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UNITED STATESSECURITIES
 AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q



|(Mark One)
|----------
|x         
|          
|          
|          
|          
|o         
|          
|          

Matritech, Inc.

---

(Exact Name of Registrant
 as Specified in Its Charter)




|Delaware                                                       | 04-2985132                          
|-------------------------------------------------------------- | ------------------------------------
|                                                               |                                     
|(State or
 Other Jurisdiction ofIncorporation or Organization) | (I.R.S.
 EmployerIdentification 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

As of November 1, 2002, there were 30,678,804
 shares of the Registrants Common Stock outstanding.

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|                                                 |                                                                                               |                                                       |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | CONSOLIDATED BALANCE SHEETS                          
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                
|                                                 |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                
|                                                 |                                                                                               | NOTES TO UNAUDITED, 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                                                              
|                                                 | Item 5. Other Information                                                                    
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|                                                 | CERTIFICATIONS                                                                               
|Ex-99.1 Certification of Chief Executive Officer
|Ex-99.2 Certification of Chief Financial Officer



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MATRITECH, INC.

INDEX



|        |                |                                                                                                                    | Page
|------- | -------------- | ------------------------------------------------------------------------------------------------------------------ | ----
|        |                |                                                                                                                    |     
|PART I  |                | FINANCIAL
 INFORMATION                                                                                             |     
|        | Item 1.        | Financial
 Statements                                                                                              |     
|        |                | Unaudited, Consolidated
 Balance Sheets as of December 31, 2001 and September 30, 2002                             | 3   
|        |                | Unaudited,
 Consolidated Statements of Operations for the three and nine months ended September
 30, 2001 and 2002 | 4   
|        |                | Unaudited,
 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001
 and 2002           | 5   
|        |                | Notes to Unaudited,
 Consolidated Financial Statements                                                             | 6   
|        | Item 2.        | Managements Discussion
 and Analysis of Financial Condition and Results of Operations                             | 7   
|        | Item 3.        | Quantitative
 and Qualitative Disclosures About Market Risk                                                        | 16  
|        | Item 4.        | Controls
 and Procedures                                                                                           | 16  
|PART II |                | OTHER INFORMATION                                                                                                  |     
|        | Item 5.        | Other Information                                                                                                  | 16  
|        | Item 6.        | Exhibits
 and Reports on Form 8-K                                                                                  | 17  
|        | SIGNATURES     | 18                                                                                                                
|        | CERTIFICATIONS | 19                                                                                                                

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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




MATRITECH, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)



|                                                                                                                                            | December 31,2001 |             | September 30,2002
|------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ----------- | -----------------
|                                                                                                                                            |                  |             |                  
|                                                                                                                                            |                  |             |                  
|ASSETS                                                                                                                                      |                  |             |                  
|CURRENT ASSETS:                                                                                                                             |                  |             |                  
|Cash and cash equivalents                                                                                                                   | $                | 4,819,733   |                  
|Accounts receivable, net                                                                                                                    |                  | 291,902     |                  
|Inventories                                                                                                                                 |                  | 337,087     |                  
|Prepaid expenses and other current assets                                                                                                   |                  | 176,748     |                  
|                                                                                                                                            |                  |             |                  
|Total current assets                                                                                                                        |                  | 5,625,470   |                  
|                                                                                                                                            |                  |             |                  
|Property and equipment, at cost:                                                                                                            |                  |             |                  
|Laboratory equipment                                                                                                                        |                  | 1,898,125   |                  
|Office equipment                                                                                                                            |                  | 273,148     |                  
|Laboratory furniture                                                                                                                        |                  | 62,739      |                  
|Leasehold improvements                                                                                                                      |                  | 88,865      |                  
|Automobiles                                                                                                                                 |                  | 33,205      |                  
|                                                                                                                                            |                  |             |                  
|                                                                                                                                            |                  | 2,356,082   |                  
|LessAccumulated depreciation and amortization                                                                                              |                  | 1,636,365   |                  
|                                                                                                                                            |                  |             |                  
|                                                                                                                                            |                  | 719,717     |                  
|                                                                                                                                            |                  |             |                  
|Goodwill, net                                                                                                                               |                  | 132,615     |                  
|Other assets                                                                                                                                |                  | 134,458     |                  
|                                                                                                                                            |                  |             |                  
|Total assets                                                                                                                                | $                | 6,612,260   |                  
|                                                                                                                                            |                  |             |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                        |                  |             |                  
|CURRENT LIABILITIES:                                                                                                                        |                  |             |                  
|Current maturities of notes payable                                                                                                         | $                | 46,366      |                  
|Accounts payable                                                                                                                            |                  | 491,993     |                  
|Accrued expenses                                                                                                                            |                  | 720,201     |                  
|Deferred revenue                                                                                                                            |                  | 29,538      |                  
|                                                                                                                                            |                  |             |                  
|Total current liabilities                                                                                                                   |                  | 1,288,098   |                  
|                                                                                                                                            |                  |             |                  
|Notes payable, less current maturities                                                                                                      |                  | 102,300     |                  
|Deferred revenue                                                                                                                            |                  |            |                  
|                                                                                                                                            |                  |             |                  
|Total liabilities                                                                                                                           | $                | 1,390,398   |                  
|                                                                                                                                            |                  |             |                  
|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28,332,073 shares in 2001 and 30,678,804 shares
 in 2002 |                  | 283,321     |                  
|Additional paid-in capital                                                                                                                  |                  | 67,882,572  |                  
|Deferred compensation                                                                                                                       |                  | (107,146    | )                
|Cumulative translation adjustment                                                                                                           |                  | 5,428       |                  
|Accumulated deficit                                                                                                                         |                  | (62,842,313 | )                
|                                                                                                                                            |                  |             |                  
|Total stockholders equity                                                                                                                  |                  | 5,221,862   |                  
|                                                                                                                                            |                  |             |                  
|Total liabilities and stockholders equity                                                                                                  | $                | 6,612,260   |                  
|                                                                                                                                            |                  |             |                  

See accompanying notes to
 unaudited, consolidated financial statements.

