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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)



|[X] |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934:
|--- |  | ----------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2001

OR



|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
|----- |  | -----------------------------------------------------------------------------------------

For the transition period from _______to_______

Commission file number: 0-12128

Matritech, Inc.

---

(Exact Name of Registrant as Specified in Its Charter)


|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 04-2985132         
|                                |  |                    
|(State or Other Jurisdiction of |  | (I.R.S. Employer   
|Incorporation or Organization)  |  | Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|330 Nevada Street, Newton, Massachusetts |  | 02460     
|                                         |  |           
|(Address of Principal Executive Offices) |  | (Zip Code)

(617) 928-0820

(Registrants Telephone Number, Including Area Code)


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 past 90 days.

YesX    No

As of November 1, 2001, there were 26,812,674 shares of the Registrants
Common Stock outstanding.

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TABLE OF CONTENTS



|                              |                                                                                                |                                                                    |  |  |  |  |  | 
|----------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1.   Financial Statements                                                                
|                              |                                                                                                | CONSOLIDATED BALANCE SHEETS - ASSETS                              
|                              |                                                                                                | CONSOLIDATED BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS EQUITY
|                              |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS                             
|                              |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS                             
|                              |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        
|                              | Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3.  Quantitative and Qualitative Disclosures about Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                   



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MATRITECH, INC.
INDEX

|           |  |                                                                                       |    |                                                                                                       |    |      |   | 
|---------- |  | ------------------------------------------------------------------------------------- | -- | ----------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|           |  |                                                                                       |    |                                                                                                       |    | Page
|           |  |                                                                                       |    |                                                                                                       |    |     
|PART I     |  | FINANCIAL INFORMATION                                                                 |    |                                                                                                       |    |     
|           |  |                                                                                      
|Item 1.    |  | Financial Statements                                                                  |    |                                                                                                       |    |     
|           |  |                                                                                      
|           |  |                                                                                       |    | Consolidated Balance Sheets at December 31, 2000
and September 30, 2001                               |    |      | 3 | 
|           |  |                                                                                      
|           |  |                                                                                       |    | Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 2001 |    |      | 5 | 
|           |  |                                                                                      
|           |  |                                                                                       |    | Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 2001           |    |      | 6 | 
|           |  |                                                                                      
|           |  |                                                                                       |    | Notes to Consolidated Financial Statements                                                            |    |      | 8 | 
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations |    |                                                                                                       | 11 |     
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About
Market Risk                            |    |                                                                                                       | 16 |     
|           |  |                                                                                      
|PART II    |  | OTHER INFORMATION                                                                     |    |                                                                                                       |    |     
|           |  |                                                                                      
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |    |                                                                                                       | 17 |     
|           |  |                                                                                      
|SIGNATURES |  |                                                                                       | 18 |                                                                                                      

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PART I. FINANCIAL INFORMATION




Item 1.   Financial Statements




MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS

|                                 |                                          |                                                  |           |              |           |               |           |             |           | 
|-------------------------------- | ---------------------------------------- | ------------------------------------------------ | --------- | ------------ | --------- | ------------- | --------- | ----------- | --------- | 
|                                 |                                          |                                                  |           | December 31, |           | September 30,
|                                 |                                          |                                                  |           | 2000         |           | 2001         
|                                 |                                          |                                                  |           |              |           |              
|                                 |                                          |                                                  |           |              |           |               |           | (Unaudited)
|CURRENT ASSETS:                  |                                          |                                                  |           |              |           |               |           |            
|                                 | Cash and cash equivalents                |                                                  | $         | 4,661,005    |           |               | $         | 3,463,394   |          
|                                 | Accounts receivable, net                 |                                                  |           | 250,937      |           |               |           | 221,726     |          
|                                 | Inventories                              |                                                  |           | 334,527      |           |               |           | 385,752     |          
|                                 | Interest receivable and prepaid expenses |                                                  |           | 193,182      |           |               |           | 138,479     |          
|                                 |                                          |                                                  |           |              |           |               |           |            
|                                 |                                          | Total current assets                             |           |              | 5,439,651 |               |           |             | 4,209,351 | 
|                                 |                                          |                                                  |           |              |           |               |           |            
|PROPERTY AND EQUIPMENT, at cost: |                                          |                                                  |           |              |           |               |           |            
|                                 | Laboratory equipment                     |                                                  |           | 1,831,109    |           |               |           | 1,897,891   |          
|                                 | Office equipment                         |                                                  |           | 253,228      |           |               |           | 274,386     |          
|                                 | Laboratory furniture                     |                                                  |           | 62,739       |           |               |           | 62,739      |          
|                                 | Leasehold improvements                   |                                                  |           | 56,981       |           |               |           | 88,865      |          
|                                 | Automobiles                              |                                                  |           | 34,059       |           |               |           | 33,962      |          
|                                 |                                          |                                                  |           |              |           |               |           |            
|                                 |                                          |                                                  | 2,238,116 |              |           |               | 2,357,843 |            
|                                 |                                          | Less  accumulated depreciation
and amortization |           |              | 1,456,774 |               |           |             | 1,592,935 | 
|                                 |                                          |                                                  |           |              |           |               |           |            
|                                 |                                          |                                                  | 781,342   |              |           |               | 764,908   |            
|                                 |                                          |                                                  |           |              |           |               |           |            
|GOODWILL, net                    |                                          |                                                  | 219,432   |              |           |               | 153,951   |            
|OTHER ASSETS, net                |                                          |                                                  | 155,043   |              |           |               | 143,790   |            
|                                 |                                          |                                                  |           |              |           |               |           |            
|                                 |                                          | $                                                | 6,595,468 |              |           | $             | 5,272,000 |            
|                                 |                                          |                                                  |           |              |           |               |           |            

