<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the fiscal year ended September 29, 2001 or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

                         Commission file number 0-17885

                        BEI MEDICAL SYSTEMS COMPANY, INC.

             (Exact name of Registrant as specified in its charter)

                  Delaware                                71-0455756
------------------------------------------   -----------------------------------
(State or other jurisdiction of incorporation         (I.R.S. Employer
                  or organization)                    Identification No.)

                               100 Hollister Road
                           Teterboro, New Jersey 07608
               ---------------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (201) 727-4900
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None
                                      ----

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value
                          -----------------------------

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]

The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of December 11, 2001 was $42,210,150 (A). As
of December 11, 2001, 9,836,855 shares of Registrant's Common Stock were
outstanding.

(A) Based upon the closing sale price of the Common Stock on December 11, 2001,
as reported on the Nasdaq National Market System. Excludes 3,241,519 shares of
Common Stock held by directors, executive officers and stockholders whose
ownership exceeds ten percent of Common Stock outstanding on December 11, 2000.
Exclusion of shares held by any person should not be construed to indicate that
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of Registrant, or that such person is
controlled by or under common control with Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant's Proxy Statement with respect to its 2002 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission is
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report.

                                       1
<PAGE>

<TABLE>
<CAPTION>

                                                     TABLE OF CONTENTS
                                                                                                               PAGE
PART I
<S>                        <C>                                                                                 <C>
         Item 1.           Business.......................................................................        3

         Item 2.           Properties.....................................................................       30

         Item 3.           Legal Proceedings..............................................................       30

         Item 4.           Submission of Matters to a Vote of Security Holders............................       30

PART II
         Item 5.           Market for Registrant's Common Equity and
                           Related Stockholder Matters....................................................       31

         Item 6.           Selected Financial Data........................................................       32

         Item 7.           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations..................................       33

         Item 7a.          Qualitative and Quantitative Disclosures about Market Risks....................       39

         Item 8.           Financial Statements and Supplementary Data....................................       40

         Item 9.           Changes in and Disagreements with Accountants
                           on Accounting and Financial Disclosure.........................................       64

PART III
         Item 10.          Directors and Executive Officers
                           of the Registrant..............................................................       65

         Item 11.          Executive Compensation.........................................................       65

         Item 12.          Security Ownership of Certain Beneficial
                           Owners and Management..........................................................       65

         Item 13.          Certain Relationships and Related Transactions.................................       65

PART IV
         Item 14.          Exhibits, Financial Statement Schedules,
                           and Reports on Form 8-K........................................................       66

Signatures                 ...............................................................................       71

</TABLE>

                                       2
<PAGE>

                                     PART I

     This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. You can identify these forward looking
statements when you see us using, words such as, "intend," "anticipate,"
"believe," "estimate," "expect" and similar expressions. The Company's actual
results, performance or achievements could differ materially from those
anticipated in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in Item 1, "Business," including "Risk Factors," as well as Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These forward-looking statements are based on current expectations,
and the Company assumes no obligation to update this information.


ITEM 1. BUSINESS


Overview

     BEI Medical Systems Company, Inc. is a medical technology company focused
on commercializing its proprietary Hydro ThermAblator(R) (HTA(R)) for women's
health. This therapeutic system is designed for a minimally invasive treatment
of menorrhagia, or abnormal uterine bleeding, that occurs due to benign causes.
The HTA was approved by the Food and Drug Administration (FDA) to be marketed in
the United States in April 2001.

     Menorrhagia is a common disorder characterized by unusually heavy
menstruation or prolonged menstrual flow. The average amount of blood loss
during a normal menstrual period is 40 to 60 milliliters, whereas women
suffering from menorrhagia often experience blood loss of 80 milliliters or
more. The causes of menorrhagia may include hormone imbalance, fibroids (benign
uterine growths), pelvic infection, ovarian cysts, tumors and intrauterine
devices. While rarely signifying a serious underlying disorder, menorrhagia
interferes with normal lifestyle activities and may cause anemia. Unresolved
menorrhagia may lead to the need for a hysterectomy, the surgical removal of the
uterus. An estimated 150,000 of the 600,000 hysterectomies performed annually in
the United States are performed to treat menorrhagia due to benign causes. Over
2.5 million women annually visit their gynecologists with the primary complaint
of excessive uterine bleeding.

     The HTA was specifically designed for use in performing endometrial
ablation, which entails the destruction under controlled conditions of the
endometrium, the lining of the uterus. Endometrial ablation is an alternative to
hysterectomy for women with menorrhagia due to benign causes. The HTA is a
portable treatment unit, which utilizes low-pressure gravity-fed, and externally
heated physiologic saline under microprocessor control to continuously circulate
heated fluid within the uterine cavity under direct hysteroscopic visual
control. The HTA treatment using the hysteroscopic approach can be performed on
an outpatient basis in a hospital, ambulatory surgical center or in a doctor's
office using a local anesthetic. The procedure typically takes less than thirty
minutes.

     In the Company's multi-center, pivotal, Phase III clinical trial, treatment
using the HTA completely eliminated uterine bleeding in 40% of the patients for
whom 12-month follow-up data is available, while an additional 42% exhibited a
decrease in uterine bleeding to normal levels or less. The HTA treatment
resulted in an overall average reduction in uterine bleeding of 85%.

     BEI's sales and marketing strategy is primarily focused on the use of
existing distribution channels that are well established in the medical device
industry within the United States.


                                       3
<PAGE>

Using these distribution channels, BEI will be able to gain access to
experienced sales representatives already in touch within the gynecological
community, BEI's target audience.

     When seeking reimbursement from insurance companies, managed-care
organizations and other payors of the HTA treatment, gynecologists are able to
use an existing CPT-4 Procedure Code for endometrial ablation using
hysteroscopic control. BEI Medical Systems believes this should accelerate the
process of acceptance of the Hydro ThermAblator by the gynecological community
and healthcare providers.


Company Background

     Prior to September 27, 1997, BEI Medical Systems Company, Inc. was known as
BEI Electronics, Inc. ("Electronics") and was engaged in businesses other than
the medical device business. On September 27, 1997, having transferred all of
its non-medical device businesses to BEI Technologies, Inc. ("Technologies"), a
wholly owned subsidiary, in exchange for all of Technologies' outstanding common
stock, Electronics distributed that stock to its stockholders in a tax-free
spin-off of Technologies (the "Distribution"). On November 4, 1997, Electronics
merged with its subsidiary, BEI Medical Systems Company, Inc., and changed its
name to BEI Medical Systems Company, Inc. When we refer to the "Company," "we"
or "BEI" in this Annual Report on Form 10-K, we mean BEI Medical Systems
Company, Inc.

     On December 8, 1999, BEI completed the sale of a substantial portion of the
assets of the Company to CooperSurgical Acquisition Corp., ("CSAC"), pursuant to
an Asset Purchase Agreement, dated October 1, 1999, (the "Asset Sale"). The
assets sold constituted a business of developing, manufacturing, marketing and
servicing a broad array of advanced systems and devices for minimally invasive
diagnostic and therapeutic procedures in the medical fields of gynecology and
gastroenterology (the "Base Business"). During the fiscal year ended September
30, 2000, approximately 96.8% of the Company's revenue was derived from sales of
products of the Base Business. In consideration for the sale of the Base
Business, the Company received, after post closing adjustments, $10.3 million in
cash. In addition, CSAC assumed certain liabilities and contracts of the
Company, and CooperSurgical, Inc. waived royalty payments in the amount of up to
$100,000 that otherwise may have been due in the future from the Company. In
addition, the Company and CSAC entered into a Noncompetition Agreement which
prohibits the Company from engaging in any business that competes with any of
the products the Company sold to CSAC, prior to December 8, 2004. The Company
retained the right, in certain circumstances, to narrow substantially the scope
of such noncompetition covenant.

     Following the Asset Sale, the Company has focused its efforts on developing
and commercializing a new therapeutic system, the HTA for treatment of
menorrhagia or dysfunctional uterine bleeding. On April 20, 2001, the FDA issued
its approval to market in the United States the Hydro ThermAblator endometrial
ablation system to ablate the endometrial lining of the uterus in pre-menopausal
women with menorrhagia (dysfunctional uterine bleeding) due to benign causes for
whom child bearing is complete. The approval is subject to standard FDA
conditions, including labeling and advertising requirements, expiration dating
of the procedure sets, use by physicians having received training in diagnostic
hysteroscopy, and three-year follow-up of pivotal trial study patients. This new
product and its potential are more fully discussed below. See "Business--Risk
Factors ."


Industry Overview

     Women's healthcare represents a large and rapidly expanding segment of
healthcare expenditures. Government spending on women's healthcare for Medicare
and Medicaid benefits alone is expected to exceed $200 billion annually. Women
rely on their gynecologists for specific healthcare needs from puberty, through
their childbearing years, to menopause and beyond.

                                       4
<PAGE>

The National Ambulatory Care Survey, conducted by the National Center for Health
Statistics, indicates that women in the United States make over 51 million
visits to OB/GYN offices annually. Additionally, as the women's population ages,
the number of visits annually and the incidence of gynecological conditions
requiring diagnosis and treatment are anticipated to increase. The Company
believes that better informed women, combined with the fact that nearly half of
the gynecologists under the age of 45 are women, has resulted in a heightened
awareness of women's health issues. As a result, women are driving the demand
for the implementation of new and innovative diagnostic and therapeutic
procedures.

     Minimally invasive surgical techniques have been developed in response to
the desire by physicians, patients and payors for safer, less traumatic,
minimally invasive surgical procedures with reduced anesthesia requirements.
Minimally invasive procedures may reduce anesthesia requirements, do not require
extensive post-operative follow-up, reduce the risk of post-operative
complications, and shorten the recovery period, allowing patients to return to
routine lifestyle activities sooner. Gynecologists are showing increased
interest and are offering endometrial ablation to their patients with an
outpatient reduced anesthesia approach.

The Female Reproductive System

     The female reproductive system primarily consists of the uterus, ovaries
and fallopian tubes. The uterus is a highly vascular, muscular organ, which lies
below the abdomen in the pelvis. Although the size and shape of a normal uterus
can vary significantly, the uterus is typically a pear shaped organ about 7 to 8
cm long and 4 to 5 cm at its widest point. Within the uterus lies the cavity
where fetal development takes place during pregnancy. The cavity is lined by the
endometrium, which is filled with tiny blood vessels. The endometrium can vary
in depth from 1 mm to over 10 mm. The thick muscular layer surrounding the
endometrium is called the myometrium. The bottom of the uterus is known as the
cervix. The cervix is richly supplied with nerves, making it the most sensitive
portion of the uterus. The cervix leads to the vagina, a muscular tube that
leads to the exterior of the woman's body.

     Normal menstruation is a 28-day cycle that repeats itself throughout a
woman's reproductive life. This cycle is controlled by the interaction between
pituitary and ovarian hormones and is associated with the release of an egg from
its ovary for possible fertilization. The ovaries secrete estrogen and a second
hormone, progesterone, which causes the endometrial lining to thicken, preparing
it to receive and nourish a fertilized egg. If an egg is fertilized, it implants
into the endometrium and is nourished by the rich endometrial blood supply. If
the egg is not fertilized, levels of estrogen and progesterone decrease, the
coil shaped arteries supplying the endometrium with blood constrict, and the
endometrial lining breaks down and is shed during menstruation. Menstruation
typically begins between the ages of 11 and 14 years and ends between the ages
of 45 and 55 with the onset of menopause, correlating with the diminution of
ovarian function and hormonal production. At that time, the menstrual cycle
becomes irregular and eventually ceases completely.

Abnormal Uterine Bleeding

     Approximately 2.5 million women each year in the United States seek medical
treatment from their gynecologists for abnormal uterine bleeding. Abnormal
uterine bleeding includes disorders of the menstrual cycle, such as irregular
bleeding, and menorrhagia, or dysfunctional uterine bleeding, which is defined
as total blood loss exceeding 80 ml per menstrual cycle or prolonged bleeding
beyond seven days. Abnormal bleeding is considered a symptom of an anatomic
irregularity, hormonal imbalance or a systemic disease. Commonly, however, it is
the result of disorders within the uterus itself, such as fibroids or polyps
and, more rarely, endometrial cancer. Abnormal uterine bleeding can also be
caused by other factors, including medication side effects from post-menopausal
hormone replacement therapy, miscarriage and retained tissue after childbirth.
Today, there are over 31 million post-menopausal women in the


                                       5
<PAGE>

United States and over seven million are receiving hormonal replacement therapy.
These women may experience a return to undesired menstrual bleeding as a
consequence of hormonal replacement therapy.

     Various drug therapies and surgical approaches are available for treatment
of abnormal menstrual bleeding. Treatment of abnormal menstrual bleeding usually
begins conservatively with drug therapy and, if necessary, proceeds to more
invasive surgical methods.

     The traditional approach to treatment of menorrhagia, or dysfunctional
uterine bleeding has included hormonal therapy, dilation & curettage ("D&C") or
dilation & evacuation ("D&E"), and ultimately hysterectomy. Hormonal therapy can
be effective in many cases, however, the therapy can be of long-term duration at
considerable monthly expense and menorrhagia may persist despite hormonal
therapy. D&C is commonly performed, although a significant percentage of the
endometrial lining of the uterus may be missed, and there is little evidence
that D&C provides any meaningful long-term benefit. Many of the nearly two
million women who annually receive hormonal therapy or D&C fail to have
satisfactory resolution of their dysfunctional bleeding problem.

     Hysterectomy, the surgical removal of the uterus with accompanying risks of
post surgical complications, has historically been the ultimate solution offered
for long-term relief to women who continue to bleed despite hormonal therapy or
D&C. Of the approximately 600,000 hysterectomies performed annually in the
United States, it has been estimated that more than 150,000 are performed for
the relief of heavy bleeding from benign causes. Considerable public attention
has been focused on the frequency with which hysterectomy is performed,
suggesting that many of the procedures for benign conditions may be addressed
with minimally invasive alternatives.

Alternative Treatments

     Rather than removing the uterus, alternative non-surgical approaches to the
treatment of dysfunctional uterine bleeding have been attempted.

     The first successful endometrial ablation procedures, utilizing laser
photovaporization of the endometrium, were published in 1981 in the Journal of
the American Association of Gynecologic Laparoscopists. By 1990, reports
appeared regarding the successful use of a urologic resectoscope to deliver
electrosurgical current as the means of coagulating the endometrium. Both of
these surgical endometrial ablation techniques require significant distention of
the uterus to create working space. A risk of excessive absorption of
non-conductive or salt free fluid into the vessels of the uterus also exists due
to the high pressures ranging from 100 to 150 mmHg used to distend the uterine
cavity. When a significant amount of this non-physiologic fluid is absorbed, the
resulting fluid overload can cause hyponatremia (dilution of body fluids
resulting in electrolyte imbalance), pulmonary edema or fluid in the lungs, and
cerebral edema or swelling of the brain. Even deaths have been reported.

