##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q

(Mark One)

|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|x |  | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: 
|  |  | For the quarterly period ended September 30, 2003                                        
|  |  |                                                                                          
|  |  | OR                                                                                       
|  |  |                                                                                          
|o |  | 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: 001-12128                                                        



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.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). o Yes x No

As of November 1, 2003, there were 35,775,966 shares of the Registrants
Common Stock outstanding.





---

TABLE OF CONTENTS



|                                                |                                                                                               |                                                                 |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                  
|                                                | Item 1. Financial Statements                                                                 
|                                                |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                          
|                                                |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                
|                                                |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                
|                                                |                                                                                               | NOTES TO UNAUDITED, CONDENSED 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                           
|                                                | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                     
|                                                | Item 1. Legal Proceedings                                                                    
|                                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                     
|EX-4.4 SECURITIES PURCHASE AGREEMENT           
|EX-4.5 REGISTRATION RIGHTS AGREEMENT           
|EX-4.6 COMMON STOCK PURCHASE WARRANT           
|EX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.
|EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.
|EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O.
|EX-32.2 SECTION 906 CERTIFICATION OF THE C.F.O.



---



##### Table of Contents



MATRITECH, INC.

INDEX

|        |                       |                                                                                                                 |  |      |    | 
|------- | --------------------- | --------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|        |                       |                                                                                                                 |  | Page
|        |                       |                                                                                                                 |  |     
|PART
I  | FINANCIAL INFORMATION |                                                                                                                 |  |      |   
|        | Item 1.               | Financial Statements                                                                                            |  |      |    | 
|        |                       | Condensed Consolidated Balance Sheets as of December 31, 2002
and September 30, 2003                            |  |      | 3  | 
|        |                       | Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2002 and 2003 |  |      | 4  | 
|        |                       | Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2003           |  |      | 5  | 
|        |                       | Notes to Unaudited, Condensed Consolidated Financial Statements                                                 |  |      | 6  | 
|        | Item 2.               | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  |      | 12 | 
|        | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                                                      |  |      | 29 | 
|        | Item 4.               | Controls and Procedures                                                                                         |  |      | 30 | 
|PART
II | OTHER INFORMATION     |                                                                                                                 |  |      |   
|        | Item 1.               | Legal Proceedings                                                                                               |  |      | 30 | 
|        | Item 6.               | Exhibits and Reports on Form 8-K                                                                                |  |      | 30
|        | SIGNATURES            |                                                                                                                 |  | 32   |   





---



##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements.

MATRITECH, INC.




CONDENSED CONSOLIDATED BALANCE SHEETS

|                                       |                                                                |                                                                                |                           |            |              |           |               |            |             |           | 
|-------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------- | ---------- | ------------ | --------- | ------------- | ---------- | ----------- | --------- | 
|                                       |                                                                |                                                                                |                           |            | December 31, |           | September 30,
|                                       |                                                                |                                                                                |                           |            | 2002         |           | 2003         
|                                       |                                                                |                                                                                |                           |            |              |           |              
|                                       |                                                                |                                                                                |                           |            |              |           |               |            | (unaudited)
|ASSETS                                 |                                                                |                                                                                |                           |            |              |           |               |           
|CURRENT ASSETS:                        |                                                                |                                                                                |                           |            |              |           |               |           
|                                       | Cash and cash equivalents                                      |                                                                                | $                         | 4,172,013  |              |           | $             | 3,413,743  |            
|                                       | Accounts receivable less allowance of $23,591 in 2002 and 2003 |                                                                                |                           | 719,039    |              |           |               | 486,621    |            
|                                       | Inventories, net                                               |                                                                                |                           | 497,913    |              |           |               | 585,085    |            
|                                       | Prepaid expenses and other current assets                      |                                                                                |                           | 173,812    |              |           |               | 312,681    |            
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                |                                                                                | Total current assets      |            |              | 5,562,777 |               |            |             | 4,798,130 | 
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|Property and equipment, at cost:       |                                                                |                                                                                |                           |            |              |           |               |           
|                                       | Laboratory equipment                                           |                                                                                |                           | 2,287,360  |              |           |               | 2,407,368  |            
|                                       | Office equipment                                               |                                                                                |                           | 321,901    |              |           |               | 375,028    |            
|                                       | Laboratory furniture                                           |                                                                                |                           | 62,739     |              |           |               | 62,739     |            
|                                       | Leasehold improvements                                         |                                                                                |                           | 88,865     |              |           |               | 88,865     |            
|                                       | Automobiles                                                    |                                                                                |                           | 39,130     |              |           |               | 43,489     |            
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                |                                                                                | 2,799,995                 |            |              |           | 2,977,489     |           
|                                       | Less  Accumulated depreciation and amortization               |                                                                                |                           | 1,837,048  |              |           |               | 2,038,363  |            
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                |                                                                                | 962,947                   |            |              |           | 939,126       |           
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|Goodwill                               |                                                                |                                                                                | 132,615                   |            |              |           | 132,615       |           
|Other assets                           |                                                                |                                                                                | 114,337                   |            |              |           | 440,662       |           
|Receivable from related party          |                                                                |                                                                                | 45,497                    |            |              |           | 28,254        |           
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                | $                                                                              | 6,818,173                 |            |              | $         | 6,338,787     |           
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                |                                                                                |                           |            |              |           |               |           
|CURRENT LIABILITIES:                   |                                                                |                                                                                |                           |            |              |           |               |           
|                                       | Current maturities of notes payable                            |                                                                                | $                         | 159,741    |              |           | $             | 1,671,484  |            
|                                       | Accounts payable                                               |                                                                                |                           | 433,080    |              |           |               | 328,579    |            
|                                       | Accrued expenses                                               |                                                                                |                           | 843,392    |              |           |               | 869,171    |            
|                                       | Deferred revenue                                               |                                                                                |                           | 462,783    |              |           |               | 376,338    |            
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                |                                                                                | Total current liabilities |            |              | 1,898,996 |               |            |             | 3,245,572 | 
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|Notes payable, less current maturities |                                                                |                                                                                | 316,433                   |            |              |           | 2,602,616     |           
|Deferred revenue                       |                                                                |                                                                                | 763,759                   |            |              |           | 710,416       |           
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|Total liabilities                      |                                                                |                                                                                | 2,979,188                 |            |              |           | 6,558,604     |           
|                                       |                                                                |                                                                                |                           |            |              |           |               |            |            
|Commitments and Contingencies          |                                                                |                                                                                |                           |            |              |           |               |           
|STOCKHOLDERS EQUITY:                  |                                                                |                                                                                |                           |            |              |           |               |           
|                                       | Preferred stock, $1.00 par value                               |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                | Authorized4,000,000 shares                                                    |                           |            |              |           |               |            |             |          
|                                       |                                                                | Issued and outstandingno shares                                               |                           |            |             |           |               |            |            |          
|                                       | Common stock, $0.01 par value                                  |                                                                                |                           |            |              |           |               |            |            
|                                       |                                                                | Authorized60,000,000 shares                                                   |                           |            |              |           |               |            |             |          
|                                       |                                                                | Issued and outstanding32,128,243 shares in 2002 and 32,132,493 shares in 2003 |                           |            | 321,282      |           |               |            | 321,820     |          
|                                       | Additional paid-in capital                                     |                                                                                |                           | 74,694,619 |              |           |               | 76,111,572 |            
|                                       | Deferred compensation                                          |                                                                                |                           | (35,710    | )            |           |               |           |            





---



##### Table of Contents



| |                                               |   |                                      |             |              |           |               |             |             |          |  
| | --------------------------------------------- | - | ------------------------------------ | ----------- | ------------ | --------- | ------------- | ----------- | ----------- | -------- | -
| |                                               |   |                                      |             | December 31, |           | September 30,
| |                                               |   |                                      |             | 2002         |           | 2003         
| |                                               |   |                                      |             |              |           |              
| |                                               |   |                                      |             |              |           |               |             | (unaudited)
| | Accumulated other comprehensive income (loss) |   |                                      | (20,619     | )            |           |               | 70,985      |            
| | Accumulated deficit                           |   |                                      | (71,120,587 | )            |           |               | (76,724,194 | )          
| |                                               |   |                                      |             |              |           |               |             |             |          |  
| |                                               |   | Total stockholders equity (deficit) |             |              | 3,838,985 |               |             |             | (219,817 | )
| |                                               |   |                                      |             |              |           |               |             |             |          |  
| |                                               | $ | 6,818,173                            |             |              | $         | 6,338,787     |            
| |                                               |   |                                      |             |              |           |               |             |             |          |  

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





---



##### Table of Contents






MATRITECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|---------------------------------------------------------------------- | ----------------------------------- | - | ------------------ | ---------- | ----------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                       |                                     |   | Three Months Ended |            | Nine Months Ended
|                                                                       |                                     |   | September 30,      |            | September 30,    
|                                                                       |                                     |   |                    |            |                  
|                                                                       |                                     |   | 2002               |            | 2003              |   | 2002       |            | 2003
|                                                                       |                                     |   |                    |            |                   |   |            |            |     
|Revenues:                                                              |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                       | Product sales                       |   | $                  | 775,758    |                   |   | $          | 1,051,477  |      |   | $          | 2,283,787  |   |   | $          | 2,955,274  |  
|                                                                       | Alliance and collaboration revenue  |   |                    | 7,836      |                   |   |            | 119,833    |      |   |            | 165,428    |   |   |            | 269,529    |  
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|                                                                       | Total revenue                       |   |                    | 783,594    |                   |   |            | 1,171,310  |      |   |            | 2,449,215  |   |   |            | 3,224,803  |  
|Expenses:                                                              |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |           
|                                                                       | Cost of product sales               |   |                    | 520,442    |                   |   |            | 476,862    |      |   |            | 1,539,818  |   |   |            | 1,548,577  |  
|                                                                       | Research, development and clinical  |   |                    | 949,313    |                   |   |            | 636,242    |      |   |            | 2,930,707  |   |   |            | 2,034,130  |  
|                                                                       | Selling, general and administrative |   |                    | 1,443,217  |                   |   |            | 1,659,813  |      |   |            | 4,208,206  |   |   |            | 4,908,487  |  
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|                                                                       | Total operating expenses            |   |                    | 2,912,972  |                   |   |            | 2,772,917  |      |   |            | 8,678,731  |   |   |            | 8,491,194  |  
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|                                                                       | Loss from operations                |   |                    | (2,129,378 | )                 |   |            | (1,601,607 | )    |   |            | (6,229,516 | ) |   |            | (5,266,391 | )
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|                                                                       | Interest income                     |   |                    | 15,592     |                   |   |            | 12,624     |      |   |            | 62,902     |   |   |            | 56,572     |  
|                                                                       | Interest expense                    |   |                    | 7,764      |                   |   |            | 193,585    |      |   |            | 13,065     |   |   |            | 393,788    |  
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|Net loss                                                               |                                     | $ | (2,121,550         | )          |                   | $ | (1,782,568 | )          |      | $ | (6,179,679 | )          |   | $ | (5,603,607 | )         
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|Basic and diluted net loss per common share                            |                                     | $ | (0.07              | )          |                   | $ | (0.06      | )          |      | $ | (0.20      | )          |   | $ | (0.17      | )         
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  
|Basic and diluted weighted average number of
common shares outstanding |                                     |   | 30,666,439         |            |                   |   | 32,150,176 |            |      |   | 30,253,978 |            |   |   | 32,130,292 |           
|                                                                       |                                     |   |                    |            |                   |   |            |            |      |   |            |            |   |   |            |            |  

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





---



##### Table of Contents






MATRITECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |         |          |            |  
|---------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------- | ----------------- | ---------- | ---------- | ------- | -------- | ---------- | -
|                                               |                                                                             |                                                           |                                           |                                           |         | Nine Months Ended
|                                               |                                                                             |                                                           |                                           |                                           |         | September 30,    
|                                               |                                                                             |                                                           |                                           |                                           |         |                  
|                                               |                                                                             |                                                           |                                           |                                           |         | 2002              |            | 2003      
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |           
|Cash Flows from Operating Activities:          |                                                                             |                                                           |                                           |                                           |         |                   |            |           
|                                               | Net loss                                                                    |                                                           | $                                         | (6,179,679                                | )       |                   | $          | (5,603,607 | )      
|                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                                           |                                           |                                           |         |                   |            |            |        
|                                               |                                                                             | Depreciation and amortization                             |                                           |                                           | 136,971 |                   |            |            | 191,510 |         
|                                               |                                                                             | Amortization of deferred compensation                     |                                           |                                           | 53,577  |                   |            |            | 35,710  |         
|                                               |                                                                             | Compensation related to issuance of common stock warrants |                                           |                                           | 13,588  |                   |            |            |        |         
|                                               |                                                                             | Accretion of debt discount                                |                                           |                                           |        |                   |            |            | 187,929 |         
|                                               |                                                                             | Issuance of common stock for interest                     |                                           |                                           |        |                   |            |            | 93,750  |         
|                                               |                                                                             | Changes in assets and liabilities:                        |                                           |                                           |         |                   |            |            |         |         
|                                               |                                                                             |                                                           | Accounts receivable                       |                                           |         | (143,378          | )          |            |         | 249,661  |           
|                                               |                                                                             |                                                           | Inventories                               |                                           |         | (145,217          | )          |            |         | (87,172  | )         
|                                               |                                                                             |                                                           | Prepaid expenses and other current assets |                                           |         | 31,883            |            |            |         | 19,505   |           
|                                               |                                                                             |                                                           | Other assets                              |                                           |         | (22,089           | )          |            |         | (9,576   | )         
|                                               |                                                                             |                                                           | Accounts payable                          |                                           |         | (128,796          | )          |            |         | (104,501 | )         
|                                               |                                                                             |                                                           | Accrued expenses                          |                                           |         | (11,469           | )          |            |         | 25,779   |           
|                                               |                                                                             |                                                           | Deferred revenue                          |                                           |         | 181,872           |            |            |         | (139,788 | )         
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|                                               |                                                                             |                                                           |                                           | Net cash used in operating activities     |         |                   | (6,212,737 | )          |         |          | (5,140,800 | )
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|Cash Flows from Investing Activities:          |                                                                             |                                                           |                                           |                                           |         |                   |            |           
|                                               | Purchases of property and equipment                                         |                                                           |                                           | (553,078                                  | )       |                   |            | (158,066   | )      
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|                                               |                                                                             |                                                           |                                           | Net cash used in investing activities     |         |                   | (553,078   | )          |         |          | (158,066   | )
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|Cash Flows from Financing Activities:          |                                                                             |                                                           |                                           |                                           |         |                   |            |           
|                                               | Payments on notes payable                                                   |                                                           |                                           | (56,651                                   | )       |                   |            | (115,959   | )      
|                                               | Proceeds from note payable                                                  |                                                           |                                           | 410,000                                   |         |                   |            |            |        
|                                               | Proceeds from convertible debentures and warrants, net                      |                                                           |                                           |                                          |         |                   |            | 4,556,083  |        
|                                               | Proceeds from sale of common stock and warrants                             |                                                           |                                           | 4,139,910                                 |         |                   |            |           |        
|                                               | Proceeds from exercise of common stock warrants                             |                                                           |                                           | 11,000                                    |         |                   |            |           |        
|                                               | Proceeds from exercise of common stock options                              |                                                           |                                           | 9,589                                     |         |                   |            | 335        |        
|                                               | Proceeds from issuance of common stock under employee stock purchase plan   |                                                           |                                           | 23,453                                    |         |                   |            | 12,250     |        
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|                                               |                                                                             |                                                           |                                           | Net cash provided by financing activities |         |                   | 4,537,301  |            |         |          | 4,452,709  |  
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|                                               | Effect of foreign exchange on cash and cash equivalents                     |                                                           |                                           | 28,566                                    |         |                   |            | 87,887     |        
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|Decrease in cash and cash equivalents          |                                                                             |                                                           | (2,199,948                                | )                                         |         |                   | (758,270   | )         
|Cash and cash equivalents, beginning of period |                                                                             |                                                           | 4,819,733                                 |                                           |         |                   | 4,172,013  |           
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|Cash and cash equivalents, end of period       |                                                                             | $                                                         | 2,619,785                                 |                                           |         | $                 | 3,413,743  |           
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        
|Supplemental Cash Flow Information:            |                                                                             |                                                           |                                           |                                           |         |                   |            |           
|Cash paid during the period for interest       |                                                                             | $                                                         | 13,065                                    |                                           |         | $                 | 79,859     |           
|                                               |                                                                             |                                                           |                                           |                                           |         |                   |            |            |        

