<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                                 Washington, DC

                                    Form 10-Q

(Mark One)

 X   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
---
     Act of 1934

                  For the quarterly period ended March 31, 2002
                                                 --------------

                                       or

___  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

        For the transition period from _____________ to ________________

                         Commission File Number: 0-28748
                                                 -------

                           CLOSURE MEDICAL CORPORATION
                           ---------------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                     56-1959623
          ---------                                    ----------
(State or other jurisdiction                        (I.R.S. Employer
     of incorporation or                           Identification No.)
        organization)

              5250 Greens Dairy Road, Raleigh, North Carolina 27616
              -----------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (919) 876-7800
                                 --------------
              (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
          -


     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

             Class                                  Outstanding at May 10, 2002
             -----                                  ---------------------------

  Common Stock, par value $0.01 per share                     13,530,321

<PAGE>

                           CLOSURE MEDICAL CORPORATION

                                      INDEX

<TABLE>
<CAPTION>
                                                                                           Page Number
                                                                                           -----------
<S>                                                                                        <C>
PART I:     FINANCIAL INFORMATION

     Item 1.  Condensed Financial Statements

         Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001 .........         3

         Statements of Operations (unaudited) for the three months ended March 31,
            2002 and 2001 ..............................................................         4

         Statements of Cash Flows (unaudited) for the three months ended March 31,
            2002 and 2001 ..............................................................         5

         Notes to Condensed Financial Statements (unaudited) ...........................         6

     Item 2.  Management's Discussion and Analysis of Financial Condition and
              Results of Operations ....................................................         8

     Item 3.  Quantitative and Qualitative Disclosure about Market Risk ................        15

PART II:     OTHER INFORMATION

     Item 6.  Exhibits and Reports on Form 8-K .........................................        15
</TABLE>

                                       2

<PAGE>

                          PART I- FINANCIAL INFORMATION

ITEM 1.   CONDENSED FINANCIAL STATEMENTS

                           CLOSURE MEDICAL CORPORATION
                                 BALANCE SHEETS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                     MARCH 31,       DECEMBER 31,
                                                                       2002             2001
                                                                    (unaudited)
                                                                    -----------     ------------
<S>                                                                 <C>             <C>
Assets
Cash and cash equivalents                                            $     2,644     $      2,914
Short-term investments                                                     8,250            8,925
Accounts receivable                                                        2,541            1,985
Inventories                                                                1,064            1,246
Prepaid expenses                                                             219              263
                                                                     -----------     ------------
   Total current assets                                                   14,718           15,333
Furniture, fixtures and equipment, net                                     6,382            6,181
Intangible assets, net                                                     2,792            2,707
Long-term investments                                                      1,865            1,119
                                                                     -----------     ------------
   Total assets                                                      $    25,757     $     25,340
                                                                     ===========     ============

Liabilities and Stockholders' Equity
Accounts payable                                                     $     1,006     $      1,206
Accrued expenses                                                           1,348            2,355
Deferred revenue                                                           1,464            1,182
Capital lease obligations                                                    244              333
Debt obligations                                                             787              936
                                                                     -----------     ------------
   Total current liabilities                                               4,849            6,012
Other accrued liabilities                                                     75              100
Deferred revenue                                                           2,405            1,981
                                                                     -----------     ------------
   Total liabilities                                                       7,329            8,093
                                                                     -----------     ------------
Commitments and Contingencies                                                  -                -

Preferred Stock, $.01 par value.  Authorized 2,000 shares; none
   issued or outstanding                                                       -                -
Common Stock, $.01 par value.  Authorized 35,000 shares;
   13,528 and 13,508 shares issued and outstanding, respectively             135              135
Additional paid-in capital                                                48,855           48,521
Accumulated deficit                                                      (30,562)         (31,409)
                                                                     -----------     ------------
   Total stockholders' equity                                             18,428           17,247
                                                                     -----------     ------------
   Total liabilities and stockholders' equity                        $    25,757     $     25,340
                                                                     ===========     ============
</TABLE>

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

                                       3

<PAGE>

                           CLOSURE MEDICAL CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)


                                                            THREE MONTHS ENDED
                                                        MARCH 31,      MARCH 31,
                                                          2002           2001
                                                        ---------      ---------

