##### Table of Contents



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 June 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
Incorporation or Organization) |  | (I.R.S. Employer
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 August 1, 2001, there were 26,514,911 shares of Common Stock
outstanding.

Page 1 of 18



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              | Consolidated Balance Sheets                                                                  
|                              | 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 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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##### Table of Contents



MATRITECH, INC.

INDEX

|           |  |                                                                                                 |  |     
|---------- |  | ----------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                 |  | Page
|          
|          
|          
|          
|PART I     |  | FINANCIAL INFORMATION                                                                           |  |     
|          
|Item 1.    |  | Financial Statements                                                                            |  |     
|          
|          
|          
|          
|           |  | Consolidated Balance Sheets at December 31, 2000
and June 30, 2001                              |  | 3   
|          
|          
|          
|          
|           |  | Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and 2001 |  | 5   
|          
|          
|          
|          
|           |  | Consolidated Statements of Cash Flows for the six months ended
June 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 4.    |  | Submission of Matters to a Vote of Security Holders                                             |  | 17  
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                |  | 17  
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                 |  | 18  

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##### Table of Contents









PART I. FINANCIAL INFORMATION







Item 1. Financial Statements







MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS

|                                 |                                          |                                                |           |              |           |          |           |             |           | 
|-------------------------------- | ---------------------------------------- | ---------------------------------------------- | --------- | ------------ | --------- | -------- | --------- | ----------- | --------- | 
|                                 |                                          |                                                |           | December 31, |           | June 30,
|                                 |                                          |                                                |           | 2000         |           | 2001    
|                                 |                                          |                                                |           |              |           |         
|                                 |                                          |                                                |           |              |           |          |           | (Unaudited)
|CURRENT ASSETS:                  |                                          |                                                |           |              |           |          |           |            
|                                
|                                
|                                
|                                
|                                 | Cash and cash equivalents                |                                                | $         | 4,661,005    |           |          | $         | 4,132,534   |          
|                                
|                                
|                                
|                                
|                                 | Accounts receivable, net                 |                                                |           | 250,937      |           |          |           | 325,292     |          
|                                
|                                
|                                
|                                
|                                 | Inventories                              |                                                |           | 334,527      |           |          |           | 306,787     |          
|                                
|                                
|                                
|                                
|                                 | Interest receivable and prepaid expenses |                                                |           | 193,182      |           |          |           | 160,561     |          
|                                 |                                          |                                                |           |              |           |          |           |            
|                                 |                                          | Total current assets                           |           |              | 5,439,651 |          |           |             | 4,925,174 | 
|                                 |                                          |                                                |           |              |           |          |           |            
|PROPERTY AND EQUIPMENT, at cost: |                                          |                                                |           |              |           |          |           |            
|                                
|                                
|                                
|                                
|                                 | Laboratory equipment                     |                                                |           | 1,831,109    |           |          |           | 1,865,921   |          
|                                
|                                
|                                
|                                
|                                 | Office equipment                         |                                                |           | 253,228      |           |          |           | 269,298     |          
|                                
|                                
|                                
|                                
|                                 | Laboratory furniture                     |                                                |           | 62,739       |           |          |           | 62,739      |          
|                                
|                                
|                                
|                                
|                                 | Leasehold improvements                   |                                                |           | 56,981       |           |          |           | 88,865      |          
|                                
|                                
|                                
|                                
|                                 | Automobiles                              |                                                |           | 34,059       |           |          |           | 31,719      |          
|                                 |                                          |                                                |           |              |           |          |           |            
|                                 |                                          |                                                | 2,238,116 |              |           |          | 2,318,542 |            
|                                
|                                
|                                
|                                
|                                 |                                          | Less-Accumulated depreciation
and amortization |           |              | 1,456,774 |          |           |             | 1,528,816 | 
|                                 |                                          |                                                |           |              |           |          |           |            
|                                 |                                          |                                                | 781,342   |              |           |          | 789,726   |            
|                                 |                                          |                                                |           |              |           |          |           |            
|GOODWILL, net                    |                                          |                                                | 219,432   |              |           |          | 179,394   |            
|                                
|                                
|                                
|                                
|OTHER ASSETS, net                |                                          |                                                | 155,043   |              |           |          | 136,673   |            
|                                 |                                          |                                                |           |              |           |          |           |            
|                                 |                                          | $                                              | 6,595,468 |              |           | $        | 6,030,967 |            
|                                 |                                          |                                                |           |              |           |          |           |            

See accompanying notes to consolidated financial statements.