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





---



##### Table of Contents






MATRITECH, INC.

NOTES TO UNAUDITED, CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     Operations and Basis of Presentation

Matritech, Inc. 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 us by the Massachusetts Institute of Technology (MIT).

We are devoting substantially all of our efforts toward product research
and development, raising capital, securing partners and marketing products. We
are 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,
uncertainties around bringing new products to market, 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 our operations
and the development of future products.

We will continue to seek to raise additional capital and will consider
various financing alternatives, including equity or debt financings and
corporate partnering arrangements. However, we may not be able to raise needed
capital on terms that are acceptable to us, or at all. If we raise funds on
unfavorable terms, we may provide rights and preferences to new investors which
are not available to current shareholders. In addition, our existing financing
arrangements contain anti-dilutive provisions which may require us to issue
additional securities if certain conditions are met. If we do not receive
additional financing or do not receive an adequate amount of additional
financing, we will be required to curtail our expenses by reducing research
and/or marketing or by taking other steps that could hurt our future
performance, including but not limited to, the premature sale of some or all of
our assets or product lines on undesirable terms, merger with or acquisition by
another company on unsatisfactory terms or the cessation of operations. Any
future equity financings will dilute the ownership interest of our existing
investors and may have an adverse impact on the price of our common stock. Any
of the foregoing steps will have a material adverse effect on our business,
financial condition and results of operations. There can be no assurance that
capital will be available on terms acceptable to us, if at all.

The quarterly 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 on a going-concern
basis. 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.
These consolidated financial statements should 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, 2002 filed with the SEC
(File No. 001-12128).

2.   Summary of Significant Accounting Policies

(a)  Principles of Consolidation

The consolidated financial statements include the accounts of Matritech,
Inc. and our wholly-owned subsidiary, Matritech GmbH. All significant
intercompany balances and transactions have been eliminated at the
consolidation level.

(b)  Revenue Recognition

We recognize revenue in accordance with the Securities and Exchange
Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements(SAB 101). Revenue is recognized when the following
criteria have been met:



| | 1. |  | Persuasive evidence of an arrangement exists            
| | -- |  | --------------------------------------------------------
|
| | 2. |  | Delivery has occurred and risk of loss has passed       
|
| | 3. |  | The sellers price to the buyer is fixed or determinable





---



##### Table of Contents





| | 4. |  | Collectibility is reasonably assured
| | -- |  | ------------------------------------

When determining whether risk of loss has transferred to customers on
product sales, we evaluate both the contractual terms and conditions of our
sales agreements as well as our business practices. Business practices such as
agreeing to product exchanges may indicate the existence of an implied right to
return the product even if there are no such contractual provisions for product
returns. We treat such practices, whether contractual or implied, as conveying
a right of return and will establish provisions for returns when reasonable and
reliable estimates can be made. In accordance with SAB 101, where we do not
have sufficient history to make reasonable and reliable estimates of returns,
revenue associated with such practices is deferred until the return period
lapses or a reasonable estimate can be made. This deferred revenue will be
recognized as revenue when the distributor reports to us that it has either
shipped or disposed of the units (indicating that the possibility of return is
remote).

Contract and license fee revenue is primarily generated through
collaborative license and development agreements with strategic partners for
the development and commercialization of our product candidates. The terms of
the agreements typically include non-refundable license fees, funding of
research and development, payments based upon achievement of certain
milestones, payments for product manufacturing and royalties on net product
sales. Revenue arrangements where multiple products or services are sold
together under one contract are evaluated to determine if each element
represents a separate earnings process. In the event that an element of such
multiple element arrangement does not represent a separate earnings process, we
recognize revenue from this element over the term of the related contract.

Where we have continuing performance obligations under the terms of a
collaborative arrangement, non-refundable license fees are recognized as
revenue over the period we complete our performance obligations. Revenues from
milestone payments related to arrangements under which we have no continuing
performance obligations are recognized upon achievement of the related
milestone. Revenues from milestone payments related to arrangements under which
we have continuing performance obligations are recognized as revenue upon
achievement of the milestone only if all of the following conditions are met:
the milestone payments are non-refundable; substantive effort is involved in
achieving the milestone; and the amount of the milestone is reasonable in
relation to the effort expended or the risk associated with achievement of the
milestone. If any of these conditions are not met, the milestone payments are
deferred and recognized as revenue over the term of the arrangement as we
complete our performance obligations.

Payments received from collaborative partners for research and development
services performed by us are recognized as revenue on a straight line basis
(unless evidence indicates an alternative earnings pattern can be demonstrated)
over the term of the arrangement or the expected service period, whichever is
longer. Revenue from royalty payments is recognized when earned, upon the
receipt of data from the licensees in accordance with the related license
agreement supporting the amount of and basis for such royalty payments to us.

Deferred revenue consists of the following:

|                         |  |              |           |               |  |   |           | 
|------------------------ |  | ------------ | --------- | ------------- |  | - | --------- | 
|                         |  | December 31, |           | September 30,
|                         |  | 2002         |           | 2003         
|                         |  |              |           |              
|Non-refundable fees      |  | $            | 866,676   |               |  | $ | 841,761   | 
|Deferred product revenue |  |              | 359,866   |               |  |   | 244,993   | 
|                         |  |              |           |               |  |   |           | 
|                         |  | $            | 1,226,542 |               |  | $ | 1,086,754 | 
|                         |  |              |           |               |  |   |           | 

(c)  Debt Issuance Costs

Costs to complete convertible debenture offerings are deferred as debt
issuance costs and included in other assets and other current assets on the
consolidated balance sheet. The costs are amortized based on the effective
interest method over the term of the related debt issuance. The amortization
of these costs is included in interest expense on the consolidated statement of
operations. Debt issuance costs totaled approximately $475,000 at September
30, 2003.





---



##### Table of Contents



(d)  Inventories

Inventories are stated at the lower of cost (determined on a first-in
first-out basis) or market and consist of the following:

|                                                         |  |              |         |               |  |   |         | 
|-------------------------------------------------------- |  | ------------ | ------- | ------------- |  | - | ------- | 
|                                                         |  | December 31, |         | September 30,
|                                                         |  | 2002         |         | 2003         
|                                                         |  |              |         |              
|Raw materials                                            |  | $            | 160,862 |               |  | $ | 157,210 | 
|Work-in-process                                          |  |              | 3,667   |               |  |   | 4,407   | 
|Finished goods                                           |  |              | 270,205 |               |  |   | 365,855 | 
|Consignment inventory (associated with deferred revenue) |  |              | 63,179  |               |  |   | 57,613  | 
|                                                         |  |              |         |               |  |   |         | 
|                                                         |  | $            | 497,913 |               |  | $ | 585,085 | 
|                                                         |  |              |         |               |  |   |         | 

(e)  Net Loss Per Common Share

We compute earnings per share in accordance with Statement of Financial
Accounting Standards (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 our potential common stock are
antidilutive. Potential common stock consists of stock options, warrants, and
convertible debentures as well as 12,262 contingently issuable shares of common
stock held in escrow in connection with the Matritech GmbH acquisition at
September 30, 2002. The number of antidilutive securities excluded from the
computation of diluted loss per share were 3,690,889, and 5,738,391 for the
periods ended September 30, 2002 and 2003, respectively.

(f)  Comprehensive Income (Loss)

We adopted SFAS No. 130, Reporting Comprehensive Income, which requires
that all items recognized under accounting standards as components of
comprehensive income or loss (e.g., foreign currency translation adjustments
and unrealized gains and losses on certain marketable securities) be reported
in the annual financial statements. The composition of accumulated other
comprehensive loss is as follows:

|                           |                                          |   |                    |       |                   |   |            |       |      |   |            |        |  |   |            |        | 
|-------------------------- | ---------------------------------------- | - | ------------------ | ----- | ----------------- | - | ---------- | ----- | ---- | - | ---------- | ------ |  | - | ---------- | ------ | 
|                           |                                          |   | Three Months Ended |       | Nine Months Ended
|                           |                                          |   | September 30,      |       | September 30,    
|                           |                                          |   | 2002               |       | 2003              |   | 2002       |       | 2003
|Reported net loss          |                                          | $ | (2,121,550         | )     |                   | $ | (1,782,568 | )     |      | $ | (6,179,679 | )      |  | $ | (5,603,607 | )     
|Other comprehensive income |                                          |   |                    |       |                   |   |            |       |      |   |            |        |  |   |            |       
|                           | Foreign currency translation adjustments |   |                    | 9,255 |                   |   |            | 8,918 |      |   |            | 33,726 |  |   |            | 91,604 | 
|                           |                                          |   |                    |       |                   |   |            |       |      |   |            |        |  |   |            |       
|Comprehensive loss         |                                          | $ | (2,112,295         | )     |                   | $ | (1,773,650 | )     |      | $ | (6,145,953 | )      |  | $ | (5,512,003 | )     
|                           |                                          |   |                    |       |                   |   |            |       |      |   |            |        |  |   |            |       

(g)  Stock-Based Compensation

We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees(APB 25) and related
interpretations, in accounting for our stock-based compensation plans, rather
than the alternative fair value accounting method provided for under SFAS No.
123, Accounting for Stock-Based Compensation, (SFAS No. 123). Under APB 25,
when the exercise price of options granted under these plans equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. In accordance with Emerging Issues Task Force (EITF) Issue No.
96-18, we record compensation expense equal to the fair value of options
granted to non-employees over the vesting period, which is generally the period
of service.

The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation:





---



##### Table of Contents



|                                                                                                                 |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | ----------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                 |  | Three Months Ended |            | Nine Months Ended
|                                                                                                                 |  | September 30,      |            | September 30,    
|                                                                                                                 |  | 2002               |            | 2003              |  | 2002 |            | 2003
|Net loss attributable to common stockholders                                                                     |  | $                  | (2,121,550 | )                 |  | $    | (1,782,568 | )    |  | $ | (6,179,679 | ) |  | $ | (5,603,607 | )
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all rewards |  |                    | (222,819   | )                 |  |      | (249,003   | )    |  |   | (687,920   | ) |  |   | (775,722   | )
|                                                                                                                 |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Pro forma net loss                                                                                               |  | $                  | (2,344,369 | )                 |  | $    | (2,031,571 | )    |  | $ | (6,867,599 | ) |  | $ | (6,379,329 | )
|                                                                                                                 |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Amounts per common share:                                                                                        |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted  as reported                                                                                  |  | $                  | (0.07      | )                 |  | $    | (0.06      | )    |  | $ | (0.20      | ) |  | $ | (0.17      | )
|                                                                                                                 |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted  pro forma                                                                                    |  | $                  | (0.08      | )                 |  | $    | (0.06      | )    |  | $ | (0.23      | ) |  | $ | (0.20      | )
|                                                                                                                 |  |                    |            |                   |  |      |            |      |  |   |            |   |  |   |            |  

The fair value of stock options and common shares issued pursuant to the
stock option and stock purchase plans at the date of grant were estimated using
the Black-Scholes model with the following weighted-average assumptions:

|                        |  |         |              |         |  |  |              | 
|----------------------- |  | ------- | ------------ | ------- |  |  | ------------ | 
|                        |  | 2002    |              | 2003   
|                        |  |         |              |        
|Risk-free interest rate |  |         | 1.35 - 3.28% |         |  |  | 2.70 - 3.58% | 
|Expected dividend yield |  |         |             |         |  |  |             | 
|Expected life           |  | 7 years |              | 7 years
|Expected volatility     |  |         | 110%         |         |  |  | 110%         | 

The effects on 2002 and 2003 pro forma net loss and net loss per share of
expensing the estimated fair value of stock options and common shares issued
pursuant to the stock option and stock purchase plans are not necessarily
representative of the effects on reported results of operations for future
years as options vest over several years and we intend to grant varying levels
of stock options in future periods.

