
<PAGE>

                            ANIKA THERAPEUTICS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

      Anika Therapeutics, Inc. ("Anika" or the "Company") develops, manufactures
and commercializes therapeutic products and devices intended to promote the
protection and healing of bone, cartilage and soft tissue. These products are
based on hyaluronic acid ("HA"), a naturally occurring, biocompatible polymer
found throughout the body. Due to its unique biophysical and biochemical
properties, HA plays an important role in a number of physiological functions
such as the protection and lubrication of soft tissues and joints, the
maintenance of the structural integrity of tissues, and the transport of
molecules to and within cells. The Company's currently marketed products consist
of ORTHOVISC(R), which is an HA product used in the treatment of some forms of
osteoarthritis in humans and HYVISC(R), which is an HA product used in the
treatment of equine osteoarthritis. ORTHOVISC(R) is currently approved for sale
and is being marketed in Canada, parts of Europe, Turkey, and Israel. In the
U.S., ORTHOVISC(R) is currently limited to investigational use. The Company
manufactures AMVISC(R) and AMVISC(R) Plus for Bausch & Lomb Surgical, which are
HA products used as viscoelastic supplements in ophthalmic surgery. The Company
is currently developing INCERT(R)-S, which is an HA based product designed for
use in the prevention of post-surgical adhesions. In collaboration with Orquest,
Inc., Anika also has exclusive rights to produce OSSIGEL(R); an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
Anika Therapeutics, Inc. and its wholly owned subsidiaries, Anika Securities
Corporation and Anika Therapeutics UK, Ltd. All intercompany transactions have
been eliminated in consolidation.

Cash and Cash Equivalents

      Cash and cash equivalents consists of cash and investments with original
maturities of 90 days or less such as money market funds, and commercial paper.

Short-Term and Long-Term Marketable Securities

      The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities.

      Short-term marketable securities consist of debt securities with
maturities within twelve months of the balance sheet date. The Company
classifies these short-term marketable securities as held to maturity, and
accordingly they are carried at amortized costs. Aggregate fair value, amortized
cost and average maturity for marketable securities held at December 31, 2000
and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                         December 31, 2000
                                                      --------------------------------------------------------
                                                            Amortized     Gross Unrealized
                                                              Cost          Holding Gain        Fair Value
                                                              ----          ------------        ----------
<S>                                                        <C>                 <C>              <C>
Commercial Paper (weighted average maturity of 3.4
  months)............................................      $10,039,849         $82,384          $10,122,233
                                                           ===========         =======          ===========
</TABLE>


                                       34
<PAGE>

<TABLE>
<CAPTION>
                                                                         December 31, 1999
                                                      --------------------------------------------------------
                                                            Amortized     Gross Unrealized
                                                               Cost         Holding Gain         Fair Value
                                                               ----         ------------         ----------
<S>                                                         <C>                <C>               <C>
Commercial Paper (weighted average maturity of 7.64
  months).............................................      $8,184,870         $60,209           $8,245,079
                                                            ==========         =======           ==========
</TABLE>

      Long-term marketable securities consist of debt securities with maturities
greater than one year from the balance sheet date. The Company classifies these
long-term marketable securities as held to maturity, and accordingly they are
carried at amortized costs.

      During 2000, securities classified as held to maturity, with an amortized
cost aggregating $46,211,692, matured during the year. Total proceeds from these
maturities were $49,914,742, which includes total interest and realized gain of
$1,436,872, which is included in interest income on the Statement of Operations.

Financial Instruments

      SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, short-term and long-term marketable
securities, accounts receivable, notes receivable from officers and accounts
payable. The fair value of short-term marketable securities is presented above.
The estimated fair values of the Company's other financial instruments
approximate their carrying values.

Inventories

      Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method. Work-in-process and
finished goods inventories include materials, labor, and manufacturing overhead.

Revenue Recognition

      Product revenue is recognized upon shipment of commercial product and
represents sales of AMVISC(R) products, HYVISC(R) and ORTHOVISC(R). ORTHOVISC(R)
is sold under several distribution contracts. On March 15, 2000, the Company
announced that it had revised its revenue recognition policy for sales of
ORTHOVISC(R) under its distribution agreement with Zimmer, and was restating its
1998 financial statements to reflect the revised policy. Under the revised
revenue recognition policy, revenue was recognized at the time of shipment to
Zimmer, based upon the minimum per unit price under the terms of the Zimmer
Distribution Agreement at the time of sale to Zimmer. Anika had previously
recognized revenue for ORTHOVISC(R) sales to Zimmer based upon an estimate of
the average selling price, which would be obtained by Zimmer upon sale of the
ORTHOVISC(R) to its customers. Anika had also previously recognized revenue in
1998 and the first three quarters of 1999 for ORTHOVISC(R), from sales of units
which had previously been purchased and paid for by Zimmer but was being held in
Anika's refrigerators at Zimmer's request. Under the Company's revised revenue
recognition policy, this revenue was recorded when the ORTHOVISC(R) being held
was shipped to Zimmer. Amounts paid by Zimmer in excess of the amount recognized
under the revised revenue recognition policy was recorded by Anika as deferred
revenue and amounted to $1,390,000 at September 30, 2000. On November 10, 2000,
Anika and Zimmer agreed to a termination of the Zimmer Distribution Agreement.
In accordance with the termination agreement, no further unit price adjustment
was made, Zimmer was permitted to sell from its existing inventory through
December 31, 2000, all units previously purchased by Zimmer, including units of
ORTHOVISC(R) held in Anika's refrigerators for Zimmer, were destroyed, and Anika
had no further obligations to Zimmer as of December 31, 2000. Accordingly, the
amounts in deferred revenue related to Zimmer, including the license fees
discussed below, total $4,249,000 and were included in revenue in the fourth
quarter of 2000 (See Note 13.)

      The Company adopted the provisions of SEC Staff Accounting Bulletin 101
(SAB 101) in its 1999 operating results. SAB 101 changes revenue recognition
practices for non-refundable up-front payments received as part of broad supply,
distribution, and marketing agreements, including $2,500,000 and $1,500,000
received from Zimmer in the fourth


                                       35
<PAGE>

quarter of 1997 and the second quarter of 1998, respectively. These amounts were
previously recognized in the period received. In accordance with SAB 101, issued
in December 1999, the Company recorded the cumulative effect of the change in
accounting principle of $3,625,000 as a charge in the first quarter of 1999.
Amounts received and deferred to future periods was $3,225,000 at December 31,
1999. The Company has recognized as revenue $100,000 of the payments in each of
the quarters ended from March 31, 1999 through September 30, 2000. As a result
of the early termination of the Zimmer Distribution Agreement, the remaining
non-refundable up-front payments in deferred revenue of $2,925,000 was recorded
as revenue in the fourth quarter of 2000 (See Note 13.)

      Advanced payments received for products are recorded as deferred revenue
and are recognized when the product is shipped.

Property and Equipment

      Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
as follows:

Machinery and equipment...................................... 3-10 years
Furniture and fixtures....................................... 3-5 years
Leasehold improvements....................................... Shorter of
                                                              estimated useful
                                                              life or life of
                                                              lease

Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of

      The Company follows the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.

      During the years ended December 31, 2000, 1999, and 1998 the Company did
not record losses on impairment.

