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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

          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:

          Indicate by check mark whether the registrant is an accelerated filter (as defined in Rule 12b-2 of the Exchange Act).

          Indicate the number of shares outstanding of each of the issuer’s classes of the common stock, as of the latest practical date:

Common Stock, $.001 Par Value: 18,189,839 shares outstanding as of April 25, 2003.

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NEUROBIOLOGICAL TECHNOLOGIES, INC.

FORM 10-Q

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PART 1. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)

CONDENSED BALANCE SHEETS

See accompanying notes.

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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

See accompanying notes.

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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

See accompanying notes.

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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)

NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2003

NOTE 1-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

          The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and nine month periods ended March 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 2003.

          The balance sheet at June 30, 2002 has been derived from the audited financial statements of the Company at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

          For further information, refer to the financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

          Net loss per share is presented under the requirements of Financial Accounting Standards Board (“FAS”) No. 128, “Earnings per Share.”  Basic net loss per share is computed based on the weighted average shares of common stock outstanding and excludes any options, warrants, and convertible securities.  Potentially dilutive securities, such as options, warrants, and convertible preferred stock, have been excluded from the computation of diluted net loss per share for the three and nine month periods ended March 31, 2003 and 2002 as their effect is antidilutive.

REVENUE RECOGNITION

          Revenue related to license fees with non-cancelable, non-refundable terms and no future performance obligations are recognized when collection is assured.  Such revenues are deferred and recognized over the performance period if future performance obligations exist.  Non-refundable up-front payments received in connection with research and development activities are deferred and recognized on a straight-line basis over the relevant periods specified in the agreement, generally the research term.  Revenue associated with milestones are recognized as earned, based on completion of development milestones, either upon receipt, or when collection is assured.

STOCK-BASED COMPENSATION

          As permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” (SFAS 148), the Company elected to continue to apply the provisions of Accounting Principle Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations in accounting for its employee stock option and stock purchase plans. The Company is generally not required under APB 25 and related interpretations to recognize compensation expense in connection with its employee stock option and stock purchase plans when exercise prices are not less than fair value.

          Pro forma information regarding net loss and net loss per share is required by SFAS 148 and has been determined as if the Company had accounted for its employee stock options under the fair value method prescribed by the SFAS 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates ranging from 1.27% to 1.78% for the three months ended March 31, 2003, 1.75% to 3.63% for the three months ended March 31, 2002,

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1.27% to 1.78% for the nine months ended March 31, 2003, and 1.75% to 3.63% for the nine months ended March 31, 2002; a dividend yield of 0.0% for the three and nine months ended March 31, 2003 and 2002; a volatility factor of the expected market price of the Company’s common stock of 0.846 as of March 31, 2003 and 2002; and a weighted average expected life of the options of 5 years for the three and nine months ended March 31, 2003 and 2002.

          For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options using the straight-line method. The Company’s pro forma information follows (in thousands).

          The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options and employee stock purchase plans have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair market value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options, nor do they necessarily represent the effects of employee stock options on reported net income (loss) for future years.

NOTE 2-INVESTMENTS

          The following is a summary of available-for-sale investments (in thousands).

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NOTE 3-STOCK REPURCHASE

          In August 2002, the Company’s board of directors authorized the repurchase of up to 500,000 shares of the Company’s common stock.  Depending on market conditions and other factors, repurchases will be made from time to time in the open market and in negotiated transactions, including block transactions and may be discontinued at any time.  As of  March 31, 2003, the Company had repurchased 32,000 shares of common stock under this program at an aggregate purchase price of $86,950.

NOTE 4-COMPREHENSIVE INCOME (LOSS)

          Comprehensive income (loss) is comprised of net income (loss) and unrealized holding gains and losses on available for sale investments (in thousands).

NOTE 5-SUBSEQUENT EVENTS

          In May 2003, we received a $281,230 payment from Merz Pharmaceuticals GmbH under our 1998 strategic research and marketing cooperation agreement, which represents a portion of the payment received by Merz pursuant to Merz’s agreement with H. Lundbeck A/S for the approval of Memantine (Ebixa®) for the treatment of Alzheimer’s disease in Spain.

          In May 2003, we also received a $10,949 payment from Merz under our 1998 strategic research and marketing cooperation agreement, which represents a portion of the royalties received by Merz pursuant to Merz’s agreement with Lundbeck for the quarter ended March 31, 2003.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS

          Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q are forward-looking statements that involve risks and uncertainties.  The factors listed in the section captioned “Risk Factors,” as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those projected.  These forward-looking statements represent our judgment as of the date of the filing.  We disclaim any intent to update these forward-looking statements.