(h)  Recent Accounting Pronouncements

In November 2002, the EITF published Issue No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables(EITF Issue No. 00-21), which
addresses how to determine whether a revenue arrangement involving multiple
deliverables contains more than one unit of accounting for the purposes of
revenue recognition and how the revenue arrangement consideration should be
measured and allocated to the separate units of accounting. EITF Issue No.
00-21 applies to all revenue arrangements that we enter into after June 30,
2003. The adoption of EITF Issue No. 00-21 did not have a material impact on
our financial condition or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risk will not be consolidated unless a single party holds
an interest or combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 also requires enhanced disclosure
requirements related to variable interest entities. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003 to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We do not have any variable
interest entities.

In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity,which
establishes standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument





---



##### Table of Contents



that is within its scope as a liability (or an asset in some circumstances) if,
at inception, the monetary value of the obligation is based solely or
predominantly on a fixed monetary amount known at inception, variations in
something other than the fair value of the issuers equity shares or variations
inversely related to changes in the fair value of the issuers equity shares.
SFAS 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise became effective for us on July 1, 2003. The
adoption of SFAS 150 did not have a material impact on our financial condition
or results of operations.

3. Convertible Debt

On March 31, 2003, we completed a private placement of 7.5% Convertible
Debentures (the Convertible Debentures) in an aggregate subscription amount
equal to $5 million and accompanying Warrants (the March Warrants) for an
aggregate of 784,314 shares of our common stock, including a Warrant for 98,039
shares issued to a placement agent in connection with this transaction (the
March Private Placement).

Upon issuance, the Convertible Debentures were convertible into shares of
our common stock at a conversion price of $2.55, but are subject to downward
adjustment (with certain limited exceptions) upon any dilutive issuances of our
securities to an amount equal to 112% of the price at which such dilutive
issuance is deemed to be made. These terms create the potential for issuance
of additional shares of our common stock upon conversion of the Convertible
Debentures. On October 15, 2003 we completed a sale of common stock which has
been deemed to be a dilutive issuance under the terms of the Convertible
Debentures. As a result, the Convertible Debentures are currently convertible
into 2,673,797 shares of our common stock at a price of $1.87 per share,
representing an increase of 713,012 shares from the terms of the Convertible
Debenture original issue. The value of these additional shares will be treated
as additional interest expense over the term of the debentures.

The Convertible Debentures bear interest at the rate of 7.5% per annum,
payable quarterly, and permit us, in certain circumstances, to make such
interest payments in shares of common stock based on a 5% discount to the
valuation of the common stock. The Convertible Debentures are redeemable in
monthly installments equal to 1/26th of the aggregate subscription amounts paid
for such Convertible Debentures, such monthly payments to commence on March 1,
2004. The monthly redemption payments, subject to certain conditions, may also
be made in shares of common stock based on a 10% discount to valuation.

The March Warrants to purchase shares of our common stock are immediately
exercisable until March 30, 2008. At issuance, the March Warrants were
exercisable for 784,314 shares of our common stock at an exercise price of
$2.278. The exercise price of the Warrants will be adjustable down to the
deemed issuance price of any subsequent dilutive issuances (subject to certain
limited exceptions), and after the Convertible Debentures are no longer
outstanding, the exercise price of the Warrants will be adjustable downward on
a weighted-average basis upon any such subsequent dilutive issuance. On
October 15, 2003 we completed a sale of common stock which has been deemed to
be a dilutive issuance under the terms of the March Warrants. As a result, the
exercise price of the March Warrants was adjusted downward; these warrants are
currently exercisable to purchase shares of our common stock at a price of
$1.67 per share.

In addition, in the event our stock price meets certain levels and there
is an effective registration statement covering the shares of common stock
underlying the Convertible Debentures and the March Warrants issued in
connection with the first closing, a second closing may be held, at our option,
with the same purchasers for the issuance of additional Convertible Debentures
in an aggregate subscription amount of $3 million and additional Warrants for
an amount of shares equal to 35% of the number of shares for which such
additional Convertible Debentures are initially convertible. We have filed a
registration statement for such shares which was declared effective on June 19,
2003.

The Convertible Debentures may become immediately due and payable at a
premium of 120% of the outstanding principal amount plus accrued interest and
damages in the event of default by us of certain covenants and also obligate us
to pay damages and interest upon certain events. Events of default under the
Convertible Debentures include, among other things, failure to remain listed on
any of the Nasdaq SmallCap Market, New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market, sale or disposition of our assets in
excess of 33% of our total assets, failure to timely deliver stock certificates
upon conversion, and default on our existing or future liabilities in excess of
$150,000. In addition, the terms of the March Private Placement prohibit us
from entering into obligations that are senior to the Convertible Debentures
and place certain restrictions on our ability to raise additional capital
through equity issuances, and an ability to match any additional funds raised
on the same terms.

The proceeds of $5 million, less closing costs, were allocated between the
Convertible Debentures (approximately $3,450,000) and the warrants
(approximately $950,000) based on their relative fair values. The value of
the warrants was calculated using the Black-Scholes pricing model with the
following assumptions: dividend yield of zero percent; expected volatility of
110%; risk free interest rate of approximately 3% and a term of five years.
The initial carrying value of the





---



##### Table of Contents



Convertible Debentures is being accreted ratably, over the term of the
notes, to the $5 million amount due at maturity using the effective interest
method. Total closing costs were approximately $600,000 and included a
warrant issued to the placement agent valued at approximately $162,000 using
the Black-Scholes pricing model with the same assumptions as the warrants
above. Debt issuance costs attributable to the Convertible Debenture element,
which totaled approximately $475,000, have been capitalized as other assets and
other current assets on the consolidated balance sheet and will be amortized
over the life of the debt. In addition, the difference between the effective
conversion price of the debentures into common stock and the fair value of our
common stock on the date of issuance of the debentures resulted in a beneficial
conversion feature totaling approximately $198,000, which was calculated in
accordance with EITF 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments. This beneficial conversion feature was recorded as a
debt discount and will be amortized using the effective interest rate over the
life of the debt. As noted above, we completed a sale of common stock in
October 2003 which has been deemed to be a dilutive issuance under the terms of
the Convertible Debentures. As a result, the Convertible Debentures are
currently convertible into 2,673,797 shares of our common stock at a price of
$1.87 per share, representing an increase of 713,012 shares from the terms of
the Convertible Debenture original. We have calculated an additional
beneficial conversion charge totaling approximately $1,497,000 which will be
recorded as a debt discount in the fourth quarter of 2003 and amortized over
the remaining life of the debt.

4. Notes Payable

In July 2002, we entered into a term note for $410,000 with Citizens Bank
of Massachusetts to finance an equipment purchase. The term note is payable
over four years, bears interest at 1% plus the banks prime rate (4.25% at
December 31, 2002) and contains a covenant which requires us to maintain a cash
balance of $250,000 at all times. This note is collateralized by the capital
equipment. If the ratio of our cash and cash equivalents to total liabilities
(excluding deferred revenue) is 115% or less, the bank has the right to
exchange the equipment as collateral for a certificate of deposit in the amount
of $317,000. At September 30, 2003 we were in default of the cash and cash
equivalents to total liabilities (excluding deferred revenue) covenant. We
obtained a waiver from our lender regarding our noncompliance with this
covenant for this period ended September 30, 2003. We expect that we will
continue to be in default of this covenant in the future and therefore recorded
the remaining balance of this loan as a current liability.

5. Litigation

As previously reported in our Form 10-Q filed on August 7, 2003, a former
employee and their spouse filed a claim for damages in December 2002, against
our landlord, One Nevada Realty Trust, Joseph Biotti, Trustee, care of Francis
Biotti, in Superior Court, Middlesex County, Cambridge, Massachusetts. We are
not a named party in the litigation. However, our lease requires that we hold
One Nevada Realty Trust harmless and indemnify it for injuries to persons on
the premises in connection with the Companys use of the premises. There have
been no material developments which we have been made aware with respect to
this legal proceeding. We have not accrued for any potential losses because we
believe that an adverse determination is not probable and the amount of loss,
if any, cannot be reasonably estimated.

6. Subsequent Event

On October 15, 2003 we completed a private placement of 3,593,893 shares
of our common stock at a price of $1.67 and warrants to purchase 1,257,861
shares of our common stock at a price of $2.45 per share for an aggregate
consideration of $6,001,801 (before cash commissions and expenses of
approximately $830,000). In addition, we issued warrants to various
placement agents for a total of 546,553 shares at exercise prices ranging from
$1.67 to $2.70. These warrants are valued at approximately $839,000. The
warrants issued as part of this private placement are exercisable until October
15, 2008. The terms of this private placement place certain restrictions on
our ability to raise additional capital, including a prohibition on such
activity (with certain limited exceptions) for a period of 90 days after the
effective date of the registration statement filed with respect to the shares
of common stock and the shares underlying the warrants issued in this private
placement. In addition, the terms of this private placement give the investors
in the private placement the right to participate in future financings by the
Company.

On November 6, 2003, a distributor of Matritech products in the Far East
acquired our common stock and warrants as part of a strategic investment in
Matritech. The transaction included 299,402 shares of our common stock at a
price of $1.67 and warrants to purchase 104,790 shares of our common stock at a
price of $2.45 per share for an aggregate consideration of $500,001 (before
expenses of approximately $10,000). The warrants issued as part of this
private placement are exercisable until November 6, 2008. The terms of this
private placement were essentially the same as those of the private placement
that was completed by the Company on October 15, 2003.





---



##### Table of Contents






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

This Quarterly Report on Form 10-Q, our other reports and communications
to our securityholders, as well as oral statements made by our 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, our future revenue, operating
income 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, including 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 our other reports
filed with the Securities and Exchange Commission (the Commission).

Matritech, Inc. was incorporated in 1987 to develop, manufacture and
market innovative cancer diagnostic products based on its proprietary nuclear
matrix protein (NMP) technology. We have been unprofitable since inception
and expect to incur significant operating losses for at least the next several
years. For the period from inception through September 30, 2003, the Company
incurred a cumulative net loss of approximately $77 million.

The results of operations for the periods ended September 30, 2002 and
2003 include the activities of our European subsidiary, Matritech GmbH.
Matritech GmbH distributes our products and third-party products in Europe.

We are engaged in the research, production and marketing of cancer
diagnostic products. Our primary research focus is on the identification of
proteins in the body which are associated with or created by cancerous
processes and which, when measured, can provide useful medical information to
physicians. During the last five years, the principal thrust of our research
has focused on discovering these substances using low-throughput research mass
spectrometry. Because low-throughput research mass spectrometry technology was
determined to be inadequately controllable and reproducible and too costly to
create commercially viable products or services, in the last two years our
research has been focused on applying high-throughput mass spectrometry methods
to measure the proteins characterized as clinical candidates during discovery
research and to improve the controls and reproducibility of our mass
spectrometry technology.

To develop products which will provide physicians medically useful
information, we can utilize our technology in four different ways: Lab Test
Kits, Point-of-Care Test Devices, Proprietary Laboratory Procedures and
Cellular Analysis Systems.
For technological and marketing reasons, we have decided initially to launch
our newer technologies  NMP66, NMP48 and NMP35  as Proprietary Laboratory
Procedures using high-throughput mass spectrometry technology.

Results of Operations

Three Months Ended September 30, 2003 Compared with the Three Months Ended
September 30, 2002

Total revenue increased to $1,171,000 from $784,000 for the quarters ended
September 30, 2003 and 2002, respectively. Alliance and collaboration revenue
for the quarters ended September 30, 2003 and 2002 totaled $120,000 and $8,000,
respectively. Sales of our NMP22® bladder cancer product line totaled
approximately $610,000 and $327,000 for the quarters ended September 30, 2003
and 2002, respectively. This increase is due to a 74% sales increase, primarily
in the U.S. and Europe, and a 13% favorable exchange rate impact. During the
third quarter of 2003, we shipped approximately $34,000 of our NMP22
BladderChek Device to distributors for which we did not have sufficient history
to estimate returns. Accordingly, these amounts are included in deferred
revenue at September 30, 2003, and will be recognized as revenue when the
distributor reports to us that it has either shipped or disposed of the devices
(indicating that the return period has lapsed). Product sales of the allergy
products distributed by Matritech GmbH totaled approximately $416,000 and
$437,000 for the quarters ended September 30, 2003 and 2002, respectively.
This decrease is primarily due to a 16% sales reduction partially offset by a
12% favorable exchange rate impact.

We recognize alliance revenue and prepaid marketing fees over the lives of
the respective contracts. Deferred revenue related to various alliances and
prepaid marketing fees decreased to $842,000 at September 30, 2003 from
$867,000 at December 31, 2002.

Cost of product sales decreased to $477,000 from $520,000 for the quarters
ended September 30, 2003 and 2002, respectively. As a percentage of product
sales, cost of sales decreased to 45% from 67% for the quarters ended September
30, 2003 and 2002, respectively. The decrease in cost of sales on a percentage
basis is largely the result of increased revenue due to favorable foreign
exchange rate changes, product mix and the result of fixed costs being spread
over a higher quantity of units sold.





---



##### Table of Contents



Research, development, clinical and regulatory expenses decreased to
$636,000 from $949,000 for the quarters ended September 30, 2003 and 2002,
respectively. This decrease was largely due to approximately $177,000 in
decreased payments to clinical sites involved in collecting specimens for
testing and supplies. Supplies-related expenses decreased $29,000 and
consulting expenses decreased $44,000.

Selling, general and administrative expenses increased to $1,660,000 from
$1,443,000 for the quarters ended September 30, 2003 and 2002, respectively.
This increase is primarily due to increased salary-related costs of $126,000
due to higher headcount in sales and marketing and an increase in expenses
totaling $79,000 due to the impact of foreign currency exchange rates.