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MATRITECH, INC.CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)



|                                                                        |  | Three Months Ended |            | Nine Months Ended
|----------------------------------------------------------------------- |  | ------------------ | ---------- | -----------------
|                                                                        |  | September 30,      |            | September 30,    
|                                                                        |  |                    |            |                  
|                                                                        |  | 2001               |            | 2002             
|                                                                        |  |                    |            |                  
|Revenues:                                                               |  |                    |            |                  
|Product sales                                                           |  | $                  | 511,739    |                  
|Alliance and collaboration revenue                                      |  |                    |           |                  
|                                                                        |  |                    |            |                  
|Total revenue                                                           |  |                    | 511,739    |                  
|Expenses:                                                               |  |                    |            |                  
|Cost of product sales                                                   |  |                    | 386,153    |                  
|Research, development and clinical                                      |  |                    | 890,274    |                  
|Selling, general and administrative                                     |  |                    | 1,186,035  |                  
|                                                                        |  |                    |            |                  
|Total operating expenses                                                |  |                    | 2,462,462  |                  
|                                                                        |  |                    |            |                  
|Loss from operations                                                    |  |                    | (1,950,723 | )                
|                                                                        |  |                    |            |                  
|Interest income                                                         |  |                    | 35,801     |                  
|Interest expense                                                        |  |                    | 3,711      |                  
|                                                                        |  |                    |            |                  
|Net loss                                                                |  | $                  | (1,918,633 | )                
|                                                                        |  |                    |            |                  
|Basic and diluted net loss per common share                             |  | $                  | (0.07      | )                
|                                                                        |  |                    |            |                  
|Basic and diluted weighted average number of
 common shares outstanding |  |                    | 26,562,051 |                  
|                                                                        |  |                    |            |                  

See accompanying notes to unaudited, consolidated financial statements.

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



|                                                                             | Nine Months Ended September 30,
|---------------------------------------------------------------------------- | -------------------------------
|                                                                             |                                
|                                                                             | 2001                           
|                                                                             |                                
|Cash Flows from Operating Activities:                                        |                                
|Net loss                                                                     | $                              
|Adjustments to reconcile net loss to net cash
 used in operating activities: |                                
|Depreciation and amortization                                                |                                
|Amortization of deferred compensation                                        |                                
|Compensation related to issuance of common stock warrants                    |                                
|Changes in assets and liabilities:                                           |                                
|Accounts receivable                                                          |                                
|Inventories                                                                  |                                
|Prepaid expenses and other current assets                                    |                                
|Other assets                                                                 |                                
|Accounts payable                                                             |                                
|Accrued expenses                                                             |                                
|Deferred revenue                                                             |                                
|                                                                             |                                
|Net cash used in operating activities                                        |                                
|                                                                             |                                
|Cash Flows from Investing Activities:                                        |                                
|Purchases of property and equipment                                          |                                
|                                                                             |                                
|Net cash used in investing activities                                        |                                
|                                                                             |                                
|Cash Flows from Financing Activities:                                        |                                
|Payments on notes payable                                                    |                                
|Proceeds from note payable                                                   |                                
|Proceeds from sale of common stock and warrants                              |                                
|Proceeds from exercise of common stock warrants                              |                                
|Proceeds from exercise of common stock options                               |                                
|Proceeds from issuance of common stock under employee
 stock purchase plan   |                                
|                                                                             |                                
|Net cash provided by financing activities                                    |                                
|                                                                             |                                
|Effect of foreign exchange on cash and cash equivalents                      |                                
|                                                                             |                                
|(Decrease) increase in cash and cash equivalents                             |                                
|Cash and cash equivalents, beginning of period                               |                                
|                                                                             |                                
|Cash and cash equivalents, end of period                                     | $                              
|Supplemental Cash Flow Information:                                          |                                
|Cash paid during the period for interest                                     | $                              
|                                                                             |                                
|See accompanying notes to unaudited, consolidated financial statements.     

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MATRITECH, INC.
NOTES TO UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS
1.  Operations and Basis of Presentation
     Matritech, Inc. (the Company) was
 incorporated on October 29, 1987 to
 develop, produce and distribute products for the diagnosis and potential treatment of cancer based
 on its proprietary nuclear matrix protein technology. This technology was licensed to the Company
 by the Massachusetts Institute of Technology.     The Company
 is devoting substantially all of its efforts toward product research and development, raising
 capital, securing partners and marketing products. The Company is subject to risks common to
 companies in similar stages of development, including a history of operating losses and anticipated
 future losses, fluctuation in operating results, uncertainties associated with future performance,
 near-term dependence on a limited number of products, 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 its operations and the development of its
 future products.     The Company is also actively seeking
 additional long-term funding for its operations from public and private sources including strategic
 collaborations and partnerships. If the Company uses equity to finance its capital needs, such a
 financing could result in significant dilution to existing stockholders. If adequate funds
 are not available, the Company may be required to reduce its fixed costs; to delay, scale back or
 eliminate certain of its services; to sell prematurely some or all of its assets on undesirable
 terms; to merge with or be acquired by another company on unsatisfactory terms; or to cease operations.
 Any of the foregoing steps will have a material adverse effect on the Companys business,
 financial condition and results of operations. There can be no assurance that capital will be
 available on terms acceptable to the Company, if at all.     The
 financial statements included herein have been prepared by the Company, without audit, pursuant to the
 rules and regulations of the Securities and Exchange Commission (SEC) and include, in the opinion
 of management, all adjustments, consisting of normal, recurring adjustments, necessary for a fair
 presentation of interim period results 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, 2001 filed with the SEC
 (File No. 001-12128).     The consolidated financial statements
 include the accounts of the Company and its wholly-owned subsidiary, Matritech GmbH. All significant
 intercompany balances and transactions have been eliminated in consolidation.2.  Recent
 Accounting Pronouncements     Effective January 1, 2002, the
 Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
 Intangible Assets (SFAS 142). This statement requires that goodwill and certain other intangibles no
 longer be amortized, but instead tested for impairment at least annually. The Company has completed the
 impairment test as required by SFAS 142 and, based on the results of this analysis, no impairment of
 goodwill was identified. The Company did not record amortization expense relating to its goodwill
 during the three and nine month period ended September 30, 2002. Goodwill amortization was $22,371
 and $67,113 for the three and nine month period ended September 30, 2001. In the absence of such
 amortization, the Companys adjusted net loss and net loss per common share for the three and nine month
 period ended September 30, 2001 would have been $1,896,262 and $0.07 per share and $6,373,056 and
 $0.24 per share, respectively.     In April 2002, the Financial
 Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44
 and 64, Amendment of FASB Statement No. 13, and Technical Corrections, which is effective for fiscal
 years beginning after May 15, 2002. This statement rescinds the indicated statements and amends other
 existing authoritative pronouncements to make various technical corrections, clarify meanings, or
 describe their applicability under changed conditions. The Company does not expect the adoption
 of this standard will result in a material impact to its financial position or results of operations.6 of 20Table of ContentsIn June 2002, the FASB issued
 SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that
 a liability for a cost associated with an exit or disposal activity be recognized when the
 liability is incurred. The Company does not expect the adoption of this statement to have
 a material impact on the financial statements.3.  Cash Equivalents
     The Company considers all highly liquid investments with original
 maturities of 90 days or less to be cash equivalents. The Company follows the provisions of SFAS No.
 115, Accounting for Certain Investments in Debt and Equity Securities, in accounting for its
 marketable securities. Securities held at December 31, 2001 and September 30, 2002 include only
 cash and cash equivalents, which consist of auction market preferred stocks, a certificate of
 deposit and money market accounts that are classified as held-to-maturity securities.
4.  Inventories     Inventories are stated at the lower
 of cost or market and consist of the following:December 31, 2001