Research and Development

      Research and development costs are expensed as incurred.

Earnings per Share

      SFAS No. 128, Earnings per Share, establishes standards for computing and
presenting earnings (loss) per share.

      Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares and dilutive potential common shares outstanding
during the period. Under the treasury stock method, the dilutive unexercised
options are assumed to be exercised at the beginning of the period or at
issuance, if later. The assumed proceeds are then used to purchase common shares
at the average market price during the period. For periods where the company has
incurred a loss, excluding the cumulative effect of a change in accounting
principle, dilutive net loss per share is not presented as it is less than basic
net loss per share.

      The following illustrates a reconciliation of the number of shares used in
the calculation of basic and diluted net income (loss) per share for the years
ended December 31, 2000, 1999, and 1998:


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                                                              Years ended December 31,
                                                                                        2000           1999           1998
                                                                                    -----------------------------------------
       <S>                                                                          <C>           <C>             <C>
       Net income (loss)                                                            $   173,554   $ (2,495,726)   $ 3,752,348
                                                                                    =========================================

       Basic weighted average common shares outstanding                               9,895,725      9,740,560      9,885,724

       Dilutive effect of assumed exercise of stock options and warrants                146,130        480,024      1,120,552
                                                                                    -----------------------------------------

       Diluted weighted average common and potential common shares
       outstanding                                                                   10,041,855     10,220,584     11,006,276
                                                                                    =========================================
</TABLE>

      The Company reports earnings per share in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2000, 1999, and 1998 exclude
1,102,214, 1,016,992, and 1,011,360 potential common shares from stock options
because to include them would have been anti-dilutive for the year presented.

Income Taxes

      The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities.

New Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
As of December 31, 2000, the Company did not participate in any derivatives,
financial instruments, or other financial and commodity instruments for which
fair market value disclosure would be required under SFAS 133.

      In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No.25. The interpretation clarifies the application of APB Opinion No.
25 in certain situations, as defined. The interpretation is effective July 1,
2000, but covers certain events that occur after December 15, 1998. The effects
of applying this interpretation is applied on a prospective basis from the
effective date. The adoption of the interpretation during the third quarter of
2000 did not have a material impact on the Company's results of operations,
financial position, or cash flows.

      As noted above, under Revenue Recognition, the Company adopted the
provisions of SAB 101 in 1999.

Stock-Based Compensation

      The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income disclosures
for employee stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 for employee grants and provide the pro forma
disclosure of SFAS No. 123 (see Note 9).

Concentration of Credit Risk and Significant Customers

      SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet-Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance sheet risk, off-balance
sheet credit risk, or concentrations of credit risk. The Company has no
significant off-balance sheet or concentrations of


                                       37
<PAGE>

credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company, by policy, limits the amount of
credit exposure to any one financial institution, and routinely assesses the
financial strength of its customers. As a result, the Company believes that its
accounts receivable credit risk exposure is limited and has not experienced
significant write-downs in its accounts receivable balances.

      Product revenue by significant customers is as follows:

                                                Percent of Product Revenue
                                                  Year ended December 31,

                                           2000            1999            1998
                                          -------------------------------------
AMVISC(R):
Bausch & Lomb                              54.1%           63.9%           68.7%
ORTHOVISC(R):
Zimmer                                     16.4%            2.8%           10.3%
Biomeks                                    17.7%           28.4%           19.2%
                                          -------------------------------------
                                           88.2%           95.1%           98.2%
                                          =====================================

      In the fourth quarter of 2000, product revenue included sales of
ORTHOVISC(R) to Zimmer of $1,418,000 which had been previously deferred. All of
the licensing revenue recorded by the Company has been received under the
terminated distribution agreement with Zimmer. Due to the termination of the
Zimmer Distribution Agreement, a one-time payment from Zimmer was also
recognized as licensing revenue in the fourth quarter. Additionally, as of
December 31, 2000, three customers, two of whom are international customers,
represented 39%, 35% and 22%, respectively, of the Company's accounts receivable
balance. As of December 31, 1999 two customers, one of whom was an international
customer, represented 49% and 42%, respectively, of the Company's accounts
receivable balance.

Reporting Comprehensive Income

      SFAS No. 130, Reporting Comprehensive Income establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income is the total of net income and all
other non-owner changes in equity including such items as unrealized holding
gains/losses on securities, foreign currency translation adjustments and minimum
pension liability adjustments. The Company had no such items for the years ended
December 31, 2000, 1999, and 1998.

Disclosures About Segments of an Enterprise and Related Information

      Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The Company's chief
decision-making group consists of the chief executive officer and the chief
financial officer. Based on the criteria established by SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, the Company
has one reportable operating segment, the results of which are disclosed in the
accompanying financial statements. Substantially all of the operations and
assets of the Company have been derived from and are located in the United
States.

      Revenues by country in total and as a percentage of total revenues are as
follows for the years ended December 31, 2000, 1999, and 1998, respectively:

<TABLE>
<CAPTION>
                                                      Years ended December 31,
Country:                      2000                             1999                            1998
                  ------------------------------------------------------------------------------------------------
                                     Percent of                      Percent of                       Percent of
                     Revenue          Revenue         Revenue         Revenue          Revenue          Revenue
                  ------------------------------------------------------------------------------------------------
<S>                <C>                <C>           <C>                <C>           <C>                <C>
United States      $13,041,791         79.84%       $ 9,381,073         69.58%       $10,816,248         81.49%
Middle East          2,445,821         14.97%         3,948,839         29.29%         2,307,095         17.38%
Other/Europe           847,610          5.19%           152,750          1.13%           150,000          1.13%
                  ------------------------------------------------------------------------------------------------
   Total           $16,335,222        100.00%       $13,482,662        100.00%       $13,273,343        100.00%
                  ================================================================================================
</TABLE>


                                       38
<PAGE>

3. ALLOWANCE FOR DOUBTFUL ACCOUNTS

      A summary of the allowance for doubtful account activity is as follows:

                                                        December 31,
                                              2000          1999          1998
                                            ------------------------------------
Balance, beginning of the year              $ 61,000      $ 57,000       $    --
Amounts provided                              63,000        12,000        57,000
Amounts written off                               --        (8,000)           --
                                            ------------------------------------
Balance, at the end of the year             $124,000      $ 61,000       $57,000
                                            ====================================

4. INVENTORIES

      Inventories consist of the following:

                                                           December 31,
                                                    2000                 1999
                                                 -------------------------------
Raw Materials                                    $1,386,504           $  681,936
Work in-process                                   3,169,358            3,690,618
Finished goods                                      181,783            1,121,147
                                                 -------------------------------
Total                                            $4,737,645           $5,493,701
                                                 ===============================

5. PROPERTY & EQUIPMENT

      Property and equipment is stated at cost and consists of the following:

                                                           December 31,
                                                     2000               1999
                                                 ------------------------------
Machinery and equipment                          $ 6,071,812        $ 5,704,663
Furniture and fixtures                               670,923          1,773,390
Leasehold improvements                             1,878,844            638,180
                                                 ------------------------------
                                                   8,621,579          8,116,233
                                                 ------------------------------
Less accumulated depreciation                     (5,498,455)        (4,587,692)
                                                 ------------------------------
Total                                            $ 3,123,124        $ 3,528,541
                                                 ==============================

6. NOTES RECEIVABLE FROM OFFICERS

      Notes receivable from officers consists of six loans made to three
officers and one former officer. The loan amounts are generally due at the
earlier of the end of five years from the date of the note or at the termination
of the officers' employment. The note receivable from the former officer is
secured by a mortgage on the person's primary residence. Interest accrues at
annual rates between 5.54% to 6.22% and is payable monthly over the term of the
loans.