Interest income decreased to $13,000 from $16,000 for the quarters ended
September 30, 2003 and 2002, respectively. Interest expense increased to
$194,000 from $8,000 for the quarters ended September 30, 2003 and 2002,
respectively, due to interest on the convertible debentures totaling $94,000 as
well as the accretion to face value of the debt discount related to these
debentures totaling $95,000.

Nine Months Ended September 30, 2003 Compared with the Nine Months Ended
September 30, 2002

Total revenue increased to $3,225,000 from $2,449,000 for the nine months
ended September 30, 2003 and 2002, respectively. Alliance and collaboration
revenue for the nine months ended September 30, 2003 and 2002 totaled $270,000
and $165,000, respectively. Sales of our NMP22 bladder cancer product line
totaled approximately $1,535,000 and $899,000 for the nine months ended
September 30, 2003 and 2002, respectively. This increase is due to a 53%
sales increase, primarily in the U.S., Europe and the Far East, and a 18%
favorable exchange rate impact. During the first nine months of 2003, we
shipped approximately $138,000 of our NMP22 BladderChek Device to distributors
for which we did not have sufficient history to estimate returns. Accordingly,
these amounts are included in deferred revenue at September 30, 2003, and will
be recognized as revenue when the distributor reports to us that it has either
shipped or disposed of the devices (indicating that the return period has
lapsed). Product sales of the allergy products distributed by Matritech GmbH
totaled approximately $1,384,000 and $1,356,000 for the nine months ended
September 30, 2003 and 2002, respectively. This increase is primarily due to a
17% favorable exchange rate impact partially offset by a 15% sales reduction.

We recognize alliance revenue and prepaid marketing fees over the lives of
the respective contracts. Deferred revenue related to various alliances and
prepaid marketing fees decreased to $842,000 at September 30, 2003 from
$867,000 at December 31, 2002.

Cost of product sales increased to $1,549,000 from $1,540,000 for the nine
months ended September 30, 2003 and 2002, respectively. As a percentage of
product sales, cost of sales decreased to 52% from 67% for the nine months
ended September 30, 2003 and 2002, respectively. The decrease in cost of sales
on a percentage basis is largely the result of increased revenue due to
favorable foreign exchange rate changes, product mix and the result of fixed
costs being spread over a higher quantity of units sold.

Research, development, clinical and regulatory expenses decreased to
$2,034,000 from $2,931,000 for the nine months ended September 30 2003 and
2002, respectively. This decrease was largely due to decreased payments to
clinical sites involved in collecting specimens for testing and supplies.

Selling, general and administrative expenses increased to $4,908,000 from
$4,208,000 for the nine months ended September 30, 2003 and 2002, respectively.
This increase is primarily due to increased salary-related costs of $421,000
due to higher headcount in sales and marketing and an increase in expenses
totaling $248,000 due to the impact of foreign currency exchange rates.

Interest income decreased to $57,000 from $63,000 for the nine months
ended September 30, 2003 and 2002, respectively. Interest expense increased
to $394,000 from $13,000 for the nine months ended September 30, 2003 and 2002,
respectively, due to interest on the convertible debentures totaling $188,000
and accretion to face value of the debt discount related to these debentures
totaling $189,000.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through
private and public offerings of our securities, issuance of debt and through
funded development and marketing agreements. At September 30, 2003, we had cash
and cash equivalents of $3,414,000, working capital of $1,553,000, and an
accumulated deficit of $76,724,000. We believe that our existing cash
resources, plans for equity financings, product sales and corporate
partnerships will be sufficient to satisfy our





---



##### Table of Contents



capital needs through 2003. See Factors That May Affect Future Results  We
will need to obtain additional capital in the future and if we are unable to
obtain such capital on acceptable terms, or at the appropriate time, we may not
be able to continue our existing operations.

We are devoting substantially all of our efforts toward product research
and development, raising capital, securing partners and marketing products. We
are 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,
uncertainties around bringing new products to market, 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 our operations
and the development of future products.

We will continue to seek to raise additional capital and will consider
various financing alternatives, including equity or debt financings and
corporate partnering arrangements. However, we may not be able to raise needed
capital on terms that are acceptable to us, or at all. If we raise funds on
unfavorable terms, we may provide rights and preferences to new investors which
are not available to current shareholders. In addition, our existing financing
arrangements contain anti-dilutive provisions which may require us to issue
additional securities if certain conditions are met. If we do not receive
additional financing or do not receive an adequate amount of additional
financing, we will be required to curtail our expenses by reducing research
and/or marketing or by taking other steps that could hurt our future
performance, including but not limited to, the premature sale of some or all of
our assets or product lines on undesirable terms, merger with or acquisition by
another company on unsatisfactory terms or the cessation of operations. Any
future equity financings will dilute the ownership interest of our existing
investors, may result in additional anti-dilution adjustments under our
Convertible Debentures and March Warrants and may have an adverse impact on the
price of our common stock. Any of the foregoing steps will have a material
adverse effect on our business, financial condition and results of operations.
There can be no assurance that capital will be available on terms acceptable to
us, if at all.

Our operating activities used cash of approximately $5,141,000 and
$6,213,000 for the nine months ended September 30, 2003 and 2002, respectively,
primarily to fund our operating loss.

Our investing activities used cash of approximately $158,000 and $553,000
for the nine months ended September 30, 2003 and 2002, respectively, primarily
for the purchase of laboratory equipment.

Our financing activities provided cash of approximately $4,453,000 and
$4,537,000 for the nine months ended September 30, 2003 and 2002, respectively.
The net cash provided by financing activities in the 2003 period resulted
primarily from proceeds from the sale of convertible debentures and warrants,
offset by payments on notes payable. The net cash provided by financing
activities in the 2002 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.

Our future commitments are as follows:

|                                          |  |       |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|----------------------------------------- |  | ----- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------- | 
|                                          |  | Total |           | 2003 |  | 2004 |           | 2005 |  | 2006
|                                          |  |       |           |      |  |      |           |      |  |     
|Facility and equipment leases             |  | $     | 1,571,000 |      |  | $    | 543,000   |      |  | $    | 519,000   |  |  | $ | 500,000   |  |  | $ | 9,000   | 
|Maturities
of 7 1⁄2% Convertible Debentures |  |       | 5,000,000 |      |  |      |          |      |  |      | 1,923,000 |  |  |   | 2,308,000 |  |  |   | 769,000 | 
|Maturities of other debt obligations      |  |       | 476,000   |      |  |      | 425,000   |      |  |      | 31,000    |  |  |   | 10,000    |  |  |   | 10,000  | 
|Purchase commitments                      |  |       | 95,000    |      |  |      | 95,000    |      |  |      |          |  |  |   |          |  |  |   |        | 
|                                          |  |       |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|Total                                     |  | $     | 7,142,000 |      |  | $    | 1,063,000 |      |  | $    | 2,473,000 |  |  | $ | 2,818,000 |  |  | $ | 788,000 | 
|                                          |  |       |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 

In July 2002, we entered into a term note for $410,000 with Citizens Bank
of Massachusetts to finance an equipment purchase. The term note is payable
over four years, bears interest at 1% plus the banks prime rate (4.25% at
December 31, 2002) and contains a covenant which requires us to maintain a cash
balance of $250,000 at all times. This note is collateralized by the capital
equipment. If the ratio of our cash and cash equivalents to total liabilities
(excluding deferred revenue) is 115% or less, the bank has the right to
exchange the equipment as collateral for a certificate of deposit in the amount
of $317,000. At September 30, 2003 we were in default of the cash and cash
equivalents to total liabilities (excluding deferred revenue)





---



##### Table of Contents



covenant. We obtained a waiver from our lender regarding our noncompliance
with this covenant for this period ended September 30, 2003. We expect that we
will continue to be in default of this covenant in the future and therefore
recorded the remaining balance of this loan as a current liability.

In March 2003, we completed a private placement of $5 million of 7.5%
Convertible Debentures and Warrants (the March Warrants) to purchase 784,313
shares of Common Stock at an initial exercise price of $2.278 (including a
warrant for 98,039 shares issued to a placement agent in connection with the
transaction). The Convertible Debentures are convertible into shares of our
common stock and interest and redemption payments may, subject to certain
circumstances, be made in shares of common stock at a discount to valuation.
The Convertible Debentures may become immediately due and payable at a premium
of 120% of the outstanding principal amount plus accrued interest and damages
in the event of default by us of certain covenants and also obligate us to pay
damages and interest upon certain events. Events of default under the
Convertible Debentures include, among other things, failure to remain listed on
any of the Nasdaq SmallCap Market, New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market, sale or disposition of our assets in
excess of 33% of our total assets, failure to timely deliver stock certificates
upon conversion, and default on our existing or future liabilities in excess of
$150,000. In addition, the terms of the March Private Placement prohibit us
from entering into obligations that are senior to the Convertible Debentures
and place certain restrictions on our ability to raise additional capital
through equity issuances, and an ability to match any additional funds raised
on the same terms. We received net proceeds of approximately $4.5 million. A
second closing may be held, at our option, for an additional aggregate
subscription amount of $3 million based on the share price of our common stock
reaching a certain level, but only if there is an effective registration
statement covering the shares of common stock underlying the Convertible
Debentures and Warrants issued in connection with the first closing. See
Recent Developments and Factors That May Affect Future Results  We have
substantially increased our indebtedness and may not be able to meet our
payment obligations, Future financings will result in additional dilution of
the ownership interest of our existing investors and may have an adverse impact
on the price of our common stock and If a decline in our share price causes
the total market value of our stock to drop below $35 million, we may be
delisted from the Nasdaq SmallCap Market which will affect your ability to buy
or sell shares of our stock and might place us in default under the terms of
our convertible debentures.

On October 15, 2003 and on November 6, 2003, we completed private
placements of 3,593,893 and 299,402 shares respectively of our common stock at
a price of $1.67 and warrants to purchase 1,257,861 and 104,790 shares
respectively of our common stock at a price of $2.45 per share for an aggregate
consideration of $6,501,802 (before cash commissions and expenses of
approximately $800,000). In addition, we issued warrants to various placement
agents for a total of 546,553 shares at exercise prices ranging from $1.67 to
$2.70. The warrants issued are exercisable until October 15, 2008 and November
6, 2008 respectively. Securities included in the November 6, 2003 private
placement were purchased by a distributer of our products in the Far East as
part of a strategic investment in Matritech. If these private placements had
been completed by September 30, 2003, our cash and cash equivalents as of that
date would have been approximately $9,085,000 and our stockholders equity have
been would have been approximately $6,949,000. These sales have been deemed to
be a dilutive issuance under the terms of the Convertible Debentures and our
March Warrants. As a result, the Convertible Debentures are currently
convertible into 2,673,797 shares of our common stock at a price of $1.87 per
share, representing an increase of 713,012 shares from the terms of the
original issue, and the March Warrants are exercisable to purchase shares of
our common stock at a price of $1.67 per share. The value of these additional
shares will be treated as additional interest expense over the term of the
debentures. The terms of this private placement place certain restrictions on
our ability to raise additional capital, including a prohibition on such
activity (with certain limited exceptions) for a period of 90 days after the
effective date of the registration statement filed with respect to the shares
of common stock and the shares underlying the warrants issued in this private
placement. In addition, the terms of this private placement give the investors
in the private placement the right to participate in future financings by the
Company.

Our future capital requirements will depend on many factors, including,
but not limited to: continued scientific progress in our research and
development programs; the magnitude of our research and development programs;
progress with clinical trials for our 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 our products.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements and related footnotes. In
preparing these financial statements, we have made our best estimates and
judgments of certain amounts included in the financial statements, giving due
consideration to





---



##### Table of Contents



materiality and assuming that we will continue as a going concern. We do not
believe it is likely that materially different amounts would be reported
related to the accounting policies described below. However, application of
these accounting policies involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates.

Revenue Recognition

We recognize revenue in accordance with the Securities and Exchange
Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements(SAB 101). Revenue is recognized when the following
criteria have been met:



| | 1. |  | Persuasive evidence of an arrangement exists            
| | -- |  | --------------------------------------------------------
|
| | 2. |  | Delivery has occurred and risk of loss has passed       
|
| | 3. |  | The sellers price to the buyer is fixed or determinable
|
| | 4. |  | Collectibility is reasonably assured                    

When determining whether risk of loss has transferred to customers on
product sales, we evaluate both the contractual terms and conditions of our
sales agreements as well as our business practices. Business practices such as
agreeing to product exchanges may indicate the existence of an implied right to
return the product even if there are no such contractual provisions for product
returns. We treat such practices, whether contractual or implied, as conveying
a right of return and will establish provisions for returns when reasonable and
reliable estimates can be made. In accordance with SAB 101, where we do not
have sufficient history to make reasonable and reliable estimates of returns,
revenue associated with such practices is deferred until the return period
lapses or a reasonable estimate can be made. This deferred revenue will be
recognized as revenue when the distributor reports to us that it has either
shipped or disposed of the units (indicating that the possibility of return is
remote).

Contract and license fee revenue is primarily generated through
collaborative license and development agreements with strategic partners for
the development and commercialization of our product candidates. The terms of
the agreements typically include non-refundable license fees, funding of
research and development, payments based upon achievement of certain
milestones, payments for product manufacturing and royalties on net product
sales. Revenue arrangements where multiple products or services are sold
together under one contract are evaluated to determine if each element
represents a separate earnings process. In the event that an element of such
multiple element arrangement does not represent a separate earnings process, we
recognize revenue from this element over the term of the related contract.

Where we have continuing performance obligations under the terms of a
collaborative arrangement, non-refundable license fees are recognized as
revenue over the period we complete our performance obligations. Revenues from
milestone payments related to arrangements under which we have no continuing
performance obligations are recognized upon achievement of the related
milestone. Revenues from milestone payments related to arrangements under which
we have continuing performance obligations are recognized as revenue upon
achievement of the milestone only if all of the following conditions are met:
the milestone payments are non-refundable; substantive effort is involved in
achieving the milestone; and the amount of the milestone is reasonable in
relation to the effort expended or the risk associated with achievement of the
milestone. If any of these conditions are not met, the milestone payments are
deferred and recognized as revenue over the term of the arrangement as we
complete our performance obligations.