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

|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |         |             |           | 
|-------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | --------- | --------- | ------- | ----------- | --------- | 
|                                       |                                                                                               |                                                                                                                                                                       |                            |         | December 31, |           | June 30, 
|                                       |                                                                                               |                                                                                                                                                                       |                            |         | 2000         |           | 2001     
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |          
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |         | (Unaudited)
|CURRENT LIABILITIES:                   |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|                                      
|                                      
|                                      
|                                      
|                                       | Current maturities of notes payable                                                           |                                                                                                                                                                       | $                          | 110,322 |              |           | $         | 64,492  |            
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                                                                              |                                                                                                                                                                       |                            | 365,811 |              |           |           | 459,042 |            
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued expenses                                                                              |                                                                                                                                                                       |                            | 367,474 |              |           |           | 451,075 |            
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred revenue                                                                              |                                                                                                                                                                       |                            | 8,433   |              |           |           | 37,735  |            
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|                                       |                                                                                               |                                                                                                                                                                       | Total current liabilities  |         |              | 852,040   |           |         |             | 1,012,344 | 
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|NOTES PAYABLE, less current maturities |                                                                                               |                                                                                                                                                                       | 157,381                    |         |              |           | 119,942   |        
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|OTHER LONG-TERM LIABILITIES            |                                                                                               |                                                                                                                                                                       | 18,039                     |         |              |           | 18,486    |        
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|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 26,331,493
shares at June 30, 2001 |                            |         | 255,413      |           |           |         | 263,315     |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                               | Additional paid-in capital                                                                                                                                            |                            |         | 59,611,684   |           |           |         | 63,421,468  |          
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                               | Deferred compensation                                                                                                                                                 |                            |         | (178,582     | )         |           |         | (142,864    | )        
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                               | Cumulative translation adjustment                                                                                                                                     |                            |         | (9,021       | )         |           |         | (28,702     | )        
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                               | Accumulated deficit                                                                                                                                                   |                            |         | (54,111,486  | )         |           |         | (58,633,022 | )        
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|                                       |                                                                                               |                                                                                                                                                                       | Total stockholders equity |         |              | 5,568,008 |           |         |             | 4,880,195 | 
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        
|                                       |                                                                                               | $                                                                                                                                                                     | 6,595,468                  |         |              | $         | 6,030,967 |        
|                                       |                                                                                               |                                                                                                                                                                       |                            |         |              |           |           |        

See accompanying notes to consolidated financial statements.