                                       39
<PAGE>

7. ACCRUED EXPENSES

      Accrued expenses consists of the following:

                                                             December 31,
                                                         2000             1999
                                                     ---------------------------
Accrued compensation                                 $  587,222       $  666,900
Federal taxes                                                --           30,530
Accrued legal and professional fees                     247,000          123,200
Clinical Trials                                          30,001          383,754
Other accrued expenses                                  531,454          348,277
                                                     ---------------------------
Total                                                $1,395,677       $1,552,661
                                                     ===========================

8. LEASE OBLIGATIONS

      The Company leases three facilities with one lease expiring in October
2001, another in January 2004 and the third lease in February 2004. These leases
are accounted for as operating leases in the accompanying statements of
operations. Net rental expense in connection with the leases, totaled $647,348,
$489,000 and $377,000 for the years ended December 31, 2000, 1999, and 1998,
respectively. Future minimum lease payments under the operating leases for the
years ending December 31st are as follows:

                                                                   Amount
                                                                ----------
      2001                                                       $ 570,901
      2002                                                         512,204
      2003                                                         513,404
      2004                                                          74,967
                                                                ----------
      Total                                                     $1,671,476
                                                                ==========

9. STOCK OPTION PLAN

      The Company has reserved 3,485,000 shares of common stock for the grant of
stock options to employees, directors, consultants and advisors under the Anika
Therapeutics, Inc. 1993 Stock Option Plan, as amended (the "Plan"). In addition,
the Company also established the Directors' Stock Option Plan (the "Directors'
Plan") and reserved 40,000 shares of the Company's common stock for issuance to
the Board of Directors. On October 28, 1997 the Board of Directors granted to
certain executive officers and employees of the Company options to acquire
269,000 shares of common stock at an exercise price of $7.625 per share, vesting
over a four-year period. Such grants received stockholder approval upon the
amendment to the Plan on June 3, 1998. When the amendment was approved by the
shareholders, the Company recorded deferred compensation of $1,490,061, which
represented the difference between the exercise price of the option and the fair
market value of the common stock at the time of such approval. During 2000,
1999, and 1998, $286,975, $342,464 and $415,362 were amortized to expense,
respectively. The unamortized deferred compensation of $244,550 at December 31,
2000 will be amortized on a straight-line basis over the options' remaining
vesting period of approximately 10 months.


                                       40
<PAGE>

      Combined stock option activity for both Plans is summarized as follows:

                                                                   Weighted
                                                                Average Exercise
                                                 Shares         Price per Share

                                               --------------------------------
Outstanding at December 31, 1997               1,846,515          $     3.77
                                               --------------------------------
               Granted                           508,500                5.82
               Canceled                          (68,958)               8.49
               Exercised                        (112,153)               3.62
                                               --------------------------------
Outstanding at December 31, 1998               2,173,904          $     4.02
                                               --------------------------------
               Granted                           223,500                5.60
               Canceled                         (241,116)               5.91
               Exercised                        (561,237)               2.08
                                               --------------------------------
Outstanding at December 31, 1999               1,595,051          $     4.99
                                               --------------------------------
               Granted                           682,776                4.49
               Canceled                         (413,505)               5.63
               Exercised                        (143,200)               3.46
                                               --------------------------------
Outstanding at December 31, 2000               1,721,122          $     4.77
                                               ================================

Exercisable, December 31, 2000                   781,605          $     4.99
                                               ================================
Exercisable, December 31, 1999                   870,384          $     4.44
                                               ================================
Exercisable, December 31, 1998                 1,339,236          $     3.04
                                               ================================

      Generally, options vest in varying installments up to four years after the
date of grant and have an expiration date no later than ten years after the date
of grant. There are 412,946 options available for future grant at December 31,
2000.

      The following table summarizes significant ranges of outstanding options
under both Plans at December 31, 2000:

<TABLE>
<CAPTION>
                                              Options Outstanding                            Options Exercisable
                                                    Weighted           Weighted                              Weighted
                                                     Average            Average                              Average
    Ranges of                  Number               Remaining          Exercise             Number           Exercise
 Exercise Price              Outstanding        Contractual Life         Price           Exercisable          Price
--------------------------------------------------------------------------------------------------------------------
<S>                           <C>                      <C>               <C>               <C>                 <C>
$1.19 - 3.00                    458,933                8.01              1.94              124,833             2.66
 3.12 - 4.94                    300,776                6.60              4.24              171,359             3.81
 5.00 - 7.00                    708,933                7.40              5.74              345,933             5.27
 7.63 - 9.75                    252,480                7.67              7.75              139,480             7.77
                            ----------------------------------------------------------------------------------------
                              1,721,122                7.20              4.77              781,605             4.99
                            ========================================================================================
</TABLE>

      The Company has determined that it will continue to account for
stock-based compensation for employees under APB Opinion No. 25 as modified by
FIN 44 and elect the disclosure-only alternative under SFAS No. 123 for
stock-based compensation awarded in 2000, 1999, and 1998 using the Black-Scholes
option pricing model prescribed by SFAS No. 123. The underlying assumptions used
are as follows:

                                                          December 31,
                                                  2000        1999        1998
                                               ---------------------------------

Risk-Free interest rate                           61.80%       5.56%       5.45%
Expected dividend yield                            0.00%       0.00%       0.00%
Expected lives                                        4           6           6
Expected volatility                               71.60%      65.10%      50.00%
Weighted average grant date, fair
value of grants                                $   2.16    $   3.21    $   4.07


                                       41
<PAGE>

      Had compensation expense for employee stock options granted been
determined based on the fair value at the date of grant as prescribed under SFAS
No. 123, pro forma net income (loss) and net income (loss) per share would have
been as follows:

<TABLE>
<CAPTION>
                                                      Years ended December 31,
                                                 2000           1999             1998
                                           ---------------------------------------------
<S>                                        <C>             <C>             <C>
Net income (loss)
  As reported                              $     173,554   $  (2,495,726)  $   3,752,348
  Pro forma                                $    (522,111)  $  (3,165,031)  $   3,105,462
Net income (loss) per share, as reported
  Basic                                    $        0.02   $       (0.26)  $        0.38
  Diluted                                  $        0.02   $       (0.24)  $        0.34
Net income (loss) per share, proforma
  Basic                                    $       (0.05)  $       (0.32)  $        0.31
  Diluted                                  $       (0.05)  $       (0.31)  $        0.28
</TABLE>

10. SHAREHOLDER RIGHTS PLAN

      On April 6, 1998, the Board of Directors adopted a shareholder rights
agreement (the "Rights Plan"). In connection with the adoption of the Rights
Plan, the Board of Directors declared a dividend distribution of one preferred
stock purchase right (a "Right") for each outstanding share of common stock to
stockholders of record as of the close of business on April 23, 1998. Currently,
these Rights are not exercisable and trade with the shares of the Company's
Common Stock.