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY

|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |             |             |           | 
|-------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | -------------------------- | ----------- | ------------ | --------- | ------------- | ----------- | ----------- | --------- | 
|                                       |                                                                                                                                                                            |                                     |                            |             | December 31, |           | September 30,
|                                       |                                                                                                                                                                            |                                     |                            |             | 2000         |           | 2001         
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |              
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |             | (Unaudited)
|CURRENT LIABILITIES:                   |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|                                       |                                                                                                                                                                            | Current maturities of notes payable |                            | $           | 110,322      |           |               | $           | 54,693      |          
|                                       |                                                                                                                                                                            | Accounts payable                    |                            |             | 365,811      |           |               |             | 357,125     |          
|                                       |                                                                                                                                                                            | Accrued expenses                    |                            |             | 367,474      |           |               |             | 510,066     |          
|                                       |                                                                                                                                                                            | Deferred revenue                    |                            |             | 8,433        |           |               |             | 31,528      |          
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|                                       |                                                                                                                                                                            |                                     | Total current liabilities  |             |              | 852,040   |               |             |             | 953,412   | 
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|NOTES PAYABLE, less current maturities |                                                                                                                                                                            |                                     | 157,381                    |             |              |           | 116,388       |            
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|OTHER LONG-TERM LIABILITIES            |                                                                                                                                                                            |                                     | 18,039                     |             |              |           | 21,050        |            
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|STOCKHOLDERS EQUITY:                  |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|                                       | Preferred
stock, $1.00 par value -
Authorized  4,000,000 shares
Issued and outstanding  none                                                                             |                                     |                            |            |              |           |               |            |            
|                                       | Common stock, $0.01 par value -
Authorized  40,000,000 shares
Issued and outstanding - 25,541,282
Shares at December 31, 2000 and
26,809,249 shares at September 30, 2001 |                                     |                            | 255,413     |              |           |               | 268,092     |            
|                                       | Additional paid-in capital                                                                                                                                                 |                                     |                            | 59,611,684  |              |           |               | 64,590,556  |            
|                                       | Deferred compensation                                                                                                                                                      |                                     |                            | (178,582    | )            |           |               | (125,005    | )          
|                                       | Cumulative translation adjustment                                                                                                                                          |                                     |                            | (9,021      | )            |           |               | (838        | )          
|                                       | Accumulated deficit                                                                                                                                                        |                                     |                            | (54,111,486 | )            |           |               | (60,551,655 | )          
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|                                       |                                                                                                                                                                            |                                     | Total stockholders equity |             |              | 5,568,008 |               |             |             | 4,181,150 | 
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            
|                                       |                                                                                                                                                                            | $                                   | 6,595,468                  |             |              | $         | 5,272,000     |            
|                                       |                                                                                                                                                                            |                                     |                            |             |              |           |               |            