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MATRITECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |            |  
|------------------------------------------------------------------ | ----------------------------------- | - | ------------------ | ---------- | ---------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                   |                                     |   | Three Months Ended |            | Six Months Ended
|                                                                   |                                     |   | June 30,           |            | June 30,        
|                                                                   |                                     |   |                    |            |                 
|                                                                   |                                     |   | 2000               |            | 2001             |   | 2000       |            | 2001
|                                                                   |                                     |   |                    |            |                  |   |            |            |     
|Revenue:                                                           |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Product sales                       |   | $                  | 189,661    |                  |   | $          | 586,162    |      |   | $          | 329,691    |   |   | $          | 1,183,109  |  
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|Operating Expenses:                                                |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cost of product sales               |   |                    | 150,313    |                  |   |            | 409,221    |      |   |            | 322,941    |   |   |            | 851,027    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Research and
development            |   |                    | 557,498    |                  |   |            | 748,582    |      |   |            | 1,071,642  |   |   |            | 1,391,238  |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Selling, general and
administrative |   |                    | 845,053    |                  |   |            | 1,794,267  |      |   |            | 1,677,530  |   |   |            | 3,562,120  |  
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Total operating expenses            |   |                    | 1,552,864  |                  |   |            | 2,952,070  |      |   |            | 3,072,113  |   |   |            | 5,804,385  |  
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Loss from operations                |   |                    | (1,363,203 | )                |   |            | (2,365,908 | )    |   |            | (2,742,422 | ) |   |            | (4,621,276 | )
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|                                                                   | Interest income                     |   |                    | 109,423    |                  |   |            | 41,521     |      |   |            | 188,615    |   |   |            | 107,193    |  
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Interest expense                    |   |                    | 3,282      |                  |   |            | 3,126      |      |   |            | 7,976      |   |   |            | 7,453      |  
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|NET LOSS                                                           |                                     | $ | (1,257,062         | )          |                  | $ | (2,327,513 | )          |      | $ | (2,561,783 | )          |   | $ | (4,521,536 | )         
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|BASIC/DILUTED
NET LOSS PER COMMON SHARE                            |                                     | $ | (0.05              | )          |                  | $ | (0.09      | )          |      | $ | (0.10      | )          |   | $ | (0.18      | )         
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           
|BASIC/DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING |                                     |   | 24,929,436         |            |                  |   | 25,953,263 |            |      |   | 24,474,250 |            |   |   | 25,824,463 |           
|                                                                   |                                     |   |                    |            |                  |   |            |            |      |   |            |            |   |   |            |           

See accompanying notes to consolidated financial statements.

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

|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |            |           |         |            |  
|------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------- | ------------------------------------- | ------- | ---------------- | ---------- | ---------- | --------- | ------- | ---------- | -
|                                      |                                                                              |                                                                   |                                          |                                       |         | Six Months Ended
|                                      |                                                                              |                                                                   |                                          |                                       |         | June 30,        
|                                      |                                                                              |                                                                   |                                          |                                       |         |                 
|                                      |                                                                              |                                                                   |                                          |                                       |         | 2000             |            | 2001      
|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                     |                                                                   | $                                        | (2,561,783                            | )       |                  | $          | (4,521,536 | )        
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments
to reconcile net loss to net cash
used in operating activities - |                                                                   |                                          |                                       |         |                  |            |            |          
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Depreciation and amortization                                     |                                          |                                       | 55,028  |                  |            |            | 112,080   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Amortization of deferred compensation                             |                                          |                                       |        |                  |            |            | 66,418    |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Expense related to issuance of common stock
warrant to consultant |                                          |                                       |        |                  |            |            | 1,020,684 |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Changes
in assets and liabilities -                               |                                          |                                       |         |                  |            |            |           |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Accounts receivable, net                 |                                       |         | (4,671           | )          |            |           | (74,355 | )         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Inventories                              |                                       |         | 40,183           |            |            |           | 27,740  |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Interest receivable and prepaid expenses |                                       |         | (62,748          | )          |            |           | 32,621  |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Other assets                             |                                       |         | 1,250            |            |            |           | 18,370  |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Accounts payable                         |                                       |         | (131,080         | )          |            |           | 93,231  |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Accrued expenses                         |                                       |         | (99,334          | )          |            |           | 84,048  |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              |                                                                   | Deferred revenue                         |                                       |         |                 |            |            |           | 29,302  |           
|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|                                      |                                                                              |                                                                   |                                          | Net cash used in operating activities |         |                  | (2,763,155 | )          |           |         | (3,111,397 | )
|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Purchases of property and equipment                               |                                          |                                       | (73,465 | )                |            |            | (80,426   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                              | Cash acquired in purchase of Matritech GmbH                       |                                          |                                       | 6,946   |                  |            |            |          |        
|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |           
|                                      |                                                                              |                                                                   | Net cash used in investing activities    |                                       |         | (66,519          | )          |            |           | (80,426 | )         
|                                      |                                                                              |                                                                   |                                          |                                       |         |                  |            |           

See accompanying notes to consolidated financial statements.