September 30, 2002Raw materials
$
147,234

$
155,942Work-in-process

3,804


2,809Finished goods

186,049


323,553$
337,087

$
482,3045.  Net Loss Per Common Share
     The Company computes earnings per share in accordance with
 SFAS No. 128, Earnings per Share. Basic net loss per common share is computed by dividing net
 loss by the weighted average number of common shares outstanding during the year. Diluted loss per
 share is the same as basic net loss per share as the effects of the Companys potential common
 shares are antidilutive. Potential common shares consists of stock options and warrants as well
 as 22,914 and 12,262 contingently issuable shares of common shares held in escrow in
 connection with the Matritech GmbH acquisition at September 30, 2001 and 2002, respectively. The number
 of antidilutive potential common shares excluded from the computation of diluted loss per share were
 1,598,585 and 3,690,889 for the periods ended September 30, 2001 and 2002, respectively.
6. Common Stock Purchase Agreement     In March 2002, the Company
 completed a private placement of 538,437 units, at a purchase price of $8.00 per unit. Each unit consists
 of four shares of common stock and a warrant to purchase one share of common stock at a price of $3.00 per
 share. The warrants are exercisable until November 30, 2002 and are callable by the Company if certain
 conditions are satisfied. The Company received net proceeds of approximately $4,140,000 after deducting
 transaction expenses.7.  Notes Payable     In July 2002, the
 Company 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 and
 contains a covenant which requires the Company to maintain a cash balance of $250,000 at all times.
 This note is collateralized by the capital equipment. If the ratio of the Companys 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 $410,000.




Item 2.  Managements Discussion
 and Analysis of Financial Condition and Results of Operations     This Quarterly Report on Form 10-Q, other
 reports and communications to securityholders, as well as oral statements made

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

The Company
 was incorporated in 1987 to develop, manufacture and market innovative cancer diagnostic
 products based on its proprietary Nuclear Matrix Protein (NMP) technology.
 The Company has been unprofitable since inception and expects to incur significant
 operating losses for at least the next several years. For the period from inception
 through September 30, 2002, the Company incurred a cumulative net loss of approximately
 $69 million.

In the
 United States, the Company sells its NMP22® Test Kit through a distribution agreement
 with Fisher Healthcare (Fisher) granting Fisher the right, co-exclusive
 with Matritech, to distribute the microtiter plate-based NMP22 Test Kit to hospitals
 and commercial laboratories within the United States. The Company entered into
 an exclusive distribution agreement with Cytogen Corporation (Cytogen)
 granting Cytogen the right to distribute the point-of-care NMP22 BladderChek Test
 within the United States. Outside the United States, the Company
 sells the NMP22 Test Kit and NMP22 BladderChek Test, through its European subsidiary,
 Matritech GmbH, and other distributors.

In July 2002,
 the Company received clearance from the U.S. Food and Drug Administration (FDA) to
 market the NMP22 BladderChek Test in the United States for monitoring
 patients with a history of bladder cancer.

Results of Operations

Three Months Ended September 30, 2002
 Compared with the Three Months Ended September 30, 2001

Total
 revenue increased to $784,000 from $512,000 for the quarters ended September 30,
 2002 and 2001, respectively. The revenue earned in the 2002 period consisted of
 $776,000 of product sales and $8,000 of revenue from various alliances and amortization
 of prepaid marketing fees; the Company is recognizing this alliance revenue over
 the lives of the respective contracts. The revenue earned in the 2001 period consisted
 entirely of product sales. Sales of the Companys NMP22 bladder cancer product
 line totaled approximately $327,000 and $130,000 for the quarters ended September
 30, 2002 and 2001, respectively. Product sales of the allergy products distributed
 by Matritech GmbH totaled approximately $449,000 and $382,000 for the quarters ended
 September 30, 2002 and 2001, respectively. The increase in product sales was primarily
 due to sales of the point-of-care NMP22 BladderChek Test outside the United States
 as well as an increase in the volume of product sales to customers in Europe.

Cost
 of product sales increased to $520,000 from $386,000 for the quarters ended September
 30, 2002 and 2001, respectively. As a percentage of product sales, cost of sales
 decreased to 67% from 75% for the quarters ended September 30, 2002 and 2001, respectively.
 The decrease in cost of sales as a percentage of sales is due to higher margins
 from the newly released NMP22 BladderChek Test and an increase in Matritech GmbHs sales
 of third-party products which carry higher margins than the products
 developed and manufactured by Matritech. Matritech product margins are negatively
 affected by costs related to excess capacity maintained by the Company to support
 expected future sales increases.