Payments received from collaborative partners for research and development
services performed by us are recognized as revenue on a straight line basis
(unless evidence indicates an alternative earnings pattern can be demonstrated)
over the term of the arrangement or the expected service period, whichever is
longer. Revenue from royalty payments is recognized when earned, upon the
receipt of data from the licensees in accordance with the related license
agreement supporting the amount of and basis for such royalty payments to us.

Valuation Allowances

Inventory.We value our inventory account balances at lower of cost or net
realizable value. We analyze inventory levels quarterly, review inventory
account balances and compare such amounts with sales forecasts and projections,
historical revenue trends and shelf life of items in inventory. This analysis
involves our estimates of future cash flows which are highly judgmental and may
differ from actual cash flows. Inventory with a life in excess of its shelf
life is disposed of and the related costs are written off. If actual market
conditions are less favorable than those we project, additional inventory
writedowns may





---



##### Table of Contents





|be required.
|------------

Accounts Receivable.We periodically review outstanding balances in
accounts receivable to determine future collections. Based on our historical
experience, current business conditions and expected future collections,
management established an allowance for uncollectible accounts. In the event
circumstances change to affect the assumptions underlying this allowance, we
might be required to take additional write-offs of our accounts receivable
balances.

Impairment of Long-Lived Assets and Goodwill.Our policy regarding
long-lived assets is to evaluate the recoverability or usefulness of these
assets when the facts and circumstances suggest that these assets may be
impaired. This analysis relies on a number of factors, including changes in
strategic direction, business plans, regulatory developments, economic and
budget projections, technological improvements, and operating results. The test
of recoverability or usefulness is a comparison of the asset value to the
undiscounted cash flow of its expected cumulative net operating cash flow over
the assets remaining useful life. Any write-downs would be treated as
permanent reductions in the carrying amount of the asset and an operating loss
would be recognized. To date, we have had recurring operating losses and the
recoverability of our long-lived assets is contingent upon executing our
business plan that includes, among other factors, significantly increasing
sales. If we are unable to execute our business plan, we may be required to
write down the value of our long-lived assets in future periods.

Recent Accounting Pronouncements

In November 2002, the EITF published Issue No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables(EITF Issue No. 00-21), which
addresses how to determine whether a revenue arrangement involving multiple
deliverables contains more than one unit of accounting for the purposes of
revenue recognition and how the revenue arrangement consideration should be
measured and allocated to the separate units of accounting. EITF Issue No.
00-21 applies to all revenue arrangements that we enter into after June 30,
2003. The adoption of EITF Issue No. 00-21 did not have a material impact on
our financial condition or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. Variable interest entities that
effectively disperse risk will not be consolidated unless a single party holds
an interest or combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 also requires enhanced disclosure
requirements related to variable interest entities. FIN 46 applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15,
2003 to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. We do not have any variable
interest entities.

In May 2003, the FASB issued SFAS 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity,which
establishes standards for how an issuer of financial instruments classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) if, at
inception, the monetary value of the obligation is based solely or
predominantly on a fixed monetary amount known at inception, variations in
something other than the fair value of the issuers equity shares or variations
inversely related to changes in the fair value of the issuers equity shares.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and became effective for us beginning July 1, 2003. The
adoption of SFAS 150 did not have a material impact on our financial condition
or results of operations.

Research and Development

We are engaged in the research, production and marketing of cancer
diagnostic products. All of our research and development expenditures, whether
conducted by our own staff or by external scientists on our behalf and at our
expense, are recorded as expenses as incurred and amounted to approximately $42
million for the period since our inception in October of 1987 through September
30, 2003. Research and development expenses include the salaries and related
overhead of our research personnel, laboratory supplies, payments to third
parties to help us execute clinical trials, depreciation of research related
equipment, legal expenses related to filing and prosecuting patents, other
direct expenses and an allocation of our occupancy and related expenses based
on the square footage occupied by our research and development staff and their
laboratories.

Our research and development scientists typically are assigned to lead one
project at a time but may also provide support for other projects. In addition,
our various programs share a substantial amount of our common fixed costs such
as facility





---



##### Table of Contents



depreciation, utilities and maintenance. All of our research and development
programs are similar in nature as they are based on our common protein
discovery technology and a significant finding in any one cancer type may
provide a similar benefit across all programs. Accordingly, we do not track our
research and development costs by individual research and development programs.

Discovery Research

Our primary research focus is on the identification of proteins in the
body which are associated with or created by cancerous processes and which,
when measured, can provide useful medical information to physicians. Since 1998
our research has focused on discovering these substances using low-throughput
research mass spectrometry. Because the cost of research mass spectrometry
technology was determined to be too high to create commercially viable products
or services, in the last two years our research has been focused on applying
high-throughput mass spectrometry methods to measure the proteins characterized
as clinical candidates during discovery research and to improving the controls
and reproducibility of our mass spectrometry technology. Since the development
of core test methods applicable to all cancer types has been a major activity
of our staff, we have not tried to track spending by product or to allocate our
total research costs to individual products.

Product and Service Development

To develop products which will provide physicians medically useful
information, we can utilize our technology in four different ways: Lab Test
Kits, Point-of-Care Test Devices, Proprietary Laboratory Procedures and
Cellular Analysis Systems described below:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Lab Test Kits, such as the NMP22 Lab Test Kit, which are generally sold for use
in appropriately licensed clinical laboratories or doctors office laboratories
to perform lab testing services. These laboratories perform a service, only
upon a physicians prescription, which uses our products to test patient
specimens. After testing, the laboratory provides the data it generated using
the Lab Test Kit in a written report. The information in the report helps the
physician determine the presence or absence of cancer.                                                                                                                                                                                                                                                                                                               
|
| | Point-of-Care Test Devices, such as the NMP22 BladderChek Device, which are
generally sold for use in a medical facility or physicians office by medical
personnel who need not be licensed to perform laboratory tests. Point-of-Care
Test Devices are similar to the urine-based pregnancy test devices and the
blood-based glucose test strips sold in pharmacies, but they are sold for use
only pursuant to a physicians order. These devices generate information which
helps physicians determine the presence or absence of cancer.                                                                                                                                                                                                                                                                                                         
|
| | Proprietary Laboratory Procedures, which are under development using our
technologies for prostate and breast cancer. Proprietary Laboratory Procedures
are laboratory analytical procedures which are custom designed to the
instrumentation and techniques of a specific clinical laboratory to measure
clinically useful proteins. Proprietary Laboratory Procedures will help us
gain early market exposure and enable physicians and laboratories to gain
preliminary clinical experience with our technologies prior to our developing
Lab Test Kits or Point-of-Care Test Devices. Proprietary Lab Procedures are
likely to be confined to a limited number of licensed clinical laboratories
which would be expected to invest in the development and marketing of a lab
testing service specific to their equipment, processes and personnel.
|
| | Cellular Analysis Systems, such as those which are under development by Sysmex
Corporation to identify women at risk for cervical cancer, employ our
technologies to identify nuclear matrix proteins such as NMP179 in cells. Such
systems will utilize Sysmexs proprietary technologies to examine thousands of
cells in a short period of time (flow cytometry) and NMP179 to detect the
presence of precancer proteins in certain cells. If aberrations from normal
are found, the cells will most likely be further examined by a physician or
pathologist to make the actual diagnosis of disease.                                                                                                                                                                                                                                           

For technological and marketing reasons, we have decided initially to
launch our newer technologies  NMP66, NMP48 and NMP35  as Proprietary
Laboratory Procedures using high throughput mass spectrometry technology. Since
Proprietary Lab Services must be adapted to the skills and technology of a
clinical laboratory partner (lab partner), we cannot be certain that a lab
partner will find our current methods economical and reproducible in their
laboratory processing environment. Furthermore, the ability of this technology
to generate useful medical information cannot be assessed until we have
transferred it to our lab partner and such partner has conducted a successful
clinical trial. We do not intend to launch development of a service for NMP35
until at least one of the others has been successfully launched. See Factors
That May Affect Future Results  We have no demonstrated success in developing
proprietary lab procedures as a profitable service business and any future
success will be dependent upon satisfaction and approval of our clinical lab
partners.

We have entered into an agreement with Mitsubishi to develop a Proprietary
Laboratory Procedure for NMP66. Our scientists believe they understand the
general biological structure of the NMP66 protein identified by research mass





---



##### Table of Contents



spectrometry and are developing a Properitary Laboratory Procedure for
NMP66 based on its physical and biological properties. Because we believe we
understand these properties, we are also working on an immunoassay which is a
necessary step for the development of a Lab Test Kit and/or a Point-of-Care
Device. We have elected to concentrate our development resources on NMP66 to
increase the likelihood of the timely completion of this project for Mitsubishi
as well as for a potential U.S. lab partner. To accomplish this, we have
diverted product development resources from the NMP48 prostate cancer project.
If our development resources continue to be directed toward NMP66, we may not
implement a Proprietary Lab Service for NMP48 during 2004.

We also intend to develop Lab Test Kits and Point-of-Care Test Devices
based upon our new technologies. While we have successfully configured NMP22 in
these formats, there are always uncertainties involved in successfully creating
products which perform reproducibly in every laboratory. Because our newer
technologies detect different proteins and because they are measured in blood
not in urine, we plan not only to apply several of the techniques used in
developing NMP22 products but also to employ additional outside resources to
complete the development of these products successfully. See Factors That May
Affect Future Results  The research results we obtain in the laboratory
frequently cannot be replicated in clinical trials.Given our recent progress
in NMP66, we now have a goal to complete development of a Lab Test Kit and/or a
Point-of-Care Test Device for NMP66 in 2005 and the other in 2006. We do not
intend to begin development of a product for NMP35 until at least development
for NMP66 or for NMP48 has been successfully completed.

Product development can also involve activities which resemble discovery
research because it may be necessary to identify a fraction of the target
protein (such as an antibody binding site) or to separate two similar proteins
(or two forms of the same protein), or to select an alternative protein in
order to complete this stage. Therefore, the risks of discovery may extend into
product development in completing a service or a product which delivers useful
information to physicians.

Clinical Trials

After a product or service has been developed, the information it
generates must be validated in one or more clinical trials. These activities
are designed to confirm the most appropriate and useful ways to use the data
generated by our products and services to help physicians diagnose and manage
disease. As indicated by our NMP22 products, different clinical applications
require different FDA approvals. While NMP22 has demonstrated an ability to
generate information useful in more than one indication, the demonstrated
success in one indication will not necessarily ensure success in another. The
differences in the proteins themselves combined with the variability in the
disease and the performance of other diagnostic technologies make this process
subject to numerous uncertainties which can only be overcome by large,
successful clinical trial studies. For each product or service, we expect to
develop a claim for aiding in the diagnosis of the disease for patients who
have no prior history of the disease and a claim for monitoring the course of
the disease. The order in which these claims are developed may be different for
each product.

The table below summarizes our development programs, including stage of
development and current FDA status.

|                |  |                           |  |                       |  |                              |  |            |     |                             |  |  |  |  |  | 
|--------------- |  | ------------------------- |  | --------------------- |  | ---------------------------- |  | ---------- | --- | --------------------------- |  |  |  |  |  | 
|                |  |                           |  |                       |  | Clinical                     |  |            |     |                             |  |  |  | 
|Protein         |  | Form of Technology        |  | Application           |  | Stage of Development         |  | FDA Status
|                |  |                           |  |                       |  |                              |  |           
|NMP22 Bladder   |  | Lab Test Kit              |  | Monitoring            |  | Commercialized               |  | Approved  
|NMP22 Bladder   |  | Lab Test Kit              |  | Diagnosis             |  | Commercialized               |  | Approved  
|NMP22 Bladder   |  | POC Test Device           |  | Monitoring            |  | Commercialized               |  | Approved  
|NMP22 Bladder   |  | POC Test Device           |  | Diagnosis             |  | Commercialized               |  | Approved  
|NMP179 Cervical |  | Non-Slide-Based Cellullar |  | Identifying High Risk |  | Licensee Sysmex is           |  |            | *   |                            
|                |  | Analysis System           |  | Cases                 |  | conducting further product   |  |            |     |                            
|                |  |                           |  |                       |  |                              |  |            |     | development                 |  |  |  | 
|NMP48 Prostate  |  | Proprietary Lab Service   |  | To Be Determined      |  | Product/ Service Development |  |            | **  |                            
|NMP48 Prostate  |  | Lab Test Kit              |  | To Be Determined      |  | Product/ Service Development |  |            | *   |                            
|NMP48 Prostate  |  | POC Test Device           |  | To Be Determined      |  | Product/ Service Development |  |            | *   |                            
|NMP66 Breast    |  | Proprietary Lab Service   |  | To Be Determined      |  | Clinical Service             |  |            | **  |                            
|                |  |                           |  |                       |  |                              |  |            |     | Development with Mitsubishi |  |  |  | 
|NMP66 Breast    |  | Lab Test Kit              |  | To Be Determined      |  | Product/ Service Development |  |            | *   |                            
|NMP66 Breast    |  | POC Test Device           |  | To Be Determined      |  | Product/ Service Development |  |            | *   |                            
|NMP35 Colon     |  | All                       |  | To Be Determined      |  | Discovery Research Completed |  |            | *** |                            



|*  |  | If submitted for a screening or diagnosis application, FDA will require Premarket Approval (PMA). If submitted as a
monitoring test, FDA may only require Premarket Clearance [510(k)].
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | If offered (as intended) as a
service, no FDA submission is likely to be required. If the service
includes a reagent such as an                                                            





---



##### Table of Contents



antibody provided by a party other than the laboratory conducting the test, the FDA requires an Analyte Specific Reagent notification.

Spending on Research and Development Projects.Total research and
development spending in 2002 was approximately $3.8 million. Total research
and development spending in the first three quarters of 2003 was approximately
$2 million. We expect research and development expenditures to be less than $7
million over 2003 and 2004 and to be devoted to our various programs as
discussed below.