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|------------------------------------------------------------------ | ----------------------------------- | - | ------------------ | ---------- | ----------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                   |                                     |   | Three Months Ended |            | Nine Months Ended
|                                                                   |                                     |   | September 30,      |            | September 30,    
|                                                                   |                                     |   |                    |            |                  
|                                                                   |                                     |   | 2000               |            | 2001              |   | 2000       |            | 2001
|                                                                   |                                     |   |                    |            |                   |   |            |            |     
|Revenue:                                                           |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Product sales                       |   | $                  | 446,047    |                   |   | $          | 511,739    |      |   | $          | 775,738    |   |   | $          | 1,694,848  |  
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|Operating expenses:                                                |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Cost of product sales               |   |                    | 340,106    |                   |   |            | 386,153    |      |   |            | 663,047    |   |   |            | 1,237,180  |  
|                                                                   | Research and
development            |   |                    | 623,675    |                   |   |            | 890,274    |      |   |            | 1,695,317  |   |   |            | 2,281,512  |  
|                                                                   | Selling, general and
administrative |   |                    | 1,812,659  |                   |   |            | 1,186,035  |      |   |            | 3,490,189  |   |   |            | 4,740,270  |  
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Total operating expenses            |   |                    | 2,776,440  |                   |   |            | 2,462,462  |      |   |            | 5,848,553  |   |   |            | 8,258,962  |  
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Loss from operations                |   |                    | (2,330,393 | )                 |   |            | (1,950,723 | )    |   |            | (5,072,815 | ) |   |            | (6,564,114 | )
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Interest income                     |   |                    | 81,890     |                   |   |            | 35,801     |      |   |            | 270,505    |   |   |            | 142,994    |  
|                                                                   | Interest expense                    |   |                    | 4,683      |                   |   |            | 3,711      |      |   |            | 12,659     |   |   |            | 19,049     |  
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|NET LOSS                                                           |                                     | $ | (2,253,186         | )          |                   | $ | (1,918,633 | )          |      | $ | (4,814,969 | )          |   | $ | (6,440,169 | )         
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|BASIC/DILUTED
NET LOSS PER COMMON SHARE                            |                                     | $ | (0.09              | )          |                   | $ | (0.07      | )          |      | $ | (0.20      | )          |   | $ | (0.25      | )         
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|BASIC/DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING |                                     |   | 25,004,331         |            |                   |   | 26,562,051 |            |      |   | 24,652,234 |            |   |   | 26,072,973 |           
|                                                                   |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |            |           |          |            |  
|------------------------------------- | --------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------- | ------- | ----------------- | ---------- | ---------- | --------- | -------- | ---------- | -
|                                      |                                               |                                                                   |                                                                                     |                                          |         | Nine Months Ended
|                                      |                                               |                                                                   |                                                                                     |                                          |         | September 30,    
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                  
|                                      |                                               |                                                                   |                                                                                     |                                          |         | 2000              |            | 2001      
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|                                      | Net loss                                      |                                                                   | $                                                                                   | (4,814,969                               | )       |                   | $          | (6,440,169 | )        
|                                      | Adjustments to reconcile net loss to net cash |                                                                   |                                                                                     |                                          |         |                   |            |            |          
|                                      | Used in operating activities -                |                                                                   |                                                                                     |                                          |         |                   |            |            |          
|                                      |                                               | Depreciation and amortization                                     |                                                                                     |                                          | 127,481 |                   |            |            | 201,642   |         
|                                      |                                               | Amortization of deferred compensation                             |                                                                                     |                                          |        |                   |            |            | 84,277    |         
|                                      |                                               | Expense related to issuance of common
stock warrant to consultant |                                                                                     |                                          | 510,342 |                   |            |            | 1,020,684 |         
|                                      |                                               | Changes in assets and liabilities -                               |                                                                                     |                                          |         |                   |            |            |           |         
|                                      |                                               |                                                                   |                                                                                     | Accounts receivable, net                 |         |                   | 140,208    |            |           |          | 29,211     |  
|                                      |                                               |                                                                   |                                                                                     | Inventories                              |         |                   | 4,289      |            |           |          | (51,225    | )
|                                      |                                               |                                                                   |                                                                                     | Interest receivable and prepaid expenses |         |                   | (31,702    | )          |           |          | 54,703     |  
|                                      |                                               |                                                                   |                                                                                     | Other assets                             |         |                   | (43,024    | )          |           |          | 11,253     |  
|                                      |                                               |                                                                   |                                                                                     | Accounts payable                         |         |                   | (202,075   | )          |           |          | (8,686     | )
|                                      |                                               |                                                                   |                                                                                     | Accrued expenses                         |         |                   | 159,784    |            |           |          | 145,603    |  
|                                      |                                               |                                                                   |                                                                                     | Deferred revenue                         |         |                   | (177       | )          |           |          | 23,095     |  
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|                                      |                                               |                                                                   |                                                                                     | Net cash used in operating activities    |         |                   | (4,149,843 | )          |           |          | (4,929,612 | )
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|                                      |                                               |                                                                   | Purchases of property and equipment                                                 |                                          |         | (70,116           | )          |            |           | (119,727 | )         
|                                      |                                               |                                                                   | Cash paid for acquisition costs in
purchase of Matritech
GmbH, net of cash acquired |                                          |         | (89,306           | )          |            |           |         |           
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           
|                                      |                                               |                                                                   |                                                                                     | Net cash used in investing activities    |         |                   | (159,422   | )          |           |          | (119,727   | )
|                                      |                                               |                                                                   |                                                                                     |                                          |         |                   |            |           

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |       |        |           |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | ------ | ----------------- | ---------- | ----- | ------ | --------- | --------- | 
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        | Nine Months Ended
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        | September 30,    
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                  
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        | 2000              |            | 2001 
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                               |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|                                                                                                    |                                                         |                                          | Proceeds from sale of common stock, net                                   |                                           | $      | 284,462           |            |       | $      | 3,691,930 |          
|                                                                                                    |                                                         |                                          | Proceeds from exercise of common stock options                            |                                           |        | 450,014           |            |       |        | 88,123    |          
|                                                                                                    |                                                         |                                          | Proceeds from exercise of common stock warrants                           |                                           |        | 2,892,959         |            |       |        | 125,000   |          
|                                                                                                    |                                                         |                                          | Proceeds from issuance of common stock under
employee stock purchase plan |                                           |        | 4,500             |            |       |        | 35,114    |          
|                                                                                                    |                                                         |                                          | Payments on notes payable                                                 |                                           |        | (232,239          | )          |       |        | (96,622   | )        
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|                                                                                                    |                                                         |                                          |                                                                           | Net cash provided by financing activities |        |                   | 3,399,696  |       |        |           | 3,843,545 | 
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|                                                                                                    | Effect of foreign exchange on cash and cash equivalents |                                          |                                                                           | (25,479                                   | )      |                   |            | 8,183 |       
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|NET DECREASE IN
CASH AND CASH EQUIVALENTS                                                           |                                                         |                                          | (935,048                                                                  | )                                         |        |                   | (1,197,611 | )    
|CASH AND CASH EQUIVALENTS,
Beginning of period                                                      |                                                         |                                          | 5,612,194                                                                 |                                           |        |                   | 4,661,005  |      
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|CASH AND CASH EQUIVALENTS,
End of period                                                            |                                                         | $                                        | 4,677,146                                                                 |                                           |        | $                 | 3,463,394  |      
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:                                                   |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|                                                                                                    |                                                         | Cash paid during the period for interest |                                                                           | $                                         | 12,659 |                   |            | $     | 19,049 |          
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|In connection with the acquisition of Matritech GmbH,
the following non-cash transactions occurred: |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|Fair value of assets
acquired                                                                       |                                                         | $                                        | 532,545                                                                   |                                           |        |                   |            |      
|Goodwill                                                                                            |                                                         |                                          | 268,453                                                                   |                                           |        |                   |            |      
|Cash paid for acquisition costs, net of cash
acquired                                               |                                                         |                                          | (100,813                                                                  | )                                         |        |                   |            |      
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|                                                                                                    |                                                         |                                          | Liabilities
assumed                                                       |                                           | $      | 700,185           |            |       |        |           |          
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      
|Issuance of common stock for services to be provided                                                |                                                         | $                                        | 214,300                                                                   |                                           |        |                   |            |      
|                                                                                                    |                                                         |                                          |                                                                           |                                           |        |                   |            |      

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Operations and Basis of Presentation

Matritech, Inc. (the Company) was incorporated on October 29, 1987 to
develop, produce and distribute products for the diagnosis and potential
treatment of cancer based on its proprietary nuclear matrix protein technology.
This technology was licensed to the Company by the Massachusetts Institute of
Technology.