     Both of these surgical ablation techniques require the tedious "painting"
of the entire lining of the uterus to control depth of thermal destruction, as
well as attention to safety issues such as perforation or hemorrhage throughout
the typical 30 to 60 minutes required to complete treatment of the entire lining
of the uterus under general anesthesia. While these surgical endometrial
ablation techniques offer advantages over traditional hysterectomy, clinical
results are extremely dependent on the skill and experience of the surgeon. In
general, because of the technical proficiency required to achieve good results,
the time required to complete the procedure, and the risks associated with laser
and electrosurgical roller-ball ablation, neither of these ablation techniques
have become widely popular.

     The FDA has approved several other non-surgical methods for treatment of
dysfunctional uterine bleeding over the last few years. These devices are
generally referred to as "global" or "second / next generation" endometrial
ablation devices. These devices which are intended to

                                       6
<PAGE>

ablate the uterine lining using a variety of different methods include balloons
filled with heated fluid, a balloon with electrodes on the surface, a probe
utilizing cryogenics to freeze tissue in the uterus, and a bipolar probe
incorporating an expandable conductive mesh that utilizes a vacuum for tissue
contact. Other non-surgical techniques for treatment of dysfunctional uterine
bleeding are reportedly under development and in various stages of FDA clinical
trials. These devices include a probe to deliver microwave energy and a device
utilizing laser energy.

     The Company believes that these devices are limited in their effectiveness
due to their inability to fully conform with the convoluted surface of the
entire uterine lining, their inability to reach into narrow cornual areas, and
their inability to conform to the shape of a broad range of uterine sizes.
Further, none of these devices allow the gynecologist to visualize the uterine
cavity prior to treatment, to confirm the absence of pathology that may be
missed during screening, to definitively confirm proper placement of the device
inside the uterine cavity, to observe treatment, or to immediately evaluate the
effect of treatment, because they do not include hysteroscopic capability. In
March 1998, the United Kingdom Department of Health, Medical Devices Agency,
notified medical administrators, surgeons and nurses of reports of a number of
incidents of uterine perforation and injury to adjacent organs involving devices
for endometrial ablation by thermal means. The notice advised practitioners to
verify the correct placement of such devices within the uterus prior to their
use. The Company believes the HTA will reduce the risk of perforation due to its
integral hysteroscope, which provides visual confirmation of uterine anatomy and
verification of instrument position. The characteristics of various endometrial
ablation technologies currently under development or commercialization are
outlined below.




                                       7
<PAGE>

<TABLE>
<CAPTION>

                 Comparison of Endometrial Ablation Technologies

<S>                     <C>                  <C>              <C>                    <C>               <C>
======================= ==================== ================ ====================== ================= ==================

                                                                                       Compatibility
                                                                                         With Large
                                                                  Location and          and Abnormal       Distension
        Device               Technology         Method of           Type of               Shaped         of the Uterine
      / Company               Employed        Introduction        Energy Source           Uterus            Cavity
======================= ==================== ================ ====================== ================= ==================
Hydro ThermAblator      Circulation of       Direct visual    Circulation to               High          Low Pressure,
                        heated normal saline control,         uterus through                              50 - 55 mmHg
/ BEI                   with  hysteroscopic  connected to     hysteroscope,
                        control              video monitor    external heater

----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
ThermaChoice   / J&J    Balloon filled       Blind insertion  Heater inside              Limited        High Pressure,
          &             with heated fluid                     balloon, inside                            170-200 mmHg
Cavaterm /                                                    uterus, external
Wallsten                                                      control unit
----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
Vesta System            Balloon with         Blind insertion  Electrodes inside          Limited       High Pressure,
/ Tyco                  electrodes                            uterus with external                     180+ mmHg
                                                              return electrode,
                                                              external
                                                              electrosurgical
                                                              generator
----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
Her Option              Cryogenic probe      Blind insertion  Internal probe,            Limited        Not applicable
                                                              external cryogenic
/ CryoGen                                                     unit
----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
NovaSure                Probe with           Blind insertion  Electrodes inside          Limited            Vacuum
                        expandable mesh,                      uterus, external
/ Novacept              bipolar electrode                     electrosurgical
                                                              generator
----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
MEA System              Probe with           Blind insertion  Applicator within          Limited        Not applicable
                        microwave                             uterus, external
/ Microsulis            applicator tip                        microwave generator
----------------------- -------------------- ---------------- ---------------------- ----------------- ------------------
Gynelase                Probe with           Blind insertion  External diode laser       Limited        Not applicable
                        multiple laser                        generator, laser
/ Sharplan              fibers                                probe inside uterus
======================= ==================== ================ ====================== ================= ==================


</TABLE>

                                       8
<PAGE>

The Hydro ThermAblator or HTA

The Hydro ThermAblator Solution

     The Company has developed the patented HTA technology as an alternative to
existing treatments for menorrhagia, or dysfunctional uterine bleeding, as well
as other proposed ablation treatments currently under development.

     The Company believes that the patented HTA offers the following distinct
advantages over existing and known emerging ablation technologies for the
treatment of dysfunctional uterine bleeding:

     ^    Integral hysteroscope provides visual confirmation of uterine anatomy
          and instrument position, as well as continuous observation of
          treatment effect throughout the entire procedure;

     ^    Variation in uterine size and shape are easily accommodated by freely
          circulating heated saline;

     ^    Freely circulating heated saline allows even and complete treatment of
          the entire endometrium;

     ^    Low pressurization of the uterine cavity reduces risk and patient
          discomfort;

     ^    Does not require extensive training prior to use;

     ^    Clinical outcome is not dependent on user experience or variation in
          technique;

     ^    Minimally invasive, short duration, low cost procedure with limited
          risk; and

     ^    Hysterscopic examination provides another means for the diagnosis of
          any pathology.

     The Company's initial target market for the HTA is the estimated 150,000
hysterectomies performed in the United States annually for menorrhagia or
dysfunctional menstrual bleeding from benign causes. Additionally, the Company
has identified a market opportunity among the nearly two million women suffering
from abnormal uterine bleeding in the United States for whom the prospect of
long-term hormonal therapy or repeated D&C procedures is undesirable, or for
whom such treatments are ineffective. The Company also believes that an
additional substantial market opportunity exists among the over seven million
post-menopausal women who are currently receiving hormonal replacement therapy
which may result in an undesirable resumption of menstrual bleeding. BEI also
believes marketing opportunities will develop among women seeking a cessation of
menstruation, either electively as a lifestyle choice or in conjunction with
tubal sterilization.

The HTA System

     The HTA has been designed to offer the gynecologist a minimally invasive
approach to treat dysfunctional uterine bleeding for benign causes in an
outpatient or office setting. The HTA consists of a portable treatment unit,
incorporating microprocessor control and continuous monitoring of fluid
temperature and fluid circulation. Precisely heated saline is circulated within
the patient's uterus, under the direct visual control of the gynecologist, for
ten minutes to cause ablation of the entire endometrial lining. By utilizing
freely circulating heated saline at low pressure to distend the uterine cavity,
thermal energy is evenly transferred to all areas of the uterine cavity
including the areas of the cornua, or the area where the fallopian tubes enter
the uterus, which may be difficult to treat with other devices. The use of
physiologic saline in a closed-loop system reduces concerns about fluid
absorption overload, and low pressure reduces

                                       9
<PAGE>

the possibility of fluid escaping from the fallopian tubes. The incorporation of
a hysteroscopic telescope provides visual control during introduction, positive
visual confirmation of the absence of pathology that may have been overlooked
during screening and proper placement within the uterine cavity before beginning
the therapeutic portion of the treatment, as well as continuous visualization of
the effects of the treatment. The digital displays of the HTA control unit guide
the user through the HTA procedure, providing step-by-step visual prompts that
facilitate ease of use and consistent results. During the procedure an automated
microprocessor system controls the ablating temperature and monitors fluid
volume to measure and reduce possibilities of fluid absorption or loss and
assure consistent treatment effect without depending on the skill level of the
user. At any time, the gynecologist can interrupt the treatment and, if desired,
initiate circulation of room temperature saline to rapidly cool the patient's
uterus. As a result of ablation of the endometrial lining of the uterus, the
regeneration of the endometrium and resulting periodic menstrual bleeding is
either significantly reduced or eliminated.

     The need to provide a definitive diagnosis of uterine abnormalities led to
the development of hysteroscopy. A gynecologist may look inside the uterus with
a hysteroscope, a thin telescope-equipped device that is inserted through the
cervix. The hysteroscope is attached to a light source and camera allowing the
gynecologist to view the endometrial lining on a video monitor. Direct
visualization of the lining of the uterus provides a more precise diagnosis of
uterine abnormalities than D&C, hysterosalpingography, x-ray imaging of the
uterine cavity and fallopian tubes or ultrasound imaging. We believe that the
HTA is the only minimally invasive technique for the treatment of dysfunctional
uterine bleeding currently approved by the FDA that incorporates hysteroscopic
visualization and therefore, has a distinct advantage over the other minimally
invasive therapies.

     In the past most therapeutic procedures for the treatment of dysfunctional
uterine bleeding have been done in the hospital environment, often in the
operating room under general anesthesia. This has been due to a number of
factors, including the high cost of complete hospital style therapeutic
hysteroscopy systems, instrumentation that requires manipulation that makes
comfortable use in the office with local anesthesia impractical, and the lack of
third party payor incentives for office based procedures. However, the
transition of therapeutic procedures from the hospital environment to the
gynecologist's office practice is expected to be driven by the following: (i)
patient's desire to avoid hospitalization and avoid general anesthesia, (ii)
physician's desire for efficient use of time resulting in improved office
economics, and (iii) third party payors providing incentives to relocate
procedures to more cost-effective environments.

     The Company anticipates that treatment of dysfunctional uterine bleeding
utilizing the HTA will be an attractive medical as well as financial alternative
to third party payors of healthcare services. As an outpatient, office based,
safe, quick and cost effective alternative, HTA treatment can often avoid
hospitalization and the associated costs of a hysterectomy or the cost
associated with long-term medical or pharmaceutical therapy. The Company
believes that healthcare providers will be able to use a specific CPT-4
Procedure Code created by the AMAM to ensure that medical providers can obtain
reimbursement for HTA treatments and there is an appropriate existing "supply"
code available for reimbursement of the single-use HTA Procedure Set.
Third-party healthcare payors are expected to reimburse for the HTA procedure
and the necessary HTA Procedure Set when the physician uses these codes and
submits sufficient documentation demonstrating "medical necessity" for the
therapeutic procedure and that the HTA Procedure Set is a single use, disposable
supply for a specific patient. However, failure by physicians, hospitals and
other users of the Company's products to obtain sufficient reimbursement from
healthcare payors for procedures in which the HTA is used, or adverse changes in
government and private third-party payors' policies toward reimbursement for
such procedures, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors - We are
subject to uncertainties

                                       10
<PAGE>

regarding healthcare reimbursement and reform. If patients are not reimbursed by
third parties for the cost of the therapeutic procedure in which the HTA is used
or there are adverse changes in government and private third party payors'
policies toward reimbursement for such procedures, our business will be harmed."

     In July 2001, the Company received approval from the FDA to market in the
United States a lighter weight, smaller and more transportable version of the
HTA. Approval was based in a Real Time Review Supplement submitted to the FDA in
June 2001. The new model is especially well suited for the physicians' offices
and same day surgery centers where space, storage and portability are primary
concerns, while at the same time reducing the component and assembly costs of
the unit. The new control unit became available for delivery in limited
quantities in August 2001.

Results of Clinical Trials

     The Company completed FDA required Phase I clinical trials in April 1996,
and was given permission to proceed to a Phase II trial of the HTA. Phase II
treatments of 20 patients were completed in December 1997. Follow-up outcome
data from the Phase II patients was compiled and submitted to the FDA in June
1998.

     The Company received approval to begin Phase III Clinical Trials in August
1998, and the first treatments were conducted in September 1998. BEI initiated
its Phase III clinical trials at nine sites and enrolled 276 patients suffering
from menorrhagia, or dysfunctional uterine bleeding. The study compared the
safety and efficacy of the HTA endometrial ablation treatment to electrosurgical
rollerball ablation, one of the current treatments for dysfunctional uterine
bleeding. The Company completed the treatment phase of the clinical trials in
early August 1999. Data from examinations one year following treatment are
required for approval of its premarket approval ("PMA") application, and the
Company submitted this data to the FDA in September 2000. As announced in
September 2000, the HTA produced an average 84.8% reduction in uterine bleeding
among the 167 women treated with the HTA whose condition was tracked for 12
months following treatment, with 40% of the patients having their menstrual
bleeding completely eliminated by the HTA treatment. The average HTA treatment
time was 26.4 minutes, which was less than required for roller-ball treatments
in the study. The PMA submission for the HTA received approval from the FDA on
April 20, 2001.

     Patients treated in the Phase III clinical trial are followed for a total
of three years post treatment. The first year follow-up was completed in August
2000 and was the basis of the PMA submission. The second year was completed in
November 2001 and the Company's medical consultants presented the following
results: there were 147 HTA patients and 67 rollerball patients available for
the second year follow-up. The HTA completely eliminated menstrual bleeding in
47.6 % of those patients and reduced bleeding to acceptable levels in an
additional 44.2% of HTA patients. Of the 147 HTA patients, 95.5% were satisfied
with their results and 92.5% reported alleviation of menstrual discomfort.

     The Company believes that the clinical trial results submitted to the FDA
demonstrate that the HTA is both safe and effective and provides substantial
evidence that the HTA therapy has equivalent safety and efficacy as compared to
the roller-ball technique in the treatment of menorrhagia from benign causes.
This has been substantiated by the approval of the PMA.

     Certain international markets will require similar regulatory approvals.
The Company has received permission from Lloyd's Registered Quality Assurance
Ltd. ("LRQA"), the Company's "notified body," an organization that certifies the
safety of medical device products and the quality assurance systems put in place
by the manufacturer of the medical device, to apply the CE Mark to the HTA and
to the sterile disposable HTA Procedure set. In February 1997, the Company
selectively initiated deliveries of HTA systems in some of those countries where
regulatory authorities permit sales. In fiscal year 2001, shipments primarily of
procedure sets

                                       11
<PAGE>

were made to Australia, Austria, Canada, India, Spain, Switzerland, Taiwan and
the United Kingdom. Over 3,000 treatments using the HTA have been completed
worldwide. Management is encouraged by the follow-up of patients at selected
international sites, which in some cases now exceeds 36 months. The Company
believes the pattern of patient follow-up condition reflects results that are
consistent with traditional laser and electrosurgical ablation methods and
superior to other emerging technologies. See "Business - Government Regulation."


Sales and Marketing

     Prior to the FDA approval of the HTA in April 2001, the Company had no
sales revenue from sales activities in the United States. Following FDA
approval, the Company immediately began efforts to commercialize the HTA in the
United States. As of December 11, 2001, the Company has signed contracts with
over 20 independent sales and marketing specialty organizations with over 60
field sales representatives to sell the HTA in the United States. The Company
has initiated a program to provide initial as well as ongoing training on an
individual basis, as well as provide support and monitor performance of the
field sales representatives. The Company hired a vice president of sales, four
zone sales managers, plus additional sales and marketing personnel to support
the product sales. By working closely with these specialty sales organizations
the Company anticipates establishing a network of representatives well qualified
to sell the HTA to hospitals, outpatient surgical centers and doctors' offices
throughout the United States. In addition the Company has conducted a series of
HTA physician training and information workshops. Workshops have been conducted
in a number of major metropolitan areas across the country to facilitate
demonstration of the HTA procedure and equipment. See "Risk Factors - We have
limited sales experience. If we fail to establish marketing and direct sales
capabilities sufficient to support commercial sales of the HTA, our business
will suffer."