Product sales                                           $   5,155      $   3,738
License and product development revenues                      245            179
                                                        ---------      ---------
     Total revenues                                         5,400          3,917
Cost of products sold                                       1,663          1,167
                                                        ---------      ---------
      Gross profit                                          3,737          2,750
                                                        ---------      ---------
Research, development and regulatory affairs expenses       1,600          1,280
General and administrative expenses                         1,373          1,330
                                                        ---------      ---------
      Total operating expenses                              2,973          2,610
                                                        ---------      ---------
Income from operations                                        764            140
Interest income, net                                           98            129
                                                        ---------      ---------
Income before income taxes                                    862            269
Provision for income taxes                                     15              -
                                                        ---------      ---------
Net income                                              $     847      $     269
                                                        =========      =========
Shares used in computation of net income
per common share:

     Basic                                                 13,520         13,441
                                                        =========      =========
     Diluted                                               13,992         13,710
                                                        =========      =========
Net income per common share- basic
     and diluted                                        $    0.06      $    0.02
                                                        =========      =========

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

                                       4

<PAGE>

                          CLOSURE MEDICAL CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

                                                           THREE MONTHS ENDED
                                                       MARCH 31,      MARCH 31,
                                                         2002           2001
                                                       ---------      ---------

Cash flows from operating activities:
Net income                                             $     847      $    269
Adjustments to reconcile net income to net cash
   provided by operating activities:
Depreciation and amortization expense                        277           251
Loss on disposals of intangible assets                        30             -
Change in accounts receivable                               (556)         (752)
Change in inventories                                        182            31
Change in prepaid expenses                                    44            87
Change in accounts payable and accrued expenses           (1,232)         (794)
Change in deferred revenue                                   706          (347)
                                                       ---------      --------
Net cash provided (used) by operating activities             298        (1,255)
                                                       ---------      --------

Cash flows from investing activities:
Purchases of furniture, fixtures and equipment              (461)          (97)
Investment in intangible assets                             (132)         (138)
Purchases of investments                                  (1,593)       (1,135)
Proceeds from the sale of investments                      1,522         1,526
                                                       ---------      --------
Net cash provided (used) by investing activities            (664)          156
                                                       ---------      --------


Cash flows from financing activities:
Repayment of debt                                           (149)         (151)
Net proceeds from sale of common stock                       334           182
Payments under capital lease obligations                     (89)          (76)
                                                       ---------      --------
Net cash provided (used) by financing activities              96           (45)
                                                       ---------      --------
Decrease in cash and cash equivalents                       (270)       (1,144)
Cash and cash equivalents at beginning of period           2,914         1,382
                                                       ---------      --------
Cash and cash equivalents at end of period             $   2,644      $    238
                                                       =========      ========

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

                                       5

<PAGE>

Closure Medical Corporation
Notes to Condensed Financial Statements
(Unaudited)
--------------------------------------------------------------------------------

1.  Organization

Closure Medical Corporation (the "Company" or "Closure") develops, manufactures
and commercializes medical tissue adhesive products based on its proprietary
medical-grade cyanoacrylate technology to be used for human and veterinary wound
care and wound closure. From May 10, 1990 to February 29, 1996, the business of
the Company was conducted by its predecessor, Tri-Point Medical L.P. The Company
was incorporated in Delaware on February 20, 1996.

2.  Significant Accounting Policies

The significant accounting policies followed by the Company for interim
financial reporting are consistent with the accounting policies followed for
annual financial reporting. These unaudited financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, and in management's
opinion, all adjustments of a normal recurring nature necessary for a fair
presentation have been included. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 2001
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.

The results of operations for the three-month period ended March 31, 2002 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 2002.

In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143"). The objectives of
SFAS 143 are to establish accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. SFAS 143 is effective for fiscal years beginning after June 15,
2002. At the present time, the adoption of this standard is not expected to have
a material impact on the Company's financial position or results of operations.

3.  Income Taxes

During the three months ended March 31, 2002, the Company recorded a provision
for income taxes of $15,000, which represents alternative minimum taxes. The
Company utilized a portion of its net operating loss carryforwards to offset
current year taxes. At March 31, 2002, the Company has provided a full valuation
allowance on all deferred tax assets, consisting primarily of net operating loss
and research and development credit carryforwards, because of uncertainty
regarding their realization.