The Company is devoting substantially all of its efforts toward product
research and development, raising capital, securing partners and marketing
products. The Company is subject to risks common to companies in similar
stages of development, including a history of operating losses and anticipated
future losses, fluctuation in operating results, uncertainties associated with
future performance, near-term dependence on a limited number of products,
reliance on sole suppliers, dependence on key individuals, competition from
substitute products and larger companies, the development of commercially
usable products and the need to obtain adequate additional financing necessary
to fund its operations and the development of its future products.

The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The results for
the interim periods presented are not necessarily indicative of results to be
expected for any future period. It is suggested that these consolidated
financial statements be read in conjunction with the audited financial
statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2000 filed with the SEC (File No.
0-12128).

On June 28, 2000, the Company acquired all of the outstanding shares of capital
stock of ADL GmbH, Gesellschaft fur Allergie, Diagnostika und Laborkonzepte,
now called Matritech GmbH (Matritech GmbH), a European distributor of
diagnostic testing products, including the Companys NMP22® Test Kit for
bladder cancer. Matritech GmbH is located in Freiburg, Germany. For
financial statement purposes, this acquisition was accounted for as a purchase,
and accordingly the results of operations of Matritech GmbH from June 28, 2000
forward are included in the Companys consolidated statements of operations.

2.  Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Accounting for
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
These statements modify accounting for business combinations after June 30,
2001 and will affect the Companys treatment of goodwill and other intangible
assets at the start of the fiscal year 2002, and for acquisitions consummated
after June 30, 2001. The statements require that goodwill existing at the date
of adoption be reviewed for possible impairment and that impairment tests be
periodically repeated, with impaired assets written down to fair value.
Additionally, existing goodwill and intangible assets must be assessed and
classified within these statements criteria. Intangible assets with estimated
useful lives will continue to be amortized over those periods. Amortization of
goodwill and intangible assets with indeterminable lives will cease. Although
the Company has not yet determined the full impact of these statements on
reported results, amortization of goodwill and other intangible assets for the
nine months ended September 30, 2001 totaled $122,562.

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In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. This statement shall be effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of this statement to have a material
impact on their operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years, with early application encouraged. The Company does not
expect the adoption of this statement to have a material impact on their
operations.

3.  Cash Equivalents

The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents. The Company follows the
provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, in accounting for its marketable securities. Under SFAS No.
115, securities that the Company has the positive intent and ability to hold to
maturity are reported at amortized cost, which approximates fair market value,
and are classified as held-to-maturity. Securities held at December 31, 2000
and September 30, 2001 include only cash and cash equivalents, which consist of
auction market preferred stocks and money market accounts.

4.  Inventories

Inventories are stated at the lower of cost or market and consist of the
following:

|                |  |              |         |               |  |   |         | 
|--------------- |  | ------------ | ------- | ------------- |  | - | ------- | 
|                |  | December 31, |         | September 30,
|                |  | 2000         |         | 2001         
|                |  |              |         |              
|Raw materials   |  | $            | 150,981 |               |  | $ | 133,165 | 
|Work-in-process |  |              | 1,796   |               |  |   | 2,227   | 
|Finished goods  |  |              | 181,750 |               |  |   | 250,360 | 
|                |  |              |         |               |  |   |         | 
|                |  | $            | 334,527 |               |  | $ | 385,752 | 
|                |  |              |         |               |  |   |         | 

5.  Net Loss Per Common Share

The Company computes earnings per share in accordance with SFAS No. 128,
Earnings Per Share.Basic net loss per common share is computed by dividing
net loss by the weighted average number of common shares outstanding during the
year. Diluted loss per share is the same as basic loss per share as the
effects of the Companys potential common stock are antidilutive. Potential
common stock consists of stock options and warrants; and also as of September
30, 2001, 22,914 shares of common stock held in escrow in connection with the
Matritech GmbH acquisition, as these shares are contingent upon future
employment. The number of antidilutive common stock equivalents was 1,731,833
and 1,598,585 for the periods ended September 30, 2000 and 2001, respectively.

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6.  Notes Payable

The Company has a term note with Phoenix Leasing Incorporated for
equipment purchases. The term note is payable over 48 months, bears interest
at 11.75% and is secured by the underlying equipment. The final remaining
payment under this note is $7,000 due in October 2001.

In connection with the acquisition of Matritech GmbH, the Company assumed
certain debt obligations. At September 30, 2001, these obligations total
$164,000, with balances and details consisting of the following: a $101,000
loan from a bank, due in May 2004 which bears interest at 5.2% secured by trade
receivables and inventory; a $47,000 third-party demand note which will be
repaid by the Company and for which the Company will be reimbursed by a key
Matritech GmbH employee; a $10,000 car loan from a bank bearing interest at
7.50% and due in March 2003; and a $6,000 car loan from a bank bearing interest
at 6.99% and due in November 2002.