     The Company anticipates continuing this educational endeavor in major
cities during the remainder of fiscal year 2002. We are participating with
Thomas Jefferson University in establishing a continuing medical education
("CME"), program on endometrial ablation using the HTA in various medical
centers around the country.

     Internationally, the Company has limited distribution of the HTA utilizing
distributors in seven countries. The Company intends to rely on these
distributors to assist it in obtaining reimbursement approvals from both
government and private insurers in certain international markets as required.
The Company does not currently have distributors in a number of significant
international markets and would need to establish additional international
distribution relationships in order to sell the HTA in those markets and the
Company is limiting its efforts to expand into additional international markets
at this time.

     Shipments of HTA products to international distributors prior to fiscal
2000 were principally to establish demonstration stock, and also included
limited commercial sales outside the United States to private healthcare service
end-users. Revenues in fiscal years 2000 and 2001 increasingly reflected
shipments of disposable procedure sets. During fiscal years 2000 and 1999, the
Company continued working with its international distributors to establish
clinical treatment sites with leading gynecologists at key institutions in their
respective markets and HTA treatments were ongoing at these sites to produce the
local clinical studies with outcomes follow-up necessary for documentation of
the economic models to influence public health ministries and insurance
providers regarding reimbursement of the cost of the HTA procedure in these
respective markets. However, in fiscal 2001 the Company's primary focus has been
on developing the market in the United States. Commercial expansion of
international markets for the HTA depends on successful adaptation of favorable
reimbursement policies on a country-by-country basis. The Company is not
focusing significant effort to commercialize the HTA in international markets at
this time.

                                       12
<PAGE>

     BEI will continue to support the efforts of its international distributors
and domestic marketing and sales representatives through sponsorship of guest
speakers at major medical conventions, clinical seminars and through the
sponsorship of postgraduate courses. In addition the Company will continue
pursuit of reimbursement in support of its physician users outpatient surgery
centers and hospital venues. See "Risk Factors - Risks associated with
international sales may harm our business."


Competition

     The Company operates in a very specialized and highly competitive industry.
Some of the Company's existing competitors have significantly greater financial
resources and manufacturing capabilities, are more established, have larger
marketing and sales organizations and have larger technical staffs than the
Company.

     One of the principal competitors for the Company's HTA is Gynecare, a
subsidiary of Ethicon, Inc./Johnson & Johnson, whose ThermaChoice balloon, for
endometrial ablation, has been cleared to be marketed in the United States by
the FDA in December 1997. While J&J has greater financial resources and more
established distribution channels than the Company to develop its presence as a
provider of an alternative treatment for dysfunctional uterine bleeding, we
believe that introduction of the ThermaChoice endometrial ablation product by
J&J affirms BEI's market opportunity for minimally invasive ablation technology
as well as establishes the presence of a competitor that is a credible advocate
of an alternative ablation technology. J&J entered the ablation market when it
purchased Gynecare, Inc. in August 1997.

     Additional products were recently approved by the FDA to be marketed in the
United States. Her Option, a product of CryoGen, which is a cryogenic probe that
creates an iceball within the uterus, was approved by the FDA in April 2001 and
NovaSure, a product of Novacept, which utilizes a bipolar electrosurgical probe
that incorporates an expandable conductive mesh that is brought into contact
with the lining of the uterus through the application of suction, was approved
by the FDA in October 2001. Valleylab, a subsidiary of U.S. Surgical/Tyco,
announced in February 1999 that it would be conducting a limited clinical trial
of the Vesta System for endometrial ablation, which utilizes a balloon with
electrodes inside the uterus and an external electrosurgical generator, in order
to obtain FDA approval in the United States. The Company believes that this
trial was not conducted and the Vesta System is not for sale in the United
States. Other products of principal competitors that the Company believes are
currently undergoing clinical trials in the United States, include: MEA, a
product of Microsulis PLC, which employs a hand-held applicator to apply low
power microwaves to the uterine cavity; and Gynelase, a product of Sharplan,
which is a diode laser thermal therapy device. A competitive technology that is
being sold internationally is Cavaterm, a product of Wallsten Medical SA, which
is a balloon similar to that of the ThermaChoice device.

     The Company believes such FDA trials may have a complementary effect on the
Company's prospects. The launch in 1998 of the J&J product has raised physician
and public awareness of non-surgical alternatives for hysterectomy avoidance.
The gynecological community has reported to the Company that it is receiving
strong interest from women about alternative treatments to dysfunctional uterine
bleeding. Gynecologists worldwide are beginning to adopt such alternative
treatments. We believe that based upon data gathered in our interviews 12 and 24
months following treatments, the HTA procedure offers a safe, effective and low
cost alternative to other ablation therapies. BEI believes the HTA procedure is
the only system that brings to the treatment of dysfunctional uterine bleeding
the safety attendant with direct visualization during treatment and the
potential for a more complete treatment of the endometrial lining of the uterine
cavity. In addition, the HTA has the ability to treat woman that can not be
effectively treated by other systems since the free flowing fluid can conform to
variations in uterine size, small fibroids and polyps. As a result, we believe
the HTA is proving to be valuable and competitive in the endometrial ablation
market.

                                       13
<PAGE>

     Competition in the treatment of dysfunctional menstrual bleeding is intense
and is accentuated by the rapid pace of technological development. Research and
development of products or treatments by others may result in breakthroughs,
which render the HTA obsolete even before we generate significant revenue. Other
large healthcare companies may enter the market in the future. Competing
companies may succeed in developing technologies and products that are
efficacious or more cost effective than the HTA. We cannot guarantee you that
these companies will not succeed in developing technologies and products that
are more effective than the HTA or that would render our technologies or HTA
obsolete or not competitive. We expect competition for devices and service to
treat dysfunctional menstrual bleeding to increase. Such competition could harm
our business, financial condition and results of operations.

     The Company believes that its ability to compete effectively depends on its
ability to develop and commercialize the HTA, to continue to attract and retain
highly qualified personnel and to obtain the required regulatory approvals. See
"Risk Factors - We face intense competition in our industry, and if our
competitors develop new technologies or products that are more effective than
ours, our opportunity to commercialize the HTA will be reduced or eliminated."


Manufacturing

     The Company utilizes third party contractors to assemble the HTA disposable
procedure set, printed circuit board sub-assemblies and the final assembly of
the HTA control unit plus various accessory products. However, the Company
maintains a rigorous quality assurance program and performs the final test and
validation with Company personnel and Company owned test equipment. The Company
does not assume ownership of the devices until they have met QA/QC standards.
Additionally, the Company currently depends on single-source vendors for a
number of the HTA's significant components. Company engineers are continuing to
work with the third party contract manufacturers to reduce the cost of the HTA
disposable procedure set and the HTA control unit by streamlining production
methods and eliminating or replacing higher cost methods and materials. In
addition, during fiscal 2002 the Company will be focused on identifying
second-source contract manufacturers for both the HTA control unit and the HTA
procedure set. See "Risk Factors - We rely on single-source suppliers for a
number of the HTA's components, and if we are unable to obtain components, our
business would be harmed and our operating results would suffer."

     In order to commercialize the HTA successfully, BEI must manufacture or
assemble the HTA through third parties in accordance with FDA requirements in
commercial quantities, at high quality levels and at commercially reasonable
costs. The Company has limited experience in managing the manufacture and
assembly of the HTA in commercial quantities with its third party contract
manufacturers and because the HTA has not yet been manufactured in commercial
quantities, we cannot be certain that our current vendors of these components
will be able or willing to meet our future demands. However, the Company expects
that its experience with other third party manufacturers of medical electronic
systems and consumable medical products will be transferable to the HTA. Failure
of the Company or third party vendors to achieve production of the HTA in
commercial quantities at high quality levels and at commercially reasonable
prices would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors - We have no
manufacturing experience and rely on contract manufacturers. If we are unable to
successfully manufacture our HTA in commercial quantities, we may not be able to
generate revenue and become profitable."

     During fiscal 1996, BEI's facilities received ISO 9001 certification from
its notified body, LRQA. LRQA conducts semiannual audits in Teterboro, New
Jersey and periodic audits of its primary vendors. The most recent audit of the
Company's manufacturing facility and primary vendors in Teterboro, New Jersey
was in September 2001. The audit report did not include any

                                       14
<PAGE>

negative observations or identify any areas of noncompliance. Our current ISO
9001 certification is valid until August 31, 2002. Additionally, the Company's
facilities and documentation procedures for the manufacture of medical devices
are required to conform to the FDA's Quality System Regulations ("QSR") through
its facilities inspection program. The FDA most recently inspected the Company's
facility in Teterboro, New Jersey and the Company's primary contract
manufacturers in October 2000 for compliance with the QSR. The outcome of this
pre-approval inspection audit for the HTA was received by the Company in a
letter dated November 24, 2000, from the FDA's New Jersey District Office. The
FDA stated it was prepared to endorse an Export Certificate for products
manufactured at the Company's facility, including the Company's primary contract
manufacturers, which were specifically inspected. Withdrawal of QSR compliance
status would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors - Our business is
regulated by the government. We cannot guarantee that we will obtain regulatory
approvals to commercialize the HTA or other products that we may develop."


Research and Development; Technology

     Since October 1999, the Company's principal development effort has focused
on the HTA. The Company's internally funded research and development
expenditures were $1,444,000, $1,661,000 and $3,184,000 for the fiscal years
2001, 2000 and 1999, respectively. The Company's future spending on research and
development will be focused on supporting manufacturing arrangements for the HTA
systems and the related disposable components, reducing the cost of
manufacturing and obtaining second-source vendors.


Patents and Proprietary Technology

     The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications to protect
technology, inventions and improvements that are important to the development of
its business.

     The Company's success will depend in part on its ability to obtain and
maintain patent protection for the HTA, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations has been to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential and
proprietary information.

     The Company has a portfolio of four patents related to the development of
the HTA and one patent related to a fluid management systems for hysteroscopy.
Corresponding applications have been filed in certain foreign countries relative
to the HTA. The Company's policy is generally to file patent applications in
foreign countries where rights are available and the Company believes it is
commercially advantageous to do so. In the United States, the patents were
issued for either a seventeen year period from date of issue or a twenty year
period from date of filing, whichever is longer, and will expire from 2011
through 2016. No assurance can be given that any patents from pending patent
applications or from any future patent applications will be issued, that the
scope of any patent protection will exclude competitors or provide competitive
advantages to the Company, that any of the Company's patents will be held valid
if subsequently challenged or that others will not claim rights in or ownership
of the patents and other proprietary rights held by the Company. The Company
also owns certain registered trademarks, and has applied for other trademarks in
certain foreign countries.

     The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an

                                       15
<PAGE>

interference proceeding declared by the United States Patent and Trademark
Office ("USPTO") to determine the priority of inventions. The defense and
prosecution of patent suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce patents issued to the Company, to protect the
Company's trade secrets or know-how or to determine the enforceability, scope
and validity of the proprietary rights of others. Any litigation or interference
proceedings involving the Company will result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel.

     An adverse determination in a judicial or administrative proceeding or
failure to obtain necessary license could prevent the Company from manufacturing
and selling the HTA, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors - We
may be unable to adequately protect or enforce our intellectual property rights
or secure rights to third-party patents."

     The Company also relies upon trade secrets and technical know-how and
continuing technological innovations to develop its competitive position. The
Company typically requires its employees, consultants and advisors to execute
appropriate confidentiality and assignment of invention agreements in connection
with their employment, consulting or advisory relationship with the Company.
There can be no assurance, however, that these agreements will not be breached
or that the Company will have adequate remedies for any such breach.
Furthermore, no assurance can be given that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology.


Government Regulation

     The preclinical and clinical testing, manufacturing, labeling, distribution
and promotion of medical devices are subject to extensive and rigorous
government regulation in the United States and other countries. Noncompliance
with applicable requirements can result in enforcement action by the FDA,
including, among other things, warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution.

     The Company's HTA system is classified by the FDA as a Class III device,
which is considered to pose the greatest risk to patients (e.g., life
sustaining, life-supporting or implantable devices, or devices that are not
substantially equivalent to a predicate device). A Class III device generally
must undergo the FDA's PMA process, which requires the manufacturer to prove the
safety and effectiveness of the device to the FDA's satisfaction. A PMA
application must provide extensive preclinical and clinical trial data and
information about the device and its components regarding, among other things,
manufacturing, labeling and promotion. As part of the PMA review, the FDA will
inspect the manufacturer's facilities for compliance with the QSR, which
includes elaborate testing, control, documentation and other quality assurance
procedures.

      After we submitted the HTA PMA application in September 2000, the FDA
determined the PMA application was sufficiently complete to permit a substantive
review and the application was accepted for filing. The FDA then commenced, an
in-depth review of the PMA application, which was concluded on April 20, 2001
with the issuance of the approval letter, which allows the company to market the
HTA in the United States to ablate the endometrial lining of the uterus in
pre-menopausal women with menorrhagia, or dysfunctional uterine bleeding, due to
benign causes for whom child bearing is complete. The approval is subject to
standard FDA conditions, including labeling and advertising requirements,
expiration dating of the procedure

                                       16
<PAGE>

sets, use by physicians having received training in diagnostic hysteroscopy, and
three-year follow-up of pivotal trial study patients. Failure to comply with the
conditions of approval can result in enforcement action, including withdrawal of
the approval. Even after approval of a PMA, a new PMA or a PMA supplement is
required in the event of a modification to the device, to its labeling or to its
manufacturing process that affects the safety or effectiveness of the device.

     The HTA and related products, if any, manufactured or distributed by the
Company based on FDA approval are subject to pervasive and continuing regulation
by the FDA and certain state agencies. The Company will be subject to inspection
by the FDA and such state agencies, and will have to comply with the host of
regulatory requirements that usually apply to medical devices marketed in the
United States, including the FDA's labeling regulations, the Quality System
Regulations ("QSR"), the Medical Device Reporting ("MDR") regulations (which
require that a manufacturer report to the FDA certain types of adverse events
involving its products), and the FDA's general prohibitions against promoting
products for unapproved or "off-label" uses. The Company's failure to comply
with applicable regulatory requirements could result in enforcement action by
the FDA, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

     Unanticipated changes in existing regulatory requirements, failure of the
Company to comply with such requirements or adoption of new requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations.

     The Food and Drug Administration Modernization Act of 1997 also makes
changes to the device provisions of the Food, Drug and Cosmetic ("FDC") and
other provisions in the FDC Act affecting the regulation of devices. Among other
things, the changes will affect the PMA process, and also will affect device
standards and data requirements, procedures relating to humanitarian and
breakthrough devices, tracking and postmarket surveillance, accredited third
party review, and the dissemination of off-label information. The Company cannot
predict how or when these changes will be implemented or what effect the changes
will have on the regulation of the HTA and related products.