Research,
 development and clinical expenses increased to $949,000 from $890,000 for the quarters
 ended September 30, 2002 and 2001, respectively. This increase was largely due
 to increased consulting costs and clinical site payments of $64,000.

Selling,
 general and administrative expenses increased to $1,443,000 from $1,186,000 for
 the quarters ended September 30, 2002 and 2001, respectively. This increase is primarily
 due to increased marketing promotion and consulting costs of $128,000, increased
 salary-related costs of $84,000 due to higher headcount and increased recruiting
 costs of $33,000.

Interest
 income decreased to $16,000 from $36,000 for the quarters ended September 30, 2002
 and 2001, respectively. The decrease was due to a lower average cash balance for
 investment along with lower investment yields.

Nine Months Ended September 30, 2002
 Compared with Nine Months Ended September 30, 2001

Total
 revenue increased to $2,449,000 from $1,695,000 for the nine months ended September
 30, 2002 and 2001,

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respectively.
 The revenue earned in the 2002 period consisted of $2,284,000 of product sales and
 $165,000 of revenue from alliances, collaborations and amortization of prepaid marketing
 fees; the Company is recognizing this revenue over the lives of the respective contracts.
 The revenue earned in the 2001 period consisted entirely of product sales. Sales
 of the Companys NMP22 bladder cancer product line totaled approximately $899,000
 and $473,000 for the nine months ended September 30, 2002 and 2001, respectively.
 Product sales of the allergy products distributed by Matritech GmbH totaled approximately
 $1,385,000 and $1,222,000 for the nine months ended September 30, 2002 and 2001,
 respectively. The increase in product sales was primarily due to sales of the NMP22
 BladderChek Test outside the United States as well as an increase in the volume
 of product sales to customers in Europe.

Cost
 of product sales increased to $1,540,000 from $1,237,000 for the nine months ended
 September 30, 2002 and 2001, respectively. As a percentage of product sales, cost
 of sales decreased to 67% from 73% for the nine months ended September 30, 2002
 and 2001, respectively. The decrease in cost of sales as a percentage of sales is
 due to higher margins from the newly released NMP22 BladderChek Test and an increase
 of Matritech GmbHs sales of third-party products which carry higher margins
 than the products developed and manufactured by Matritech. Matritech product margins
 are negatively affected by costs related to excess capacity maintained by the Company
 to support expected future sales increases.

Research,
 development and clinical expenses increased to $2,931,000 from $2,282,000 for the
 nine months ended September 30, 2002 and 2001, respectively. Consultants, clinical
 site payments and supplies increased a total of $503,000 due to the increased number
 of active projects. Personnel-related costs increased $169,000 due to increased
 headcount and patent application expenses increased $43,000. These increases were
 offset by decreased contract research costs of $55,000.

Selling,
 general and administrative expenses decreased to $4,208,000 from $4,740,000 for
 the nine months ended September 30, 2002 and 2001, respectively. This decrease is
 primarily due to the absence of $1,020,000 of compensation expense in 2002 and decreased
 goodwill expense of $67,000. These decreases were offset by increased salary-related
 expense of $150,000, increased marketing promotion and consulting costs of $195,000,
 increased travel expenses of $66,000 and increased literature, printing and transfer
 agent costs of $92,000.

Interest
 income decreased to $63,000 from $143,000 for the nine months ended September 30,
 2002 and 2001, respectively. The decrease was due to a lower average cash balance
 for investment along with lower investment yields.

Liquidity and Capital Resources

Since
 its inception, the Company has financed its operations primarily through private
 and public offerings of its securities and through funded development and marketing
 agreements. At September 30, 2002 and December 31, 2001, the Company had cash and
 cash equivalents of $2,620,000 and $4,820,000, respectively, and working capital
 of $2,493,000 and $4,337,000, respectively. The Company believes that its existing
 cash resources, plans for equity financings, product sales and corporate partnerships
 will be sufficient to satisfy its capital needs through 2002.

The Company
 is also actively seeking additional long-term funding for its operations from public
 and private sources including strategic collaborations and partnerships. If the
 Company uses equity to finance its capital needs, such a financing could result
 in significant dilution to existing stockholders. If adequate funds are not available,
 the Company may be required to reduce its fixed costs; to delay, scale back or eliminate
 certain of its services; to sell prematurely some or all of its assets on undesirable
 terms; to merge with or be acquired by another company on unsatisfactory terms;
 or to cease operations. Any of the foregoing steps will have a material adverse
 effect on the Companys business, financial condition and results of operations.
 There can be no assurance that capital will be available on terms acceptable to
 the Company, if at all.

The Companys operating
 activities used cash of $6,213,000 and $4,930,000 for the nine
 months ended September 30, 2002 and 2001, respectively, primarily to fund the Companys operating
 loss.

The Companys investing
 activities used cash of $553,000 and $120,000 for the nine months
 ended September 30, 2002 and 2001, respectively, primarily for the purchase of laboratory
 equipment.

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The Companys financing
 activities provided cash of $4,537,000 and $3,844,000 for the nine
 months ended September 30, 2002 and 2001, respectively. The activity in the 2002
 period resulted primarily from proceeds from the sale of common stock and warrants
 and proceeds from a note payable offset by payments on notes payable. The activity
 in the 2001 period resulted primarily from proceeds received from the sale of common
 stock under an equity financing agreement as well as proceeds received from the
 exercise of common stock warrants, net of payments on notes payable.

In March
 2002, the Company completed a private placement of 538,437 units, at a purchase
 price of $8.00 per unit. Each unit consists of four shares of common stock and a
 warrant to purchase one share of common stock at a price of $3.00 per share. These
 warrants are exercisable until November 30, 2002 and are callable by the Company
 if certain conditions are satisfied. The Company received net proceeds of approximately
 $4,140,000 after deducting transaction expenses.

In July
 2002, the Company 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 and contains a covenant which requires
 the Company to maintain a cash balance of $250,000 at all times. This note is collateralized
 by the capital equipment. If the ratio of the Companys 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 $410,000.

