Delaware

56-1959623

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

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

Class		Outstanding at November 12, 2002
Common Stock, par value $0.01 per share		13,548,297

				Page Number
PART I:		FINANCIAL INFORMATION
Item 1		Condensed Financial Statements
		Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001		3
		Statements of Operations (unaudited) for the three months ended September 30, 2002 and 2001 and for the nine months ended September 30, 2002 and 2001		4
		Statements of Cash Flows (unaudited) for the nine months ended September 30, 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		13
Item 4		Controls and Procedures		13
PART II:		OTHER INFORMATION
Item 6		Exhibits and Reports on Form 8-K		14

		September 30, 2002				December 31, 2001
		(unaudited)
Assets
Cash and cash equivalents		$	295			$	2,914
Short-term investments			14,301				8,925
Accounts receivable			2,531				1,985
Inventories			993				1,246
Prepaid expenses			468				263
Total current assets			18,588				15,333
Furniture, fixtures and equipment, net			5,945				6,181
Intangible assets, net			3,004				2,707
Long-term investments			924				1,119
Total assets		$	28,461			$	25,340
Liabilities and Stockholders’ Equity
Accounts payable		$	1,630			$	1,206
Accrued expenses			2,299				2,355
Deferred revenue			1,467				1,182
Capital lease obligations			40				333
Short-term debt obligations			—				936
Total current liabilities			5,436				6,012
Other accrued liabilities			480				100
Deferred revenue			1,889				1,981
Long-term debt obligations			486				—
Total liabilities			8,291				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; 13,547 and 13,508 shares issued and outstanding, respectively			135				135
Additional paid-in capital			49,059				48,521
Accumulated deficit			(29,024	)			(31,409	)
Total stockholders’ equity			20,170				17,247
Total liabilities and stockholders’ equity		$	28,461			$	25,340

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
Product sales		$	5,643		$	4,687		$	16,196		$	12,652
License and product development revenues			258			186			762			546
Total revenues			5,901			4,873			16,958			13,198
Cost of products sold			1,472			1,466			4,749			3,799
Gross profit			4,429			3,407			12,209			9,399
Research, development and regulatory affairs expenses			1,574			1,443			4,917			4,178
General and administrative expenses			2,259			1,356			5,056			4,120
Total operating expenses			3,833			2,799			9,973			8,298
Income from operations			596			608			2,236			1,101
Interest income, net			82			87			226			314
Income before income taxes			678			695			2,462			1,415
Provision for income taxes			98			11			77			21
Net income		$	580		$	684		$	2,385		$	1,394
Shares used in computation of net income per common share:
Basic			13,542			13,484			13,531			13,459
Diluted			13,719			13,814			13,834			13,767
Net income per common share:
Basic		$	0.04		$	0.05		$	0.18		$	0.10
Diluted		$	0.04		$	0.05		$	0.17		$	0.10

		Nine Months Ended September 30,
		2002				2001
Cash flows from operating activities:
Net income		$	2,385			$	1,394
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			907				805
Loss on disposals of fixed assets			1				58
Loss on abandonment of patents			210				95
Change in accounts receivable			(546	)			(1,612	)
Change in inventories			253				(569	)
Change in prepaid expenses			(205	)			205
Change in accounts payable and accrued expenses			748				236
Change in deferred revenue			193				(391	)
Net cash provided by operating activities			3,946				221
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment			(582	)			(513	)
Investment in intangible assets			(597	)			(1,121	)
Purchases of investments			(7,715	)			(6,106	)
Proceeds from the sale of investments			2,534				6,602
Net cash used by investing activities			(6,360	)			(1,138	)
Cash flows from financing activities:
Repayment of debt			(450	)			(401	)
Net proceeds from sale of common stock			538				673
Payments under capital lease obligations			(293	)			(237	)
Net cash provided (used) by financing activities			(205	)			35
Decrease in cash and cash equivalents			(2,619	)			(882	)
Cash and cash equivalents at beginning of period			2,914				1,382
Cash and cash equivalents at end of period		$	295			$	500
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