     Distribution of the Company's HTA and related products outside the United
States is also subject to regulation, which varies widely from country to
country. The time required to obtain needed regulatory clearance by particular
foreign governments may be longer or shorter than that required for FDA
clearance or approval. In addition, the export by the Company of certain of its
products that have not yet been cleared or approved for domestic distribution
may be subject to FDA export restrictions. There can be no assurance that the
Company will receive on a timely basis, if at all, any necessary foreign
government or United States export approvals.

     In January 1995, the Medical Device Directive ("MDD") was implemented in
the European Union, which is intended to make European Union regulatory
requirements more consistent. Under MDD, the Company is subject to "prior
notice" of intent to conduct clinical studies in the European Union. This
process, similar to the FDA investigational device exemption process, requires
regulatory documents and test information to be submitted to the governmental
agency of each country in which the Company intends to conduct clinical studies.
In order to commence commercial marketing of its products in the European Union,
the Company is required to file for a CE Mark approval. In January 1997, the
Company received CE Mark approval for the HTA System from LRQA. See "Risk
Factors - Our business is regulated by the government. We cannot guarantee that
we will obtain regulatory approvals to commercialize the HTA or other products
that we may develop."


Employees

     As of September 29, 2001, BEI had 28 full-time employees, including 8 in
research, development and engineering, 8 in marketing and sales, 4 in operations
and 8 in

                                       17
<PAGE>

administration. There are no unions representing the Company's employees. The
Company believes that its relations with its employees are good.


Risk Factors

     The risk and uncertainties described below are not the only ones facing
BEI. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the
following risks or such other risks actually occurs, our business could be
harmed.

We have a history of operating losses and anticipate future losses and we may
never be profitable.

     Historically, we have incurred significant losses in our medical device
business and we expect to incur increasing and significant losses in the future
for at least the next one to two years as we expend substantial resources:

     ^    for expansion of marketing and sales activities;

     ^    for research and development;

     ^    start-up manufacturing costs; and

     ^    in support of regulatory and reimbursement approvals.

     If we are able to commercialize the HTA, we cannot guarantee we will
achieve significant revenues from either international or domestic sales of the
HTA. In addition, we cannot assure you that we will achieve or sustain
profitability in the future. In the event we are unable to achieve profitability
or secure additional sources of capital, our ability to continue as a going
concern may be severely impaired.

We have a limited operating history on which you can base an evaluation of our
business and prospects.

     We have only a limited medical device operating history on which you can
base an evaluation of our business and prospects. As an early stage medical
device company, you must consider our prospects in light of the risks, expenses
and difficulties frequently encountered by entrants into the medical device
industry, which is characterized by an increasing number of participants,
intense competition and a high failure rate. We cannot be certain that we will
be able to overcome the risks and difficulties that we face and successfully
compete with other medical device companies that have competing products or
treatments.

We may not be able to commercialize the HTA profitably.

     Our ability to successfully commercialize the HTA will depend upon, among
other factors, acceptance by the medical community of the HTA. We believe that
physicians will not use the HTA unless they determine, based on clinical data
and other factors, that the HTA:

     ^    is an attractive safe treatment alternative for dysfunctional
          uterine bleeding;

     ^    offers clinical utility in a cost-effective manner; and

     ^    does not require extensive training prior to use.

     Even though we have received approval from the FDA to market the HTA in the
United States, we cannot guarantee that the HTA will be competitive with respect
to these factors or that it will gain any significant degree of market
acceptance among physicians, patients and healthcare payors. We believe that
recommendations and endorsements by physicians will be essential for market
acceptance of the HTA and we cannot be certain that any such

                                       18
<PAGE>

recommendations or endorsements will be obtained. If we fail to achieve
significant market acceptance of the HTA, our business, financial condition and
results of operations will suffer.

Our business is regulated by the government. We cannot guarantee that we will
obtain regulatory approvals to commercialize the HTA or other products that we
may develop.

     Our products are medical devices subject to extensive regulation by the
U.S. Food and Drug Administration, or FDA, under the Federal Food, Drug, and
Cosmetic Act. Each medical device that we wish to commercially distribute in the
U.S. will likely require FDA to grant either 510(k) clearance or premarket
application approval, or PMA approval, prior to marketing. The FDA's 510(k)
clearance pathway usually takes from 4 to 12 months, but it can last longer. The
PMA approval pathway is much more costly, lengthy and uncertain. It generally
takes from one to three years or even longer. In April 2001, we received PMA
approval of the HTA for treatment of menorrhagia or dysfunctional uterine
bleeding and on July 31, 2001, we received approval from the FDA to market a
lighter weight, smaller, and more portable version of the HTA Control Unit. A
new PMA or PMA supplement will be required in the event of a modification to the
HTA, its labeling or its manufacturing process that affects safety or
effectiveness. We cannot guarantee that such approvals will be granted in a
timely fashion or at all.

     After a device such as the HTA is placed on the market, numerous regulatory
requirements apply. These include: the Quality System Regulation, or QSR, which
requires manufacturers to follow elaborate design, testing, control,
documentation and other quality assurance procedures during the manufacturing
process; labeling regulations; the FDA's general prohibition against promoting
products for unapproved or "off-label" uses; and the Medical Device Reporting
regulation, which requires that manufacturers report to the FDA if their device
may have caused or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or serious injury if it
were to recur.

     We are subject to inspection and marketing surveillance by the FDA to
determine our compliance with regulatory requirements. Noncompliance can result
in enforcement action which may include warning letters, recalling products,
ceasing product marketing, paying significant fines and penalties, and similar
FDA actions which could limit product sales, delay or halt product shipment,
delay new product clearance or approvals, and adversely affect our
profitability. Unanticipated changes in existing regulatory requirements or
adoption of new requirements could hurt our business, financial condition, and
results of operations.

We have limited capital resources to fund our operations and we may be unable to
complete the development and commercialization of the HTA.

     Our capital requirements to complete the development and commercialization
of the HTA depend on numerous factors including:

     ^    the resources required to manufacture and successfully commercialize
          the HTA in the United States; and

     ^    the extent to which the HTA gains market acceptance and sales.

     We believe that our existing cash balances plus anticipated future revenues
will provide adequate funding to meet our minimum capital requirements for at
least the next twelve to twenty-four months. However, in the event that the
growth or timing of anticipated future revenues does not meet our expectations
or that the resources required to commercialize the HTA in the United States
exceed our expectations, we may need to raise additional funds through public or
private financing or other means. We may not be able to obtain additional
financing on favorable terms or at all. If we are unable to raise additional
funds when we need them, we may be required to scale back our operations,
research, marketing or sales efforts or obtain funds through arrangements with
collaborative partners or others that may require us

                                       19
<PAGE>

to license or relinquish rights to technologies or products. If we raise
additional funds by issuing equity securities, further dilution to our
stockholders may result, and new investors could have rights superior to
existing stockholders.

Our revenues are dependent upon a single product. If we are unable to
commercialize the HTA profitably, we may not have any other source of revenue
and our business will fail.

     We are dependent on a single product, the HTA, to achieve commercial
success and generate sufficient future revenues and profits to fulfill capital
needs. We cannot guarantee you that the HTA will achieve commercial acceptance.
We do not have an alternative source of revenue or profits to meet capital needs
in the event the HTA does not achieve commercial acceptance. If we are unable to
commercialize the HTA profitably, and we do not have any other sources of
revenue, our business will fail.

We have no manufacturing experience and rely on contract manufacturers. If we
are unable to successfully manufacture our HTA in commercial quantities, we may
not be able to generate revenue and become profitable.

     We have no experience in managing the manufacture and assembly of the HTA
in commercial quantities and we rely on third party contract manufacturers to
manufacture the HTA and its disposable components. In order to commercialize the
HTA successfully, we must manufacture or assemble the HTA through third parties
in accordance with FDA requirements in commercial quantities, at high quality
levels and at commercially reasonable costs. In addition, the third party
manufacturers are responsible for registering and maintaining their own facility
regulatory and compliance approvals. Any regulatory or compliance actions
against a third party vendor by either the FDA or any other regulatory body
could affect the third party vendor's ability to supply us, which in turn could
harm our business. The HTA has not yet been manufactured in commercial
quantities at commercially reasonable costs, and we cannot guarantee you that it
will be. As a result, we cannot be certain that we will not encounter
difficulties in scaling up manufacturing, including problems involving:

     ^    production yields;

     ^    quality control;

     ^    component supply; and

     ^    shortages of qualified manufacturing personnel.

     In addition, we cannot be certain that we will be able to enter into
satisfactory agreements with third party manufacturers to manufacture the HTA.
If we fail to enter into agreements with third-party manufacturers on reasonable
terms, if at all, or if we are unable to produce the HTA in commercial
quantities at high quality levels and at commercially reasonable prices our
business, financial condition and results of operations will suffer.

We rely on single-source suppliers for a number of the HTA's components, and if
we are unable to obtain components, our business would be harmed and our
operating results would suffer.

     We currently depend on single-source vendors for a number of the HTA's
significant components. Because the HTA has not yet been manufactured in
commercial quantities, we cannot be certain that our current vendors of these
components will be able or willing to meet our future demands. Establishing
additional sources of supply for these components could take a substantial
amount of time and expense. If we need to switch to a replacement vendor, the
manufacture and delivery of our HTA could be interrupted for an extended period.
Although we will try to maintain sufficient quantities of inventory of such
components to minimize production delays or interruptions, we cannot guarantee
you that we will find suitable

                                       20
<PAGE>

alternatives at reasonable prices, if at all, or that any such alternatives will
remain available to us. If we are not able to obtain acceptable suppliers of
components in a timely manner or to find and maintain suitable replacement
suppliers of components, our business, financial condition and results of
operations will suffer.

We have limited sales experience. If we fail to establish marketing and direct
sales capabilities sufficient to support commercial sales of the HTA, our
business will suffer.

     We have no direct international or domestic field sales force, and have
only a limited number of relationships with international distributors and
domestic manufacturing representatives to market the HTA. We have been limited
to marketing of the HTA internationally with a group of specialty distributors
in selected international markets and we have recently entered into marketing
and sales representative agreements with a number of marketing specialty
organizations to promote the HTA in the United States. We cannot guarantee you
that these relationships or agreements will result in sales of the HTA or that
we will be successful in establishing additional partnership relationships on
commercially reasonable terms, if at all. Achieving market acceptance for the
HTA may require us to establish additional marketing and direct sales capability
sufficient to support sales in commercial quantities. Establishing such
capability will require significant financial and human resources. We cannot be
certain that we will be able to recruit and retain additional qualified
marketing or sales personnel or that our future sales efforts will be
successful. If we fail to establish and maintain an effective distribution
channel for the HTA or to establish and retain qualified and effective sales
personnel to support commercial sales of the HTA, our business, financial
condition and results of operations will suffer.

We may be unable to adequately protect or enforce our intellectual property
rights or secure rights to third-party patents.

     Our ability to compete effectively will depend substantially on our ability
to develop and maintain the proprietary aspects of our technology. We cannot be
certain that any of our issued patents, or any future patents that may be
issued, will offer any degree of protection to the HTA against competitive
products. Further, we cannot be certain that any patents that may be issued or
licensed to us or any of our patent applications will not be challenged,
invalidated or circumvented in the future. In addition, we cannot assure you
that competitors, many of whom have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with our ability to
make, use or sell the HTA either in the United States or in international
markets.

     The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property disputes, and some companies
in the industry have employed intellectual property litigation to gain a
competitive advantage. We cannot assure you that we will not in the future
become subject to patent infringement claims and litigation or interference or
other proceedings in the United States Patent Office or USPTO. The defense and
prosecution of intellectual property suits, USPTO proceedings and related legal
and administrative proceedings are both costly and time consuming. Litigation
may be necessary to enforce patents issued or licensed to us, to protect our
trade secrets or know-how or to determine the enforceability, scope and validity
of the proprietary rights of others.

     Any litigation or USPTO proceedings involving us will result in substantial
expense to us and significant diversion of effort by our technical and
management personnel. An adverse determination in litigation or USPTO
proceedings to which we may become a party could subject us to significant
liabilities to third parties or require us to seek licenses from third parties.
Although some patent and intellectual property disputes in the medical device
area have been settled through licensing or similar arrangements, costs
associated with such arrangements may be substantial and could include
substantial ongoing royalties.

                                       21
<PAGE>

Furthermore, we cannot be certain that necessary licenses would be available to
us on satisfactory terms, if at all. If we are subjected to an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses, we could be prevented from manufacturing and selling the
HTA, which would harm our business, financial condition and results of
operations.

     In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through appropriate confidentiality and
proprietary information agreements. These agreements generally provide that all
confidential information developed or made known to an individual by us during
the course of the individual's relationship with us is to be kept confidential
and not disclosed to third parties or utilized by the individual, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to us
shall be the exclusive property of BEI. We cannot guarantee you that our
proprietary information will not be misused or confidentiality agreements with
employees, consultants and others will not be breached, that we will become
aware of such breach or will have adequate remedies for any breach, or that our
trade secrets will not otherwise become known to or independently developed by
competitors.

We are subject to uncertainties regarding healthcare reimbursement and reform.
If patients are not reimbursed by third parties for the cost of the therapeutic
procedure in which the HTA is used or there are adverse changes in government
and private third party payors' policies toward reimbursement for such
procedures, our business will be harmed.

     Our ability to successfully commercialize the HTA in the United States
depends in part on the extent to which patients are reimbursed by governmental
agencies, private health insurers and other organizations, such as health
maintenance organizations, for the cost of such treatments. Although
reimbursement for diagnostic and therapeutic procedures to treat uterine
disorders such as menorrhagia, or dysfunctional uterine bleeding and fibroid
treatment have generally been available in the United States, we cannot
guarantee you that it will continue to be the case or that the fees currently
allowed for these procedures will not be reduced. Our business could also be
harmed by changes in reimbursement policies of government or private healthcare
payors, particularly to the extent that any such changes affect reimbursement
for diagnostic or therapeutic procedures in which the HTA is used. Failure by
physicians, hospitals and other users of our products to obtain sufficient
reimbursement from healthcare payors for procedures in which the HTA is used, or
adverse changes in government and private third-party payors' policies toward
reimbursement for such procedures, could harm our business, financial condition
and results of operations.

     We expect that there will be continued pressure on cost-containment
throughout the United States healthcare system. Reforms may include mandated
basic healthcare benefits, controls on healthcare spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups and fundamental
changes to the healthcare delivery system. We anticipate that Congress and state
legislatures will continue to review and assess alternative healthcare delivery
systems and payment methodologies and public debate of these issues will likely
continue in the future. Due to uncertainties regarding the ultimate features of
reform initiatives and their enactment and implementation, we cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on us.