4.  Inventories

Inventories included the following (in thousands):

                                      March 31,         December 31,
                                        2002                2001
                                   ------------        -------------
Packaging                          $        434        $        451
Raw materials                                78                  61
Work-in-process                             149                 309
Finished goods                              403                 425
                                   ------------        ------------
                                   $      1,064        $      1,246
                                   ============        ============

                                        6

<PAGE>

Closure Medical Corporation
Notes to Condensed Financial Statements
(Unaudited)
--------------------------------------------------------------------------------

5.   Net Income Per Share

Basic net income per common share is computed using the weighted average number
of shares of common stock outstanding during the period.

Diluted net income per common share is computed using the weighted average
number of shares of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of stock options using the treasury
stock method and are excluded from the computation if their effect is
antidilutive.

                                       7

<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION ACT OF 1995

The following discussion should be read in conjunction with the unaudited,
condensed financial statements and notes thereto included in Part I--Item 1 of
this Form 10-Q and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2001.

This report and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. When used in this report and the documents incorporated herein by
reference, the words "anticipate," "believe," "estimate," and similar
expressions are generally intended to identify forward-looking statements. These
forward-looking statements include, among others, the statements in Management's
Discussion and Analysis about the following:

..    The risk that the tragedies of September 11, 2001 and their aftermath will
     have an adverse effect on markets and businesses and exacerbate the
     following risks and uncertainties;

..    our expectations with respect to increases in operating expenses;

..    expectations with respect to increases in research and development and
     general and administrative expenses in order to develop new products,
     manufacture commercial quantities of products and fund additional clinical
     trials;

..    expectations with respect to the development, manufacturing and approval of
     new products;

..    expectations with respect to incurring additional capital expenditures to
     expand our manufacturing capabilities;

..    expectations with respect to generating revenue or maintaining
     profitability;

..    our ability to enter into additional marketing agreements and the ability
     of our existing marketing partners to successfully commercialize products
     incorporating our technologies;

..    the sufficiency of our existing cash, cash equivalents and investments to
     finance our capital requirements for at least 12 months; and

..    expectations with respect to future capital requirements.

There are important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements including,
but not limited to, the following:

..    a decline in the level of demand for our products;

..    developments by competitors;

..    our inability to obtain regulatory clearances;

..    general economic conditions and specifically, conditions in the health care
     industry;

..    our ability to protect our proprietary products, know-how and manufacturing
     processes;

                                        8

<PAGE>

..    our inability to obtain adequate supply of raw materials;

..    the failure to enter into definitive marketing agreements;

..    unanticipated cash requirements to support current operations or research
     and development; and

..    our ability to attract and retain key personnel.

These and other risks and uncertainties affecting Closure are discussed in
greater detail in this report and in other filings by Closure with the
Securities and Exchange Commission.

OVERVIEW

We develop, manufacture and commercialize medical tissue adhesive products for
wound care and wound closure for the professional healthcare, over-the-counter,
or OTC, and veterinary markets based on our proprietary medical grade
cyanoacrylate technology. To date, we have commercialized nonabsorbable products
for topical use and our research efforts include the development of absorbable
formulations for internal use.

Our flagship product, DERMABOND adhesive, is sold to healthcare professionals
and can be used professionally to rapidly close, seal and protect wounds and
incisions from infection, and to stop leakage of blood and other body fluids
from injured tissue. This product allows natural healing to proceed by closing
and sealing injured tissue without the trauma caused by suturing or stapling. We
believe that using DERMABOND adhesive results in enhanced patient and physician
benefits such as lower overall procedure costs and is easier and quicker to use
than sutures or staples.

We have other products that are marketed in the OTC adhesive bandage and the OTC
oral pain relief markets. BAND-AID(R) Brand Liquid Bandage quickly seals,
protects and stops bleeding from minor cuts and scrapes. SOOTHE-N-SEAL(R)
adhesive provides a protective barrier that shields oral ulcers and sores from
irritation caused by eating and drinking while providing immediate and long-term
pain relief.