7.  Segment and Geographic Information

The Company applies SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and geographic
areas. 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 about how to allocate resources and assess performance. The
Companys chief decision maker, as defined under SFAS No. 131, is a combination
of the Chief Executive Officer, President and the Chief Financial Officer. The
Company views its operations and manages its business as principally one
segment, the sale of diagnostic products. Associated services are not
significant. As a result, the financial information disclosed herein
represents all of the material financial information related to the principal
operating segment. All of the Companys products were shipped either from its
facilities located in the United States or since June 28, 2000 from its
facilities in Freiburg, Germany. Geographic information on product sales by
destination is as follows:

|              |  |                                  |     |                                 |  |      |     |      |  |   |     |   |  |   |     |   |  |   |     |  |  |  |     |   |  |   |       |  |  |  |     |  
|------------- |  | -------------------------------- | --- | ------------------------------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | - |  | - | --- |  |  |  | --- | - |  | - | ----- |  |  |  | --- | -
|              |  | Revenue ($ in 000's)            
|              |  |                                 
|              |  | Three Months Ended September 30, |     | Nine Months Ended September 30,
|              |  |                                  |     |                                
|              |  | 2000                             |     | 2001                            |  | 2000 |     | 2001
|              |  |                                  |     |                                 |  |      |     |     
|              |  | $                                |     | %                               |  | $    |     | %    |  | $ |     | % |  | $ |     | %
|              |  |                                  |     |                                 |  |      |     |      |  |   |     |   |  |   |     |  
|United States |  | $                                | 61  |                                 |  |      | 13  | %    |  | $ | 91  |   |  |   | 18  | % |  | $ | 185 |  |  |  | 24  | % |  | $ | 285   |  |  |  | 17  | %
|Japan         |  |                                  | 31  |                                 |  |      | 7   |      |  |   | 50  |   |  |   | 10  |   |  |   | 112 |  |  |  | 14  |   |  |   | 125   |  |  |  | 7   |  
|Europe        |  |                                  | 310 |                                 |  |      | 70  |      |  |   | 360 |   |  |   | 70  |   |  |   | 393 |  |  |  | 51  |   |  |   | 1,241 |  |  |  | 73  |  
|Rest of world |  |                                  | 44  |                                 |  |      | 10  |      |  |   | 11  |   |  |   | 2   |   |  |   | 86  |  |  |  | 11  |   |  |   | 44    |  |  |  | 3   |  
|              |  |                                  |     |                                 |  |      |     |      |  |   |     |   |  |   |     |   |  |   |     |  |  |  |     |   |  |   |       |  |  |  |     |  
|Total         |  | $                                | 446 |                                 |  |      | 100 | %    |  | $ | 512 |   |  |   | 100 | % |  | $ | 776 |  |  |  | 100 | % |  | $ | 1,695 |  |  |  | 100 | %
|              |  |                                  |     |                                 |  |      |     |      |  |   |     |   |  |   |     |   |  |   |     |  |  |  |     |   |  |   |       |  |  |  |     |  

8.  Reclassifications

Certain reclassifications have been made to the prior years financial
statements to conform to current presentation. These classifications have no
effect on the Companys results of operations or financial position.

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9.  Warrant Issuance

In July 2000, the Company issued a fully vested, nonforfeitable warrant to
an investor relations consultant for the purchase of up to 450,000 shares of
the Companys common stock at an exercise price of $2.50 per share expiring in
July 2005. These warrants were valued at approximately $2.0 million in
accordance with SFAS No. 123 and are being expensed ratably over the one-year
term of the agreement. The Company expensed approximately $510,000 as a
component of selling, general and administrative expense on the accompanying
statement of operations in each of four quarters beginning September 30, 2000,
with the approximately $2.0 million of compensation expense being fully
amortized as of June 30, 2001. In December 2000 and January 2001, 200,000 and
50,000, respectively, of these warrants were exercised, providing proceeds to
the Company of $500,000 and $125,000, respectively.

10.  Common Stock Purchase Agreement

In August 2000, the Company entered into a common stock purchase agreement
with Acqua Wellington North American Equities Fund, Ltd. (Acqua) covering the
sale of up to $30 million (a maximum of 2.45 million shares) of the Companys
common stock. Draw downs to purchase stock were initiated at the Companys
sole discretion, and the Company set a minimum threshold price beneath which
Acqua was not required to purchase. Draw downs were in effect for 20
consecutive trading days after authorization by the Company, with a maximum of
12 draw downs, each not to exceed $10 million, during the term of the
agreement. Shares were purchased at a discount (ranging from 4.5% to 7.0%
depending on the threshold price) to the market price at any time beginning in
August 2000 and ending in October 2001. During 2000, Acqua purchased 281,082
shares, with net proceeds to the Company of $1,476,000. During the first nine
months of 2001, Acqua purchased 1,105,395 shares, with net proceeds to the
Company of $3,542,000. The Acqua agreement terminated on October 22, 2001.




Item 2. 
Managements Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, other reports and communications to
securityholders, as well as oral statements made by the Companys officers or
agents may contain forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements may relate to, among other things, the Companys future revenue,
operating income, EBITDA and the plans and objectives of management. In
particular, certain statements contained in the Managements Discussion and
Analysis of Financial Condition and Results of Operations and in Factors That
May Affect Future Results constitute forward-looking statements. Actual
events or results may differ materially from those stated in any
forward-looking statement. Factors that may cause such differences are
discussed below and in the Companys other reports filed with the Securities
and Exchange Commission.

The Company was incorporated in 1987 to develop, manufacture and market
innovative cancer diagnostic products based on its proprietary NMP technology.
The Company has been unprofitable since inception and expects to incur
significant operating losses for at least the next several years. For the
period from inception to September 30, 2001, the Company incurred a cumulative
net loss of approximately $61 million.

The results of operations for the three and nine months ended September
30, 2001 include the activities of the Companys German subsidiary, Matritech
GmbH, acquired in June 2000. Matritech GmbH distributes the Companys product
and other third-party products in Europe.