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

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

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, management
 has made its best estimates and judgments of certain amounts included in the financial
 statements, giving due consideration to materiality and assuming that the Company
 will continue as a going concern. The Company does 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

     In December
 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, Revenue
 Recognition in Financial Statements. SAB No. 101 requires
 companies to recognize certain upfront non-refundable fees and milestone payments
 over the life of the related alliance when such fees are received in conjunction
 with alliances which have multiple elements or ongoing performance obligations,
 among other things. The Company believes that its revenue recognition policies comply
 with SAB No. 101 and, therefore, the adoption of SAB No. 101 did not have a material
 effect on its future or historically reported operating results. The Company recognizes
 revenue from product sales upon shipment; alliance and collaboration fees over the
 life of the related alliance or collaboration; revenue from marketing agreements
 ratably over the life of the related distribution agreement; and revenue from nonrefundable
 license agreements and research grants as earned over the life of the agreement.

Valuation Allowances

Inventory
          Matritech
 values its inventory account balances at lower of cost or fair value. Management
 analyzes inventory levels quarterly and reviews inventory account balances and compares
 such amounts with sales forecasts and projections, historical revenue trends and
 shelf life of items in inventory. 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 projected by management, additional inventory writedowns
 may be required.

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Accounts Receivable
          Management
 periodically reviews outstanding balances in accounts receivable to determine future
 collections. Based on Companys 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, the Company might be required to take additional write-offs of its
 accounts receivable balances.

Impairment of Long-Lived Assets and Goodwill
          Management
 periodically evaluates the net realizable value of long-lived assets, including
 property, equipment and goodwill, relying on a number of factors including operating
 results, business plans, economic projections and anticipated future cash flows.
 The Company carries its long-lived assets at the lower of cost or net realizable
 value. Since judgment is involved in determining the net realizable value of long-lived
 assets, there is risk that the carrying value of the Companys long-lived
 assets may be overstated or understated.

Effective
 January 1, 2002, the Company adopted SFAS 142. This statement requires that goodwill
 and certain other intangibles no longer be amortized, but instead tested for impairment
 at least annually. The Company has completed the impairment test as required by
 SFAS 142 and, based on the results of this analysis, no impairment of goodwill was
 identified.

Factors That May Affect Future Results

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

Access
 to Capital. The Company will need additional funding to continue to market
 its NMP22 tests for bladder cancer, to conduct research and development, to conduct
 clinical trials and to manufacture and market its products as it currently contemplates.
 The Company is currently seeking to raise additional capital and will consider various
 financing alternatives, including equity or debt financings and corporate partnering
 arrangements. However, the Company may not be able to raise needed capital on terms
 that are acceptable to it, or at all. If the Company does not receive additional
 financing, it may be required to curtail its expenses or take other steps that could
 hurt its future performance including, but not limited to, the premature sale of
 some or all of its assets 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 existing investors in the Company
 and may have an adverse impact on the price of the common stock.

History
 of Operating Losses and Anticipated Future Losses. The Company has incurred
 operating losses since it 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 the development of the Company. These costs have exceeded
 the Companys revenues, which to date have been generated primarily from initial
 sales of its NMP22 tests and other diagnostic products, its development agreements,
 government grants and interest income. The Company expects to incur continuing operating
 losses until gross profits from its product sales are adequate to cover period operating
 costs. The Companys ability to be profitable depends in part on its ability
 to market its existing products, obtain required regulatory approvals and develop
 new products. The Company may not be able to market its existing products successfully,
 obtain required regulatory approvals or develop, commercialize, produce and market
 its future products or achieve or maintain profitability.

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

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

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Reliance
 on Distributors. The Company has limited internal marketing and sales resources
 and personnel. The Company derives a significant portion of its sales revenue from
 distribution agreements with two distributors. Konica Corporation (Konica) has
 an exclusive right to sell the Companys NMP22 Test Kit in Japan.
 Fisher has a co-exclusive right with the Company to sell its NMP22 Test Kit to hospitals
 and commercial laboratories in the United States. In addition, U.S. Summit Company
 (US Summit) has the right to distribute the Companys product in
 South East Asia and the Peoples Republic of China. During the third quarter
 of 2002, the Company entered into an exclusive relationship with Cytogen for the
 marketing and distribution of the Companys NMP22 BladderChek Test to urologists
 in the United States. Because the Company does not deal directly with customers
 when selling through distributors, it depends on the ability of Konica and Fisher
 and, to a lesser extent, US Summit, Cytogen and other current or future distributors
 to develop demand for the Companys products, to market such products actively,
 to forecast demand accurately and to maintain appropriate levels of inventory. The
 Company has minimal control over its distributors, and these distributors are under
 no obligation to purchase a set quantity of the Companys products (although
 in some cases the agreement may be terminable by the Company if certain minimum
 purchases are not made by the distributor). The failure or delay by a distributor
 in selling the Companys products, or any material breach of their agreements
 with the Company could significantly reduce the Companys future revenues.
 The Company may be unable to enter into additional distribution relationships on
 favorable terms, if at all. Such failures, delays or breaches could also reduce
 anticipated future sales growth.

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

Market
 Acceptance of NMP22 Tests. The Company expects to generate a significant share
 of all of the Companys near-term product sales from the sale of the Companys NMP22
 tests. The NMP22 Test Kit was first approved for sale in the United
 States by the FDA in 1996, in Japan by the Koseisho in 1998 and in the Peoples
 Republic of China by the State Drug Administration in 1999. In July 2002, the Company
 received clearance from FDA to market its NMP22 BladderChek Test in the United States
 for monitoring patients with a history of bladder cancer. The Company has submitted
 an application to the FDA for approval to market its NMP22 BladderChek Test in the
 United States for diagnosing certain patients for bladder cancer. The Companys
 results of operations may suffer if the NMP22 tests do not achieve wide market acceptance
 because NMP22 is a major source of sales revenue. The remainder of the Companys
 products under development have not undergone FDA review.