      Under the Rights Plan, the Rights generally become exercisable if: (i) a
person becomes an "acquiring person" by acquiring 15% or more of the Company's
Common Stock, (ii) a person commences a tender offer that would result in that
person owning 15% or more of the Company's Common Stock, or (iii) the Board of
Directors deems a person to be an "Adverse Person," as defined under the Rights
Plan. In the event that a person becomes an "acquiring person," or an "Adverse
Person," each holder of a Right (other than the acquiring person or Adverse
Person) would be entitled to acquire such number of units of preferred stock
(which are equivalent to shares of the Company's Common Stock) having a value of
twice the exercise price of the Right. If, after any such event, the Company
enters into a merger or other business combination transaction with another
entity, each holder of a Right would then be entitled to purchase, at the
then-current exercise price, shares of the acquiring company's common stock
having a value of twice the exercise price of the Right. The current exercise
price per Right is $45.00.

      The Rights will expire at the close of business on April 6, 2008 (the
"Expiration Date"), unless previously redeemed or exchanged by the Company as
described below. The Rights may be redeemed in whole, but not in part, at a
price of $0.01 per Right (payable in cash, shares of the Company's Common Stock
or other consideration deemed appropriate by the Board of Directors) by the
Board of Directors only until the earlier of (i) the time at which any person
becomes an "acquiring person" or an "Adverse Person", or (ii) the Expiration
Date. At any time after any person becomes an "acquiring person" or an "Adverse
Person", the Board of Directors may, at its option, exchange all or any part of
the then outstanding and exercisable Rights for shares of the Company's Common
Stock at an exchange ratio specified in the Rights Plan. Notwithstanding the
foregoing, the Board of Directors generally will not be empowered to effect such
exchange at any time after any person becomes the beneficial owner of 50% or
more of the Company's Common Stock.

      Until a Right is exercised, the holder will have no rights as a
stockholder of the Company (beyond those as an existing stockholder), including
the right to vote or to receive dividends.

      In connection with the establishment of the Rights Plan, the Board of
Directors approved the creation of Preferred Stock of the Company designated as
Series B Junior Participating Cumulative Preferred Stock with a par value of
$0.01 per share. The Board also reserved 150,000 shares of preferred stock for
issuance upon exercise of the Rights.

11. STOCK REPURCHASE PLAN


                                       42
<PAGE>

      In October 1998, the Board of Directors approved a stock repurchase plan
under which the Company is authorized to purchase up to $4,000,000 of the
Company's common stock, with the total number of shares repurchased not to
exceed 9.9% of the total number of shares issued and outstanding. Under the
plan, shares may be repurchased from time to time and in such amounts as market
conditions warrant and subject to regulatory considerations. As of December 31,
2000, the Company had repurchased a total of 762,100 shares at a net cost of
approximately $3,872,807 and has reissued 704,437 shares upon exercise of
employee stock options. No shares were purchased in 2000.

12. EMPLOYEE BENEFIT PLAN

      Full-time employees are eligible to participate in the Company's 401(k)
savings plan. Employees may elect to contribute a percentage of their
compensation to the plan, and the Company will make matching contributions up to
a limit of 5% of an employee's compensation. In addition, the Company can make
annual discretionary contributions. For the years ended December 31, 2000, 1999,
and 1998 the Company made matching contributions of $184,049, $160,142, and
$130,644, respectively.

13. LICENSING AND DISTRIBUTION AGREEMENTS

      On November 10, 2000 the Company entered into an agreement with Zimmer,
Inc. to terminate the Zimmer Distribution Agreement for ORTHOVISC(R). Under
the terms of the termination agreement, Zimmer had rights to distribute
ORTHOVISC(R) through the end of the year in the countries where it was
previously sold. As a result of the termination of the Zimmer Distribution
Agreement, Anika recognized $4,249,000 of revenue in the fourth quarter of
2000 for amounts previously received from Zimmer which included a one-time
payment under the termination agreement. The termination eliminated all
obligations under the distribution agreement with respect to milestone
payments, minimum purchases, unit pricing adjustments based on market prices
and provided for the disposal of all units previously purchased by Zimmer by
January 31, 2001, including units held in Anika's refrigerators at Zimmer's
request. See "Risk Factors and Certain Factors Affecting Future Operating
Results - Dependence on Marketing Partners" and "--Reliance on a Small Number
of Customers."

      In July 2000, the Company entered into a new seven-year supply agreement
(the "BLS Agreement") with Bausch & Lomb Surgical, a unit of Bausch & Lomb.
Under the terms of the BLS Agreement, effective January 1, 2001, the Company
became Bausch & Lomb's exclusive provider of AMVISC(R) and AMVISC(R) Plus,
ophthalmic viscoelastic products, in the U.S. and international markets. The BLS
Agreement expires December 31, 2007, superceding an existing supply contract
with Bausch & Lomb Surgical that was set to expire December 31, 2001. The BLS
Agreement is subject to early termination and/or reversion to a non-exclusive
basis under certain circumstances. The BLS Agreement lifts contractual
restrictions on the Company's sales of certain ophthalmic products to other
companies, subject to payment of royalties by Anika. In exchange, the Company
agreed to a reduction in unit selling prices effective to April 1, 2000, and the
elimination of minimum unit purchase obligations by BLS.

14. INCOME TAXES

      The Company records a deferred tax asset or liability based on the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates assumed to be in effect when
these differences reverse.

      As of December 31, 2000, the Company has net operating loss
carry-forwards for federal and state tax purposes of approximately $4,629,000
and $1,403,000, respectively. These carry-forwards expire through 2020, and
are subject to review and possible adjustment. The Internal Revenue Code
(IRC) contains provisions that may limit the amount of net operating loss and
credit carry-forwards that the Company may utilize in any one year in the
event of certain cumulative changes in ownership over a three-year period. In
the event that the Company has had a change of ownership, as defined in IRC
Section 382, utilization of the carry forwards may be restricted.

                                       43
<PAGE>

      The approximate income tax effect of each type of temporary difference and
carry-forward is as follows:

                                                      Years ended December 31,
                                                   ----------------------------
                                                       2000             1999
                                                   -----------      -----------

Deferred tax assets (liabilities):
  Depreciation ..................................  $   196,036      $   430,006
  Accrued expenses and other ....................      119,354           (5,097)
  Inventory reserves ............................      173,757          120,690
  Nonqualified stock option amortization ........      112,627          112,627
  Deferred revenue ..............................           --        1,847,002
  Net operating loss carry-forwards .............    1,938,569           84,181
Gross deferred tax assets .......................    2,540,343        2,589,409
  Less: valuation allowance .....................   (2,540,343)      (2,589,409)
                                                   -----------      -----------
Net deferred tax asset ..........................  $        --      $        --
                                                   ===========      ===========

      Due to the uncertainty surrounding the timing of realization of the
benefits of its favorable tax attributes in future tax returns, the Company has
placed a full valuation allowance against its net deferred tax asset.