     Market acceptance of the HTA in international markets may be dependent in
part upon the availability of reimbursement within prevailing healthcare payment
systems. Reimbursement and healthcare payment systems in international markets
vary significantly by country, and include both government sponsored and private
healthcare insurance. Although we will seek international reimbursement
approvals, obtaining such approvals can require 12 to 18 months or longer and we
cannot be certain that any such approvals will be obtained in a timely

                                       22
<PAGE>

manner, that we will obtain sufficient reimbursement, or that we will obtain any
reimbursement at all. The failure to receive additional international
reimbursement approvals would have a significant effect on the market acceptance
of the HTA in the international markets in which we are seeking approvals and
could harm our business, financial condition and results of operations.

We face intense competition in our industry, and if our competitors develop new
technologies or products that are more effective than ours, our opportunity to
commercialize the HTA will be reduced or eliminated.

     Competition in the treatment of dysfunctional uterine bleeding is intense
and is accentuated by the rapid pace of technological development. Research and
development of products or treatments by others may result in breakthroughs,
which render the HTA obsolete even before we generate revenue. There are other
products that have received regulatory approvals that will compete with the HTA
and many of our competitors have significantly greater resources than we do. The
principal competitive products for our HTA that have received regulatory
approvals include:

     ^    ThermaChoice balloon, a product of Gynecare, a subsidiary of Ethicon,
          Inc./Johnson & Johnson, a device for endometrial ablation, was cleared
          to be marketed in the United States by the FDA in December 1997;

     ^    Her Option, a product of CryoGen, which is a cryogenic probe that
          creates an iceball within the uterus, was approved by the FDA in April
          2001; and

     ^    NovaSure, a product of Novacept, which utilizes a bipolar
          electrosurgical probe that incorporates an expandable conductive mesh
          that is brought into contact with the lining of the uterus through the
          application of suction, was approved by the FDA in October 2001.

     Other products of principal competitors that we believe are currently
undergoing clinical trials in the United States include:

     ^    MEA, a product of Microsulis PLC, which employs a hand-held applicator
          to apply low power microwaves to the uterine cavity; and

     ^    Gynelase, a product of Sharplan, which is a diode laser thermal
          therapy device.

     Another competitive technology that is being sold internationally but not
domestically is Cavaterm, a product of Wallsten Medical SA, which is a hand held
balloon similar to that of the ThermaChoice balloon.

     Other large healthcare companies may enter the market in the future.
Competing companies may succeed in developing technologies and products that are
efficacious or more cost effective than the HTA. We cannot guarantee you that
these companies will not succeed in developing technologies and products that
are more effective than the HTA or that would render our technologies or the HTA
obsolete or not competitive. We expect competition for devices and services to
treat dysfunctional menstrual bleeding to increase. Such competition could harm
our business, financial condition and results of operations.

If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities and may be required to limit commercialization of the
HTA or other products that we may develop.

     We face an inherent business risk of financial exposure to product
liability claims in the event that the use of the HTA or other products we may
develop result in personal injury. The HTA is complex and will be used in
medical procedures and in situations where there is a potential risk of serious
injury, adverse side effects or death. If we cannot successfully defend

                                       23
<PAGE>

ourselves against such claims, we may incur substantial liabilities or be
required to limit the commercialization of the HTA or other products we may
develop. We currently maintain product liability insurance with coverage limits
of $10,000,000 per occurrence and in the aggregate. We cannot predict, however,
whether such insurance is sufficient, or if not, whether we will be able to
obtain such insurance as is sufficient, to cover the risks associated with our
business or whether such insurance will be available at premiums that are
commercially reasonable. A successful claim against or settlement by BEI in
excess of its insurance coverage or our inability to maintain insurance in the
future could harm our business, financial condition and results of operations.

Risks associated with international sales may harm our business.

     Most of our sales to date of the HTA have been made internationally through
a limited network of distributors. Our international sales are dependent upon
the marketing efforts of, and sales by, these distributors. We may also rely on
these distributors to assist us in obtaining reimbursement approvals from both
government and private insurers in certain international markets. In general, we
have chosen to operate through small distribution firms because of the belief
that these firms will devote greater attention to the HTA. However, the use of
small distributors increases the risks associated with financial instability of
distributors, which includes the risk that distributors will cease operations or
will be unable to satisfy financial obligations to us. If a distributor were to
fail to invest adequate capital promoting the HTA or were to cease operation, we
would likely be unable to achieve significant revenues in the territory. In
addition, because we have limited resources directed at supporting international
sales, we have only limited sell-through with many of our distributors. We also
do not currently have distributors in a number of significant international
markets that we have targeted and will need to establish additional
international distribution relationships. We cannot be certain that we will
engage qualified distributors on commercially reasonable terms in a timely
manner. If we fail to engage distributors or if the distributors fail to achieve
significant revenues from sales of the HTA, our business, financial condition
and results of operations would be harmed. In addition, our international
revenues and operations may be limited or disrupted by:

     ^    government and regulatory controls;

     ^    export license requirements;

     ^    political instability;

     ^    trade restrictions;

     ^    changes in tariffs and other local taxes;

     ^    difficulties in managing international operations;

     ^    fluctuations in foreign currency exchange rates; and

     ^    freight and transportation costs.

     We cannot guarantee you that we will be able to successfully commercialize
the HTA in any international market.

Our operating results may fluctuate, and failure to meet financial expectations
may disappoint securities analysts or investors and result in a decline in our
stock price.

     We expect that our operating results will fluctuate significantly from
quarter to quarter in the future and will depend on a number of factors, many of
which are outside our control. Some of these factors include:

     ^    actions relating to reimbursement and regulatory matters;

                                       24
<PAGE>

     ^    the extent to which the HTA gains market acceptance;

     ^    timing of regulatory approval of competitive products and the rate of
          market penetration of competing products; and

     ^    timing of BEI regulatory approvals.

We rely on the expertise of key personnel. If any of these individuals leave,
our operations could suffer.

     We are dependent upon a number of key management and technical personnel.
The loss of the services of one or more key employees would harm our business,
financial condition and results of operations. Our ability to manage our
transition to commercial-scale operations, and hence our success, will depend on
the efforts of these individuals. Our success will also depend on our ability to
attract and retain additional highly qualified management and technical
personnel. We face intense competition for qualified personnel, and we cannot
guarantee that we will be able to attract and retain such personnel. We do not
currently have key person insurance on the life of any employee.

We are subject to significant amount of control by our existing stockholders and
management and thus investors will have less influence on our stockholder
decisions.

     Our directors, officers and their affiliates beneficially own approximately
28.3% of the outstanding common stock (assuming exercise of vested stock
options) as of December 11, 2001. As a result of such common stock ownership,
our directors, officers and their affiliates, if they voted together, would be
able to exercise significant influence over the election of members of our Board
of Directors and other corporate actions requiring stockholder approval.

We have adopted several antitakeover measures that may deter, delay or prevent
change of control or other transactions that could be beneficial to our
stockholders.

     We have taken a number of actions that could have the effect of
discouraging a takeover attempt that might be beneficial to our stockholders who
wish to receive a premium for their shares from a potential bidder. For example,
we are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, or the Delaware Law, and our Certificate of
Incorporation contains a fair price provision, the combined effect of which
prohibits us from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. The application of Section 203
and the fair price provision could have the effect of delaying or discouraging a
change of control of BEI. We have also adopted a Stockholder Rights Plan that
would cause substantial dilution to a person who attempts to acquire us on terms
not approved by our Board of Directors. In addition, our Board of Directors has
the authority to issue up to approximately 3,700,000 shares of preferred stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by our stockholders. Any such preferred stock
could contain dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences or other rights superior
to the rights of holders of common stock. The Board of Directors has no present
intention of issuing any additional shares of preferred stock (1,114,485 shares
of Series A convertible preferred stock were outstanding as of December 11,
2001), but reserves the right to do so in the future. Further, our Certificate
of Incorporation provides for staggered terms for the members of the Board of
Directors. The staggered Board of Directors and certain other provisions of our
Certificate of Incorporation and Bylaws may have the effect of delaying or
discouraging changes in control or management of BEI, which could adversely
affect the market price of our common stock.

                                       25
<PAGE>

Our stockholders will suffer dilution upon the conversion of our outstanding
preferred stock.

     The 1,114,485 shares of Series A convertible preferred stock issued on
February 14, 2001 are convertible at any time into an aggregate of 2,228,970
shares of our common stock at an initial conversion price of $1.88 per share.
The initial conversion price will be adjusted for stock splits, combinations,
certain dividends and distributions and other similar events and could also be
adjusted on a weighted average basis in the event we issue additional securities
at a per share price below $1.88. Accordingly, if all of the shares of Series A
convertible preferred stock were converted into common stock, there would be
dilution of at least 2,228,970 shares of common stock, or approximately 18.5% of
the 9,835,126 million shares of common stock outstanding on December 11, 2001.










                                       26
<PAGE>

Executive Officers and Directors of the Company

     The directors, executive officers and key employees of the Company and
their ages and titles as of December 11, 2001 are as follows:

<TABLE>
<CAPTION>

Name                                  Age              Title
----                                  ---              -----
<S>                                  <C>               <C>
Charles Crocker                       62               Chairman of the Board of Directors
Richard W. Turner                     55               President and Chief Executive Officer & Director
Samuel Dickstein                      61               Vice President, New Business Development and Technology
Thomas W. Fry                         57               Vice President,  Finance and  Administration,  Secretary and
                                                       Treasurer
John J. Gormally                      45               Vice President, Sales
Jordan Davis  (2)                     39               Director
Dr. Ralph M. Richart  (1)             67               Director
Dr. Lawrence A. Wan  (1) (2)          63               Director
Gary D. Wrench  (1) (2)               68               Director
</TABLE>

-----------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee

     Mr. Charles Crocker, a founder of the Company, has served as Chairman of
the Board of Directors of the Company since October 1974. Mr. Crocker served as
President and Chief Executive Officer of the Company from October 1995 until
September 1997. Mr. Crocker is Chairman and Chief Executive Officer of BEI
Technologies, Inc. He served as President of Crocker Capital Corporation (a
Small Business Investment Company), from 1970 to 1985, and as General Partner of
Crocker Associates, a venture capital investment partnership, from 1970 to 1990.
He currently serves as a director of Technologies, Fiduciary Trust Company
International, Pope & Talbot, Inc. and Teledyne Technologies. Mr. Crocker holds
a B.S. from Stanford University and an M.B.A. from the University of California,
Berkeley.

     Dr. Richard W. Turner founded in 1991 what is now the Company as a
subsidiary of BEI Technologies, Inc. Dr. Turner served as President of that
subsidiary from 1991 until it merged into the Company in November 1997, and then
as President of the Company until April 1998. He rejoined the Company as
President and Chief Executive Officer in January 1999. He has served as a
director of the Company since September 1997. Previously President of the
Healthcare Group for the Cooper Companies, Dr. Turner has held executive
leadership positions in the medical industry for over 20 years, including
President and Director of Cooper LaserSonics, Inc., President of CooperVision,
Inc., President and Chief Executive Officer/Director of Pancretec, Inc. and
President of Kay Laboratories. Dr. Turner holds a B.S. from Old Dominion
University, an M.B.A. from Pepperdine University and a Ph.D. from Berne
University.

     Mr. Samuel Dickstein served as Vice President, New Business Development and
Technology of BEI Medical Systems Company, Inc. from June 1997 until the merger
of that entity into Electronics in November 1997. He served as Vice President,
Operations, from the acquisition of Meditron Devices, Inc. by BEI Medical
Systems Company, Inc. in 1992 until June 1997. Prior to the acquisition, Mr.
Dickstein, a co-founder of Meditron Devices, Inc., served as a

                                       27
<PAGE>

Vice President from 1987 to 1992. From 1979 to 1987, Mr. Dickstein was a Vice
President of Xylog Corporation, a subsidiary of Meditron Devices, Inc. From 1970
to 1978, Mr. Dickstein served as Electro-Medical Engineering Manager for
American Cystoscope Makers (Circon Corp.). Mr. Dickstein holds a B.S.E.E. from
the City College of New York and has also completed graduate level studies in
Electrical Engineering at both New York University and the New Jersey Institute
of Technology.

     Mr. Thomas W. Fry served as Vice President, Finance and Administration of
BEI Medical Systems Company, Inc. from October 1992 until the merger of that
subsidiary into Electronics in November 1997. Mr. Fry was employed by
Disctronics Ltd. as Corporate Controller from 1989 to 1992, by Cavitron,
Inc./CUSA, a medical device, engineering and manufacturing company, as
Controller/CFO from 1986 to 1989, and by Cheeseborough-Ponds International as
Manager of Profit Planning and Manufacturing Controller from 1979 to 1986. Prior
to that time, Mr. Fry was employed by GTE from 1970 to 1979 in various
accounting and financial roles, including three years as the Controller of GTE
Sylvania in Caracas, Venezuela. Mr. Fry holds a B.S. from Southeast Missouri
State University and an M.B.A. with academic honors from Pace University.

     Mr. John J. Gormally joined the Company as Vice President, Sales in July
2001. Prior to joining BEI Mr. Gromally was Vice President, U.S. Sales and
Operations, for the ConvaTec Company, a Bristol-Myers Squibb Company. From 1978
to 1998, Mr. Gormally held a variety of sales and marketing positions with
Becton Dickinson, beginning as a sales representative and rising through
management posts of increasing responsibility to become Director, Corporate
National Accounts in 1989, Vice President of Sales, Vacutainer Systems in 1992;
Area Vice President, healthcare systems division, in 1995; and Vice President,
Corporate Sales, Genesis Project, in 1997. Mr. Gormally holds a B.S. Degree in
Biology from DeSales University and has successfully completed executive
seminars at Harvard and Columbia Universities.

     Mr. Jordan Davis has been a Director of the Company since February 2001.
Mr. Davis is a Managing Partner and co-founder of Radius ventures, a venture
capital firm focused on the health and life sciences industry. Prior to founding
Radius, from 1992 to 1996, Mr. Davis served as Managing Director of KBL
Healthcare, Inc., a merchant banking and venture capital firm specializing in
the health and life science industry. He was a co-founder of Cambridge Heat,
Inc., a cardiology device company and currently serves on the board of directors
of Amicas, Inc., and Coordinated Care Solutions, Inc., each portfolio companies
of Radius. Mr. Davis earned and M.B.A. from the J.L. Kellogg graduate school of
Management of Northwestern University in 1986 and a B.A. in Economics from The
State University of New York at Binghampton in 1983.

     Dr. Ralph M. Richart has been a Director of the Company since November 1997
and was a Director of BEI Medical Systems Company, Inc. from 1996 until that
company's merger into Electronics in November 1997. Dr. Richart is Professor of
Pathology in Obstetrics and Gynecology at the Columbia University College of
Physicians and Surgeons and Vice Chairman for Anatomic Pathology at the Sloane
Hospital for Women in New York City. He served as a Career Research Development
Awardee at the Medical College of Virginia before moving to
Columbia-Presbyterian Medical Center in 1963. His professional interests have
centered around obstetrical and gynecological pathology and cytology with
particular emphasis on the study of cervical neoplasia and, more recently, the
relationship of the human papillomavirus to lower genital tract neoplasia. He is
the past President of the International Gynecologic Cancer Society. He received
his medical training at the University of Rochester School of Medicine and
Dentistry, and completed his pathology residency in the Harvard Hospitals
system.