NMP22  Bladder.Expenditures on the various NMP22-based products are
virtually complete. Except for sponsoring additional clinical trials to
demonstrate different ways to use the information generated by the products, we
do not plan to incur any significant additional research spending on any of
these products but we do expect to spend, from time to time, funds for product
support. Such expenditures are expected not to exceed $500,000 over 2003 and
2004.

NMP179  Cervical.Discovery research on this product was completed prior
to 2000 and our expenditures in 2002 and 2003 have been principally for
technical support of the licensing activity. In 2002 we licensed the worldwide
rights for non-slide-based applications to Sysmex, Inc. as discussed in more
detail in Item 1 of our Annual Report on Form 10-K for the year ended December
31, 2002. Substantially all future costs to support additional research and
development of this product are expected to be paid for by Sysmex. If we incur
any additional costs in connection with this program, we expect such costs to
be paid in connection with an effort to license this technology to a company
with a slide-based cervical cancer detection system.

NMP48, NMP66 & NMP35.Over the next two years, research and development
funds will be spent principally to develop both products and services for
NMP48, NMP66 and NMP35 and to improve the controls, reproducibility and costs
of our mass spectrometry research technology. Based on our progress in the
third quarter of 2003, we expect that development of NMP66 products and
services will have greater emphasis in 2004 than development of products and
services for NMP48 or NMP35. Depending on the ongoing results of our programs
we will make decisions on how to proceed and will consider options including,
but not limited to, terminating certain activities, licensing the technology to
third parties or selling the technology to third parties. As a result of these
uncertainties surrounding these projects we cannot reasonably estimate the
likelihood of reaching the goals set forth in the table above. The nature,
timing and costs of the efforts to reach those goals, and the amount or timing
of the net cash inflows of our individual programs are not possible to predict.

Factors That May Affect Future Results

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

We have a history of operating losses, are continuing to lose money and
may never be profitable.

We have incurred operating losses since we began operations in 1987. These
losses have resulted principally from costs incurred in research and
development and from selling, general and administrative costs associated with
our market development. Our accumulated deficit from inception until the end
of the last fiscal year is $71,120,587. Our revenue and losses for each of the
past three fiscal years are:

|              |  |      |           |      |  |      |           |  |  |   |           | 
|------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|              |  | 2002 |           | 2001 |  | 2000
|              |  |      |           |      |  |     
|Product Sales |  | $    | 3,093,729 |      |  | $    | 2,340,940 |  |  | $ | 1,245,611 | 
|Losses        |  | $    | 8,278,274 |      |  | $    | 8,730,827 |  |  | $ | 6,836,254 | 

We expect to continue to incur additional operating losses in the future
as we continue to develop new products and seek to commercialize the results of
our research and development efforts. Our ability to achieve long-term
profitability is dependent upon our success in those development and
commercializing efforts. We do not believe we will be profitable in the
foreseeable future.

We will need to obtain additional capital in the future and if we are
unable to obtain such capital on acceptable terms, or at the appropriate time,
we may not be able to continue our existing operations.

We do not currently generate revenues sufficient to operate our business
and do not believe we will do so in the foreseeable future. In our fiscal year
ended December 31, 2002, we had a net loss of $8.3 million, and as of September
30, 2003, we only had $3.4 million of cash and cash equivalents. As a result,
we must rely on our ability to raise capital from outside sources in order to
continue operations in the long-term. In March, 2003 we completed a sale of
convertible debentures





---



##### Table of Contents



and accompanying warrants and in
October and November, 2003 we completed a sale of
common stock and accompanying warrants.
We will continue to seek to raise additional capital through various
financing alternatives, including equity or debt financings and corporate
partnering arrangements. However, we may not be able to raise needed capital
on terms that are acceptable to us, or at all.

The terms of our recent sales of convertible debentures and common stock
greatly restrict our ability to raise capital. Under the terms of our
convertible debenture financing, we are prohibited from entering into
obligations that are senior to the debentures. Under the terms of our common
stock financing, we are prohibited from raising funds through the sale of our
common stock or the sale of securities convertible or exercisable into our
common stock (with certain limited exceptions) for a period of 90 days after
the effective date of the registration statement filed with respect to such
financings. The purchasers of the convertible debentures and common stock also
have rights, under the terms of those financings, to participate in our future
financings. These provisions may severely limit our ability to attract new
investors and raise additional financing on acceptable terms. In addition, in
order to attract such new investors and obtain additional capital, we may be
forced to provide rights and preferences to the new investors which are not
available to current shareholders.

If we do not receive an adequate amount of additional financing in the
future, we may be unable to meet our payment obligations under the convertible
debentures, or we may be required to curtail our expenses or to take other
steps that could hurt our future performance, including but not limited to, the
premature sale of some or all of our assets or product lines on undesirable
terms, merger with or acquisition by another company on unsatisfactory terms or
the cessation of operations.

We have substantially increased our indebtedness and may not be able to
meet our payment obligations.

As a result of the recent sale of convertible debentures, we have
substantially increased our indebtedness from approximately $475,000 to
approximately $4.2 million. In addition, the terms of the sale of the
convertible debentures provide for the issuance, at our option, of up to an
additional $3 million in aggregate principal amount of convertible debentures
if the volume weighted average price of our stock is at least $2.75 over a
period of 15 consecutive trading days and there is an effective registration
statement covering the shares underlying the convertible debentures and
accompanying warrants already issued. The registration statement for such
shares became effective on June 19, 2003. If our stock price meets the
required threshold we are likely but not certain to redeem the additional
convertible debentures with common stock, which would increase our indebtedness
to approximately $7.2 million in principal.

The convertible debentures permit us to make interest and principal
payments in shares of common stock instead of cash, but only if we are not in
default under the terms of the debentures, if there is an effective
registration statement covering such shares, if the issuance of such shares
would not cause the holders to own more than 9.999% of the outstanding shares
of our common stock, and if such issuance would not violate Nasdaq marketplace
rules. If we are not able to make interest and redemption payments on the
debentures in shares of stock, such payments must be made in cash and, unless
we are able to raise additional capital from another source, we may not have
sufficient funds to make such payments.

In addition, the convertible debentures require us to pay interest and
liquidated damages and may become immediately due and payable at a premium of
120% of the outstanding principal amount plus accrued interest and damages in
the event we default under their terms. Potential defaults would include,
among other things:



| |  |  | our inability to make payments as they become due;                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | failure to register for resale the shares of common stock
underlying the debentures and accompanying warrants within set
timeframes;          
|
| |  |  | failure to remain listed on any of the Nasdaq SmallCap Market,
New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market;
|
| |  |  | sale or disposition of our assets in excess of 33% of our total assets;                                                                       
|
| |  |  | failure to timely deliver stock certificates upon conversion; and                                                                             
|
| |  |  | default on our existing or future liabilities in excess of $150,000.                                                                          

If we default under the terms of the convertible debentures, we probably
will not be able to meet our payment obligations. In addition, the increased
level of our indebtedness could, among other things:



| |  |  | make it difficult for us to make payment on this debt and other obligations;
| | - |  | ----------------------------------------------------------------------------
|
| |  |  | make it difficult for us to obtain future financing;                        





---



##### Table of Contents





| |  |  | require redirection of significant amounts of cash flow from operations to service our indebtedness;                                                             
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | require us to take measures such as the reduction in scale of
our operations that might hurt our future performance in order to
satisfy our debt obligations; and
|
| |  |  | make us more vulnerable to bankruptcy in the event of a
downturn in our business.                                                                                

The operations of our European subsidiary involve currency exchange and
other risks.

Matritech GmbH, our European subsidiary, accounted for approximately 74%
of our sales for the fiscal year ended December 31, 2002 and 75% of our sales
for the nine months ended September 30, 2003. Accounts of our European
subsidiary are maintained in Euros and are translated into U.S. Dollars. To
the extent that foreign currency exchange rates fluctuate in the future, we may
be exposed to continued financial risk. During the first nine months of 2003,
exchange rate fluctuations were favorable as indicated in the Managements
Discussion and Analysis of Financial Condition and Results of Operations.
However, rate changes in the future may lead to unfavorable results.

In addition, although we have integrated the operations of this subsidiary
since its acquisition in June 2000, we still must coordinate geographically
separate organizations, manage personnel with disparate business backgrounds
and conduct business in a different regulatory and corporate culture. It
remains to be seen whether the use of this subsidiary to spearhead the
marketing effort of our products in Europe will be successful in the long-term.

We rely heavily on distributors for sales of our NMP22 products and if
such sales do not increase enough to cover our operating costs, we will
continue to lose money.

While 61% of our 2002 revenues and 43% of our revenues for the nine months
ended September 30, 2003 were attributable to sales of allergy products by our
European subsidiary, we expect that the majority of our future revenue growth
will come from sales of our NMP22 Lab Test Kit and NMP22 BladderChek Device.
Marketing of our NMP22 products has been done primarily through our own
salesforce in Germany and through distributors in the rest of the world,
including the United States.

For 2002, NMP22 sales made by our own salesforce represented 54% of NMP22
revenues and distributors accounted for the rest. Many of these distributors
have exclusive or co-exclusive rights to sell our NMP22 products in their
designated territories. Because we generally do not deal directly with
customers when selling through distributors, our ability to reach profitability
depends in great part on increased sales by these principal distributors.

We have minimal control over our distributors, and these distributors may
or may not be under contractual obligation to purchase our products. The
failure or delay by a distributor in selling our products or any material
breach of their agreements with us could have significant adverse effects on
our future revenues. In addition, we may be unable to enter into additional
distribution relationships on favorable terms, if at all.

We may also find it necessary, in the future, to use our own resources in
territories where we have lost, do not have, or do not intend to use
distributors. Any such internal sales effort will take a considerable amount
of time and money, and may not meet with success.

We are significantly expanding our own selling, distribution and
collection resources for sales of our NMP22 products in the United States which
will increase our near-term cash requirements to support a larger employee
salesforce, to pay for order processing, shipping and collection costs normally
borne by distributors and to finance the accounts receivable from physician
practices.

We recently amended our distribution agreement with our U.S. distributor.
Among the changes, we now have the responsibility for sales of NMP22
BladderChek Devices to urologists including invoicing and collecting the
revenue from sales. Although we had a six-person sales force during most of
the third quarter to support sales of our NMP22 BladderChek Device to
urologists in the U.S., our internal marketing and sales resources are not
presently capable of assuming all of our distributors responsibilities. With
some of the proceeds of our October 2003 financing, we are increasing our sales
and marketing expenditures and adding order processing, shipping and collection
resources to perform functions which have, until recently, been performed by
our U.S. distributor. Matritech has little experience in performing these
functions in the United States to support sales directly to physicians and the
time and cost to create these resources combined with the risk that they may
not be implemented effectively increases the risk that the rate of sales growth
for BladderChek will slow or even that sales will decline and we will need
additional financings in order to implement our plans.





---



##### Table of Contents



In addition, sales of products directly to physicians may result in larger
accounts receivable than sales to distributors and increases the risk that
accounts receivable will not be collected. Carrying larger accounts receivable
balances and assuming greater collection risk may also increase our financing
requirements.

We compete with other methods of diagnosing cancer that are in existence
or may be successfully developed by others and our technology may not prevail.

Although we are not aware of any other company using nuclear matrix
protein technology in commercial diagnostic or therapeutic products,
competition in the development and marketing of cancer diagnostics and
therapeutics, using a variety of technologies, is intense. Many pharmaceutical
companies, biotechnology companies, public and private universities and
research organizations actively engage in the research and development of
cancer diagnostic products. Many of these organizations have greater
financial, manufacturing, marketing and human resources than we do.

We expect that our lab test kits and our point-of-care test devices will
compete with existing FDA-approved tests, including tests known as BTA,
UroVysion and ImmunoCyt bladder cancer tests, which have been approved for
monitoring bladder cancer; a test known as CEA, which is used primarily for
monitoring colorectal and breast cancers; a test known as CA19.9, which is used
primarily for monitoring colorectal and gastric cancers; a test known as PSA,
which is used primarily for monitoring and screening prostate cancer; tests
known as TRUQUANT® BR RIA, CA15.3 and CA27.29, which are used for monitoring
breast cancer; and specimen collection and analysis systems known as ThinPrep
(Cytyc) and SurePath(TriPath). We are also aware of a number of companies that
have announced that they are engaged in developing cancer diagnostic products
based upon oncogene technology. Our diagnostic products will also compete with
more invasive or expensive procedures such as minimally invasive surgery, bone
scans, magnetic resonance imaging and other in vivo imaging techniques. In
addition, other companies may introduce competing diagnostic products based on
alternative technologies that may adversely affect our competitive position.
As a result, our products may become obsolete or non-competitive.

Healthcare reform measures, third-party reimbursement policies and
physician or hospital preferences could limit the per-product revenues for our
products.

Our ability to commercialize our planned products successfully will depend
in part on the extent to which reimbursement for the services based on our
products will be available from government health administration authorities,
private health insurers and other third-party payors. In the case of private
insurers, the reimbursement of any medical device (or a service based on a
medical device) approved either solely for investigational use or for research
use is at the discretion of the patients individual carrier. Even if use of a
device or the performance of a service has been previously approved for
reimbursement, the insurance carrier may decide not to continue to reimburse it
at all, not to continue to reimburse it for certain medical applications and/or
to decrease the reimbursement amount. In addition, even if we are able to
successfully sell our products to managed care providers, it is possible that
these sales will involve significant pricing pressure and keep our per-product
revenues low. If we develop a proprietary lab service we do not expect
third-party reimbursement until we obtain FDA approval for a product which
generates similar information.

Healthcare reform is an area of continuing attention and a priority of
many governmental officials. Certain reform proposals, if adopted, could impose
additional limitations on the prices we will be able to charge for our products
or the amount of reimbursement available for our products from governmental
agencies or third-party payors. While we cannot predict whether any of these
legislative or regulatory proposals will be adopted or the effect that these
proposals may have on our business, the announcement or adoption of these
proposals could hurt our business by reducing demand for our products or
increasing the pressure on the prices we charge and could hurt our stock price
because of investor reactions.