In the United States, the Company sells its NMP22 Test Kit through its own
direct sales force, and in 1998 entered into a distribution agreement with
Curtin Matheson Scientific, now Fisher Healthcare (Fisher) granting Fisher
the right, co-exclusive with Matritech, to distribute the microtiter
plate-based NMP22 Test Kit to hospitals and commercial laboratories within the
United States. Outside the United States, the Company sells the NMP22 Test Kit
through its European subsidiary and other distributors.

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Results of Operations

Three Months Ended
September 30, 2001 Compared with Three Months Ended September 30, 2000

Product sales increased to $512,000 from $446,000 for the quarters ended
September 30, 2001 and 2000, respectively. This increase was primarily due to
an increase in Matritech GmbHs European sales of distributed products, along
with an increase in research-use product sales in the United States. These
increases were offset by a decrease in sales to countries outside of the United
States, Europe and the Far East.

Cost of product sales increased to $386,000 from $340,000 for the quarters
ended September 30, 2001 and 2000, respectively. As a percentage of product
sales, cost of sales decreased to 75% from 76% for the quarters ended September
30, 2001 and 2000, respectively.

Research and development expenses increased to $890,000 from $624,000 for
the quarters ended September 30, 2001 and 2000, respectively. Clinical
consulting costs and site payments increased a total of $153,000 due to the
increased number of active projects. Personnel-related expenses, recruiting
costs, and lab supplies increased $29,000, $30,000 and $27,000, respectively,
due to increased headcount. Also, the allocated portion of rent and utilities
costs increased $18,000 under the amended lease agreement.

Selling, general and administrative expenses decreased to $1,186,000 from
$1,813,000 for the quarters ended September 30, 2001 and 2000, respectively.
This decrease is primarily due to the absence of $510,000 of compensation
expense in the 2001 period related to the investor relations consultant warrant
issued in July 2000, and decreased consulting costs of $222,000. These
decreases were offset by increased personnel-related expenses of $53,000 and
increased legal expense of $37,000.

Interest income decreased to $36,000 from $82,000 for the quarters ended
September 30, 2001 and 2000, respectively. The decrease was due to lower
average cash balances available for investment along with lower interest rates
in the 2001 period.

The Company incurred a net loss of $1,919,000 for the quarter ended
September 30, 2001, compared to a net loss of $2,253,000 for the quarter ended
September 30, 2000. The decrease of $334,000, or 15%, in the net loss was
primarily the result of decreased selling, general and administrative expenses
offset by increased research and development expenses.

Nine Months Ended September 30, 2001 Compared with Nine Months Ended September 30, 2000

Product sales increased to $1,695,000 from $776,000 for the nine months
ended September 30, 2001 and 2000, respectively. This increase was primarily
due to the Companys acquisition of Matritech GmbH in June 2000, along with an
11% increase in NMP22 test kit sales worldwide and an increase in research-use
product sales in the United States.

Cost of product sales increased to $1,237,000 from $663,000 for the nine
months ended September 30, 2001 and 2000, respectively. As a percentage of
product sales, cost of sales decreased to 73% from 85% for the nine months
ended September 30, 2001 and 2000, respectively. The decrease in cost of sales
as a percentage of sales is due to the inclusion of three full quarters worth
of Matritech GmbHs sales of third-party products in the 2001 period which
carry higher margins than the products developed and manufactured by Matritech.
Matritech product margins are negatively affected by costs related to excess
capacity maintained by the Company to support expected future sales increases.

Research and development expenses increased to $2,282,000 from $1,695,000
for the nine months ended September 30, 2001 and 2000, respectively. Clinical
consulting costs, site payments, and travel expense increased a total of
$298,000 due to the increased number of active projects. Personnel-related
expenses increased $110,000 due to increased headcount, and related recruiting
expense for filling the new positions increased $57,000. The allocated portion
of rent and utilities costs increased $66,000 under the amended lease
agreement, and contract research associated with the development of a new
product format was $55,000 in the 2001 period.

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Selling, general and administrative expenses increased to $4,740,000 from
$3,490,000 for the nine months ended September 30, 2001 and 2000, respectively.
This increase is primarily due to the following: an extra $510,000 (one
quarters worth) of compensation expense related to the issuance of a warrant
to an investor relations consultant in July 2000; a $638,000 increase in
Matritech GmbHs operational expense as a full nine months are included in 2001
as compared to only three months worth in 2000; increased amortization expense
for goodwill and deferred compensation in 2001of $111,000; increased legal
expense of $126,000; and increased personnel-related expenses of $100,000.
These increases were offset by a decrease in consulting expense of $231,000.

Interest income decreased to $143,000 from $271,000 for the nine months
ended September 30, 2001 and 2000, respectively. The decrease was due to lower
average cash balances available for investment along with lower interest rates
in the 2001 period.

The Company incurred a net loss of $6,440,000 for the nine months ended
September 30, 2001, compared to a net loss of $4,815,000 for the nine months
ended September 30, 2000. The increase of $1,625,000, or 34%, in the net loss
was primarily the result of the extra quarters worth of compensation expense
related to investor relations consultant warrant issued in July 2000, the extra
two quarters worth of Matritech GmbH operational expense, and increased
research and development expenses.

Liquidity and Capital Resources

Since its inception, the Company has financed its operations primarily
through private and
public offerings of its securities and through funded development and marketing
agreements. At September 30, 2001 and December 31, 2000, the Company had cash
and cash equivalents of $3,463,000 and $4,661,000, respectively, and working
capital of $3,256,000 and $4,588,000, respectively.

The Companys operating activities used cash of $4,930,000 and $4,150,000
for the nine months ended September 30, 2001 and 2000, respectively, primarily
to fund the Companys operating loss.