     Dr. Lawrence A. Wan has been a Director of the Company since November 1997.
He served as Vice President and Chief Technical Officer of Electronics from July
1990 to September 1997, from October, 1997 to November, 2000 he was Vice
President, Corporate Technology and Chief Technical Officer of Technologies. He
is currently Chairman of the Board

                                       28
<PAGE>

and Chief Executive Officer of OpticNet, Inc., which was spun off from
Technologies in November 2000. From 1984 until 1990, he served as Vice
President, Engineering, of Systron Donner Corporation, and also held various
other technical and general management positions with that company between 1979
and 1984. From 1968 through 1979, he served as Chief Executive Officer of Sycom,
Inc., a commercial electronics company, which he founded. From 1964 to 1968, he
worked for Hughes Aircraft Company where he headed the Radar Systems Section of
the Hughes Ground Systems Group. In 1962, Dr. Wan and two other professors
established an Engineering School at the University of California, Santa
Barbara, where he also taught Engineering. Dr. Wan holds B.S., M.S. and Ph.D.
degrees in Engineering and Applied Sciences from Yale University.

     Mr. Gary D. Wrench has been a Director of the Company since 1986. He is
currently Chief Financial Officer of OpticNet, Inc. He served as Senior Vice
President and Chief Financial Officer of Technologies from September 1997 until
his retirement in May 2000. He served as Senior Vice President and Chief
Financial Officer of Electronics from July 1993 to September 1997. From April
1985 to July 1993, he served as Vice President of Electronics and President and
Chief Executive Officer of Motion Systems Company, Inc., then a wholly owned
subsidiary of Electronics that is now a part of Technologies. Previous
experience includes 20 years with Hughes Aircraft Company including an
assignment as President of Spectrolab, Inc., a Hughes subsidiary. He currently
serves as a Director of Technologies and of OpticNet, Inc. Mr. Wrench holds a
B.A. from Pomona College and an M.B.A. from the University of California, Los
Angeles.

Staggered Board of Directors

     The Company has a staggered Board of Directors, which may have the effect
of deterring hostile takeovers or delaying changes in control or management of
the Company. For purposes of determining their term of office, directors are
divided into three classes, with the term of office of the Class I directors to
expire at the 2002 annual meeting of stockholders, the term of office of the
Class II directors to expire at the 2003 annual meeting of stockholders and the
term of office of the Class III directors to expire at the 2004 annual meeting
of stockholders. Additionally, the holders of the Company's Series A Convertible
Preferred Stock are entitled to elect one member of the Board of Directors at
each annual meeting of stockholders (the "Series A Director").

     Class I consists of Mr. Crocker and Dr. Richart; Class II consists of Dr.
Turner and Mr. Wrench; and Class III consists of Dr. Wan. Mr. Davis is the
Series A Director. Directors elected to succeed those directors whose term
expires will be elected for a three-year term of office, except that the term of
office of the Series A Director shall be a one-year term. All directors hold
office until the next annual meeting of stockholders at which their term
expires, and until their successors have been duly elected and qualified.
Executive officers serve at the discretion of the Board. There are no family
relationships among any of the officers and directors.

Board Committees

     The Board of Directors of the Company has established an Audit Committee
consisting of Mr. Wrench, who is chairman, Dr. Richart and Dr. Wan which reviews
the results and the scope of the audit and other services provided by the
Company's independent accountants and periodically reviews the results of the
Company's internal audit controls, and a Compensation Committee consisting of
Mr. Wrench who is chairman, Dr. Wan and Mr. Davis which makes recommendations
concerning salaries, incentives and other forms of compensation for directors,
executive officers and other key employees of the Company and administers
various incentive compensation and benefits plans.

                                       29
<PAGE>

ITEM 2.           PROPERTIES

     The Company's principal executive office is located in a leased 10,926
square foot, engineering, and administrative facility in Teterboro, New Jersey.
The lease agreement for the Teterboro facility expires on June 30, 2004. The
monthly base rent through March 2002 is approximately $10,000 and then increases
to approximately $10,900 for the remainder of the lease term, plus the Company's
pro rata share of maintenance expenses and real estate taxes with minor rent
increases thereafter through the end of the lease term.

     Management believes that the Teterboro, New Jersey facility is adequate and
suitable for the current operations of the Company but that it may be necessary
to acquire additional facilities during the fiscal year 2002 if operations
expand as anticipated.


ITEM 3.           LEGAL PROCEEDINGS

     From time to time, BEI may become involved in or subject to various
litigation and legal proceedings incidental to the normal conduct of its
business. The Company is not involved in any material legal proceedings.


ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of stockholders during the fourth
quarter ended September 29, 2001.






                                       30
<PAGE>

                                     PART II


ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

     The Company's common stock is traded on the Nasdaq National Market System
under the Nasdaq symbol "BMED."

     The closing price of the Company's common stock was $6.40 on December 11,
2001.

     Set forth below are the high and low closing sale prices on the National
Market System for the periods indicated. Such quotations do not reflect retail
markups, markdowns or commissions.


         2001 Fiscal Year (ended September 29, 2001)

                                                           High        Low
         Fourth Quarter                                    $4.18       $2.76
         Third Quarter                                     $4.75       $2.65
         Second Quarter                                    $3.88       $1.13
         First Quarter                                     $2.50       $1.13

         2000 Fiscal Year (ended September 30, 2000)

                                                           High        Low
         Fourth Quarter                                    $2.38       $1.00
         Third Quarter                                     $1.88       $1.00
         Second Quarter                                    $3.47       $1.06
         First Quarter                                     $1.75       $0.63


     As of December 11, 2001, there were approximately 267 holders of record of
the Company's common stock. There are no restrictions on the Company's ability
to pay dividends; however, it is currently the intention of the Board of
Directors to retain all earnings, if any, for use in the Company's business and
the Company does not anticipate paying cash dividends in the foreseeable future.
Any future determination as to the payment of dividends will depend, among other
factors, upon the earnings, capital requirements, operating results and
financial condition of the Company.





                                       31
<PAGE>




ITEM 6.           SELECTED FINANCIAL DATA

     The selected financial data for the five fiscal years presented below is
derived from the audited Consolidated Financial Statements of the Company. The
data should be read in conjunction with the Consolidated Financial Statements,
related notes and other financial information included herein.

     The data and the accompanying analysis in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" cover periods in
which the Company's operations included business segments which are now operated
by Technologies and include the results of those business segments as
discontinued operations by the Company. Continuing operations of the Company are
comprised of the medical device business carried on by the Company's
majority-owned subsidiary BEI Medical Systems Company, Inc. prior to the
Distribution, which subsequent to the Distribution comprised all of the
Company's operations. In addition, on December 8, 1999, the Company completed
the sale of a substantial portion of its assets to CSAC. The Asset Sale had a
significant impact on the financial condition and results of operations of the
Company, as both revenues and revenue generating assets were significantly
reduced. For further information, see Note 1 to the Consolidated Financial
Statements, the Company's Proxy Statement for Special Meeting of Stockholders,
(File No. 0000929624-99-001921) and Technologies' Form 10, "General Form for
Registration of Securities," as amended (File No. 0-22799) and the Technologies
Form 10-K for the fiscal year ended September 27, 1997 (File No. 0-22799).

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
in thousands, except per share amounts                                     Year ended
                                             -----------------------------------------------------------------------
                                              September 29, September 30,   October 2,     October 3,  September 27,
                                                  2001          2000          1999           1998          1997
--------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S>                                             <C>         <C>           <C>            <C>         <C>
Revenue                                             $476        $1,375        $8,419         $9,651      $10,005
Loss from continuing operations                   (5,600)       (2,947)       (6,909)        (4,971)      (4,348)
Income from discontinued operations                --            --               --             --        4,583
Net income (loss)                                 (5,600)       (2,947)       (6,909)        (4,971)         235
Loss from continuing operations per common
     share                                        ($0.72)       ($0.39)       ($0.92)        ($0.68)       ($0.64)
Earnings from discontinued operations per
     common share                                  --            --              --           --             0.67
Earnings (loss) per common share                  ($0.72)       ($0.39)       ($0.92)        ($0.68)        $0.03

Cash dividends per common share                      --            --            --           --            $0.08
Weighted average shares outstanding                7,800         7,615         7,503          7,354        6,817

BALANCE SHEET DATA:
Cash and cash equivalents                         $9,846        $4,228        $1,397         $3,355       $9,122
Working capital                                    9,938         4,285         6,905          8,284       11,085
Total assets                                      12,581         6,138        10,962         17,388       22,584
Long-term debt                                       123            --            --             --           22
Stockholders' equity                              10,493         4,771         7,699         14,440       17,660

</TABLE>


                                       32
<PAGE>

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Such forward-looking statements may be deemed to include
information that is not historical, including without limitation, statements
based on our current expectations, assumptions, estimates and projections about
our company and our industry, including statements with respect to the timely
development, acceptance, commercialization and pricing of our Hydro ThermAblator
or HTA, the impact of competitive products and pricing, our ability to satisfy
the conditions of the FDA approval and on-going regulatory requirements, the
adequacy of anticipated sources of cash to fund our future capital requirements,
our ability to raise additional capital on terms favorable to us, or at all, the
availability or realization of strategic alternatives and general economic
conditions as they affect our customers. Words such as "believes,"
"anticipates," "expects," "intends" and similar expressions are intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. Readers are cautioned that the forward-looking
statements reflect management's analysis only as of the date hereof, and we
assume no obligation to update these statements. Actual events or results may
differ materially from the results discussed in or implied by the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those risks and uncertainties discussed below and in
"Business - Risk Factors."

     The following discussion and analysis of the financial condition and
results of operations includes historical results prior to the Asset Sale. The
Asset Sale had a significant impact upon the financial condition and results of
operations of the Company, as both revenues and revenue generating assets were
significantly reduced (see "Financial Statements and Supplementary Data"). The
Company's product focus became narrowed and dependent upon the successful
completion of the FDA Phase III clinical trials and commercialization of the HTA
technology (see "Business -- Risk Factors"). The cash proceeds of the Asset Sale
were utilized by BEI: (i) to pay expenses associated with the Asset Sale in the
amount of $1,292,000, including professional fees ($524,000), employee bonuses
related to completion of the Asset Sale ($185,000), severance and other payments
($308,000) plus the cost of products and services associated with the Transition
Agreement provided to CSAC free of charge ($275,000); (ii) to repay the amounts
outstanding to Transamerica Business Credit Corporation ("TBCC"), including
interest and cancellation fees; (iii) as working capital to finance completion
of the FDA Phase III clinical trials and initiate commercialization of the HTA
product in the United States; and (iv) to fund BEI's ongoing operating expenses.

     On April 20, 2001, the FDA issued its approval to market in the United
States the Hydro ThermAblator(R) ("HTA(R)") endometrial ablation system to
ablate the endometrial lining of the uterus in pre-menopausal women with
menorrhagia (dysfunctional uterine bleeding) due to benign causes for whom child
bearing is complete. The approval is subject to standard FDA conditions,
including labeling and advertising requirements, expiration dating of the
procedure sets, use by physicians having received training in diagnostic
hysteroscopy, and three-year follow-up of pivotal trial study patients.


Revenue
Fiscal years 2001, 2000 and 1999

     Revenues for the fiscal year ended September 29, 2001, were $476,000, a
decrease of $899,000 from fiscal 2000 of $1,375,000. The lower revenue reflects
the impact of the Asset Sale on December 8, 1999. Fiscal year 2000 revenues
included revenues from the Base Business for approximately nine weeks.
Approximately $1,184,000, or 86.1% of the Company's

                                       33
<PAGE>

revenues for the fiscal year 2000, were derived from products that were included
in the Base Business sold to CSAC. The comparable twelve-month period of fiscal
year 2001 did not include any revenues from the Base Business. Domestic sales of
the HTA were $373,000 following receipt of FDA approval to market the HTA in the
United States on April 20, 2001, compared to no domestic sales in fiscal year
2000. International revenues related to the HTA were $103,000 in fiscal year
2001 versus $187,000 in fiscal year 2000 due primarily to reduced shipments of
HTA control units.

     Revenues for the fiscal year ended September 30, 2000, were $1,375,000, a
decrease of $7,044,000 from the fiscal year ended October 2, 1999. The lower
revenue reflects the impact of the Asset Sale on December 8, 1999. Approximately
96.8% of the Company's revenues for fiscal year 1999 were derived from products
that were included in the Base Business sold to CSAC. Fiscal year 2000 included
revenues from the Base Business for approximately nine weeks as compared to all
of fiscal year 1999. International revenues from shipments to distributors of
the Company's HTA products for endometrial ablation declined to $187,000 in
fiscal year 2000 from $269,000 in fiscal year 1999. The higher revenue in fiscal
year 1999 reflects shipments to international distributors of instrumentation
primarily for use in clinical demonstrations and symposia and represents limited
commercial shipments to private health care services and end-users that were not
repeated in fiscal year 2000, while shipments in fiscal year 2000 were primarily
disposable procedure sets which are used each time the procedure is performed.

     The Company's revenues from international customers were approximately
21.6%, 25.3% and 17.2% of the Company's total revenues for fiscal years 2001,
2000 and 1999, respectively.


Cost of Revenues and Gross Profit (Loss)

     The Company's negative gross profit of $329,000 in the twelve-month period
ended September 29, 2001 as compared to the negative gross profit of $89,000 in
fiscal year 2000 reflects the impact of the Asset Sale and the resulting
absorption of fixed overhead expenditures over the significantly lower revenue
base. The pro forma gross profit in fiscal 2000 associated with the products
included in the Asset Sale was $542,000. Overhead expenses for the fiscal year
2001 were approximately $482,000, compared to $747,000 in fiscal 2000. Overhead
expenses in the twelve-month period ended September 30, 2000 included
approximately $125,000 of costs allocated to the products included in the Asset
Sale on a pro-forma basis.

     The Company's negative gross profit of $89,000 in fiscal year 2000 as
compared to the gross profit of $3,237,000 in fiscal year 1999 reflects the
impact of the Asset Sale and the resulting absorption of fixed overhead
expenditures over a significantly lower revenue base. Overhead expenses for the
fiscal year 2000 were approximately $622,000, excluding costs allocated to the
products included in the Asset Sale in the first fiscal quarter of fiscal 2000.


Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $486,000 to
$4,296,000 for the fiscal year ended September 29, 2001 compared to $3,810,000
for fiscal 2000. The increased spending reflected higher selling and marketing
expenses of $683,000, a 53.7% increase over the previous fiscal year, due
primarily to increased personnel costs and related expenses plus higher
expenditures for outside services, trade shows and workshops, reflecting the
Company's increased selling and marketing activities following the April 2001
FDA approval to market the HTA in the United States. Administrative expenses
increased $56,000 or 2.5%, due primarily to higher personnel costs. Partially
offsetting the above was reduced amortization of intangible assets of $104,000
as a result of the Asset Sale. Following the Asset Sale in December 1999, the
Company had reduced personnel and related employee benefit costs, incurred
significantly lower sales commissions, reduced marketing expenditures and had
lower amortization of

                                       34
<PAGE>

intangible assets reflecting the reduction in these assets as a result of the
Asset Sale. Following the receipt of FDA approval to market the HTA in the
United States on April 20, 2001, the Company began to increase spending to
commercialize the HTA, partially offsetting such decreases. In addition, fiscal
2000 expenses included a charge of $139,000 for the write-down of certain fixed
assets and accounts receivable to net realizable value as a result of the Asset
Sale.