Reliance
 on Sole Supplier. The Company currently relies on sole suppliers for certain
 key components and the assembly thereof for its NMP22 tests. If the components from
 these suppliers or the services of these assemblers should become unavailable for
 any reason, including failure to comply with FDA regulations, the Company would
 seek alternative sources of supply or assembly. The Companys suppliers may
 or may not have undergone inspection by the FDA to ascertain compliance. In order
 to maintain the FDA acceptance of the Companys manufacturing process, the
 Company would have to show that these alternative sources of supply are equivalent
 to its current sources. Although the Company attempts to maintain an adequate level
 of inventory to provide for these and other contingencies, if its manufacturing
 processes are disrupted as a result of a shortage of key components, a revalidation
 of new components or the failure of an assembler to meet the Companys requirements,
 the Company may be unable to meet its commitments to customers. The Companys
 failure or delay in meeting its commitments could cause sales to decrease, market
 share to be lost temporarily or permanently, and could result in significant expenses
 to obtain alternative sources of supply or assembly with the necessary facilities
 and know-how.

Competition. Although the Company is not aware of any other company selling products employing
 NMP technology, 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 clinical cancer diagnostic products. Many of
 these organizations have greater financial, manufacturing, marketing and human resources
 than the Company does.

The Company
 expects that certain of its clinical tests will compete with existing FDA-approved
 clinical tests, including tests known as BTA, UroVysion, and ImmunoCyt bladder
 cancer test, 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 PSA, which is used primarily for monitoring and screening prostate
 cancer; and a test known as TRUQUANT® BR RIA, which is used for monitoring
 breast cancer. The Company is also aware of a number of companies exploring the
 application of oncogene technology to cancer diagnostics. The Companys 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 other technologies that may adversely affect the Companys
 competitive position. As a result, the Companys products may become obsolete
 or non-competitive.

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Future
 Product Development and Marketing. Other than the NMP22 tests and other diagnostic
 products distributed by the Companys European subsidiary, Matritech GmbH,
 all of the Companys products are part of development programs which are not
 expected to generate generally available commercial products in the United States
 for some time. These development programs will require significant additional
 process development, laboratory testing, clinical testing and regulatory approval
 prior to commercializing a new product and involve the use of advanced technical
 methods that require both a high degree of skill and judgment in their application.
 Investors should recognize that the Company may encounter unexpected technical
 difficulties in the course of the development process that it may not be able to
 overcome or may be able to overcome only if it expends additional funds and time.
 For example, in 1998, the Company elected to terminate development of its NuMA candidate
 marker for colon cancer and subsequently announced that a different marker would
 be the primary candidate in its colon cancer program. The Company may not successfully
 complete its product development efforts, and it may not obtain the required regulatory
 approvals. In addition, any future products, if and when introduced, may not be
 successfully commercialized, produced and marketed or achieve customer acceptance.
 Investors should expect that products which reach commercialization will not perform
 as well as the preliminary discovery research results in small numbers of samples
 reported by the Company. The variability and risks the Company faces in its development
 programs, including but not limited to, obtaining proper specimens from patients
 and healthy individuals, testing a much larger cohort of individuals than can be
 accomplished in early discovery, preparing the specimens properly for testing, developing
 an economic and reproducible test method for the substance to be measured and testing
 the final product in a clinical setting, will lead to product performance which
 is very unlikely to be as accurate as the results reported from the discovery phase.
 Furthermore, there is inherent biologic variability which only becomes evident
 when larger numbers of patients are tested, which also influences the variability
 of clinical test results. Therefore, the most important empirical data to be used
 in evaluating the Companys product development programs are the results of
 clinical trials such as those reported since 1996 for products based on NMP22.

Government
 Regulation. The FDA and, in some instances, foreign governments, extensively
 regulate the medical devices that the Company markets and manufactures. The FDA
 regulates the clinical testing, manufacture, labeling, distribution and promotion
 of medical devices in the United States. If the Company fails to comply with the
 FDAs requirements, including Good Manufacturing Practices, as such term is
 defined by the FDA, it may face a number of 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 the Company manufactures or distributes.

Any products
 that the Company or its suppliers manufactures or distributes in accordance with
 FDA clearances or approvals are subject to pervasive and continuing regulation by
 the FDA, including:



| | device manufacturers
 and distributors are required to comply with recordkeeping requirements and to report
 adverse experiences with the use of the device;                                                                                                                              
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | device manufacturers
 are required to register their establishments and list their devices with the FDA
 and are subject to periodic inspections by the FDA and certain state agencies; and                                                                                               
| 
| | devices are
 required to be manufactured in accordance with Good Manufacturing Practices, as
 such term is defined by the FDA, regulations which impose certain procedural and
 documentation requirements on the Company with respect to manufacturing and quality
 assurance activities.

Labeling and
 promotional activities are subject to scrutiny in the United States by the FDA and,
 in certain instances, by the Federal Trade Commission. For example, the NMP22 Test
 Kit has received FDA approval and may be promoted by the Company only as a prognostic
 indicator 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 pre-market clearance or approval has not been obtained. Consequently,
 the Company cannot currently promote the NMP22 Test Kit or any of its other products
 for any unapproved use.

If the Company
 or its suppliers fail to comply with these manufacturing or promotional requirements,
 they may face regulatory enforcement action by the FDA that would prevent the Company
 or its suppliers from manufacturing or selling the

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products, hurt the ability to
 conduct testing necessary to obtain market clearance for these products and reduce
 the potential sales revenues.

The Company
 is also subject to a variety of state laws and regulations in those states or localities
 where its products are or will be marketed. Any applicable state or local regulations
 may hinder the Companys ability to market its products in those states or
 localities. Manufacturers 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. The Company may be required to incur significant costs to
 comply with these laws and regulations now or in the future, which could increase
 future losses or reduce future profitability.

Proprietary
 Technology. The Company relies on a combination of patent, trade secret and
 trademark laws, nondisclosure and other contractual provisions and technical measures
 to protect the proprietary rights in its current and planned products. These protections
 may be inadequate, and the Companys competitors may independently develop
 technologies that are substantially equivalent or superior to its technology. Patent
 law relating to the scope of claims in the biotechnology field is still evolving
 and, therefore, the degree of future protection for the Companys proprietary
 rights is uncertain. In addition, the laws of certain countries in which the Companys products
 are, or may be, licensed or sold do not protect its products and
 intellectual property rights to the same extent as the laws of the United States.