The Companys investing activities used cash of $120,000 and $159,000 for
the nine months ended September 30, 2001 and 2000, respectively, primarily for
the purchase of laboratory and office equipment, and leasehold improvements in
the 2001 period. The Company currently estimates that remaining capital
expenditures for fiscal 2001 will be approximately $30,000 primarily consisting
of additional lab equipment.

The Companys financing activities provided cash of $3,844,000 and
$3,400,000 for the nine months ended September 30, 2001 and 2000, respectively.
The activity in the 2001 period resulted primarily from proceeds received from
the sale of common stock under the equity financing agreement with Acqua, as
well as proceeds received from the exercise of common stock options and common
stock warrants, net of payments on notes payable. The activity in the 2000
period was primarily from proceeds from the exercise of common stock options
and common stock warrants, net of payments on notes payable.

The Company has a term note with Phoenix Leasing Incorporated for
equipment purchases. The term note is payable over 48 months, bears interest
at 11.75% and is secured by the underlying equipment. The outstanding balance
of this note at September 30, 2001 and December 31, 2000 is $7,000 and $63,000,
respectively.

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In connection with the acquisition of Matritech GmbH, the Company assumed
certain debt obligations. At September 30, 2001, these obligations total
$164,000, with balances and details consisting of the following: a $101,000
loan from a bank, due in May 2004 which bears interest at 5.2% secured by trade
receivables and inventory; a $47,000 third-party demand note which will be
repaid by the Company and for which the Company will be reimbursed by a key
Matritech GmbH employee; an $10,000 car loan from a bank bearing interest at
7.50% and due in March 2003; and a $6,000 car loan from a bank bearing interest
at 6.99% and due in November 2002.

The Companys current lease on its space in Newton, Massachusetts expires
December 31, 2005, and the Company has a five-year option for the period
commencing January 1, 2006. Matritech GmbHs current lease on its space in
Freiburg, Germany expires January 31, 2006.

In August 2000, the Company entered into a common stock purchase agreement
with Acqua Wellington North American Equities Fund, Ltd. (Acqua) covering the
sale of up to $30 million (a maximum of 2.45 million shares) of the Companys
common stock. Draw downs to purchase stock were initiated at the Companys
sole discretion, and the Company set a minimum threshold price beneath which
Acqua was not required to purchase. Draw downs were in effect for 20
consecutive trading days after authorization by the Company, with a maximum of
12 draw downs, each not to exceed $10 million, during the term of the
agreement. Shares were purchased at a discount (ranging from 4.5% to 7.0%
depending on the threshold price) to the market price at any time beginning in
August 2000 and ending in October 2001. During 2000, Acqua purchased 281,082
shares, with net proceeds to the Company of $1,476,000. During the first nine
months of 2001, Acqua purchased 1,105,395 shares, with net proceeds to the
Company of $3,542,000. The Acqua agreement terminated on October 22, 2001.

The Company expects to incur continued research and development expenses
and other costs, including costs related to clinical studies to commercialize
additional products based upon its NMP technology. The Company will require
substantial additional funds to fund operations, complete new product
development, conduct clinical trials and manufacture and market its products.

The Companys future capital requirements will depend on many factors,
including, but not limited to: continued scientific progress in its research
and development programs; the magnitude of its research and development
programs; progress with clinical trials for its diagnostic products; the
magnitude of product sales; the time involved in obtaining regulatory
approvals; the costs involved in filing, prosecuting and enforcing patent
claims; the competing technological and market developments; and the ability of
the Company to establish additional development and marketing arrangements to
provide funding for research and development and to conduct clinical trials,
obtain regulatory approvals, and manufacture and market certain of the
Companys products.

The Company is also actively seeking additional long-term funding for its
operations from public and private sources including strategic collaborations
and partnerships. There can be no assurance, however, that capital will be
available on terms acceptable to the Company, if at all. If the Company uses
equity to finance its capital needs, such a financing could result in
significant dilution to existing stockholders. The survival of the Company in
the long term is dependent on its ability to generate revenue from sales of its
products. There can be no assurance that, in the long term, the Company will
be able to generate sufficient revenue to achieve and maintain profitability.

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Factors That May Affect Future Results

The Companys future financial and operational results are subject to a
number of material risks and uncertainties that may affect such results or
conditions, including:

Access to Capital.The Company needs to obtain additional long-term
financing to continue to manufacture and market its products, to conduct
research and development, and to conduct clinical trials as currently
contemplated. The amount of additional funding needed depends on several
variables that affect the Companys capital needs, including the results of
clinical trials, the actions of regulatory agencies like the Food & Drug
Administration (FDA) and market acceptance of the Companys products and
resulting revenue streams. The Company will need to obtain financing from one
or more sources, including equity or debt financing and corporate partnering
arrangements. There can be no assurance, however, that this additional funding
will be available on terms acceptable to the Company, if at all. If additional
financing is not available, the Company may be required to curtail expenses or
take other steps that could adversely affect the Companys future performance.

History of Operating Losses and Anticipated Future Losses.The Company
has incurred operating losses since its inception and anticipates future
losses. While the Company expects to improve operating results in future
periods, there can be no assurance that the Company will achieve or maintain
profitability or that its revenue will grow in the future.

Fluctuation in Operating Results.The Companys future operating results
may vary significantly from quarter to quarter or from year to year depending
on a number of factors including: the timing and size of orders from the
Companys customers and distributors; regulatory approvals and the introduction
of new products by the Company; and the market acceptance of the Companys
products. The Companys current planned expense levels are based in part upon
expectations as to future revenue. Consequently, profits may vary
significantly from quarter to quarter or year to year based on the timing of
revenue. Revenue or profits in any period will not necessarily be indicative
of results in subsequent periods.