      Income tax expense was $15,940, $31,412, and $127,557 for the years ended
December 31, 2000, 1999, and 1998, respectively. The provision for income taxes
differs from the amounts computed by applying the U.S. Federal income tax rate
of thirty-four percent to pretax income as a result of the following:

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                             ------------------------------------
                                                               2000         1999          1998
                                                             --------    ---------    -----------
<S>                                                          <C>         <C>          <C>
Computed expected tax expense (benefit) ...................  $ 64,562    $(837,867)   $ 1,319,168
State tax (benefit) expense (net of federal benefit) ......    10,821     (147,859)       232,794
Nondeductible expenses ....................................    34,837       44,944         12,069
Unrealized gain on short-term investments .................        --           --        (80,702)
Other .....................................................   (45,080)      30,133        (58,829)
Change in valuation allowance related to income tax
  benefit .................................................   (49,066)     942,061     (1,296,943)
                                                             --------    ---------    -----------
Tax expense ...............................................  $ 15,940    $  31,412    $   127,557
                                                             ========    =========    ===========
</TABLE>

15. LEGAL MATTERS

      Securities and Exchange Commission Investigation. The SEC has issued a
formal order of investigation and has required the Company to provide
information in connection with certain revenue recognition matters. These
matters, relating to the Company's historical accounting for sales of its
product under a long-term supply and distribution agreement with Zimmer, Inc.,
were also the subject of the Company's March 15, 2000 disclosure concerning an
informal SEC inquiry and the restatement of results for 1998 and the first three
quarters of 1999. The Company has been cooperating fully. However, the Company
is not in a position to predict the probable outcome of this matter or its
potential impact on the Company's business or operations.

      Putative Class Action Complaints. Three putative class action complaints
have been filed against the Company, J. Melville Engle, and Sean Moran, the
Company's former chief financial officer, in the United States District Court
for the District of Massachusetts (the "Court") on behalf of all purchasers of
the Company's shares between April 15, 1998 and May 30, 2000 (the "Class"). The
first, filed on or about June 8, 2000, is captioned Casazza, et al. v. Anika
Therapeutics, Inc., J. Melville Engle and Sean Moran, Civil Action No.
00-11127-WGY. The second, filed on or about June 26, 2000, is captioned
Nemeth-Coslett, et al. v. Anika Therapeutics, Inc., J. Melville Engle and Sean
Moran, Civil Action No. 00-11257-WGY. The third, filed on or about August 2,
2000, is captioned Rockefeller, et al. v. Anika


                                       44
<PAGE>

Therapeutics, Inc., J. Melville Engle and Sean Moran, Civil Action No.
00-11540-WGY. Each of these putative class action complaints encompasses the
same class period and covers almost identical allegations.

      On or about August 7, 2000, David and Vivian West, alleged members of the
Class, filed a motion to appoint themselves lead plaintiffs and their law firm
lead counsel, as well as a motion for consolidation of the above cases. On or
about September 13, 2000, the Court granted David and Vivian West's motions,
consolidated the cases and recaptioned the case In re Anika Therapeutics, Inc.
Securities Litigation, Civil Action No. 00-11127-WGY. On or about October 30,
2000, lead plaintiffs filed a consolidated amended complaint. The complaint
alleges that the Company and the individual defendants violated the federal
securities laws by, inter alia, making material misrepresentations and omissions
in certain public disclosures during the period between April 15, 1998 and May
30, 2000. The alleged misrepresentations and omissions relate to the Company's
historical revenue recognition policies and its restatement of revenues for 1998
and the first three quarters of 1999. The complaint seeks an unspecified amount
of monetary damages, costs and expenses, and equitable and/or injunctive relief
to restrict the defendants from disposing of various assets in order to assure
adequate funds are available for the claimed damages. On December 14, 2000, the
Company, Mr. Engle and Mr. Moran each filed motions to dismiss the consolidated
amended complaint. On January 29, 2001, plaintiffs' counsel filed oppositions to
defendants' motions to dismiss. The Defendants filed reply briefs on February
12, 2001. The Company is vigorously defending the lawsuit. The Company is not
able to predict the probable outcome of this matter or its potential impact on
the Company's business or operations.


                                       45
<PAGE>

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                               Quarter ended     Quarter ended    Quarter ended      Quarter ended
Year 2000                                        March 31,          June 30,      September 30,      December 31,
<S>                                            <C>               <C>               <C>                <C>
Total Revenue                                  $  2,720,833      $  3,768,765      $ 2,729,807        $ 7,115,817
Cost of Sales                                     1,232,968         2,422,617        2,804,285          3,410,689
Gross Profit (Loss)                               1,487,865         1,346,148          (74,478)         3,705,128
Net Income (Loss)                              $   (564,087)     $   (218,489)     $(1,382,824)       $ 2,338,954
                                               ============      ============      ===========        ===========

Per common share information:
Basic Net income (loss) per share              $      (0.06)     $      (0.02)     $     (0.14)       $      0.24
Basic common shares outstanding                   9,804,284         9,918,842        9,934,280          9,934,280

Diluted Net income (loss) per share            $      (0.06)     $      (0.02)     $     (0.14)       $      0.23
Diluted common shares outstanding                 9,804,284         9,918,842        9,934,280         10,080,410

<CAPTION>
                                               Quarter ended     Quarter ended    Quarter ended      Quarter ended
Year 1999                                        March 31,          June 30,      September 30,      December 31,
<S>                                            <C>               <C>               <C>                <C>
Total Revenue                                  $  3,335,650      $  3,533,346      $ 2,995,350        $ 3,618,316
Cost of Sales                                     1,708,171         1,688,714        1,429,587          1,613,694
Gross Profit                                      1,627,479         1,844,632        1,565,763          2,004,622
Income (loss) before cumulative effect of
  change in accounting principle                    455,821           397,888          (92,881)           368,446
Cumulative effect of change in accounting
  principle                                      (3,625,000)               --               --                 --
Net Income (loss)                              $ (3,169,179)     $    397,888      $   (92,881)       $   368,446
                                               ============      ============      ===========        ===========
Per common share information:
Basic:
Income before cumulative effect of change
  in accounting principle                      $       0.05      $       0.04      $     (0.01)       $      0.04
Cumulative effect of change in accounting
  principle                                           (0.38)               --               --                 --
Net income (loss)                              $      (0.33)     $       0.04      $     (0.01)       $      0.04

Basic common shares outstanding                   9,514,381         9,558,024        9,940,228          9,941,901

Diluted:
Income before cumulative effect of change
  in accounting principle                      $       0.05      $       0.04      $     (0.01)       $      0.04
Cumulative effect of change in accounting
  principle                                           (0.36)               --               --                 --
Net income (loss)                              $      (0.31)     $       0.04      $     (0.01)       $      0.04

Diluted common shares outstanding                10,077,488        10,075,826        9,940,228         10,305,481
</TABLE>


                                       46
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by Item 10 is hereby incorporated by reference to
the Registrant's Proxy Statement (the "Proxy Statement") for the Annual Meeting
of Stockholders to be held on June 6, 2001 under the heading "Election of
Directors".

ITEM 11. EXECUTIVE COMPENSATION

      The information required by Item 11 is hereby incorporated by reference to
the Proxy Statement under the heading "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by Item 12 is hereby incorporated by reference to
the Proxy Statement under the heading "Beneficial Ownership of Common Stock."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by Item 13 is hereby incorporated by reference to
the Proxy Statement under the headings "Agreements with Named Executive
Officers" and "Certain Relationships and Related Transactions."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a) Documents filed as part of Form 10-K.