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

|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |           |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------- | -------- | ---------------- | --------- | ---- | -------- | --------- | --------- | 
|                                                                                                    |                                                                           |                                           |          | Six Months Ended
|                                                                                                    |                                                                           |                                           |          | June 30,        
|                                                                                                    |                                                                           |                                           |          |                 
|                                                                                                    |                                                                           |                                           |          | 2000             |           | 2001
|                                                                                                    |                                                                           |                                           |          |                  |           |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                               |                                                                           |                                           |          |                  |           |      |          |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Proceeds from sale of common stock, net                                   |                                           | $        |                 |           |      | $        | 2,610,295 |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Proceeds from exercise of common stock options                            |                                           |          | 425,442          |           |      |          | 9,605     |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | 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            |           |      |          | 21,402    |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Payments on notes payable                                                 |                                           |          | (37,431          | )         |      |          | (83,269   | )        
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|                                                                                                    |                                                                           | Net cash provided by financing activities |          |                  | 3,285,470 |      |          |           | 2,683,033 | 
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|Effect of foreign exchange on cash and cash equivalents                                             |                                                                           |                                           |         |                  |           |      | (19,681  | )        
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS                                                |                                                                           |                                           | 455,796  |                  |           |      | (528,471 | )        
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|CASH AND CASH EQUIVALENTS,                                                                          |                                                                           |                                           |          |                  |           |      |          |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Beginning of period                                                       |                                           |          | 5,612,194        |           |      |          | 4,661,005 |          
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|CASH AND CASH EQUIVALENTS,                                                                          |                                                                           |                                           |          |                  |           |      |          |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | End of period                                                             |                                           | $        | 6,067,990        |           |      | $        | 4,177,084 |          
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:                                                   |                                                                           |                                           |          |                  |           |      |          |          
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Cash paid during the period for interest                                  |                                           | $        | 7,976            |           |      | $        | 4,327     |          
|                                                                                                    |                                                                           |                                           |          |                  |           |      |          |          
|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 (MIT).

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 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
(ADL), 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.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets.SFAS No. 142 addresses changes in the financial accounting
and reporting for acquired goodwill and other intangible assets. Effective
January 1, 2002, all existing acquired goodwill and other intangible assets will
no longer be amortized to expense, with early adoption required for all goodwill
and other intangible assets acquired subsequent to June 30, 2001. The statement
also provides specific guidance for determining and measuring impairment of all
goodwill and other intangible assets. Following the adoption of SFAS No. 142,
the Company will cease amortizing the goodwill recorded in the acquisition of
Matritech GmbH.

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Pro Forma Results of Operations

The following unaudited pro forma combined results of operations of the Company
assume that the Matritech GmbH acquisition was completed on January 1, 2000.
These proforma results represent the historical operating results of Matritech
GmbH prior to its date of acquisition, combined with those of the Company with
appropriate adjustments. These pro forma results are not necessarily indicative
of operating results which would have occurred if the Matritech GmbH acquisition
had been operated by current management during the periods presented.

|                                       |  |                    |            |                  |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------- |  | ------------------ | ---------- | ---------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                       |  | Three months ended |            | Six months ended
|                                       |  | June 30,           |            | June 30,        
|                                       |  |                    |            |                 
|                                       |  | 2000               |            | 2001             |  | 2000 |            | 2001
|                                       |  |                    |            |                  |  |      |            |     
|Total revenue                          |  | $                  | 651,794    |                  |  | $    | 586,162    |      |  | $ | 1,251,894  |   |  | $ | 1,183,109  |  
|                                      
|                                      
|                                      
|                                      
|Net loss                               |  | $                  | (1,375,052 | )                |  | $    | (2,327,513 | )    |  | $ | (2,790,400 | ) |  | $ | (4,521,536 | )
|                                      
|                                      
|                                      
|                                      
|Net loss per share
- basic and diluted |  | $                  | (0.06      | )                |  | $    | (0.09      | )    |  | $ | (0.11      | ) |  | $ | (0.18      | )

2.   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
June 30, 2001 include only cash and cash equivalents, which consist of auction
market preferred stocks and money market accounts.