OVERVIEW

          Neurobiological Technologies, Inc. (“NTI®”, “we”, “us”, “our” or the “Company”) is an emerging drug development company focused on the clinical evaluation and regulatory approval of neuroscience drugs.  We are developing neuroprotective and neuromodulatory agents to treat progressive neurological impairments characteristic of various nervous system disorders, including diabetic neuropathy and brain cancer.  Our strategy is to in-license and develop early- and later-stage drug candidates that target major medical needs and which can be rapidly commercialized.

          In April 1998, we entered into a strategic research and marketing cooperation agreement with Merz Pharmaceuticals GmbH and Children’s Medical Center Corporation to further the clinical development and commercialization of Memantine.  Pursuant to this agreement, NTI and Merz share scientific, clinical and regulatory information about Memantine to facilitate regulatory review and marketing approval by the Food and Drug Administration, or FDA, and foreign regulatory authorities.  Pursuant to this agreement, we will share in future revenues from sales of Memantine for all indications in certain geographic markets.  Memantine has been marketed by Merz in Germany since 1989 with the labeling “dementia syndrome”.

          In June 2000, Merz entered into an agreement with Forest Laboratories, Inc. for the development and marketing of Memantine in the United States for the treatment of Alzheimer’s disease, neuropathic pain and AIDS-related dementia.  In August 2000, Merz entered into a strategic license and cooperation agreement with H. Lundbeck A/S of Copenhagen, Denmark for the further development and marketing of Memantine for the treatment of Alzheimer’s disease, neuropathic pain and AIDS-related dementia.  Lundbeck acquired exclusive rights to Memantine in certain European markets, Canada, Australia and South Africa, as well as semi-exclusive rights to co-market Memantine with Merz in other markets worldwide, excluding the United States, where Forest has development rights, and Japan, where Merz has granted development rights to Suntory Ltd.

          In July 2001, Forest initiated the second of two trials necessary for the submission of a New Drug Application, or NDA, with the FDA for diabetic neuropathy.  This is a large-scale, multi-center, double-blind placebo controlled trial to assess the safety and efficacy of Memantine in the treatment of diabetic neuropathy.  We conducted the first such trial with an enrollment of over 400 patients and reported positive results in January 2000.

          In May 2002, Merz announced that Memantine (Ebixa®) was approved by the regulatory authorities in the European Union for the treatment of Alzheimer’s disease.

          In July 2002, Merz received a payment from Lundbeck relating to this approval.  This triggered a $1.4 million payment to NTI in August 2002 from Merz under our 1998 strategic research and marketing cooperation agreement.

          In September 2002, Forest completed a placebo-controlled Phase III study in which a significant benefit was observed when Memantine was combined with donepezil in patients with moderate-to-severe Alzheimer’s disease.  Based on these results, Forest voluntarily withdrew its previously filed NDA and announced that it expected to file a new NDA incorporating the results of the Phase III study.  In December 2002, Forest submitted the new NDA and, in January 2003, Forest announced that the FDA had accepted the filing.  Forest also announced that, under existing FDA procedures, Forest expects to receive an initial action letter from the FDA by the end of 2003.  NTI will receive royalty payments from certain European countries and the United States once sales commence.

          Forest is presently conducting three additional placebo-controlled studies in either mild-to-moderate or moderate-to-severe Alzheimer’s disease.  The results are expected to be used as additional evidence of efficacy.

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          In January 2003, we received a $281,230 payment from Merz under our 1998 strategic research and marketing cooperation agreement, which represents a portion of the payment received by Merz pursuant to Merz’s agreement with Lundbeck for the approval of Memantine (Ebixa®) for the treatment of Alzheimer’s disease in England.  Approval in Spain and France is expected during the quarter ending June 30, 2003.

          Since our founding in 1987, we have applied a majority of our resources to our research and development programs and have generated only limited operating revenue. Except for fiscal 2001, we have incurred losses in each year since our inception and we expect to continue to incur losses over at least the next twelve months due to ongoing research and development efforts.  As of March 31, 2003, our deficit accumulated during the development stage was $39.8 million.

RESULTS OF OPERATIONS

          We had $281,000 of revenue in the three months ended March 31, 2003 and $1,687,000 for the nine months ended March 31, 2003 from Merz under our 1998 strategic research and marketing cooperation agreement, relating to Memantine’s (Ebixa®) approval in Europe for the treatment of Alzheimer’s disease.  There was no revenue for the three and nine months ended March 31, 2002.