           (1) Financial Statements

      Report of Independent Public Accountant                              29
      Consolidated Balance Sheets                                          30
      Consolidated Statements of Operations                                31
      Consolidated Statements of Stockholder's Equity                      32
      Consolidated Statements of Cash Flows                                33
      Notes to Consolidated Financial Statements                           34-45

            (2) Schedules

      Schedules other than those listed above have been omitted since they
      are either not required or the information required is included in the
      financial statements or the notes thereto.

      Arthur Andersen LLP's Reports with respect to the above listed
      financial statements and financial statements schedules are included
      herein on Item 8 and Exhibit 23.1

            (3) Exhibits

      The list of Exhibits filed as a part of this Annual Report on Form 10-K
      are set forth on the Exhibit Index at (c) below.


                                       47
<PAGE>

      (b) Reports on Form 8-K

      The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this report.

      (c) Exhibit Index

      (3)     Articles of Incorporation and Bylaws:

      3.1     The Amended and Restated Articles of Organization of the Company,
              incorporated herein by reference to Exhibit 3.1 to the Company's
              Registration Statement on Form 10 (File no. 000-21326), filed with
              the Securities and Exchange Commission on March 5, 1993.

      3.2     Certificate of Vote of Directors Establishing a Series of
              Convertible Preferred Stock, incorporated herein by reference to
              Exhibits to the Company's Registration Statement on Form 10 (File
              no. 000-21326), filed with the Securities and Exchange Commission
              on March 5, 1993.

      3.3     Amendment to the Amended and Restated Articles of Organization of
              the Company, incorporated herein by reference to Exhibit 3.1 to
              the Company's quarterly report on Form 10-QSB for the period ended
              November 30, 1996, (File no. 000-21326), filed with the Securities
              and Exchange Commission on January 14, 1997.

      3.4     Certificate of Vote of Directors Establishing a Series of a Class
              of Stock, incorporated herein by reference to Exhibit 3.1 of the
              Company's Current Report on Form 8-AB12 (File no. 001-14027),
              filed with the Securities and Exchange Commission on April 7,
              1998.

      3.5     Amendment to the Amended and Restated Articles of Organization of
              the Company, incorporated herein by reference to the Company's
              quarterly report on Form 10-QSB for the quarterly period ending
              June 30, 1998 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 1998.

      3.6     The Amended and Restated Bylaws of the Company, incorporated
              herein by reference to Exhibit 3.4 to the Company's quarterly
              report on Form 10-QSB for the period ended November 30, 1996 (File
              no. 000-21326), filed with the Securities and Exchange Commission
              on January 14, 1997.

      (4)     Instruments Defining the Rights of Security Holders

      4.1     Shareholder Rights Agreement dated as of April 6, 1998 between the
              Company and Firstar Trust Company, incorporated herein by
              reference to Exhibit 4.1 to the Company's Current Report on Form
              8-A12B (File no. 001-14027), filed with the Securities and
              Exchange Commission on April 7, 1998.

      (10)    Material Contracts

      10.1    Settlement Agreement dated January 11, 1991 among MedChem
              Products, Inc., Kabi Pharmacia AB, Pharmacia, Inc., Dr. Endre
              Balazs and IOLAB Corporation, incorporated herein by reference to
              Exhibit 10.3 to the Company's Registration Statement on Form 10
              (File no. 000-21326), filed with the Securities and Exchange
              Commission on March 5, 1993.

      10.2    Supply Agreement dated as of July 25, 2000 by and between the
              Company and Bausch & Lomb Surgical, Inc., incorporated herein by
              reference to Exhibit 10.1 to the Company's quarterly report on
              Form 10-Q for the quarterly period ended September 30, 2000 (File
              no. 001-14027), filed with the Securities and Exchange Commission
              on November 14, 2000. Confidential treatment was granted to
              certain portions of this Exhibit.

      10.3    Sponsored Research Agreement dated as of June 18, 1992 between
              Tufts University and the Company, incorporated herein by reference
              to Exhibit 10.5 to the Company's Registration Statement on Form 10
              (File no. 000-21326), filed with the Securities and Exchange
              Commission on March 5, 1993.


                                       48
<PAGE>

      *10.4   TMJ Agreement dated as of April 29, 1993 between the Company and
              MedChem.

      10.5    1993 Stock Option Plan, as amended, incorporated herein by
              reference to Annex A of the Company's Proxy Statement (File no.
              001-14027), filed with the Securities and Exchange Commission on
              April 28, 2000.

      10.6    1993 Directors Stock Option Plan, incorporated herein by reference
              to Exhibit 10.15 to the Company's Registration Statement on Form
              10/A (File no. 000-21326), filed with the Securities and Exchange
              Commission on April 28, 1993.

      10.7    License Agreement dated as of July 22, 1992 between the Company
              and Tufts University, incorporated herein by reference to Exhibit
              10.4 to the Company's Registration Statement on Form 10 (File no.
              000-21326), filed with the Securities and Exchange Commission on
              March 5, 1993.

      *10.8   Lease dated March 10, 1995 between the Company and Cummings
              Properties, previously filed with the Securities and Exchange
              Commission on November 29, 1995 as Exhibit 10.11 to the Company's
              Annual Report on Form 10-K for the fiscal year ended August 31,
              1995.

      *10.9   First Amendment to Lease dated December 11, 1997 between the
              Company and Cummings Properties.

      *10.10  Extension of Lease dated November 23, 1999 between the Company and
              Cummings Properties.

      *10.11  Second Amendment to Lease dated November 23, 1998 between the
              Company and Cummings Properties.

      *10.12  Lease dated September 23, 1999 between the Company and Cummings
              Properties.

      10.13   Termination Agreement and Mutual Release dated as of November 10,
              2000 by and between the Company and Zimmer, Inc., incorporated
              herein by reference to Exhibit 10.2 to the Company's quarterly
              report on Form 10-Q for the quarterly period ended September 30,
              2000 (File no. 001-14027), filed with the Securities and Exchange
              Commission on November 14, 2000. Confidential treatment was
              granted to certain portions of this Exhibit.

      10.14   Letter Agreement dated September 24, 1996 between the Company and
              J. Melville Engle, incorporated herein by reference to Exhibit
              10.31 to the Company's Annual Report on Form 10-KSB for the fiscal
              year ended August 31, 1996 (File no. 000-21326), filed with the
              Securities and Exchange Commission on November 27, 1996.

      *10.15  Non-Disclosure Agreement and Non-Competition Agreement dated
              August 28, 1997 between the Company and J. Melville Engle.

      10.16   Change of Control Agreement dated as of June 3, 1999 between the
              Company and J. Melville Engle, incorporated herein by reference to
              Exhibit 10.13 to the Company's Annual Report filed on Form 10-K
              for the fiscal year ended December 31, 1999 (File no. 001-14027),
              filed with the Securities and Exchange Commission on March 30,
              2000.

      10.17   Promissory Note for $75,000 dated as of March 17, 1996 between the
              Company and J. Melville Engle, incorporated herein by reference to
              Exhibit 10.25 to the Company's Registration Statement on Form SB-2
              (File no. 333-38993), filed with the Securities and Exchange
              Commission on October 29, 1997.

      *10.18  Promissory Note for $59,000 dated as of July 10, 1998 between the
              Company and J. Melville Engle.