3.   Inventories

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

|                |  |              |         |          |  |   |         | 
|--------------- |  | ------------ | ------- | -------- |  | - | ------- | 
|                |  | December 31, |         | June 30,
|                |  | 2000         |         | 2001    
|                |  |              |         |         
|Raw materials   |  | $            | 150,981 |          |  | $ | 140,609 | 
|               
|               
|               
|               
|Work-in-process |  |              | 1,796   |          |  |   | 644     | 
|               
|               
|               
|               
|Finished goods  |  |              | 181,750 |          |  |   | 165,534 | 
|                |  |              |         |          |  |   |         | 
|                |  | $            | 334,527 |          |  | $ | 306,787 | 
|                |  |              |         |          |  |   |         | 

4.   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 June 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 were 1,365,439 and 1,583,035 for the
periods ended June 30, 2000 and 2001, respectively.

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5.   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. Remaining payments under this
note total $21,000, with the final payment in October 2001.

In connection with the acquisition of Matritech GmbH, the Company
assumed certain debt obligations. At June 30, 2001, these obligations total
$163,000, 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 $44,000 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 $11,000 car loan from a bank bearing interest at
7.50% and due in March 2003; and a $7,000 car loan from a bank bearing interest
at 6.99% and due in November 2002.

6.   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 June 30, |     | Six Months Ended June 30,
|              |  |                             |     |                          
|              |  | 2000                        |     | 2001                      |  | 2000 |     | 2001
|              |  |                             |     |                           |  |      |     |     
|              |  | $                           |     | %                         |  | $    |     | %    |  | $ |     | % |  | $ |     | %
|              |  |                             |     |                           |  |      |     |      |  |   |     |   |  |   |     |  
|United States |  | $                           | 71  |                           |  |      | 38  | %    |  | $ | 67  |   |  |   | 12  | % |  | $ | 124 |  |  |  | 38  | % |  | $ | 194   |  |  |  | 16  | %
|             
|             
|             
|             
|Japan         |  |                             | 31  |                           |  |      | 16  |      |  |   | 37  |   |  |   | 6   |   |  |   | 81  |  |  |  | 25  |   |  |   | 74    |  |  |  | 6   |  
|             
|             
|             
|             
|Europe        |  |                             | 67  |                           |  |      | 35  |      |  |   | 462 |   |  |   | 79  |   |  |   | 83  |  |  |  | 25  |   |  |   | 881   |  |  |  | 75  |  
|             
|             
|             
|             
|Rest of world |  |                             | 21  |                           |  |      | 11  |      |  |   | 20  |   |  |   | 3   |   |  |   | 42  |  |  |  | 12  |   |  |   | 34    |  |  |  | 3   |  
|              |  |                             |     |                           |  |      |     |      |  |   |     |   |  |   |     |   |  |   |     |  |  |  |     |   |  |   |       |  |  |  |     |  
|Total         |  | $                           | 190 |                           |  |      | 100 | %    |  | $ | 586 |   |  |   | 100 | % |  | $ | 330 |  |  |  | 100 | % |  | $ | 1,183 |  |  |  | 100 | %
|              |  |                             |     |                           |  |      |     |      |  |   |     |   |  |   |     |   |  |   |     |  |  |  |     |   |  |   |       |  |  |  |     |  

7.   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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8.   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 for a price of $2.50 per share expiring in July 2005.
These warrants were valued at $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
the quarters ended March 31, 2001 and 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.

9.   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 are initiated at the
Companys sole discretion, and the Company sets a minimum threshold price
beneath which Acqua is not required to purchase. Draw downs are 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 are 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 six months of 2001,
Acqua purchased 682,950 shares, with net proceeds to the Company of $2,460,000.







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 June 30, 2001, the Company incurred a cumulative net
loss of approximately $59 million.