          Our research and development expenses decreased to approximately $435,000 for the three months ended March 31, 2003 from approximately $504,000 for the three months ended  March 31, 2002 and increased to approximately $2,020,000 for the nine months ended March 31, 2003 from approximately $1,120,000 for the nine months ended  March 31, 2002.  The nine month increase was primarily due to costs associated with long-term toxicology studies and manufacturing XERECEPT™, while the three month decrease reflects the conclusion to some of those costs.  General and administrative expenses decreased to approximately $624,000 and increased to approximately $1,800,000 for the three and nine months ended  March 31, 2003 from approximately $657,000 and $1,686,000 in the same periods of the prior year.  The nine month increase was primarily due to increased insurance costs, while the three month decrease was primarily due to decreased expenditures in activities related to seeking financing and corporate partnerships.  Interest income decreased to approximately $30,000 and $116,000 in the three and nine months ended March 31, 2003, from approximately $72,000 and $282,000 in the same periods of the prior year due to lower average interest rates and lower average invested cash balances.

          Our two product candidates, Memantine and XERECEPT™, have completed or are in Phase II or Phase III human clinical testing.  To date, we have incurred costs of approximately $8.9 million in the development of Memantine and $15.8 million in the development of XERECEPT.  All future costs for the development and commercialization of Memantine will be borne by Merz and its marketing partners, Forest and Lundbeck.  We expect to incur ongoing costs primarily for Phase II and Phase III clinical trials for our development of XERECEPT and CRH-analogues and related administrative support.  We are currently unable to estimate the costs of completing human clinical trials for XERECEPT due to the uncertainties inherent in conducting clinical trials and seeking regulatory approval for a drug candidate.

          Research and development expenditures are charged to operations, as incurred.  Research and development expenses, including direct and allocated expenses, consist of independent research and development costs and costs associated with sponsored research and development.

LIQUIDITY AND CAPITAL RESOURCES

          From inception through March 31, 2003, we have raised a total of approximately $44 million in net proceeds from the sale of common and preferred stock.

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          We had available cash and cash equivalents and investments of approximately $5.1 million as of March 31, 2003, compared to approximately $7.3 million at June 30, 2002. We believe that our capital resources will be adequate to fund our operations through at least the next twelve months.  In the course of our development activities, we have incurred significant losses, and, although we were profitable in the fiscal year ended June 30, 2001 and the quarter ended September 30, 2002, we expect to incur additional operating losses over at least the next twelve months as we continue our research and development efforts relating to XERECEPT.  We expect to incur substantial costs in fiscal 2003 primarily for Phase II and Phase III clinical trials of XERECEPT and CRH-analogues and related administrative support.  Merz and Merz’s marketing partners will pay all future development costs of Memantine.

          Our future capital requirements will depend on a number of factors, including:

          Our only long-term capital obligation relates to our leased facility in Richmond, California.  Effective August 1, 2002, we entered into a lease agreement for our current premises.  The minimum payment is approximately $89,000 for the one-year term of the lease, which will expire July 2003.  The lease is renewable for two additional one-year periods.

SUBSEQUENT EVENTS

          In May 2003, we received the $281,230 payment from Merz, which represents a portion of the payment received by Merz pursuant to Merz’s agreement with Lundbeck for the approval of Memantine (Ebixa®) for the treatment of Alzheimer’s disease in Spain.

          In May 2003, we also received a $10,949 payment from Merz under our 1998 strategic research and marketing cooperation agreement, which represents a portion of the royalties received by Merz pursuant to Merz’s agreement with Lundbeck for the quarter ended March 31, 2003.

          In May 2003, we announced that the Phase II clinical trials of Memantine for neuropathic pain conducted by Forest had failed to demonstrate a statistically significant difference versus placebo treatment against the primary endpoints of the study.

RISK FACTORS

We are dependent on Merz and its marketing partners Forest and Lundbeck for the successful commercialization of Memantine.

          We had no revenues in fiscal 2002.  All of our revenues in fiscal 2001 and to date in fiscal 2003 have been license fees from Merz related to our portion of payments received by Merz pursuant to its agreements with Forest and Lundbeck, its marketing partners.  The only revenues that we expect to receive in the foreseeable future are our share of payments received by Merz from Forest and Lundbeck and royalties on sales of Memantine made by Merz or its marketing partners.  Although Merz has received approval to market Memantine for Alzheimer’s disease in Europe, we are not entitled to receive royalty payments for Memantine sales for Alzheimer’s disease in some European countries and any commercialization efforts in these markets would not directly benefit us. Under our agreement with Merz, we will receive significantly greater royalties from any sales for indications such as diabetic neuropathy than for sales for Alzheimer’s disease. If Merz is unable to successfully commercialize Memantine, or if Memantine is not commercialized in markets where we are entitled to royalty payments or for indications for which we are entitled to higher royalty payments our revenues would be adversely affected.