In addition, we have two veterinary products in our NEXABAND(R) product line
that are used in cat declaw procedures as well as spay and neuter procedures.

We have entered into marketing partnerships with third parties that distribute
and market our current products to professionals and consumers. Our partners
include Ethicon, Inc., a Johnson & Johnson company; Johnson & Johnson Consumer
Products Company; Colgate Oral Pharmaceuticals, Inc.; Johnson & Johnson Wound
Management; and Abbott Laboratories, Inc.


PRODUCTS

DERMABOND Topical Skin Adhesive
-------------------------------
Our flagship product, DERMABOND adhesive, is a nonabsorbable, topical tissue
adhesive that can be used to close wounds from skin lacerations, incisions,
minimally invasive surgery and plastic surgery. DERMABOND adhesive is used as an
alternative for topical sutures or staples, including as an adjunct to
subcuticular sutures or staples which are used for internal tissue closure.
Suturing and stapling involve puncturing healthy tissue in order to align and
close the wound. These procedures may allow leakage or cause additional scarring
at the puncture sites, require anesthetics, are time consuming in their
application, and generally require return patient visits and physician time to
remove the sutures or staples. DERMABOND adhesive may be applied quickly, may
not require anesthetics, does not induce trauma to surrounding tissues and may
not require return visits to the physician for removal. DERMABOND adhesive is
not intended for use on high skin tension areas such as the hands, feet or
across joints.

                                        9

<PAGE>

Although the unit cost is greater than sutures or staples, we believe that the
use of DERMABOND adhesive results in lower overall procedure costs because it
may reduce treatment time and the need for anesthetics, simplify post-closure
wound care and eliminate suture or staple removal. The DERMABOND adhesive
clinical trial demonstrated the product to be at least equivalent to topical
nonabsorbable U.S.P. size 5.0 or smaller diameter sutures, staples or adhesive
strips/tapes in wound closure, wound healing, cosmetic outcome and infection
rate, and also demonstrated that the use of DERMABOND adhesive substantially
reduced procedure time and inflammation. Moreover, we recently received approval
from the U.S. Food and Drug Administration, or FDA, to include in DERMABOND
adhesive's device labeling that it acts as a barrier to microbial penetration
and protects against the two most common bacteria that cause infection,
staphylococcus and pseudomonas. Sutures and staples have not been shown to
protect against microbial penetration.

In March 1996, we entered into an exclusive worldwide agreement with Ethicon to
market and distribute DERMABOND adhesive. On August 28, 1998, we received
premarket approval to market DERMABOND adhesive in the United States and Ethicon
launched the product in September 1998. Additionally, Ethicon has been
distributing DERMABOND adhesive outside the United States since late 1997 and is
currently marketing DERMABOND adhesive in approximately 35 foreign countries and
regions, including Japan.

BAND-AID(R) Brand Liquid Bandage
--------------------------------
In January 2001, we received FDA clearance to market our liquid bandage, which
is the first and only cyanoacrylate medical device approved by the FDA for the
OTC adhesive bandage market. Clinical trials demonstrated the effectiveness of
our proprietary nonabsorbable formulation as compared to traditional adhesive
bandages when applied to minor cuts and abrasions. In the clinical trials, it
was found that our liquid bandage speeds wound healing, provides a superior
barrier to bacteria that cause infections versus traditional adhesive bandages,
stops bleeding and can help to reduce the pain associated with minor cuts and
abrasions. Our liquid bandage utilizes the same proprietary technology as our
professional product, DERMABOND adhesive.

We have entered into an agreement providing Johnson & Johnson Consumer Products
Company, or CPC, with worldwide supply, distribution and development rights to
our liquid bandage technology. The agreement includes rights to the liquid
bandage and future OTC products, excluding our SOOTHE-N-SEAL(R) adhesive
technology. During February 2002, CPC began the marketing and distribution of
our liquid bandage as BAND-AID(R) Brand Liquid Bandage to retail outlets such as
Wal-Mart and CVS. In addition, CPC is conducting a consumer oriented marketing
campaign that is currently underway.