The results of operations for the three and six months ended June
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 June 30, 2001 Compared with Three Months Ended June 30, 2000

Product sales increased to $586,000 from $190,000 for the quarters
ended June 30, 2001 and 2000, respectively. This increase was primarily due to
the Companys acquisition of Matritech GmbH in June 2000, along with a 20%
increase in NMP22 test kit sales worldwide.

Cost of product sales increased to $409,000 from $150,000 for the
quarters ended June 30, 2001 and 2000, respectively. As a percentage of product
sales, cost of sales decreased to 70% from 79% for the quarters ended June 30,
2001 and 2000, respectively. The decrease in cost of sales as a percentage of
sales is due to the inclusion of a 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 $749,000 from
$557,000 for the quarters ended June 30, 2001 and 2000, respectively. Clinical
consulting costs and site payments increased a total of $50,000 due to the
increased number of active projects. Personnel-related expenses increased
$56,000 due to increased headcount, and the allocated portion of rent and
utilities costs increased $21,000 under the amended lease agreement. Also,
contract research and consulting expense associated with the development of a
new product format was $62,000 in the 2001 period.

Selling, general and administrative expenses increased to
$1,794,000 from $845,000 for the quarters ended June 30, 2001 and 2000,
respectively. This increase is primarily due to the following: a $510,000 charge
for compensation expense related to the issuance of a warrant to an investor
relations consultant in July 2000; $322,000 related to Matritech GmbHs
operations in 2001; amortization of goodwill and deferred compensation in 2001
of $71,000; increased legal expense of $63,000; and increased administrative
personnel costs of $34,000. These increases were offset by a decrease of $41,000
due to the timing of annual report and annual meeting costs.

Interest income decreased to $42,000 from $109,000 for the quarters
ended June 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 $2,328,000 for the quarter ended
June 30, 2001, compared to a net loss of $1,257,000 for the quarter ended June
30, 2000. The increase of $1,071,000, or 85%, in the net loss was primarily the
result of compensation expense related to the investor relations warrant issued
in July 2000 and increased research and development and administrative expenses.

Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000

Product sales increased to $1,183,000 from $330,000 for the six
months ended June 30, 2001 and 2000, respectively. This increase was primarily
due to the Companys acquisition of Matritech GmbH in June 2000, along with a
20% increase in NMP22 test kit sales worldwide.

Cost of product sales increased to $851,000 from $323,000 for the
six months ended June 30, 2001 and 2000, respectively. As a percentage of
product sales, cost of sales decreased to 72% from 98% for the quarters ended
June 30, 2001 and 2000, respectively. The decrease in cost of sales as a
percentage of sales is due to the inclusion of a 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.

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Research and development expenses increased to $1,391,000 from
$1,072,000 for the six months ended June 30, 2001 and 2000, respectively.
Clinical consulting costs, site payments, and travel expense increased a total
of $118,000 due to the increased number of active projects. Personnel-related
expenses increased $91,000 due to increased headcount, and the allocated portion
of rent and utilities costs increased $48,000 under the amended lease agreement.
Also, contract research associated with the development of a new product format
was $48,000 in the 2001 period.

Selling, general and administrative expenses increased to
$3,562,000 from $1,678,000 for the six months ended June 30, 2001 and 2000,
respectively. This increase is primarily due to the following: a $1,021,000
charge for compensation expense related to the issuance of a warrant to an
investor relations consultant in July 2000; $624,000 related to Matritech GmbHs
operations in 2001; increased administrative personnel costs of $101,000 due to
increased headcount and incentive accruals; amortization of goodwill and
deferred compensation in 2001of $80,000; and increased legal expense of $88,000.
These increases were offset by reductions in sales personnel costs of $55,000
due to decreased headcount in the sales department.

Interest income decreased to $107,000 from $189,000 for the six
months ended June 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 $4,522,000 for the six months
ended June 30, 2001, compared to a net loss of $2,562,000 for the six months
ended June 30, 2000. The increase of $1,960,000, or 77%, in the net loss was
primarily the result of the compensation expense related to the investor
relations warrant issued in July 2000 and increased research and development and
administrative 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 June 30, 2001 and December 31,
2000, the Company had cash and cash equivalents of $4,133,000 and $4,661,000,
respectively, and working capital of $3,913,000 and $4,588,000, respectively.