          Under certain circumstances, Merz can terminate our agreement upon six months’ notice.  The termination of our agreement with Merz or any failure by Merz or its partners to successfully commercialize Memantine after its development would have a material adverse effect on our business, financial condition and results of operations.

Our product candidates are based on new technologies and therefore are subject to numerous inherent risks of failure. 

          Our product candidates are based on new and relatively unproven technologies.  As a result, these candidates face numerous risks of failure, including the possibility that these candidates may:

          Further, our development activities may not result in any commercially viable products.  Although Merz has received approval to market Memantine for the treatment of Alzheimer’s disease in Europe, Merz and its marketing

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partners may not receive approval to market Memantine for Alzheimer’s disease in the United States or elsewhere, or to market Memantine for other indications.   Failure to obtain regulatory approvals would adversely affect our revenues.

Other than Memantine, we have one potential product that is in clinical development and we may not develop another candidate product that will receive required regulatory approval or be successfully commercialized.

          We are still a development-stage company.  Except for Memantine, which was recently approved for marketing in Europe for the treatment of Alzheimer’s disease, we have only one product, XERECEPT, in clinical development.  The results of our preclinical studies and early-stage clinical trials are not necessarily indicative of those that will be obtained upon further clinical testing of XERECEPT in later-stage clinical trials.  It is possible that XERECEPT will not receive regulatory approval or will not be successfully commercialized.

Our quarterly operating results may fluctuate significantly in future periods, and, as a result, our stock price may fluctuate or decline.

          To date, our revenues have primarily come from licensing fee payments from Merz.  Licensing fee payments and, therefore, our results of operations, may vary significantly from quarter to quarter.  Accordingly, we believe that quarter-to-quarter comparisons of our historical results of operations are not indicative of our future performance.

We have relied and will continue to rely on others for research, development, manufacture and commercialization of our potential products.

          We have entered into various contractual arrangements (many of which are non-exclusive) with consultants, academic collaborators, licensors, licensees and others, and we are dependent upon the level of commitment and subsequent success of these outside parties in performing their responsibilities.  Certain of these agreements place significant responsibility for preclinical testing and human clinical trials and for preparing and submitting submissions for regulatory approval for potential products on the collaborator, licensor or contractor.  If the collaborator, licensor or contractor fails to perform, our business, financial conditions and results may be adversely affected.

          We have also relied on scientific, mechanical, clinical, commercial and other data supplied and disclosed by others in entering into these agreements.  We have relied on this data in support of applications for human clinical trials for our potential products.  Although we have no reason to believe that this information contains errors or omissions of fact, it is possible that there are errors or omissions of fact that would change materially our view of the future likelihood of FDA approval or commercial viability of these potential products.

          We have agreements and licenses with third parties that require us to meet certain due diligence obligations, provide regular reports and make royalty and other payments to such parties.  Our failure to satisfy these obligations could cause us to lose rights to technology or data under these agreements.

The FDA and state and local agencies, and comparable agencies and entities in foreign countries impose substantial requirements on the manufacturing and marketing of human therapeutics through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time consuming procedures.

          Fulfillment of regulatory requirements for marketing human therapeutics typically takes many years and varies substantially based on the type, complexity, and novelty of the drug for which approval is sought.  Government regulation may:

          Either of these effects of government regulation may provide an advantage to our competitors.

          There can be no assurance that FDA or other regulatory approval for any products developed by NTI will be granted on a timely basis or at all.  Any delay in obtaining, or failure to obtain, required approvals would adversely affect the marketing of our proposed products and our ability to earn product revenues or royalties.

          In addition, success in preclinical or early-stage clinical trials does not assure success in later-stage clinical trials.  In later-stage clinical trials, changes in entry criteria or clinical endpoints, among other factors, can cause results to vary significantly from one trial to another, as we have seen in the recently completed Phase I clinical trials of Memantine for diabetic neuropathy. Although Forest has announced its intention to conduct a more detailed analysis of the data from those Phase II studies, the further development of Memantine for this indication will be delayed and could be terminated by Forest.

          Further, as with any regulated product, additional government regulations may be instituted which could delay

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regulatory approval of our potential products.  Additional government regulations that might result from future legislation or administrative action cannot be predicted.

Our success will depend, in large part, on our ability to obtain or license patents, protect trade secrets and operate without infringing upon the proprietary rights of others. 