SOOTHE-N-SEAL(R) canker sore relief
-----------------------------------
In 1999, we were granted FDA clearance to market SOOTHE-N-SEAL(R) adhesive,
which was the first cyanoacrylate adhesive approved by the FDA for the OTC
consumer market. In clinical trials, SOOTHE-N-SEAL(R) adhesive was found to
provide immediate and long-term pain relief associated with oral ulcers, as well
as providing a protective barrier that shields oral ulcers and mouth sores from
irritation due to eating and drinking. SOOTHE-N-SEAL(R) adhesive utilizes the
same proprietary technology as our professional product, DERMABOND adhesive.

In December 2000, we entered into an agreement providing Colgate Oral
Pharmaceuticals, Inc. with exclusive worldwide supply, distribution and
development rights to SOOTHE-N-SEAL(R) adhesive technology. Beginning in the
second quarter of 2001, Colgate began distributing SOOTHE-N-SEAL(R) adhesive to
national retail outlets such as Wal-Mart, Eckerd Drug, Rite-Aid and CVS.
Colgate's 2001 marketing approach to create product awareness included
distributing sample units through direct mail campaigns and its sales force to
professionals such as dentists and pharmacists. We currently expect a similar
approach to continue during 2002.

NEXABAND(R) veterinary adhesives
--------------------------------
We have developed two topical tissue adhesive products under the NEXABAND(R)
trade name for use in veterinary wound closure and wound care. NEXABAND(R)
Liquid Topical Tissue Adhesive, designed for use in cat declaw surgeries,
reduces procedure time and provides superior results by sealing exposed nerve
endings and reducing leakage and irritation. NEXABAND(R) S/C Topical Tissue
Adhesive is specially developed for the topical closure and sealing of surgical
incisions, including those made during spay and neuter procedures. NEXABAND(R)
S/C


                                       10

<PAGE>

Topical Tissue Adhesive has been shown to reduce tissue reaction, while
providing an effective barrier against water, dirt and infection.

In July 2001, we entered into an agreement providing Abbott Laboratories, Inc.
with worldwide supply, distribution and development rights to the NEXABAND(R)
product line which is currently being distributed by Abbott in the United States
and the United Kingdom.

PRODUCTS IN DEVELOPMENT

We are currently developing additional nonabsorbable and absorbable tissue
adhesive products. These future products require further development and are
subject to clinical trials and regulatory clearance or approval before
commercialization.

Nonabsorbable
-------------

We are currently developing a liquid occlusive dressing, or LOD, to treat
partial thickness wounds such as pressure ulcers and skin tears. The LOD
formulation is transparent thereby permitting enhanced wound assessment. It is
being developed to adhere directly to the wound tissue, allowing the product to
conform to various wound sizes and shapes, flex with the skin and provide a
barrier to infection. To date, we have completed animal research as well as a
10-patient human pilot clinical study for pressure ulcers. A second pilot
clinical study is underway to further define the LOD wear time and wound healing
rates versus leading dressings in the category. Based on the outcomes from the
completed pilot studies, we anticipate the initiation of a definitive,
multi-center clinical study within the next several months allowing for FDA
approval through the 510(k) premarket clearance. In November 2001, distribution
and development rights for our professional wound management products, including
LOD, were granted to Johnson & Johnson Wound Management, a division of Ethicon,
through an amendment to the terms of our existing licensing and development
agreement with Ethicon.

In February 2001, we entered into a Cooperative Research and Development
Agreement with Walter Reed Army Medical Center and the Uniformed Services
University of the Health Sciences to conduct animal research related to the
development of a novel, minimally invasive treatment for emphysema called
Endobronchial Lung Volume Reduction, or ELVR. Currently, surgeons perform a Lung
Volume Reduction procedure through open chest surgery. This procedure involves
removing the diseased lung and allowing healthier lung tissue to expand more
easily. In performing ELVR, our proprietary medical adhesive will be delivered
using a bronchoscope and small catheter to achieve bronchial occlusion without
the need for open chest surgery. Once occluded, dysfunctional lung tissue would
collapse and allow for healthier lung tissue to expand. We are currently
conducting a second animal study that was initiated in December 2001 and will
focus on refining the ELVR procedure and optimizing the formulation prior to
entering additional studies.