The Company
 believes that the use of the patents for NMP technology owned by it or licensed
 to it, and the use of its trademarks and other proprietary rights, do not infringe
 upon the proprietary rights of third parties. However, the Company may not prevail
 in any challenge of third-party intellectual property rights, and third parties
 may successfully assert infringement claims against it in the future. In addition,
 the Company may be unable to acquire licenses to any of these proprietary rights
 of third parties on reasonable terms.

Licenses. The Company has developed certain point-of-care products which use lateral-flow
 immunochromatographic test strips. The Company is investigating whether the manufacture,
 use, sale, or import of point-of-care products which include the lateral-flow immunochromatographic
 test strips in certain jurisdictions may require the Company to obtain patent licenses
 from third parties and, if appropriate, the Company will attempt to obtain such
 licenses. There is no guarantee, however, that the Company will be able to obtain
 patent licenses, where appropriate, to permit the Company to make, use, sell, or
 import such products in the United States or in certain other jurisdictions.

Healthcare
 Reform. The Companys ability to commercialize successfully its planned
 products will depend in part on the extent to which reimbursement for the cost of
 its 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, either approved
 for investigational use only, or for research use, is at the sole discretion of
 the patients individual carrier. Even if a procedure has been previously approved
 for reimbursement, the insurance carrier may decide not to continue to reimburse
 the procedure. Further, even if in the future the Company does successfully sell
 its products to managed care providers, it is possible that these sales will involve
 significant pricing pressure on its products and keep per-product revenues low.
 Healthcare reform is an area of continuing national attention and a priority of
 many governmental officials. Certain reform proposals, if adopted, could impose
 limitations on the prices the Company will be able to charge in the United States
 for its products or the amount of  reimbursement available for its products from
 governmental agencies or third-party
 payors. While the Company cannot predict whether any of these legislative or regulatory
 proposals will be adopted or the effect that these proposals may have on its business,
 the announcement or adoption of these proposals could hurt its business by reducing
 demand for its products and could hurt its stock price because of investor reactions.

Marketing
 and Sales Force. The Company has limited internal marketing and sales resources
 and personnel. In order to market successfully, the Companys current and
 future products in the United States and other territories in which the Company
 does not, or does not intend to, use third-party distributors, the Company will
 need to develop a larger marketing and sales force with appropriate technical expertise
 and distribution capability. The Company may be unable to establish the marketing
 and sales capabilities that the Company needs, and the Company may be unsuccessful
 in gaining market acceptance for any of the Companys products.

Manufacturing
 Volumes. The Company has been manufacturing and assembling its test kits for
 limited commercial sales since 1995, but has not yet manufactured the large product
 volumes necessary for it to achieve profitability. The Company may encounter
 difficulties in scaling up production of new products, if necessary, including problems
 involving:



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

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

Key Personnel. The Companys success depends, in large part, upon its ability to attract
 and retain a highly qualified scientific and management team. The loss of key personnel
 or the failure to recruit the necessary additional personnel needed for a qualified
 team might impede the achievement of developmental objectives. The Company faces
 competition for qualified personnel from other companies, research and academic
 institutions, government entities and other organizations. The Company may not be
 successful in hiring or retaining qualified scientific or management personnel on
 acceptable terms, given the competition among numerous pharmaceutical and biotechnology
 companies, government entities and research and academic institutions for qualified
 personnel.

Hazardous
 Materials. The Companys research and development activities involve the
 controlled use of hazardous materials. Although the Company believes that its safety
 procedures for handling and disposing of its hazardous 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, the Company could be held liable for damages
 that result, and significant and unexpected costs including costs relating 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.

Product-Related
 Liabilities. 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 the Company. Although the Company currently has
 insurance covering its products, it may not be able to maintain this insurance at
 acceptable costs in the future, if at all. In addition, the Companys 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 the
 Companys product.

Management
 of Foreign Subsidiary. In June 2000, the Company completed the acquisition
 of Matritech GmbH. Although the Company has integrated the operations of this subsidiary
 it still must coordinate geographically separate organizations, manage personnel
 with disparate business backgrounds and adjust to differing corporate cultures.
 There can be no assurance that this subsidiary or its products will be successful
 or that the Company will achieve the financial and strategic objectives for its
 European operations from the transaction.

Foreign
 Exchange. Accounts of the Companys 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, the Company may be exposed to continued
 financial risk. There can be no assurance that the Company will be successful in
 limiting its exposure.

Nasdaq
 National Market Listing Requirements. The Companys common stock is currently
 listed on the Nasdaq National Market. For continued listing of its common stock
 on the Nasdaq National Market, the Company must, among other things, maintain a
 minimum bid price for its common stock of $1.00 per share and a minimum shareholders equity
 of $10 million. The Company does not currently have a shareholders equity
 of $10 million. If the Companys shareholders equity remains
 below $10 million, or if its common stock trades at a price of less than $1.00 for
 30 consecutive business days or more, the Companys shares may be delisted
 from the Nasdaq National Market, and it is the Companys expectation that trading,
 if any, would then be conducted on the Nasdaq SmallCap Market.

For continued
 listing of its common stock on the Nasdaq SmallCap Market, the Company must, among
 other things, (a) maintain a minimum shareholders equity of $2.5 million and
 a minimum market capitalization of $35 million, or (b) have net income from continuing
 operations of $500,000 and, in either case, maintain a minimum bid price for its
 common stock of $1.00 per share. If the Companys common stock trades at a
 price of less than $1.00 for 30 consecutive business days or more, or the Company
 fails to meet the other requirements set forth above, the Companys shares
 may be delisted from the Nasdaq SmallCap Market, and it would be the Companys
 expectation that trading, if any, would then be conducted on NASD OTC Bulletin Board.

Any change
 in the listing of the common stock may materially impair the ability of stockholders
 to buy and sell shares of the common stock and could have an adverse effect on the
 market price of, and the efficiency of the trading market for, the common stock.
 In addition, any change in the listing of the common stock could significantly impair
 the Companys ability to raise capital in the public markets should it desire
 to do so in the future.