The Companys operating activities used cash of $3,111,000 and
$2,763,000 for the six months ended June 30, 2001 and 2000, respectively,
primarily to fund the Companys operating loss.

The Companys investing activities used cash of $80,000 and $67,000
for the six months ended June 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 capital expenditures for
fiscal 2001 will be approximately $300,000 primarily consisting of additional
lab equipment.

The Companys financing activities provided cash of $2,683,000 and
$3,285,000 for the six months ended June 30, 2001 and 2000, respectively. The
activity in the 2001 period resulted primarily from proceeds received from the
sale of common stock under an equity financing agreement as well as proceeds
received from the exercise of 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 June 30, 2001 and December 31, 2000 is $21,000 and $63,000,
respectively.

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In connection with the acquisition of Matritech GmbH, the Company
assumed certain debt obligations. At June 30, 2001, these obligations total
$163,000, 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 $44,000 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 $11,000 car loan from a bank bearing interest at
7.50% and due in March 2003; and a $7,000 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 are initiated at the
Companys sole discretion, and the Company sets a minimum threshold price
beneath which Acqua is not required to purchase. Draw downs are 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 are 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 six months of 2001,
Acqua purchased 682,950 shares, with net proceeds to the Company of $2,460,000.

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.

At June 30, 2001, the Company had $4,133,000 in cash and cash
equivalents and $3,913,000 of working capital. The Company believes that its
existing cash resources and the existing equity arrangement with Acqua will
satisfy its capital needs through 2001.

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. Although the Company entered into an equity financing
agreement that should enable it to obtain additional financing over the
near-term, depending on market conditions, the Company will also consider
various financing alternatives, 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 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 (EU) 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 $870,000 denominated in foreign currency in the six
months ended June 30, 2001.

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PART II.   OTHER INFORMATION







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



| | (a) |  | The annual meeting of stockholders of Matritech (the Annual Meeting) was held on June 15, 2001.
| | --- |  | -------------------------------------------------------------------------------------------------
|
| | (b) |  | The following directors were elected at the Annual Meeting:                                      

|                      |  |       |            |          |  |  |         | 
|--------------------- |  | ----- | ---------- | -------- |  |  | ------- | 
|                      |  | VOTES
|                      |  |      
|ELECTION OF DIRECTORS |  | FOR   |            | WITHHELD
|                      |  |       |            |         
|Stephen D. Chubb      |  |       | 20,172,910 |          |  |  | 494,551 | 
|                     
|                     
|                     
|                     
|David L. Corbet       |  |       | 20,152,660 |          |  |  | 514,801 | 
|                     
|                     
|                     
|                     
|Judith Kurland        |  |       | 20,554,681 |          |  |  | 112,780 | 
|                     
|                     
|                     
|                     
|Richard A. Sandberg   |  |       | 20,506,831 |          |  |  | 160,630 | 
|                     
|                     
|                     
|                     
|David Rubinfien       |  |       | 20,440,281 |          |  |  | 227,180 | 
|                     
|                     
|                     
|                     
|T. Stephen Thompson   |  |       | 20,507,581 |          |  |  | 159,880 | 
|                     
|                     
|                     
|                     
|C. William Zadel      |  |       | 20,507,181 |          |  |  | 160,280 | 



| |  |  | The only other matter proposed and voted on at the Annual Meeting was the
ratification of the selection of the firm of Arthur Andersen LLP as
auditors for the fiscal year ending December 31, 2001. With 20,547,271
voting for, 80,211 against, and 39,979 abstaining, the proposal was passed.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







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, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                     |  |     |  |                                                                                                                                                
|-------------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|                     |  |     |  | MATRITECH, INC.                                                                                                                                
|                    
|Date: August 7, 2001 |  | By: |  | /s/ Stephen D. ChubbStephen D. Chubb
Director, Chairman and
Chief Executive Officer
(principal executive officer)                              
|                    
|Date: August 7, 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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