The preferences of physicians, hospitals, clinics and other customers may
also limit our per-product revenue because their profit expectations when
purchasing our product may influence their use and ordering behavior.
Physicians have developed an expectation for generating profits when they
purchase devices for use in their practice. To the extent that we are not able
to price our product to provide such an opportunity, sales of our devices may
suffer.

We are subject to extensive government regulation which adds to the cost
and complexity of our business, may result in unexpected delays and
difficulties, and may impose severe penalties for violations.

The FDA and, in some instances, foreign governments, extensively regulate
the medical devices that we market and manufacture. The FDA regulates the
clinical testing, manufacture, labeling, distribution and promotion of medical
devices in





---



##### Table of Contents



the United States. Any products that we or our suppliers manufacture or
distribute in accordance with FDA approvals are subject to pervasive and
continuing regulation by the FDA, including:



| |  |  | we and our distributors are required to comply with record
keeping requirements and to report adverse experiences with the use
of the devices we make and distribute;                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we are required to register our establishments and list our
devices with the FDA and are subject to periodic inspections by the
FDA and certain state agencies; and                                                                                             
|
| |  |  | our products are required to be manufactured in accordance with
a series of complex regulations known as Quality System Regulations
which impose procedural and documentation requirements on us with
respect to manufacturing and quality assurance activities.

If we fail to comply with the FDAs requirements, including those listed
above, we may face a number of costly and/or time consuming consequences,
including:



| |  |  | fines;                                                                                   
| | - |  | -----------------------------------------------------------------------------------------
|
| |  |  | injunctions;                                                                             
|
| |  |  | civil penalties;                                                                         
|
| |  |  | recall or seizure of products;                                                           
|
| |  |  | total or partial suspension of production;                                               
|
| |  |  | failure of the government to grant premarket clearance or premarket approval for devices;
|
| |  |  | withdrawal of marketing approvals; and                                                   
|
| |  |  | criminal prosecution.                                                                    

The FDA also has the authority to request the repair, replacement or refund of
the cost of any device that we manufacture or distribute.

Labeling and promotional activities are also subject to scrutiny in the
United States by the FDA and, in certain instances, by the Federal Trade
Commission. For example, our NMP22 Lab Test Kit has received FDA approval and
may be promoted by us only as aid in management of patients with bladder cancer
or as a diagnostic aid for use for previously undiagnosed individuals who have
symptoms of or are at risk for bladder cancer. The FDA actively enforces
regulations prohibiting the promotion of devices for unapproved uses and the
promotion of devices for which premarket approval has not been obtained.
Consequently, we cannot currently promote the NMP22 Lab Test Kit for any
unapproved use. If we or our suppliers fail to comply with these manufacturing
or promotional requirements, we may face regulatory enforcement action by the
FDA that would prevent us or our suppliers from manufacturing or selling our
products, hurt our ability to conduct testing necessary to obtain market
approval for these products and reduce our potential sales revenues.

In addition to federal regulations regarding manufacture and promotion of
medical devices, we are also subject to a variety of state laws and regulations
which may hinder our ability to market our products in those states or
localities. Manufacturers in general are also subject to numerous federal,
state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control, and
disposal of hazardous or potentially hazardous substances. We may be required
to incur significant costs to comply with these laws and regulations in the
future, which could increase future losses or reduce future profitability.

Our inability to develop and commercialize additional products may
adversely affect our ability to achieve profitability.

We believe that our ability to achieve profitability in the future is
greatly dependent on producing additional revenue-generating products. Other
than the NMP22 products and allergy diagnostic products distributed by our
European subsidiary, Matritech GmbH, all of our products are under development
and are not expected to generate revenue for some time, if at all. If we are
unable to successfully develop and commercialize other products, the future
prospects for our business, sales and profits will be materially impaired. In
addition, if we are unable to develop and commercialize additional products and
diversify our revenue streams, greater pressure will be placed on the
performance of existing products and our business success will be directly
related to success or failure of these few products.





---



##### Table of Contents



We may incur substantially greater costs and timing delays than we
currently expect in the development process.

From time to time, we have encountered unexpected technical obstacles and
may encounter additional ones in the course of the development process that we
may not be able to overcome or may only overcome if we expend additional funds
and time. For example, in 1997 we elected to terminate development of a
blood-based lab test kit for PC1, a candidate marker for prostate cancer due to
unexpected difficulties. Despite encouraging initial results from an earlier
low throughput research testing method, we were unable to develop such a kit
for use in testing prostate cancer patients even when we employed 1997
state-of-the-art detection methods. We have subsequently announced that a
different protein (NMP48), discovered using a different research method, would
be the primary candidate in our prostate cancer program. More recently, we and
others have observed that the testing methodologies of a low throughput
research mass spectrometry instrument are not readily reproducible or
transferable to high throughput mass spectrometry instrument. This has
required us to try a number of changes in our procedures to improve controls,
reproducibility and costs in order to measure these proteins using a high
throughput instrument. Such unanticipated changes in our technology and
procedures may result in products or services that do not perform at all or do
not perform as well as the results reported using our discovery research
procedure.

The research results we obtain in the laboratory frequently cannot be
replicated in clinical trials.

Investors should not expect products that we commercialize to perform as
well as preliminary discovery research results in the small numbers of samples
reported by us. In large-scale clinical trials, such as those required by the
FDA, we expect to encounter greater variability and risks including but not
limited to:



| |  |  | obtaining acceptable specimens from patients and healthy
individuals;                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | testing a much larger population of individuals than we tested in
early discovery which will be likely to demonstrate the inherent
biologic variability; 
|
| |  |  | preparing the specimens properly for testing using lower cost, high
throughput methods which may be less reliable than those used in early
discovery; and
|
| |  |  | developing an economic and reproducible test method for the
substance to be measured.                                                                    

We believe that testing the final product in a clinical setting will
result in product performance which may not be as accurate as the results
reported from the discovery phase. Therefore, the best comparative data to be
used in evaluating our product development programs are the results of
physician trials of commercial products such as those reported since 1996 for
products based on NMP22.

We have no demonstrated success in developing proprietary lab procedures
as a profitable service business and any future success will be dependent upon
satisfaction and approval of our clinical lab partners.

We believe the future success of our business will depend not only on the
successful commercialization of our lab test kits and point-of-care devices,
but also in part upon developing a service business based on proprietary
laboratory procedures which will be custom designed to the instrumentation and
techniques of a specific clinical laboratory to measure clinically useful
proteins. We are currently working on development of such proprietary
laboratory procedures using our technologies for prostate and breast cancer,
but we have no demonstrated success in this area. In addition, because we
expect that use of our proprietary lab procedures will likely be confined to a
limited number of licensed clinical laboratories who would be expected to
invest in the development and marketing of a lab testing service specific to
their equipment, processes and personnel, the success of these procedures will
be dependent upon acceptance by the applicable laboratories. Although we may
complete our product development efforts to our satisfaction, we may not obtain
the agreement and approval from our clinical lab partner that the technology
works adequately in their laboratory environment or that it has the medical
performance and information value that they originally expected. Because
proprietary laboratory procedures utilize technologies which are, by their
nature, more sensitive and more operator-dependent than the technologies
involved in products such as lab test kits and point-of-care test devices, the
risks regarding successful commercial acceptance are increased in this area.

We have no demonstrated success in developing cellular analysis systems
and any future success in this area will be highly dependent upon Sysmex.

We believe the future success of our business will also depend, in part,
upon Sysmex Corporation developing a satisfactory Cellular Analysis System to
be used to measure clinically useful cervical cancer proteins. Even if Sysmex
completes its product development efforts to their satisfaction, they are
expected to face significant obstacles (including but not limited to those set
forth in the following paragraph) in developing a system which will be
approved by the FDA and selling such systems to pap smear laboratories at a
satisfactory price. Our success in cervical cancer Cellular Analysis Systems
is





---



##### Table of Contents



almost completely dependent on the success of Sysmex in utilizing our
technology and on their ability to educate physicians, patients, insurers and
their distributors about the medical utility of their new products. Even if
they successfully educate the market, competing products may prevent them from
gaining wide market acceptance.

Successful technical development of our products does not guarantee
successful commercialization.

We may successfully complete technical development for one or all of our
product development programs, but still fail to develop a commercially
successful product for a number of other reasons, such as the following:



| |  |  | failure to obtain the required regulatory approvals for their use;   
| | - |  | ---------------------------------------------------------------------
|
| |  |  | prohibitive production costs;                                        
|
| |  |  | clinical trial results might differ from discovery phase data; and   
|
| |  |  | variation of perceived value of products from physician to physician.

Our success in the market for the diagnostic products we develop will also
depend greatly on our ability to educate physicians, patients, insurers and our
distributors on the medical utility of our new products. Even if we
successfully educate the market, competing products may prevent us from gaining
wide market acceptance.

If we are unable to manufacture the product volumes we need, we will be
unable to achieve profitability.

We have been manufacturing and assembling our test kits for commercial
sales since 1995 but have not yet manufactured these products in the large
volumes which will eventually be necessary for us to achieve profitability. We
may encounter difficulties in scaling up production of new products, including
problems involving:



| |  |  | production yields;               
| | - |  | ---------------------------------
|
| |  |  | quality control and assurance;   
|
| |  |  | component supply; and            
|
| |  |  | shortages of qualified personnel.

These problems could make it very difficult to produce sufficient product
to satisfy customer needs and could result in customer dissatisfaction. We may
not be able to achieve reliable, high-volume manufacturing at a commercially
reasonable cost. In addition, numerous governmental authorities extensively
regulate our manufacturing operations. Failure to satisfy our future
manufacturing needs could result in decreased sales, loss of market share and
potential loss of certain distribution rights.

If we lose the services of our suppliers or assemblers for any reason it
may be difficult for us to find replacements,
we may be forced to modify or cease production of our products and we may be
unable to meet customer commitments.

We currently assemble our NMP22 Lab Test Kits and NMP22 BladderChek
Devices in our Newton facility but we rely on subcontractors for certain
components and processes for each of these products. We do not have
alternative suppliers for certain key components and processes which are
provided by some subcontractors. If the units or components from these
suppliers or the services of these assemblers should become unavailable for
any reason, including their failure to comply with FDA regulations, we would
need to seek alternative sources of supply or assembly. In order to maintain
the FDA acceptance of our manufacturing process, we would have to demonstrate
to the FDA that these alternative sources of supply are equivalent to our
current sources. Although we attempt to maintain an adequate level of
inventory to provide for these and other contingencies, if our manufacturing
processes are disrupted because key components are unavailable, because new
components must be revalidated or because an assembler fails to meet our
requirements, we may be forced to modify our products to enable another
subcontractor to meet our sales requirements or we may be required to cease
production of such products altogether until we are able to establish an
adequate replacement supplier. Disruptive changes such as these may make us
unable to meet our sales commitments to customers. Our failure or delay in
meeting our sales commitments could cause sales to decrease and market share
to be lost permanently, and could result in significant expenses to obtain
alternative sources of supply or assembly with the necessary facilities and
know-how.

Our activities involve the use of hazardous materials, and we may be held
liable for any accidental injury from these hazardous materials.

Our research and development and assembly activities involve the
controlled use of hazardous materials, including carcinogenic compounds.
Although we believe that our safety procedures for handling and disposing of
our hazardous





---



##### Table of Contents



materials comply with the standards prescribed by federal, state and local
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of an accident, we
could be held liable for damages that result, and significant and unexpected
costs, including costs related to liabilities and clean-up, costs from
increased insurance premiums or inability to obtain adequate insurance at a
reasonable price and costs from loss of operations during clean-up.

If the products we distribute which are made by other companies should
become unavailable or not meet quality standards, we may be unable to meet
customer need.

If products we distribute, but do not manufacture, should become
unavailable for any reason, including their failure to meet necessary quality
or performance standards, we would need to seek alternative sources of supply.
If we are unable to find alternative sources of an equivalent product we may be
required to cease distribution of this type of product, which could cause sales
to decrease and market share to be lost permanently. Furthermore, if products
which we distribute, but do not manufacture, should be found faulty, we may be
sued for product-related liabilities, such as loss of reputation of the parties
who purchased the products and provided incorrect information as a result of
their use.

If we are sued for product-related liabilities, the cost could be
prohibitive to us.

The testing, marketing and sale of human healthcare products entail an
inherent exposure to product liability, and third parties may successfully
assert product liability claims against us. Although we currently have
insurance covering our products, we may not be able to maintain this insurance
at acceptable costs in the future, if at all. In addition, our insurance may
not be sufficient to cover large claims. Significant product liability claims
could result in large and unexpected expenses as well as a costly distraction
of management resources and potential negative publicity and reduced demand for
our product.

If our intellectual property is not adequately protected, we could lose
our ability to compete in the marketplace.

Protection of our intellectual property is necessary for the success of
our products. Patent protection can be limited and not all intellectual
property is or can be patent protected. We rely on a combination of patent,
trade secret and trademark laws, nondisclosure and other contractual provisions
and technical measures to protect the proprietary rights in our current and
planned products. We have little protection where we must rely on trade
secrets and nondisclosure agreements and our competitors independently develop
technologies that are substantially equivalent or superior to our technology.
If our competitors develop such technology and are able to produce products
similar to or better than ours, our market share could be reduced and our
revenue potential may decrease.

While we have obtained patents where advisable, patent law relating to the
scope of certain claims in the biotechnology field is still evolving. In some
instances we have taken an aggressive position in seeking patent protection for
our inventions and in those cases the degree of future protection for our
proprietary rights is uncertain. In addition, the laws of certain countries in
which our products are, or may be, licensed or sold do not protect our products
and intellectual property rights to the same extent as the laws of the United
States.

If our intellectual property infringes on the rights of others, we may be
forced to modify or cease production of our products.

We believe that the use of the patents for nuclear matrix protein
technology owned by us or licensed to us, and the use of our trademarks and
other proprietary rights, do not infringe upon the proprietary rights of third
parties. However, we may not prevail in any challenge of third-party
intellectual property rights, and third parties may successfully assert
infringement claims against us in the future. In addition, we may be unable to
acquire licenses to any of these proprietary rights of third parties on
reasonable terms. If our intellectual property is found to infringe upon other
parties proprietary rights and we are unable to come to terms with such
parties, we may be forced to modify our products to make them non-infringing or
to cease production of such products all together.