Conviction
 of Arthur Andersen LLP. Prior to July 17, 2002, Arthur Andersen LLP (Arthur
 Andersen) served as the Companys independent auditors. On March 14,
 2002, Arthur Andersen was indicted on federal obstruction of justice charges

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arising
 from the governments investigation of Enron Corporation and on June 15, 2002,
 Arthur Andersen was found guilty. Arthur Andersen informed the SEC that it would
 cease practicing before the SEC by August 31, 2002, unless the SEC determined
 that another date was appropriate. On July 17, 2002, the Company dismissed Arthur
 Andersen and retained PricewaterhouseCoopers LLP as its independent auditors for
 its current fiscal year ended December 31, 2002. SEC rules require the Company
 to present historical audited financial statements in various SEC filings, such
 as registration statements, along with Arthur Andersens consent to
 the Companys inclusion of Arthur Andersens audit report in those filings. Since
 the Companys former engagement partner and audit manager have left Arthur
 Andersen and in light of the announced cessation of Arthur Andersens SEC
 practice, the Company will not be able to obtain the consent of Arthur Andersen
 to the inclusion of Arthur Andersens audit report in the Companys relevant
 current and future filings. The SEC recently 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 the Companys 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 the Companys
 ability to obtain Arthur Andersens consent.




Item 3. Quantitative and Qualitative
 Disclosures About Market Risk.

Investment
 Portfolio. The Company owns financial instruments that are sensitive to market
 and interest rate risks as part of its investment portfolio. The investment portfolio
 is used to preserve the Companys capital until it is required to fund operations
 including the Companys research and development activities. None of these
 market-risk sensitive instruments are held for trading purposes. The Company does
 not use derivative financial instruments, as specified in the Companys investment
 policy guidelines; the policy also limits the amount of credit exposure to any one
 issue, issuer, and type of instrument. This paragraph should be read in conjunction
 with Note 1 of Notes to Consolidated Financial Statements  Operations and
 Significant Accounting Policies of the Companys Annual Report on Form
 10-K for the year ended December 31, 2001 filed with the SEC (File No. 001-12128).

Foreign
 Exchange. The accounts of Matritech GmbH are translated in accordance with SFAS
 No. 52, Foreign Currency Translation. In translating the accounts
 of Matritech GmbH into U.S. dollars, assets and liabilities are translated at the
 rate of exchange in effect at year-end, while stockholders equity is translated
 at historical rates. Revenue and expense accounts are translated using the weighted-average
 exchange rate in effect during the period. Foreign currency transaction gains or
 losses for Matritech GmbH are included in the accompanying consolidated statements
 of operations since the functional currency for Matritech GmbH is the Euro. The
 Company had sales of approximately $1,800,000 denominated in foreign currency in
 the nine months ended September 30, 2002.




Item 4. Controls and Procedures

Within the
 90 days prior to the date of this report, 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-14. Based upon that evaluation, the Chief Executive Officer and Chief
 Financial Officer concluded that the Companys disclosure controls and procedures
 are effective in ensuring the reporting of material information required to be included
 in the Companys periodic filings with the Securities and Exchange Commission.

There were
 no significant changes in the Companys internal controls or in other factors
 that could significantly affect these internal controls subsequent to the date of
 the most recent evaluation.




Item 5. Other Information

In accordance
 with Section 10A of the Securities Exchange Act of 1934, as amended by Section 202
 of the Sarbanes-Oxley Act of 2002 (the Exchange Act), non-audit services were
 approved by the Companys Audit Committee to be performed by PricewaterhouseCoopers
 LLP, the Companys independent auditors, principally relating to the following:
 1) assurance services including (a) review of, and assistance with filings made
 by the Company with the SEC, (b) accounting and reporting research and consultations,
 and (c) review of the Companys unaudited quarterly and other interim financial
 statements filed with the SEC under the Exchange Act and any services related thereto;
 and 2) tax related services including: (a) tax advisory services relating to international,
 federal, state and local taxes, including but not limited to, the preparation of
 tax returns for the Company and any subsidiaries; (b) assistance with the processing
 of such tax returns, tax audits, and refund claims associated therewith; and (c)
 tax advisory services relating to issues impacting the Company, including but not
 limited to, stock option and compensation matters and business transactions.

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Item 6. Exhibits and Reports on Form
 8-K



|(a) | Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | 99.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | 99.2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(b) | Reports on
 Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On July 17,
 2002, the Company filed a Current Report on Form 8-K reporting under Item 4, Changes
 in Registrants Certifying Accountants, that the Company had dismissed its
 independent auditors, Arthur Andersen, and engaged the services of PricewaterhouseCoopers
 LLP as its new independent auditors for the Companys fiscal year ending December
 31, 2002. The Companys Audit Committee of the Board of Directors authorized
 the dismissal of Arthur Andersen and the engagement of PricewaterhouseCoopers LLP.

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SIGNATURES

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



|                         |  | MATRITECH,
 INC.
|------------------------ |  | ----------------
|                         |  |                 
|Date: November
 14, 2002 |  | By:             
|                         |  |                 
|Date: November
 14, 2002 |  | By:             

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CERTIFICATIONS

Certifications:

I, Stephen D. Chubb, certify that:



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



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

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

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

| |    |  |                                                                                                                                                                                                                                                                                                                                                                                        
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. |  | The registrants other
 certifying officers and I have indicated in this quarterly report whether
 there were significant changes in internal controls or in other factors that could
 significantly affect internal controls subsequent to the date of our most recent
 evaluation, including any corrective actions with regard to significant deficiencies
 and material weaknesses.

Date: November 14, 2002

/s/ Stephen D. Chubb

Stephen D. Chubb
Chief Executive Officer

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CERTIFICATIONS

Certifications:

I, Richard A. Sandberg, certify that:



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

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

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

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

| |    |  |                                                                                                                                                                                                                                                                                                                                                                                        
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. |  | The registrants other
 certifying officers and I have indicated in this quarterly report whether
 there were significant changes in internal controls or in other factors that could
 significantly affect internal controls subsequent to the date of our most recent
 evaluation, including any corrective actions with regard to significant deficiencies
 and material weaknesses.

Date: November 14, 2002

/s/ Richard A. Sandberg

Richard A. SandbergChief Financial Officer

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