Absorbable
----------

In 1998, we established our Internal Products Development team, or IPD, to
develop our absorbable/degradable adhesive products. The IPD is comprised of
dedicated scientists with extensive surgical device development experience who
are developing several biocompatible cyanoacrylate formulations that may
potentially be used for internal tissue bonding or sealing applications. The IPD
also is performing synthesis, formulation design, development of analytical
methods and in vitro testing to establish the characteristics of the unique
biocompatible cyanoacrylate formulations. Through collaborations with leading
research institutions, the formulations are being evaluated using various in
vivo models to assess potential surgical use in a broad range of soft and hard
tissue applications. These formulations and future absorbable products require
further development and will be subject to clinical trials and regulatory
clearance or approval prior to commercialization.

                                       11

<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue recognition. Except for DERMABOND adhesive and NEXABAND adhesives,
revenues from product sales are recognized upon shipment which is when title is
transferred. The sales price of DERMABOND adhesive and NEXABAND adhesives is
ultimately determined by the sales price of the product to the ultimate
customer. Initially, we recognize revenue at an agreed-upon amount per unit at
the time these products are shipped. For DERMABOND adhesive and NEXABAND
adhesives, our marketing partners provide a summary of their sales on a
quarterly basis, and at that time, we recognize additional revenue in an amount
equal to the difference between the previously recognized amount and the actual
sales price received by the marketing partners. In addition, we recognize
royalty revenue for DERMABOND adhesive. Advance payments received by us that
relate to future sales of product or future royalties due on these sales are
deferred and recorded as revenue as they are earned over future periods.

Non-refundable fees received upon the execution of marketing and distribution
agreements for which Closure has an ongoing commitment to provide product are
deferred and recognized ratably over the period of the related agreement
pursuant to SEC Staff Accounting Bulletin No. 101. Under these marketing and
distribution agreements, we may receive additional milestone payments after the
execution of the contract. Because these payments are based on events or
achievements that may be outside of our control, we are unable to reasonably
estimate the amount of revenue, if any, that we might receive in the future
under our agreements. Potential payments under existing contracts could total
$2.9 million over the next two years assuming that all criteria are achieved.
The revenue related to these payments would be deferred and recognized ratably
over the period of the related agreement, which could extend as far out as 2011
for certain agreements.

Intangible assets. Intangible assets consist primarily of patents and licenses.
Costs incurred to secure patents and obtain licenses are capitalized until
either the related patent or license is issued or obtained, in which case they
are amortized over the shorter of their remaining economic or useful lives,
generally fifteen years for patents, or they are rejected or abandoned, in which
case they are written off. On an ongoing basis, Closure evaluates the adequacy
of its patent and license carrying values.

Inventories. Inventories are stated at the lower of cost (first-in, first-out)
or market. Closure evaluates its inventory for obsolete or unmarketable
inventory on an ongoing basis.

Income taxes. Income taxes are computed using the asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In estimating future tax consequences, we
generally consider all expected future events other than enactment of changes in
tax law or rates. A valuation allowance is recorded if realization of some
portion or all of a deferred asset cannot be reasonably assured. On a quarterly
basis, we consider all positive and negative evidence, including our earnings
history and existing contracts and partnerships, to determine whether it is more
likely than not that certain deferred tax assets will be recovered in the
future. Despite achieving profitability in fiscal 2001 and the first quarter of
2002, we believe a full valuation allowance is necessary at March 31, 2002 due
to the limited earnings history coupled with uncertainties surrounding future
market conditions.

Related parties. On January 1, 1998, we entered into an agreement with Innocoll
GmbH, of Saal-Donau, Germany, pursuant to which we pay Innocoll $180,000 per
year for five years. Innocoll acts as Closure's authorized representative in
Europe under the Medical Device Directive and will provide alternative
manufacturing space as needed. Two members of the Company's Board of Directors
own 99% of the equity of Innocoll.

RESULTS OF OPERATIONS

Revenues. Total revenues for the three months ended March 31, 2002 were $5.4
million compared to $3.9 million for the corresponding period of 2001. The
increase primarily relates to increased acceptance of DERMABOND adhesive as well
as the product launch sales of BAND-AID(R) Brand Liquid Bandage.

