North Carolina (State or other jurisdiction of Incorporation or organization)		56-2098302 (IRS Employer Identification Number)
9401 Globe Center Drive, Suite 140 Morrisville, North Carolina (Address of Principal Executive Office)		27560 (Zip Code)

Class		Outstanding as of August 6, 2002
Common Stock, no par value		9,570,638

						PAGE
PART I.		FINANCIAL INFORMATION
		Item 1.		Financial Statements
				Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001		3
				Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2002 and 2001 (unaudited)		4
				Consolidated Statements of Cash Flows for the Six Months ended June 30, 2002 and 2001 (unaudited)		5
				Notes to Unaudited Consolidated Financial Statements		6
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
PART II.		OTHER INFORMATION
		Item 4.		Submission of Matters to a Vote of Security Holders		12
SIGNATURES						13

		JUNE 30, 2002				DECEMBER 31, 2001
		(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents		$	9,489			$	14,883
Accounts and other receivables			647				462
Inventories			2,288				2,223
Other current assets			389				242
Total current assets			12,813				17,810
Property and equipment, net			8,410				8,503
Patents and intellectual property, net			540				551
Other noncurrent assets			110				150
Total assets		$	21,873			$	27,014
LIABILITIES, REDEEMABLE PREFERRED STOCK, CONTINGENTLY REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	544			$	741
Accrued expenses			216				723
Deferred revenue, current portion			647				487
Current portion of long-term debt and capital lease obligations			24				23
Total current liabilities			1,431				1,974
Noncurrent liabilities:
Deferred revenue, less current portion			1,101				1,346
Long-term debt and capital lease obligations, less current portion			55				66
Total noncurrent liabilities			1,156				1,412
Total liabilities			2,587				3,386
Series A convertible redeemable preferred stock, no par value; authorized 120,000 shares; 90,500 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively (aggregate liquidation value at June 30, 2002 of $9,050,000)			7,520				7,520
Contingently redeemable common stock			13,232				8,538
Shareholders’ equity:
Common stock, no par value; authorized 40,000,000 shares; 9,577,738 and 9,485,294 issued and outstanding at June 30, 2002 and December 31, 2001, respectively			52,957				57,186
Accumulated deficit			(54,423	)			(49,616	)
Total shareholders’ equity			(1,466	)			7,570
Total liabilities, redeemable preferred stock, contingently redeemable common stock and shareholders’ equity		$	21,873			$	27,014

		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30 2002				JUNE 30 2001				JUNE 30 2002				JUNE 30 2001
Net sales		$	798			$	1,322			$	1,741			$	2,124
Cost of goods sold			721				1,112				1,627				1,858
Gross profit			77				210				114				266
Operating expenses:
General and administrative			899				1,351				1,802				2,226
Sales and marketing			250				364				534				592
Research and development			1,402				931				2,663				1,750
Total operating expenses			2,551				2,646				4,999				4,568
Operating loss			(2,474	)			(2,436	)			(4,885	)			(4,302	)
Other income (expense):
Interest expense			(2	)			(40	)			(5	)			(67	)
Interest income			36				130				80				210
Grant/royalty income			25				12				25				12
Development income			114				50				228				100
Other expense			(22	)			(49	)			(21	)			(47	)
Total other income			151				103				307				208
Net and comprehensive loss			(2,323	)			(2,333	)			(4,578	)			(4,094	)
Dividends on preferred stock			103				144				228				291
Net loss applicable to common shareholders		($	2,426	)		($	2,477	)		($	4,806	)		($	4,385	)
Basic and diluted net loss per common share		($	0.25	)		($	0.28	)		($	0.50	)		($	0.53	)
Average weighted common shares outstanding			9,554,325				8,846,101				9,539,105				8,351,631

		Six Months Ended
		June 30, 2002				June 30, 2001
Cash flows from operating activities:
Net loss		($	4,578	)		($	4,094	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Gain) Loss on sale of assets			(1	)			49
Depreciation			748				555
Amortization of intangible and other assets			74				91
Amortization of discount on investments			—				(31	)
Provision for inventory obsolescence			138				75
Change in operating assets and liabilities:
Accounts receivable			(185	)			(586	)
Inventories			(203	)			(667	)
Other assets			(146	)			(121	)
Accounts payable and accrued expenses			(704	)			(514	)
Deferred revenue			(84	)			884
Net cash used in operating activities			(4,941	)			(4,359	)
Cash flows from investing activities:
Payments for purchase of property and equipment			(662	)			(2,872	)
Disposal of property and equipment			7				—
Costs incurred to obtain patents and intangibles			(24	)			(43	)
Purchases of investments			—				(90