     Selling, general and administrative expenses declined $3,540,000 to
$3,810,000 for the fiscal year ended September 30, 2000 compared to $7,350,000
in fiscal year 1999. The decline in expenses for fiscal year 2000 reflects
reduced sales and marketing costs of $2,277,000, representing a 64.2% decline.
As a result of the Asset Sale, the Company had a reduction in revenue related
expenditures for personnel, employee benefits, commissions and other marketing
costs; reduced administrative expenses of $1,016,000, representing a 30.9%
decline; reduced amortization of intangible assets of $351,000, representing a
74.7% decline; and reduced foreign exchange losses of $35,000. These decreases
were partially offset by the write down of the carrying value of certain fixed
assets and accounts receivable to their estimated net realizable value following
the Asset Sale of $139,000. The increase in the selling, general and
administrative expenses as a percentage of revenue for fiscal year 2000 compared
to the fiscal year 1999 reflects the impact of the Asset Sale and the lower
revenue on the fixed portion of selling, general and administrative
expenditures.


Research, Development and Related Expenses

     Research, development and related expenses were $1,469,000 in fiscal year
2001, a decrease of $192,000 or 11.6% from fiscal 2000. The lower spending
reflects reduced expenses resulting from the completion in August 2000 of the
twelve-month post treatment follow-up examination portion of the HTA Phase III
clinical trial in the United States and the completion in September 2000 of the
premarket approval ("PMA") application to the FDA. As a result, the rate of
spending required to support the clinical trial and to submit the PMA
application during fiscal 2001 declined from the levels that were required
during fiscal 2000. Partially offsetting the above decrease was a non-cash
charge of $143,000, relating to the issuance of a warrant to purchase shares of
common stock of the Company in exchange for an a reduction in future royalty
payments on certain disposable components of the Company's HTA. The fair market
value of the warrant was charged to product development during the second
quarter of fiscal 2001.

     Research, development and related expenses were $1,661,000 in fiscal year
2000 compared to $3,184,000 in fiscal year 1999. The reduced spending of
$1,523,000 or 47.8% resulted from the completion of the patient treatment
portion of the HTA Phase III clinical trial in the United States in early August
1999, therefore, the rate of spending required to support the clinical trial in
fiscal year 2000 declined significantly from the levels that were required
during the patient treatment phase of the clinical trial in fiscal year 1999.


Gain on Asset Sale

     The gain on Asset Sale in fiscal 2000 reflects the closing of the Asset
Sale on December 8, 1999. See Note 1 to the Consolidated Financial Statements
for further information on the Asset Sale.


Interest Income

     Interest income in fiscal years 2001, 2000 and 1999 was comprised of
interest income earned on highly liquid investments. Interest income decreased
to $217,000 in the fiscal year ended September 29, 2001, compared to $299,000 in
the twelve-month period ended

                                       35
<PAGE>

September 30, 2000, as a result of lower interest rates and lower average cash
balances on hand during the period.

     Interest income increased to $299,000 in fiscal year 2000 compared to
$105,000 in fiscal year 1999, as a result of higher average cash balances on
hand during the fiscal year, reflecting the investment of cash received from the
Asset Sale.


Interest Expense

     Interest expense of $7,000 for the year ended September 29, 2001, reflects
capital lease interest expense related to the Company's capital lease with IBM
Credit Corp. Interest expense of $49,000 for the year ended September 30, 2000
reflects interest on borrowings under a term note and related credit facility,
which were repaid by the Company in full on December 8, 1999.

     Interest expense declined to $49,000 in fiscal year 2000 compared to
$96,000 for the comparable period of fiscal year 1999. The decrease reflects the
payment in full on December 8, 1999 of the borrowings under the credit facility,
utilizing a portion of the proceeds of the Asset Sale.


Income Tax Benefit

     The Company recognized an income tax benefit of $284,000 during fiscal year
2001 compared to a benefit of $580,000 in fiscal year 2000. The income tax
benefit in fiscal year 2001 reflects the sale of $4,021,000 of our New Jersey
net operating loss carryforwards, pursuant to the Technology Business Tax
Certificate Program ("TBTCP"). This program allows for the sale of New Jersey
net operating loss carryforwards to profitable New Jersey corporations. Cash in
the amount of approximately $284,000 was received in December 2001 from this
sale. Accordingly, the Company revised its valuation allowance by such amount at
September 29, 2001. The income tax benefit in fiscal 2000 resulted from the
favorable settlement of a disputed tax item related to the spin-off of
Technologies in September 1997, combined with the sale of $3,986,000 of our New
Jersey net operating loss carryforwards, pursuant to the TBTCP. Cash in the
amount of approximately $281,000 was received from the fiscal 2000 sale.

     The Company's net operating loss carryforwards for federal income tax
purposes as of September 29, 2001 are approximately $10.8 million. The Company
projects losses to continue in fiscal year 2002. These losses remain available
to the Company on a carryforward basis to offset any future earnings, but they
have been fully offset by a valuation allowance in the financial statements, as
their future realization is uncertain.

     The Company recognized an income tax benefit of $580,000 during fiscal year
2000 compared to a benefit of $379,000 recognized in fiscal year 1999. The
income tax benefit in fiscal year 2000 resulted from the favorable settlement of
a disputed tax item related to the spin-off of Technologies plus cash proceeds
of $281,000 resulting from the sale of New Jersey net operating loss
carryforwards pursuant to the TBTCP. The income tax benefit in fiscal 1999
reflected the Company's ability to carryback losses and collect a refund against
prior years' taxes paid on the earnings of previously discontinued operations.
The amount of carryback available to the Company was limited to the taxes paid
on earnings of the previous two fiscal years and all such available carrybacks
were exhausted at that time.


Extraordinary Loss on Extinguishment of Debt

     The extraordinary loss on extinguishment of debt incurred in fiscal 2000
resulted from repayment of borrowings under a term note and related credit
facility on December 8, 1999, following the closing of the Asset Sale (see Note
4 to the Consolidated Financial Statements).

                                       36
<PAGE>

Cancellation fees aggregating $85,000 were incurred in connection with such
termination. Such fees, as well as the $45,000 unamortized portion of the
deferred financing fees for the debt, were reflected as an extraordinary loss in
the consolidated statement of operations for the fiscal year ended September 30,
2000.


Liquidity and Capital Resources

     BEI has incurred significant operating losses and the Company expects
losses to continue for at least the next one to two years. The Company is
dependent on a single product, the HTA, to achieve commercial success and
generate sufficient future revenues and profits to fulfill capital needs. In
addition, the Company expects that it will continue to expend substantial
resources in expansion of marketing and sales activities and research and
development. BEI's future revenues will depend upon, among other factors, its
ability to cost effectively commercialize the HTA. The Company's capital
requirements to complete the commercialization of the HTA depend on numerous
factors, including the resources required to successfully commercialize the HTA
in the United States and the extent to which the HTA gains market acceptance and
sales.

     The Company believes that existing cash balances plus anticipated future
revenues will provide adequate funding to meet the Company's minimum capital
requirements for the next twelve to twenty-four months. However, in the event
that the growth or timing of anticipated future revenues does not meet our
expectations or that the resources required to successfully commercialize the
HTA in the United States exceed our expectations, we may need to raise
additional funds through public or private financing or other means. We may not
be able to obtain additional financing on favorable terms or at all. If we are
unable to raise additional funds when we need them, we may be required to scale
back our operations, research, marketing or sales efforts or obtain funds
through arrangements with collaborative partners or others that may require us
to license or relinquish rights to technologies or products. If we raise
additional funds by issuing equity securities, further dilution to our
stockholders may result, and new investors could have rights superior to
existing stockholders.

     There can be no assurance that the Company will successfully commercialize
the HTA or that the Company will achieve significant revenue from either
international or domestic sales of the HTA. In addition, there can be no
assurance that the Company will achieve or sustain profitability in the future.
In the event the Company is unable to achieve profitability or secure additional
sources of capital, its ability to continue as a going concern may be severely
impaired. The accompanying financial statements have been prepared on a going
concern basis and do not include any adjustments relating to recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

     During fiscal year 2001, cash used in operating activities was $5,202,000,
reflecting the net loss of $5,600,000. This loss was partially offset by
increases in refundable income taxes, of $83,000 and accounts payable and
accrued liabilities of $572,000, partially offset by increases in inventories,
accounts receivable and other assets of $614,000 reflecting the increased sales
activity following the approval of the HTA in April 2001; plus $355,000 of
adjustments to reconcile the net loss to net cash used in operating activities.
These adjustment for non-cash expenses included depreciation and amortization of
$128,000, costs associated with the issuance of a warrant to purchase shares of
common stock of $143,000 and other non cash expenses of $84,000.

     Cash used in investing activities during fiscal year 2001 was $374,000,
reflecting purchases of plant and equipment of $228,000 reflecting primarily the
acquisition of office equipment, production molds and the acquisition of revenue
producing equipment plus increases in

                                       37
<PAGE>

marketable securities of $152,000 related to the Company's deferred compensation
plan, partially offset by a reduction in a long-term security deposit of $6,000.

     Cash received from financing activities was $11,194,000; primarily
reflecting gross proceeds from the sale of shares of Series A Convertible
Preferred of $4,179,000 in February 2001, less transaction costs of $478,000 and
gross proceeds from sale of shares of common stock and warrants to purchase
shares of common stock of $7,635,000 in September 2001, less transaction costs
of $173,000.

     In addition, in November 2000, the Company entered into a long-term lease
for $157,000 to finance the purchase of a computer enterprise resource planning
system, including installation and implementation support. The agreement calls
for 60 monthly payments of $3,396 beginning June 2001.

     The Company had no other material capital or other commitments as of
September 29, 2001. As discussed above, the Company's capital requirements to
complete the development of and commercialization of the HTA depend on numerous
factors including the timing and receipt of regulatory clearances and approvals,
the resources required to successfully commercialize the HTA in the United
States and the extent the HTA gains market acceptance and sales.


Effects of Inflation

     Management believes that, for the periods presented, inflation has not had
a material effect on the Company's operations.










                                       38

<PAGE>

ITEM 7a.          QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK


     The Company does not enter into financial instruments for trading or
speculative purposes and does not currently utilize derivative financial
instruments. The operations of the Company are conducted primarily in United
States dollars and, as such, are not subject to material foreign currency
exchange rate risk and the Company has no outstanding debt. Accordingly, the
Company believes its market risk exposures are not significant.





















                                       39
<PAGE>

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


CONSOLIDATED BALANCE SHEETS
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------
dollars in thousands except share amounts                             September 29, 2001  September 30, 2000
-------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
<S>                                                                          <C>                 <C>
  Cash and cash equivalents                                                  $9,846              $4,228
  Restricted cash                                                               159                 157
  Marketable securities                                                         452                 311
  Trade receivables, less allowance for doubtful accounts
           (2001--$75; 2000--$34)                                               284                  59
  Inventories                                                                   720                 433
  Income taxes                                                                  284                 367
  Other current assets                                                          158                  97
-------------------------------------------------------------------------------------------------------------
Total current assets                                                         11,903               5,652

Property and equipment
  Equipment                                                                     871                 534
  Leasehold improvements                                                         77                  71
-------------------------------------------------------------------------------------------------------------
                                                                                948                 605
  Less accumulated depreciation and amortization                               (502)               (389)
-------------------------------------------------------------------------------------------------------------
Net property and equipment                                                      446                 216

Other assets
  Patents, less accumulated amortization
     (2001--$117; 2000--$102)                                                   164                 179
  Other                                                                          68                  91
-------------------------------------------------------------------------------------------------------------
Total other assets                                                              232                 270
-------------------------------------------------------------------------------------------------------------
Total assets                                                                $12,581              $6,138
=============================================================================================================
See notes to consolidated financial statements.
</TABLE>


                                       40
<PAGE>

CONSOLIDATED BALANCE SHEETS
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
dollars in thousands except share amounts                                    September 29, 2001   September 30, 2000
---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

<S>                                                                                     <C>                 <C>
  Trade accounts payable                                                                $626                $304

  Accrued expenses and other liabilities                                               1,313               1,063

  Current portion of lease obligation                                                     26                  --
---------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                              1,965               1,367


Long-term lease obligation, less current portion                                         123                  --


Stockholders' equity

  Preferred stock
     ($.001 par value; authorized 5,000,000 shares; issued and outstanding;
     2001--1,114,485 shares of Series A Convertible; 2000--none; aggregate
     liquidation preference at September 29, 2001 of $4,179,000)                          1                  --

  Common stock
     ($.001 par value; authorized 30,000,000 shares; issued and
     outstanding; 2001--9,835,126 shares; 2000--7,686,108 shares)                         12                  10

  Additional paid-in capital                                                          27,758              16,175

  Accumulated deficit                                                                (16,981)            (11,381)

  Accumulated other comprehensive loss                                                   (59)                (33)

  Unearned restricted stock and other                                                   (238)                 --
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                            10,493               4,771
---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                           $12,581              $6,138
=====================================================================================================================
See notes to consolidated financial statements.
</TABLE>




                                       41
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

  ----------------------------------------------------------------------------------------------------------------
                                                                                  Year Ended
  ----------------------------------------------------------------------------------------------------------------
  dollars in thousands except share and per share amounts        September 29,     September 30,     October 2,
                                                                      2001             2000            1999
  ----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>             <C>
  Revenue                                                              $476           $1,375          $8,419
  Cost of sales                                                         805            1,464           5,182
  ----------------------------------------------------------------------------------------------------------------
       Gross profit (loss)                                             (329)             (89)          3,237

  Selling, general and administrative expenses                        4,296            3,810           7,350
  Research, development and related expenses                          1,469            1,661           3,184
  Gain on Asset Sale                                                     --           (1,913)             --
  ----------------------------------------------------------------------------------------------------------------
                                                                      5,765            3,558          10,534
  ----------------------------------------------------------------------------------------------------------------
       Loss from operations                                          (6,094)          (3,647)         (7,297)

  Interest income                                                       217              299             105
  Interest expense                                                       (7)             (49)            (96)
  ----------------------------------------------------------------------------------------------------------------
       Loss before income taxes and extraordinary item               (5,884)          (3,397)         (7,288)

  Income tax benefit                                                   (284)            (580)           (379)
  ----------------------------------------------------------------------------------------------------------------
       Loss before extraordinary item                                (5,600)          (2,817)         (6,909)

  Extraordinary loss on extinguishment of debt                           --             (130)             --
  ----------------------------------------------------------------------------------------------------------------
       Net loss                                                     ($5,600)         ($2,947)        ($6,909)
  ================================================================================================================

  Loss before extraordinary loss per common share                     ($0.72)          ($0.37)         ($0.92)