Cost of products sold was $1.7 million for the three months ended March 31, 2002
compared to $1.2 million for the same period of 2001. Cost of products sold as a
percentage of product sales were comparable, 32% and 31% for the three months
ended March 31, 2002 and 2001, respectively. Although 2002 sales volume
increased, this percentage remained fairly constant due to the mix of the
products during 2002 including the lower margin BAND-AID(R) Brand


                                       12

<PAGE>

Liquid Bandage initial product sales. We expect that future gross margins on
product sales will fluctuate based on production volumes and the relative
proportion of professional and OTC products.

Operating expenses were $3.0 million for the three months ended March 31, 2002
and $2.6 million for the same period of 2001. The increase in operating expenses
for the first quarter is primarily due to an increase in research and
development expenses which included clinical trial expenses for a DERMABOND
adhesive line extension, designed to increase the viscosity of the original
product, as well as expenses related to pilot clinical studies for our liquid
occlusive dressing product.

Net interest income was $98,000 for the three months ended March 31, 2002,
compared to $129,000 for the three months ended March 31, 2001. Total interest
income decreased due to the continued lower investment yields as a result of
market interest rate changes during fiscal 2001. Interest expense also declined
due to the continued reduction of our term loan balance and capital lease
obligations through monthly principal payments coupled with a decline in
interest rates associated with those obligations.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations to date primarily through the sale of equity
securities, borrowings from lenders, license and product development revenues
and product sales. Our principal sources of liquidity include cash, cash
equivalents and marketable investments, which totaled $12.8 million at March 31,
2002.

Closure has a $3.0 million line of credit, of which there were no borrowings
against at March 31, 2002, that extends through May 2002. In addition, we have
an equipment term loan of which the balance was $787,000 at March 31, 2002. In
May 2002 when the term loan matures, the balance will be approximately $690,000.
At that time, the lender may allow us to renew the loan under terms similar to
the existing agreement. If we are unable to renew, the entire balance of
$690,000 will be immediately due and payable.

Our capital lease obligation at March 31, 2002 was $244,000 and is classified as
a current liability. Upon expiration of the leases in 2002, we are required to
purchase primarily all of the equipment for the fair market value. The fair
market value, which we expect to be approximately $130,000, is to be equal to no
less than 5% and no more than 10% of the original equipment cost.

Capital Expenditures

There are no individually material capital expenditure commitments outstanding
as of March 31, 2002. We estimate that capital investments for 2002 will
approximate $1.0 million. We believe that our balances of cash, cash
equivalents, and investments together with funds generated from operations and
existing borrowing facilities will be sufficient to meet our operating cash
requirements and fund required capital expenditures for the foreseeable future.

Research and Development

During 2001, Closure spent approximately $5.6 million in research, development
and regulatory affairs expenses. We expect continued increases in our research
and development activities in order to maintain a competitive advantage. As a
result, we anticipate that research and development expenses will increase for
the next several years as we develop new products and line extensions for
existing products. We also expect that clinical trials related to new products
and line extensions will be costly and represent a significant part of future
expenses. Research, development and regulatory affairs expenses consist of items
related to personnel, costs of supplies, clinical trials, facility costs and
fees paid to consultants and outside contractors and are expensed as incurred.
We are reimbursed for a fixed percentage of research and development expenses
related to projects approved under cost sharing arrangements with marketing
partners. These reimbursements are recorded as a reduction in research,
development and regulatory affairs expenses on a quarterly basis. We cannot
estimate the costs to complete our internal research and development projects
due to uncertainties regarding successful completion of projects, clinical trial
outcomes, regulatory approvals and cost sharing arrangements with partners. We
believe that funds for future research and development needs can be obtained
from existing cash and investment balances and from cash generated from


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operations. However, no assurance can be given that we may not require
additional funds to support the completion of new product development, conduct
clinical trials and obtain regulatory approvals.

Cash Flows

Net cash provided by operating activities was $298,000 for the period ended
March 31, 2002 compared to cash used of $1.3 million for the same period in
2001. The increase in cash provided by operations was primarily due to the
increase in net income and the increase in deferred revenue related to the
receipt of a development milestone payment during the 2002 period.

Net cash used by investing activities was $664,000 for the three months ended
March 31, 2002 compared to cash provided by investment activities of $156,000
during the 2001 period. The net cash used during 2002 primarily related to the
purchase of fixed assets and the investment in intangible assets of
approximately $593,000 versus the 2001 spending of $235,000 for those assets.