          The patent position of biotechnology firms generally is highly uncertain because:

          In addition, because of the time delay in patent approval and the secrecy afforded United States patent applications, we do not know if other applications, which might have priority over our applications, have been filed.  Further, because we have non-exclusive licenses to patent rights covering certain uses of XERECEPT, others may develop, manufacture and market products that could compete with those we develop.

          As a result of all of these factors, there can be no assurance that patent applications relating to our potential products or processes will result in patents being issued, or that patents, if issued, will provide protection against competitors who successfully challenge our patents, obtain patents that may have an adverse effect on our ability to conduct business, or be able to circumvent our patent position.

          A number of pharmaceutical and biotechnology companies and research institutions have developed competing technologies and may have patent rights that conflict with our patent rights.  If such a conflict were to develop, the scope of our patent rights could be limited and we may be unable to obtain additional patent rights needed to permit the continuing use of the subject technologies.

          In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information.  It is our policy that each employee enter into a confidentiality agreement that contains provisions generally prohibiting the disclosure of confidential information to anyone outside NTI and requiring disclosure to us of ideas, developments, discoveries or inventions conceived during employment and assignment to us of proprietary rights to such matters related to our business and technology.  However, it is possible that these agreements could be breached.  In addition, others may independently develop substantially equivalent proprietary information and techniques or otherwise learn our trade secrets or disclose such technology.

Because we do not have our own manufacturing facilities, we face risks from outsourcing.

          Merz and Merz’s marketing partners have the responsibility of supplying Memantine for their clinical trials.  We outsource the manufacturing of XERECEPT, which is manufactured by established methods using chemical synthesis to our specifications.  We have performed audits on our contractors who supplied XERECEPT to assess compliance with the current Good Manufacturing Practice, or cGMP, regulations.  Although alternative cGMP suppliers of XERECEPT are available,. we face certain risks by outsourcing manufacturing, including:

          Because of these risks, our dependence on third parties for the manufacture of products may adversely affect our results of operations and our ability to develop and deliver products on a timely and competitive basis.  We currently have no plans to build or develop an in-house manufacturing capability.

Clinical trials or marketing of any of our potential products may expose us to liability claims from the use of such products which our insurance may not cover.

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          We currently have a limited amount of product liability insurance only to cover liabilities arising from clinical trials.  It is possible that our current insurance may not be adequate to cover liabilities arising from our clinical trials.

          Our current product liability insurance does not cover commercial sales of products.  We cannot be sure that we will be able to obtain product liability insurance covering commercial sales or, if such insurance is obtained, that sufficient coverage can be acquired at a reasonable cost.  An inability to obtain insurance at acceptable cost or otherwise protect against potential product liability claims could prevent or inhibit commercialization of any products we develop. 

Further reductions in our staff might delay the achievement of planned development objectives.

          Each person currently employed by us serves an essential function.  We currently employee six persons full-time and five persons part-time.  Any further reductions in work force could impair our ability to manage ongoing clinical trials and may have a material adverse effect on our operations.

The market price of our common stock has been, and is likely to continue to be, highly volatile.

          The average daily trading volume of our common stock has been low compared to that of other biopharmaceutical companies.  Because of our relatively low trading volume, our stock price can be highly volatile.  The closing trading price of our common stock has fluctuated in the twelve months ending March 31, 2003, from a low of $1.90 in July 2002 to a high of $7.79 in January 2003.

          Factors that may cause volatility in our stock price, some of which is beyond our control, include:

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

          In the normal course of business, our financial position is subject to a variety of risks, including market risk associated with interest rate movements.  We regularly assess these risks and have established policies and business practices to protect against these and other exposures.  As a result, we do not anticipate material potential losses in these areas.

          The primary objective for our investment activities is to preserve principal while maximizing yields without significantly increasing risk.  This is accomplished by investing in widely diversified short-term investments, consisting primarily of investment grade securities.  As of March 31, 2003, the fair value of our investments was $3.9 million and 87% of our portfolio will mature in one year or less.  A hypothetical 50 basis point increase in interest rates would not result in a material decrease or increase in the fair value of our available-for-sale securities.  We have no investments denominated in foreign country currencies and therefore our investments are not subject to foreign currency exchange risk.  We do not use or hold derivative financial instruments.

ITEM 4.  CONTROLS AND PROCEDURES

          Based upon an evaluation of the effectiveness our disclosure controls and procedures conducted within 90 days of the date of this report pursuant to Securities Exchange Act Rule 13a-14, our President and Chief Executive Officer has concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to the Company’s operations that is required to be included in our periodic Securities and Exchange Commission filings.  There have been no significant changes in our internal controls subsequent to the date we carried out its evaluation.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURE

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

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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul E. Freiman, certify that:

Date:  May 14, 2003

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Exhibit Index

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