Uncertainties Associated with Future Performance.The Companys success
in the market for diagnostic products will depend, in part, on the Companys
ability to: successfully develop, test, produce and market its products; obtain
necessary governmental approvals in a timely manner; attract and maintain key
employees; and successfully respond to technological changes in its
marketplace. The Company has limited internal marketing and sales resources
and personnel. In order to market successfully the Companys current and
future products in the United States, Germany and other territories in which it
does not, or does not intend to, use third-party distributors, the Company will
need to develop a larger marketing and sales force with appropriate technical
expertise and distribution capability. The Company may be unable to establish
the marketing and sales capabilities that it needs, and the Company may be
unsuccessful in gaining wide market acceptance for its products.

Near-Term Dependence Upon A Limited Number of Products.The Company
anticipates that in the near-term the Companys success will be substantially
dependent on the success of a limited number of products. The Company would
experience a material adverse effect on its business, financial condition and
results of operations if those products do not achieve wide market acceptance.
The Companys other products have not been approved by the FDA or are in
development, and there can be no assurance that the Company will be successful
with such regulatory approvals and product development.

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Reliance on Sole Suppliers.The Company currently relies on sole
suppliers for certain key
components for its NMP22 Test Kit. In the event that the components from such
suppliers should become unavailable for any reason, the Company would seek
alternative sources of supply, which may entail making regulatory submissions
and obtaining regulatory approvals from the FDA or such alternative suppliers.
Although the Company attempts to maintain an adequate level of inventory to
provide for these and other contingencies, should its manufacturing process be
disrupted as a result of a shortage of key components or a revalidation of new
components, there can be no assurance that the Company would be able to meet
its customer commitments. The Companys failure or delay in meeting its
commitments could cause sales to decrease, market share to be lost permanently,
and could result in significant expenses to obtain alternative sources of
supply with the necessary facilities and know-how.

Foreign Acquisition.In June 2000, the Company completed the acquisition
of Matritech GmbH. The Company is continuing its efforts to complete the
integration of operations, such as coordinating geographically separate
organizations, integrating personnel with disparate business backgrounds and
combining different corporate cultures. There can be no assurance that the
acquired business or its products will be successful, that the Company will
successfully complete the integration of the acquired business into the
Company, or that the Company will achieve the desired synergies from the
transaction.

Foreign Exchange. To the extent that foreign currency exchange rates
fluctuate in the future, the Company may be exposed to continued financial
risk. These can be no assurance that the Company will be successful in
limiting its exposure.

Euro Currency. In January 1999, certain member countries of the European
Union established fixed conversion rates between their existing currencies and
the EUs common currency, the euro. The former currencies of the participating
countries are scheduled to remain legal tender as denominations of the euro
until January 2002 when the euro will be adopted as the sole legal currency.
The Company is continuing to assess the impact that the conversion to the euro
will have on its acquired European operations. The Company is evaluating the
potential impact in several areas of its business including the ability of its
information systems to handle euro-denominated transactions and the impact on
exchange costs and currency exchange rate prices. The Company is also
evaluating the impact that cross-border price transparencies, which may affect
the ability to price products differently in various countries, will have on
its margin. Although the Company is still in the assessment phase, the
conversion to the euro is not expected to have a material impact on the
Companys operations or financial position.




Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Investment Portfolio. The Company owns financial instruments that are
sensitive to market and interest rate risks as part of its investment
portfolio. The investment portfolio is used to preserve the Companys capital
until it is required to fund operations including the Companys research and
development activities. None of these market-risk sensitive instruments are
held for trading purposes. The Company does not use derivative financial
instruments that meet high credit quality standards, as specified in the
Companys investment policy guidelines; the policy also limits the amount of
credit exposure to any one issue, issuer, and type of instrument. It is
suggested that this paragraph be read in conjunction with Note 1 of Notes to
Consolidated Financial Statements  Operations and Significant Accounting
Policies of the Companys Annual Report on Form 10-K for the year ended
December 31, 2000 filed with the SEC (File No. 0-12128).

Foreign Exchange.The accounts of Matritech GmbH are translated in
accordance with SFAS No. 52, Foreign Currency Translation. In translating the
accounts of Matritech GmbH into U.S. dollars, assets and liabilities are
translated at the rate of exchange in effect at year-end, while stockholders
equity is translated at historical rates. Revenue and expense accounts are
translated using the weighted-average exchange rate in effect during the
period. Foreign currency translation and transaction gains or losses for
Matritech GmbH are included in the accompanying consolidated statements of
operations since the functional currency for Matritech GmbH is the Deutsche
Mark. The Company had sales of approximately $1,241,000 denominated in foreign
currency in the nine months ended September 30, 2001.

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PART II.  OTHER INFORMATION




Item 6.   Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:           
| | --- |  | --------------------
|
| |     |  | None.               
|
| | (b) |  | Reports on Form 8-K:
|
| |     |  | None.               

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SIGNATURES

Pursuant to the requirements 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.

|                       |  |                 |  |                                                                                                                                                
|---------------------- |  | --------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|                       |  | MATRITECH, INC.
|                      
|Date: November 2, 2001 |  | By:             |  | /s/ Stephen D. ChubbStephen D. Chubb
Director, Chairman and
Chief Executive Officer
(principal executive officer)                              
|                      
|Date: November 2, 2001 |  | By:             |  | /s/ John S. Doherty, Jr.John S. Doherty, Jr.
Vice President,
Chief Financial Officer and Treasurer
(principal accounting and financial officer)

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