We may need to stop selling our point-of-care devices if we cannot obtain
a license or a waiver to use the test strip technology.

Our NMP22 BladderChek Device uses test strips composed of an absorbent
material that will soak up urine from a small reservoir at one end of the
container housing the test strip and expose the urine to chemicals and
antibodies arranged on the surface of or imbedded in the test strip. After a
short period of time and after a reaction with our proprietary antibodies, a
test result will appear in a window located on the container housing the test
strip. The manufacture, use, sale, or import of point-of-care products which
include this test strip technology in certain jurisdictions will require us to
obtain patent licenses. We are currently selling NMP22 BladderChek Devices and
are attempting to obtain appropriate licenses or waivers. If we are unable





---



##### Table of Contents



to obtain patent licenses to permit us to make, use, sell, or import such
products in the United States or in certain other jurisdictions, we will have
to stop selling the point-of-care product until the expiration of the relevant
patents or until we are able to arrive at a design solution that uses a
different technology. In addition, we may also be subject to litigation that
seeks a percentage of the profit we have made from the sale of our
point-of-care tests. We have accrued estimated royalties on sales of the NMP22
BladderChek Device based on our estimates of customary royalty rates but have
received no assurances that such accruals will be adequate to pay any royalties
due if and when we complete a licensing agreement.

If we lose or are unable to recruit and retain key management and
scientific personnel, we may be unable to achieve our objectives in a timely
fashion.

We need to attract and retain a highly qualified scientific and management
team. We have at any given time only about fifty employees. While no
individual is irreplaceable, the loss of multiple members of our key
personnel, such as our scientists, at the same time or within close proximity
of each other, or the failure to recruit the necessary additional personnel
when needed with specific scientific qualifications and on acceptable terms
might harm our product and research and development efforts and impede our
business objectives. We face intense competition for qualified scientific
personnel from other companies, research and academic institutions, government
entities and other organizations.

Our success is also greatly dependent on the efforts and abilities of our
management team. The simultaneous loss of multiple members of senior
management might delay achievement of our business objectives due to the time
that would be needed for their replacements to be recruited and become familiar
with our business.

Market volatility and fluctuations in our stock price and trading volume
may cause sudden decreases in the value of an investment in our common stock.

The market price of our common stock has historically been, and we expect
it to continue to be, volatile. This price has ranged between $3.00 and $1.55
in the fifty-two week period prior to October 16, 2003. The stock market has
from time to time experienced extreme price and volume fluctuations,
particularly in the biotechnology sector, which have often been unrelated to
the operating performance of particular companies. Factors such as
announcements of technological innovations or new products by our competitors
or disappointing results by third parties, as well as market conditions in our
industry, may significantly influence the market price of our common stock.
For example, in the past our stock price has been affected by announcements of
clinical trial results and technical breakthroughs at other biotechnology
companies. Our stock price has also been affected by our own public
announcements regarding such things as quarterly earnings, regulatory agency
actions and corporate partnerships. Consequently, events both within and
beyond our control, may cause shares of Matritech stock to lose their value
rapidly.

In addition, sales of a substantial number of shares of our common stock
by stockholders could adversely affect the market price of our shares. In
fiscal year 2002, our shares had an average daily trading volume of only
approximately 71,000 shares. In connection with our recent sale of convertible
debentures and accompanying warrants, we have recently filed a resale
registration statement covering up to 5,371,332 shares for the benefit of our
investors. In addition, in connection with our recent sale of common stock and
accompanying warrants, we are required to file a resale registration statement
covering approximately 5,419,000 shares for the benefit of our investors. We
have also filed resale registration statements in connection with previous
private placements. The actual or anticipated resale by such investors under
these registration statements may depress the market price of our common stock.
Bulk sales of shares of our common stock in a short period of time could also
cause the market price for our shares to decline.

Future financings will result in additional dilution of the ownership
interest of our existing investors and may have an adverse impact on the price
of our common stock.

We will need to raise additional capital in the future to continue our
operations. Any future equity financings will dilute the ownership interest of
our existing investors and may have an adverse impact on the price of our
common stock. We have obtained shareholder approval to conduct a second
closing of the sale of our convertible debentures and accompanying warrants if
we elect to do so and specified stock price levels are obtained. If we proceed
with the second closing or issue any other equity securities, our existing
stockholders percentage ownership will proportionately decrease and our stock
price may decline as a result of the increase in the number of total
outstanding shares.

In addition, the terms of the convertible debentures provide for
antidilution adjustments. On October 15, 2003 and on November 6,
2003 we completed a sale of 3,893,295 shares of our common stock and warrants to
purchase 1,362,651 shares of our
common stock at a price of $2.45 per share for an aggregate consideration of
$6,501,801 (before cash expenses of approximately $800,000).





---



##### Table of Contents



This sale has been deemed to be a dilutive issuance under the terms of the
Convertible Debentures and our March Warrants. As a result, the Convertible
Debentures are currently convertible into 2,673,797 shares of our common stock
at a price of $1.87 per share, representing an increase of 713,012 shares from
the terms of the original issue, and the March Warrants are exercisable to
purchase shares of our common stock at a price of $1.67 per share.

If we do a future financing at a price less than $1.67 per common share (a
New Base Price), the conversion rate of the debentures will be adjusted down
to 112% of the New Base Price and additional shares of our common stock would
be issuable upon such conversion. The terms of the March Warrants also provide
for antidilution protection, so that the exercise price for such warrants would
be adjusted down to the New Base Price in the event of a dilutive financing, or
on a weighted-average basis if there are no longer any convertible debentures
outstanding. The issuance of additional shares upon conversion of the
debentures would result in further dilution of the ownership interest of our
other existing investors, and a decrease in the warrant exercise price may
cause a decline in our stock price.

If a decline in our share price causes the total market value of our stock
to drop below $35 million, we may be delisted from the Nasdaq SmallCap Market
which will affect your ability to buy or sell shares of our stock and might
place us in default under the terms of our convertible debentures.

Our common stock is currently listed on the Nasdaq SmallCap Market. In
order to remain listed on the Nasdaq SmallCap Market, we must, among other
things have a market value of listed securities of $35 million. As of October
16, 2003, we had 35,775,966 shares outstanding, so we would need to maintain a
minimum share price of at least $.98 in order to meet the market value
requirement and, in any event, a minimum bid price of $1.00 in order to meet
another Nasdaq listing requirement. Although our last reported share price as
of October 16, 2003 was $1.93, it was briefly below $1.00 on September 28,
2001, was only $1.68 (average of high and low) as recently as February 19, 2003
and may drop below $1.00 again. If this happens for an extended period of
time, our shares may be delisted from the Nasdaq SmallCap Market.

If our stock is not listed on at least one of the Nasdaq SmallCap Market,
the Nasdaq National Market, the New York Stock Exchange or the American Stock
Exchange for a period of more than ten trading days it may trigger an event of
default under the terms of our convertible debentures. An event of default
would result in our having to pay 120% of the remaining principal plus accrued
interest and damages and, unless we obtained additional financing from another
source, it is unlikely that we would have sufficient capital to make such
payments.

Conviction of our previous auditing firm means that we will not be able to
obtain a consent for inclusion of their auditor report in future SEC filings.

Prior to July 17, 2002, Arthur Andersen LLP served as our independent
auditors. On March 14, 2002, Arthur Andersen was indicted on federal
obstruction of justice charges arising from the governments investigation of
Enron Corporation and on June 15, 2002, Arthur Andersen was found guilty and
subsequently has ceased practicing before the SEC. On July 17, 2002, we
dismissed Arthur Andersen and retained PricewaterhouseCoopers LLP as our
independent auditors for our fiscal year ended December 31, 2002. SEC rules
require us to present historical audited financial statements in various SEC
filings, such as registration statements, along with Arthur Andersens consent
to our inclusion of Arthur Andersens audit report in those filings. In light
of the cessation of Arthur Andersens practice, we will not be able to obtain
the consent of Arthur Andersen to the inclusion of Arthur Andersens audit
report in our future filings. The SEC has provided regulatory relief designed
to allow companies that file reports with the SEC to dispense with the
requirement to file a consent of Arthur Andersen in certain circumstances, but
purchasers of securities sold under our registration statements which were not
filed with the consent of Arthur Andersen to the inclusion of Arthur Andersens
audit report will not be able to sue Arthur Andersen pursuant to Section
11(a)(4) of the Securities Act of 1933 and therefore the purchasers right of
recovery under that section may be limited as a result of the lack of our
ability to obtain Arthur Andersens consent.




Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Investment Portfolio.We own financial instruments that are sensitive to
market and interest rate risks as part of our investment portfolio. The
investment portfolio is used to preserve our capital until it is required to
fund operations including our research and development activities. None of
these market risk sensitive instruments are held for trading purposes. Our
investment policy prohibits investing in derivatives, and we stringently adhere
to this policy. The interest rate on our
Convertible Debentures is fixed and therefore not subject to interest rate
risk. It is suggested that this paragraph be read in conjunction with Note 1
of Notes to the Consolidated Financial Statements  Operations and Significant
Accounting Policies of our Annual Report on Form 10-K for the year ended
December 31, 2002 filed with the SEC (File No. 001-12128).

Foreign Exchange.The financial statements of Matritech GmbH are
translated in accordance with SFAS No. 52, Foreign Currency Translation. The
functional currency of our foreign subsidiary is the local currency (Euro), and
accordingly, all





---



##### Table of Contents



assets and liabilities of the foreign subsidiary are translated using the
exchange rate at the balance sheet date except for intercompany receivables
which are of long-term-investment nature, and capital accounts which are
translated at historical rates. Revenues and expenses are translated at average
rates during the period. Adjustments resulting from the translation from the
financial statements of the Matritech GmbH into U.S. Dollars are excluded from
the determination of net income and are accumulated in a separate component of
stockholders equity. Foreign currency transaction gains and losses are
reported in the accompanying consolidated statements of operations and are
immaterial to the results of operations. We had sales denominated in foreign
currency of approximately $2,212,000 for the nine months ended September 30,
2003.




Item 4. Controls and Procedures.

The Chief Executive Officer and Chief Financial Officer performed an
evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
September 30, 2003 in ensuring the reporting of material information required
to be included in our periodic filings with the SEC.

There were no changes in our internal controls over financial reporting
identified in connection with the evaluation required by Exchange Act Rule
13a-15 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings.

As previously reported in our Form 10-Q filed on August 7, 2003, a former
employee and their spouse filed a claim for damages in December 2002, against
our landlord, One Nevada Realty Trust, Joseph Biotti, Trustee, care of Francis
Biotti, in Superior Court, Middlesex County, Cambridge, Massachusetts. We are
not a named party in the litigation. However, our lease requires that we hold
One Nevada Realty Trust harmless and indemnify it for injuries to persons on
the premises in connection with the Companys use of the premises. There have
been no material developments which we have been made aware with respect to
this legal proceeding.




Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | Exhibits:
| | --- |  | ---------

| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 4.1  |  |  | Securities Purchase Agreement, dated October
15, 2003, between Matritech, Inc. and certain
purchasers of common stock and warrants (filed
as exhibit 4.1 to our Current Report on From
8-K filed October 16, 2003).
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 4.2  |  |  | Registration Rights Agreement, dated October
15, 2003, between Matritech, Inc. and certain
purchasers of common stock and warrants (filed
as exhibit 4.2 to our Current Report on Form
8-K filed October 16, 2003.)
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 4.3  |  |  | Common Stock Purchase Warrant, dated October
15, 2003, between Matritech, Inc. and certain
purchasers of common stock and warrants (filed
as exhibit 4.3 to our Current Report on Form
8-K filed October 16, 2003.)
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 4.4  |  |  | Securities Purchase Agreement, dated as of
October 17, 2003, between Matritech, Inc. and
a purchaser of common stock and warrants.                                                                                 
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 4.5  |  |  | Registration Rights Agreement, dated as of
October 17, between Matritech, Inc. and a
purchaser of common stock and warrants.                                                                                       
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 4.6  |  |  | Common Stock Purchase Warrant, dated as of
November 6, 2003, between Matritech, Inc. and
a purchaser of common stock and warrants.                                                                                 
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 31.1 |  |  | Certification of
Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                     
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 31.2 |  |  | Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.                                                                                                     
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 32.1 |  |  | Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                 
| |  |  |      |  |  |                                                                                                                                                                                                                    
| |  |  | 32.2 |  |  | Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                 



| | (b) |  | Reports on Form 8-K:                                                                       
| | --- |  | -------------------------------------------------------------------------------------------
|
| |     |  | On August 5, 2003, we filed a Current Report on Form 8-K furnishing information on Item 12.
|
| |     |  | On October 16, 2003, we filed a Current Report on From 8-K reporting on Items 5 and 7.     
|
| |     |  | On November 3, 2003, we filed a Current Report on Form 8-K reporting on Items 5 and 7.     





---



##### Table of Contents





| |  |  | On November 4, 2003, we filed a Current Report on Form 8-K furnishing information on Item 12.
| |  |  | ---------------------------------------------------------------------------------------------





---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

|                        |  |                 |  |                                               
|----------------------- |  | --------------- |  | ----------------------------------------------
|                        |  | MATRITECH, INC.
|                        |  |                 |  |                                               
|Date: November 13, 2003 |  | By:             |  | /s/ Stephen D. Chubb                          
|                        |  |                 |  |                                               
|                        |  |                 |  | Stephen D. Chubb                              
|                        |  |                 |  | Director, Chairman and Chief Executive Officer
|                        |  |                 |  | (principal executive officer)                 
|                        |  |                 |  |                                               
|Date: November 13, 2003 |  | By:             |  | /s/ Richard A. Sandberg                       
|                        |  |                 |  |                                               
|                        |  |                 |  | Richard A. Sandberg                           
|                        |  |                 |  | Director, Vice President, Chief Financial     
|                        |  |                 |  | Officer and Treasurer                         
|                        |  |                 |  | (principal accounting and financial officer)