      *10.19  Promissory Note for $41,000 dated as of December 17, 1999 between
              the Company and J. Melville Engle.


                                       49
<PAGE>

      10.20   Letter Agreement dated February 13, 1998 between the Company and
              Michael R. Slater, incorporated herein by reference to Exhibit
              10.1 to the Company's quarterly report on Form 10-Q for the
              quarterly period ended June 30, 2000 (File no. 001-14027), filed
              with the Securities and Exchange Commission on August 14, 2000.

      10.21   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Michael R. Slater,
              incorporated herein by reference to Exhibit 10.2 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027) filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.22  Non-Disclosure and Non-Competition Agreement dated February 10,
              1998 between the Company and Michael R. Slater.

      *10.23  Promissory Note for $29,000 dated September 29, 2000 between the
              Company and Michael R. Slater.

      10.24   Letter Agreement dated April 15, 1998 between the Company and
              Charles H. Sherwood, incorporated herein by reference to Exhibit
              10.3 to the Company's quarterly report on Form 10-Q for the
              quarterly period ended June 30, 2000 (File no. 001-14027), filed
              with the Securities and Exchange Commission on August 14, 2000.

      10.25   Change in Control, Bonus and Severance Agreement dated April 26,
              1998 by and between the Company and Charles H. Sherwood,
              incorporated herein by reference to Exhibit 10.4 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.26  Non-Disclosure and Non-Competition Agreement dated May 5, 1998
              between the Company and Charles H. Sherwood.

      *10.27  Promissory Note for $59,000 dated May 26, 2000 between the Company
              and Charles H. Sherwood.

      10.28   Letter Agreement dated March 30, 2000 by and between the Company
              and Douglas R. Potter, incorporated herein by reference to Exhibit
              10.5 to Exhibit 10.4 to the Company's quarterly report on Form
              10-Q for the quarterly period ended June 30, 2000 (File no.
              001-14027), filed with the Securities and Exchange Commission on
              August 14, 2000.

      10.29   Non-Disclosure and Non-Competition Agreement dated April 3, 2000
              by and between the Company and Douglas R. Potter, incorporated
              herein by reference to Exhibit 10.6 to Exhibit 10.4 to the
              Company's quarterly report on Form 10-Q for the quarterly period
              ended June 30, 2000 (File no. 001-14027), filed with the
              Securities and Exchange Commission on August 14, 2000.

      10.30   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Douglas R. Potter,
              incorporated herein by reference to Exhibit 10.7 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.31  Non-Disclosure and Non-Competition Agreement dated December 2,
              1996 between the Company and Edward Ross, Jr.

      10.32   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Edward Ross, Jr., incorporated
              herein by reference to Exhibit 10.8 to the Company's quarterly
              report on Form 10-Q for the quarterly period ended June 30, 2000
              (File no. 001-14027), filed with the Securities and Exchange
              Commission on August 14, 2000.

      (11)    Statement Regarding the Computation of Per Share Earnings

      *11.1   Statement Regarding the Computation of Per Share Earnings.


                                       50
<PAGE>

      (21)    Subsidiaries of the Registrant

      *21.1   List of Subsidiaries of the Registrant.

      (23)    Consent of Experts

      *23.1   Consent of ARTHUR ANDERSEN LLP.

*     Filed herewith


                                       51
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in Woburn,
Massachusetts on April 2, 2001.

                            ANIKA THERAPEUTICS, INC.


                            By: /s/ DOUGLAS R. POTTER
                                -----------------------------------
                                Douglas R. Potter
                                Chief Financial Officer

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

--------------------------------------------------------------------------------
     Signature                     Title                             Date
     ---------                     -----                             ----

/s/ J. MELVILLE ENGLE      Chairman, President &
------------------------   Chief Executive Officer, Director    April 2, 2001
  J. Melville Engle        Principal Executive Officer

/s/ DOUGLAS R. POTTER      Vice President Finance &             April 2, 2001
------------------------   Chief Financial Officer
  Douglas R. Potter        Principal Financial Officer

 /s/ JOSEPH L. BOWER       Director                             April 2, 2001
------------------------
   Joseph L. Bower

/s/ EUGENE A. DAVIDSON     Director                             April 2, 2001
------------------------
 Eugene A. Davidson

 /s/ SAMUEL F. MCKAY       Director                             April 2, 2001
------------------------
   Samuel F. McKay

 /s/ HARVEY S. SADOW       Director                             April 2, 2001
------------------------
   Harvey S. Sadow

/s/ STEVEN E. WHEELER      Director                             April 2, 2001
------------------------
  Steven E. Wheeler


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<PAGE>

                                  EXHIBIT INDEX

      3       Articles of Incorporation and Bylaws:

      3.1     The Amended and Restated Articles of Organization of the Company,
              incorporated herein by reference to Exhibit 3.1 to the Company's
              Registration Statement on Form 10 (File no. 000-21326), filed with
              the Securities and Exchange Commission on March 5, 1993.

      3.2     Certificate of Vote of Directors Establishing a Series of
              Convertible Preferred Stock, incorporated herein by reference to
              Exhibits to the Company's Registration Statement on Form 10 (File
              no. 000-21326), filed with the Securities and Exchange Commission
              on March 5, 1993.

      3.3     Amendment to the Amended and Restated Articles of Organization of
              the Company, incorporated herein by reference to Exhibit 3.1 to
              the Company's quarterly report on Form 10-QSB for the period ended
              November 30, 1996, (File no. 000-21326), filed with the Securities
              and Exchange Commission on January 14, 1997.

      3.4     Certificate of Vote of Directors Establishing a Series of a Class
              of Stock, incorporated herein by reference to Exhibit 3.1 of the
              Company's Current Report on Form 8-AB12 (File no. 001-14027),
              filed with the Securities and Exchange Commission on April 7,
              1998.

      3.5     Amendment to the Amended and Restated Articles of Organization of
              the Company, incorporated herein by reference to the Company's
              quarterly report on Form 10-QSB for the quarterly period ending
              June 30, 1998 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 1998.

      3.6     The Amended and Restated Bylaws of the Company, incorporated
              herein by reference to Exhibit 3.4 to the Company's quarterly
              report on Form 10-QSB for the period ended November 30, 1996 (File
              no. 000-21326), filed with the Securities and Exchange Commission
              on January 14, 1997.

      (4)     Instruments Defining the Rights of Security Holders

      4.1     Shareholder Rights Agreement dated as of April 6, 1998 between the
              Company and Firstar Trust Company, incorporated herein by
              reference to Exhibit 4.1 to the Company's Current Report on Form
              8-A12B (File no. 001-14027), filed with the Securities and
              Exchange Commission on April 7, 1998.

      (10)    Material Contracts

      10.1    Settlement Agreement dated January 11, 1991 among MedChem
              Products, Inc., Kabi Pharmacia AB, Pharmacia, Inc., Dr. Endre
              Balazs and IOLAB Corporation, incorporated herein by reference to
              Exhibit 10.3 to the Company's Registration Statement on Form 10
              (File no. 000-21326), filed with the Securities and Exchange
              Commission on March 5, 1993.