Net cash provided by financing activities was $96,000 for the three months ended
March 31, 2002 compared to cash used of $45,000 for same period in 2001. The
increase in net cash provided by financing activities was primarily the $152,000
increase in proceeds from the sale of common stock. Repayment of debt
obligations remained fairly consistent from period to period.

Based on our current plans, we believe that existing cash, cash equivalents and
investments, which totaled $12.8 million as of March 31, 2002, will be
sufficient to finance our operating and capital requirements for at least 12
months. We anticipate that our recurring operating expenses will increase for
the next several years, as we expect research, development and regulatory and
general and administrative expenses to increase in order to develop new
products, manufacture in commercial quantities and fund additional clinical
trials. We also may invest in long-term assets such as intangible assets and
capital expenditures to expand our manufacturing capabilities.

Our future capital requirements, however, will depend on numerous factors,
including but not limited to the following:

..    our ability to manufacture and commercialize successfully our lead product,
     DERMABOND adhesive;
..    the progress of our research and product development programs for future
     nonabsorbable and absorbable products, including clinical studies;
..    the effectiveness of product commercialization activities and marketing
     agreements for our future products, including the scale-up of manufacturing
     capabilities for increased capacity in anticipation of product
     commercialization and development and progress of sales and marketing
     efforts;
..    our ability to maintain existing marketing agreements, including our
     agreement with Ethicon for DERMABOND adhesive, and establish and maintain
     new marketing agreements;
..    our ability to achieve product development milestones;
..    the costs involved in preparing, filing, prosecuting, defending and
     enforcing intellectual property rights and complying with regulatory
     requirements;
..    the effect of competing technological and market developments;
..    timely receipt of regulatory clearances and approvals;
..    general acceptance of our products by the medical community and consumers;
     and
..    general economic conditions.

We may be required to seek additional capital to finance our operations in the
future. If our currently available funds and internally generated cash flow are
not sufficient to satisfy our financing and operating needs, we will be required
to seek additional funding through bank borrowings, additional public or private
sales of our securities, including equity securities, or through other
arrangements with marketing partners. Other than our capital lease obligations,
term loan and working capital line of credit, we have no credit facility or
other committed sources of capital. There can be no assurance that additional
funds, if required, will be available to us on favorable terms, if at all.

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Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

We are subject to interest rate risk on our investment portfolio which consists
primarily of high quality short-term money market funds, commercial paper and
corporate bonds with an average maturity of less than one year. We mitigate
default risk by investing in what we believe are safe and high credit quality
securities and by monitoring the credit rating of investment issuers. The
portfolio includes only marketable securities with active secondary or resale
markets to ensure portfolio liquidity and there are limitations regarding
average and individual duration of investments. These available-for-sale
securities are subject to interest rate risk and will decrease in value if
market interest rates increase. At March 31, 2002, our total portfolio consisted
of approximately $12.8 million of cash, cash equivalents and investments, the
majority of which had average maturities within one year. Additionally, we
generally have the ability to hold fixed income investments to maturity.
Therefore, we do not expect our results of operations or cash flows to be
materially affected due to a sudden change in interest rates.

FOREIGN CURRENCY EXCHANGE RISK

Our international sales and related royalties of DERMABOND adhesive are based on
sales in foreign currencies. However, all of our sales to customers are payable
in U.S. dollars and we may be adversely affected by fluctuations in currency
exchange rates. Additionally, fluctuations in currency exchange rates may
adversely affect demand for our products by increasing the price of our products
in the currency of the countries in which the products are sold.

                           PART II- OTHER INFORMATION

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Exhibits.
          None.

     (b)  Reports on Form 8-K.
          None.

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                                   SIGNATURES

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

                                      CLOSURE MEDICAL CORPORATION



Date: May 14, 2002                    By: /s/ Robert V. Toni
                                         ---------------------------------------
                                         Robert V. Toni
                                         President and Chief Executive Officer

Date: May 14, 2002                    By: /s/ Benny Ward
                                         ---------------------------------------
                                         Benny Ward
                                         Vice President of Finance and Chief
                                         Financial Officer