      10.2    Supply Agreement dated as of July 25, 2000 by and between the
              Company and Bausch & Lomb Surgical, Inc., incorporated herein by
              reference to Exhibit 10.1 to the Company's quarterly report on
              Form 10-Q for the quarterly period ended September 30, 2000 (File
              no. 001-14027), filed with the Securities and Exchange Commission
              on November 14, 2000. Confidential treatment was granted to
              certain portions of this Exhibit.

      10.3    Sponsored Research Agreement dated as of June 18, 1992 between
              Tufts University and the Company, incorporated herein by reference
              to Exhibit 10.5 to the Company's Registration Statement on Form 10
              (File no. 000-21326), filed with the Securities and Exchange
              Commission on March 5, 1993.

      *10.4   TMJ Agreement dated as of April 29, 1993 between the Company and
              MedChem.


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<PAGE>

      10.5    1993 Stock Option Plan, as amended, incorporated herein by
              reference to Annex A of the Company's Proxy Statement (File no.
              001-14027), filed with the Securities and Exchange Commission on
              April 28, 2000.

      10.6    1993 Directors Stock Option Plan, incorporated herein by reference
              to Exhibit 10.15 to the Company's Registration Statement on Form
              10/A (File no. 000-21326), filed with the Securities and Exchange
              Commission on April 28, 1993.

      10.7    License Agreement dated as of July 22, 1992 between the Company
              and Tufts University, incorporated herein by reference to Exhibit
              10.4 to the Company's Registration Statement on Form 10 (File no.
              000-21326), filed with the Securities and Exchange Commission on
              March 5, 1993.

      *10.8   Lease dated March 10, 1995 between the Company and Cummings
              Properties, previously filed with the Securities and Exchange
              Commission on November 29, 1995 as Exhibit 10.11 to the Company's
              Annual Report on Form 10-K for the fiscal year ended August 31,
              1995.

      *10.9   First Amendment to Lease dated December 11, 1997 between the
              Company and Cummings Properties.

      *10.10  Extension of Lease dated November 23, 1999 between the Company and
              Cummings Properties.

      *10.11  Second Amendment to Lease dated November 23, 1998 between the
              Company and Cummings Properties.

      *10.12  Lease dated September 23, 1999 between the Company and Cummings
              Properties.

      10.13   Termination Agreement and Mutual Release dated as of November 10,
              2000 by and between the Company and Zimmer, Inc., incorporated
              herein by reference to Exhibit 10.2 to the Company's quarterly
              report on Form 10-Q for the quarterly period ended September 30,
              2000 (File no. 001-14027), filed with the Securities and Exchange
              Commission on November 14, 2000. Confidential treatment was
              granted to certain portions of this Exhibit.

      10.14   Letter Agreement dated September 24, 1996 between the Company and
              J. Melville Engle, incorporated herein by reference to Exhibit
              10.31 to the Company's Annual Report on Form 10-KSB for the fiscal
              year ended August 31, 1996 (File no. 000-21326), filed with the
              Securities and Exchange Commission on November 27, 1996.

      *10.15  Non-Disclosure Agreement and Non-Competition Agreement dated
              August 28, 1997 between the Company and J. Melville Engle.

      10.16   Change of Control Agreement dated as of June 3, 1999 between the
              Company and J. Melville Engle, incorporated herein by reference to
              Exhibit 10.13 to the Company's Annual Report filed on Form 10-K
              for the fiscal year ended December 31, 1999 (File no. 001-14027),
              filed with the Securities and Exchange Commission on March 30,
              2000.

      10.17   Promissory Note for $75,000 dated as of March 17, 1996 between the
              Company and J. Melville Engle, incorporated herein by reference to
              Exhibit 10.25 to the Company's Registration Statement on Form SB-2
              (File no. 333-38993), filed with the Securities and Exchange
              Commission on October 29, 1997.

      *10.18  Promissory Note for $59,000 dated as of July 10, 1998 between the
              Company and J. Melville Engle.

      *10.19  Promissory Note for $41,000 dated as of December 17, 1999 between
              the Company and J. Melville Engle.

      10.20   Letter Agreement dated February 13, 1998 between the Company and
              Michael R. Slater, incorporated herein by reference to Exhibit
              10.1 to the Company's quarterly report on Form 10-Q for the
              quarterly period ended June 30, 2000 (File no. 001-14027), filed
              with the Securities and Exchange Commission on August 14, 2000.


                                       54
<PAGE>

      10.21   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Michael R. Slater,
              incorporated herein by reference to Exhibit 10.2 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027) filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.22  Non-Disclosure and Non-Competition Agreement dated February 10,
              1998 between the Company and Michael R. Slater.

      *10.23  Promissory Note for $29,000 dated September 29, 2000 between the
              Company and Michael R. Slater.

      10.24   Letter Agreement dated April 15, 1998 between the Company and
              Charles H. Sherwood, incorporated herein by reference to Exhibit
              10.3 to the Company's quarterly report on Form 10-Q for the
              quarterly period ended June 30, 2000 (File no. 001-14027), filed
              with the Securities and Exchange Commission on August 14, 2000.

      10.25   Change in Control, Bonus and Severance Agreement dated April 26,
              1998 by and between the Company and Charles H. Sherwood,
              incorporated herein by reference to Exhibit 10.4 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.26  Non-Disclosure and Non-Competition Agreement dated May 5, 1998
              between the Company and Charles H. Sherwood.

      *10.27  Promissory Note for $59,000 dated May 26, 2000 between the Company
              and Charles H. Sherwood.

      10.28   Letter Agreement dated March 30, 2000 by and between the Company
              and Douglas R. Potter, incorporated herein by reference to Exhibit
              10.5 to Exhibit 10.4 to the Company's quarterly report on Form
              10-Q for the quarterly period ended June 30, 2000 (File no.
              001-14027), filed with the Securities and Exchange Commission on
              August 14, 2000.

      10.29   Non-Disclosure and Non-Competition Agreement dated April 3, 2000
              by and between the Company and Douglas R. Potter, incorporated
              herein by reference to Exhibit 10.6 to Exhibit 10.4 to the
              Company's quarterly report on Form 10-Q for the quarterly period
              ended June 30, 2000 (File no. 001-14027), filed with the
              Securities and Exchange Commission on August 14, 2000.

      10.30   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Douglas R. Potter,
              incorporated herein by reference to Exhibit 10.7 to the Company's
              quarterly report on Form 10-Q for the quarterly period ended June
              30, 2000 (File no. 001-14027), filed with the Securities and
              Exchange Commission on August 14, 2000.

      *10.31  Non-Disclosure and Non-Competition Agreement dated December 2,
              1996 between the Company and Edward Ross, Jr.

      10.32   Change in Control, Bonus and Severance Agreement dated April 26,
              2000 by and between the Company and Edward Ross, Jr., incorporated
              herein by reference to Exhibit 10.8 to the Company's quarterly
              report on Form 10-Q for the quarterly period ended June 30, 2000
              (File no. 001-14027), filed with the Securities and Exchange
              Commission on August 14, 2000.

      (11)    Statement Regarding the Computation of Per Share Earnings

      *11.1   Statement Regarding the Computation of Per Share Earnings.

      (21)    Subsidiaries of the Registrant

      *21.1   List of Subsidiaries of the Registrant.


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<PAGE>

      (23)    Consent of Experts

      *23.1   Consent of ARTHUR ANDERSEN LLP.


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