  Extraordinary loss on extinguishment of debt                         --              ($0.02)          --
  ----------------------------------------------------------------------------------------------------------------
  Net loss per common share                                           ($0.72)          ($0.39)         ($0.92)
  ================================================================================================================

  Weighted average shares outstanding                               7,799,984       7,614,847       7,503,463
  ================================================================================================================
  See notes to consolidated financial statements.
</TABLE>




                                       42
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                                    Year Ended
--------------------------------------------------------------------------------------------------------------------
                                                                 September 29,    September 30,      October 2,
dollars in thousands                                                 2001             2000             1999
--------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                <C>               <C>              <C>
  Net loss                                                         ($5,600)          ($2,947)         ($6,909)
Adjustments to reconcile net loss to net cash used in
     operating activities:
  Depreciation                                                         113               137              331
  Amortization                                                          18               170              639
  Provision for losses on trade receivables                             41                 5               74
  Loss (gain) on sale of assets                                         --            (1,913)              --
  Deferred income tax provision (benefit)                               --                --              174
  Write off of fixed assets                                             --               157               --
  Issuance of common stock warrants for services                       143                --               --
  Expenses paid through lease obligations                               42                --               --
Changes in operating assets and liabilities, net of
     dispositions:
  Trade receivables                                                   (266)              480              306
  Inventories                                                         (287)              (75)             921
  Income taxes                                                          83               120            1,897
  Other assets                                                         (61)               (6)             118
  Trade accounts payable, accrued expenses and other
     liabilities                                                       572              (965)            (339)
--------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                               (5,202)           (4,837)          (2,788)
--------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Capital expenditures                                                (228)              (77)             (41)
  Proceeds from sale of assets                                          --             8,965               --
  Purchases of marketable securities                                  (152)             (244)            (108)
  Other                                                                  6                23               --
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                   (374)            8,667             (149)
--------------------------------------------------------------------------------------------------------------------
</TABLE>





                                       43
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                                    Year Ended
--------------------------------------------------------------------------------------------------------------------
                                                                 September 29,    September 30,      October 2,
dollars in thousands                                                 2001             2000             1999
--------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S>                                                                 <C>              <C>               <C>
  Proceeds from borrowings and issuance of warrants                     --               500            1,000
  Repayment of long-term debt and other                                 (8)           (1,500)             (21)
  Proceeds from stock option exercises                                  15                 1               --
  Proceed from issuance of preferred stock, net                      3,725                --               --
  Proceeds from issuance of common stock, net                        7,462                --               --
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                 11,194              (999)             979
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 5,618             2,831           (1,958)
Cash and cash equivalents at beginning of year                       4,228             1,397            3,355
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $9,846            $4,228           $1,397
====================================================================================================================
See Notes to Consolidated Financial Statements.

<CAPTION>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
BEI Medical Systems Company, Inc. and Subsidiaries

--------------------------------------------------------------------------------------------------------------------
                                                                                     Year Ended
====================================================================================================================
                                                                  September 29,      September 30,      October 2,
dollars in thousands                                                   2001              2000             1999
====================================================================================================================
  Equipment and training costs financed under capital lease
<S>                                                                    <C>                <C>              <C>
    obligations                                                        $157                --               --
====================================================================================================================
  Fair value of warrants issued                                        $167                --               --
====================================================================================================================
  Fair value of non-employee options and
    restricted stock                                                   $238                --               --
====================================================================================================================
</TABLE>





                                       44
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BEI Medical Systems Company, Inc. and Subsidiaries

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
                                                                                         Accumulated
                                                                                            other    Unearned
                                                                 Additional                 compre-  restricted
                                          Preferred    Common     paid-in    Accumulated    hensive  stock and
dollars in thousands                        Stock       Stock     capital      deficit       loss      other     Total
-------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>    <C>         <C>            <C>       <C>      <C>
Balances at October 3, 1998                    $--         $10    $16,291     ($1,525)       $--       ($336)   $14,440
-------------------------------------------------------------------------------------------------------------------------
Net loss for 1999                                                              (6,909)                           (6,909)
Restricted Stock Plan                                                (175)                               231         56
Deferred compensation                                                                                     54         54
Issuance of warrants                                                   58                                            58
-------------------------------------------------------------------------------------------------------------------------
Balances at October 2, 1999                     --          10     16,174      (8,434)        --         (51)     7,699
-------------------------------------------------------------------------------------------------------------------------
Net loss for 2000                                                              (2,947)                           (2,947)
Restricted Stock Plan                                                                                     20         20
Deferred compensation                                                                                     31         31
Stock options exercised                                                 1                                             1
Unrealized loss on investments                                                               (33)                   (33)
-------------------------------------------------------------------------------------------------------------------------
Balances at September 30, 2000                  --          10     16,175     (11,381)       (33)         --      4,771
-------------------------------------------------------------------------------------------------------------------------
Net loss for 2001                                                              (5,600)                           (5,600)
Issuance of common stock                                     2      5,935                                         5,937
Issuance of preferred stock                      1                  3,700                                         3,701
Issuance of warrants                                                1,692                                         1,692
Restricted Stock Plan and other                                       241                               (238)         3
Stock options exercised                                                15                                            15
Unrealized loss on investments                                                               (26)                   (26)
-------------------------------------------------------------------------------------------------------------------------
Balances at September 29, 2001                  $1         $12    $27,758   ($16,981)       ($59)      ($238)   $10,493
=========================================================================================================================
See notes to consolidated financial statements
</TABLE>


                                       45
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Note 1
Basis of Presentation

     The Asset Sale: On December 8, 1999, BEI completed the sale of a
substantial portion of the assets of the Company to CooperSurgical Acquisition
Corp., a Delaware corporation ("CSAC"), for approximately $10.3 million in cash,
pursuant to an Asset Purchase Agreement, dated as of October 1, 1999, between
the Company and CSAC, as amended (the "Asset Purchase Agreement") (the "Asset
Sale"). The assets sold constitute a business of developing, manufacturing,
marketing and servicing a broad array of advanced systems and devices for
diagnostic and therapeutic procedures in the medical fields of gynecology and
gastroenterology (the "Base Business"). Following the Asset Sale, the Company is
focusing exclusively on developing a new therapeutic system, the Hydro
ThermAblator (the "HTA") for treatment of dysfunctional uterine bleeding.

     The cash consideration received at the closing of the Asset Sale, after
certain post-closing adjustments, was $10,257,000. The consideration received by
the Company also included the assumption of $331,000 of specified liabilities,
the assumption of liabilities under certain contracts of the Company, and the
forgiveness of royalty payments that may in the future have been owed by the
Company to an affiliate of CSAC in an amount of up to $100,000. In addition, as
a condition to the consummation of the Asset Sale, the Company entered into a
noncompetition agreement with and for the benefit of CSAC for a period of five
years.

     The Company recorded a net gain on the sale of the Base Business of
$1,913,000. The key components of the gain are as follows:

       Dollars in thousands
       Proceeds                                              $10,257(1)
       Less: transaction costs                                (1,292)(2)
                                                        ------------------
       Net proceeds                                            8,965
       Less: net assets sold                                  (7,052)
                                                        ------------------
       Gain on Asset Sale                                     $1,913
                                                        ==================

(1)      Reflects proceeds from the Asset Sale received at closing of
         $10,538,000,  less certain  post-closing adjustments of $281,000.

(2)      Transaction costs of $1,292,000 include professional fees paid by BEI
         in connection with the Asset Sale ($524,000), employee bonuses related
         to completion of the Asset Sale ($185,000), severance payments and
         other costs ($308,000), and the cost of products and services provided
         to CSAC free of charge ($275,000) pursuant to the Transition Agreement
         dated December 8, 1999 between the Company and CSAC. As of September
         29, 2001, all such costs have been paid, other than remaining
         liabilities of approximately $7,000.

     The following unaudited pro forma statements of operations data has been
prepared assuming the Asset Sale was completed as of October 2, 1999. The pro
forma financial data is presented for illustrative purposes only and is not
necessarily indicative of any future results of operations or the results that
might have occurred if the Asset Sale had actually occurred on the indicated
date.



                                       46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Statement of Operations Data
(in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                    FISCAL YEAR ENDED SEPTEMBER 30, 2000
                                                                                Pro Forma     Pro Forma AS
                                                               HISTORICAL      ADJUSTMENTS      ADJUSTED

<S>                                                              <C>             <C>               <C>
 Revenues...........................                             $1,375          $1,184(1)         $191
 Cost of revenues...................                              1,464             642(1)          822
                                                             -------------------------------------------------
   Gross profit (loss)..............                                (89)            542(1)         (631)(4)

 Selling, general and administrative expenses                     3,810             434(1)        3,376
 Research, development and related expenses                       1,661              --           1,661
 Gain on Asset Sale.................                             (1,913)         (1,913)(2)          --
                                                             -------------------------------------------------
                                                                  3,558          (1,479)          5,037
                                                             -------------------------------------------------
   Loss from operations.............                             (3,647)          2,021          (5,668)

Interest income.....................                                299              --             299
Interest expense....................                                (49)            (49)(3)          --
                                                             -------------------------------------------------
   Loss before income taxes and extraordinary item
                                                                 (3,397)          1,972          (5,369)

Income tax benefit..................                               (580)             --            (580)
                                                             -------------------------------------------------
   Loss before extraordinary item...                             (2,817)          1,972          (4,789)
 Extraordinary loss on extinguishment of debt                      (130)           (130)(3)          --
                                                             -------------------------------------------------
   Net loss ........................                            ($2,947)         $1,842         ($4,789)
                                                             =================================================

 Loss per Common Share:
 Loss before extraordinary loss per common share                 ($0.37)                         ($0.63)

 Extraordinary loss on extinguishment of debt                    ($0.02)                            --
                                                             -------------------------------------------------
 Net loss per common share..........                             ($0.39)                         ($0.63)
                                                             =================================================

 Weighted average shares outstanding                              7,615                           7,615
                                                             =================================================
</TABLE>

---------------
(1)      To give retroactive effect to the decrease in revenues and operating
         expenses attributable to cessation of substantially all operating
         activities of the Company as a result of the Asset Sale, other than
         that which is required to support the ongoing development of its HTA
         product.
(2)      To eliminate the gain on Asset Sale.
(3)      To reflect a reduction in interest expense and elimination of the
         extraordinary loss on extinguishment of debt incurred related to the
         senior secured credit facility, assuming the application of proceeds
         from the Asset Sale to repay the outstanding indebtedness under this
         facility and financing charges on accounts receivable related to the
         Base Business.
(4)      The pro forma negative gross margin for the fiscal year ended September
         30, 2000, of $631,000, reflects direct product costs and fixed
         manufacturing costs for the HTA business of $697,000, as well as pro
         forma allocation of $125,000 of fixed



                                       47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


         manufacturing overhead costs from the first quarter of fiscal year 2000
         prior to the Asset Sale, which were projected to continue following the
         Asset Sale.

     Operating Results and Liquidity: Historically, BEI has incurred significant
operating losses and expects losses to continue for at least the next one to two
years. The Company is dependent on a single product, the HTA, to achieve
commercial success and generate sufficient future revenues and profits to
fulfill capital needs. In addition, the Company expects that it will continue to
expend substantial resources in expansion of marketing and sales activities and
research and development. BEI's future revenues will depend upon, among other
factors, its ability to cost effectively commercialize the HTA. The Company's
capital requirements to complete the commercialization of the HTA depend on
numerous factors including the resources required to successfully
commercialize the HTA in the United States and the extent the HTA gains market
acceptance and sales.

     The Company believes that existing cash balances plus anticipated future
revenues will provide adequate funding to meet the Company's minimum capital
requirements for the next twelve to twenty-four months. However, in the event
that the growth or timing of anticipated future revenues does not meet the
Company's expectations or that the resources required to commercialize the HTA
in the United States exceed expectations, the Company may need to raise
additional funds through public or private financing or other means. The Company
may not be able to obtain additional financing on favorable terms or at all. If
the Company is unable to raise additional funds when it needs them, it may be
required to scale back operations, research, marketing or sales efforts or
obtain funds through arrangements with collaborative partners or others that may
require it to license or relinquish rights to technologies or products. If the
Company raises additional funds by issuing equity securities, further dilution
to stockholders may result, and new investors could have rights superior to
existing stockholders.

     There can be no assurance that the Company will successfully commercialize
the HTA or that the Company will achieve significant revenue from either
international or domestic sales of the HTA. In addition, there can be no
assurance that the Company will achieve or sustain profitability in the future.
In the event the Company is unable to achieve profitability or secure additional
sources of capital, its ability to continue as a going concern may be severely
impaired. The accompanying financial statements have been prepared on a going
concern basis and do not include any adjustments relating to recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.


Note 2
Summary of Significant Accounting Policies

     Operations: Prior to the Asset Sale, the Company was a manufacturer of
diagnostic and therapeutic products focused on gynecology and women's health
issues. In the U.S., the Company utilized independent manufacturers'
representative organizations, direct sales representatives, telemarketers and
domestic distributors to market its products directly to end users, hospitals,
surgical centers and doctors' offices. Products were also sold through a network
of international distributors. BEI's operations consisted of Zinnanti Surgical
Instruments, Xylog Corporation, Meditron Devices, Inc., and BEI Medical Systems
International, Inc. in Teterboro, New Jersey.


                                       48

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


     The accompanying consolidated financial statements include the historical
results of operations of the Company prior to the Asset Sale. The Asset Sale had
a significant impact upon the financial condition and results of operations of
the Company, as both subsequent revenues and revenue generating assets have been
significantly reduced and the Company's product focus has become narrowed and
dependent upon the successful commercialization of the HTA technology.

     Fiscal Year: The Company's fiscal year ends on the Saturday nearest
September 30. Fiscal year 1998 contained 53 weeks. Fiscal years 2000 and 1999
each contained 52 weeks.

     Consolidation: The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

     Cash and Cash Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.

     Restricted Cash: Reflects funds on deposit to guarantee payment of a letter
of credit issued by the Company to the Belgium government in order to secure
payment of taxes related to the Company's prior overseas activities in that
country. The Company anticipates that the Belgium government will issue final
tax clearance during fiscal year 2002 enabling the Company to cancel the letter
of credit and the restriction on these funds.

     Concentration of Credit Risk: The Company's products are sold to commercial
customers throughout the United States and in various foreign countries. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses. Historically, such losses have been within the expectations of
management.

     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from these
estimates.

     Reclassification: Certain prior year amounts have been reclassified to
conform to the current year's presentation.

     Revenue Recognition: Revenue is recognized on the HTA control units and the
disposable procedure sets as products are shipped, provided that a purchase
order has been received or a contract has been executed, there are no
uncertainties regarding customer acceptance, the sales price is fixed and
determinable and collectibility is deemed probable.

     Inventories: Inventories are carried at the lower of cost (first-in,
first-out method) or market.

     Depreciation and Amortization: Plant and equipment are recorded at cost.
Depreciation and amortization are provided in amounts sufficient to amortize the
cost of such assets over their estimated useful lives, which range from three to
ten years, using the straight-line method.

     Long-Lived Assets: The Company accounts for any impairment of its
long-lived assets using Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121 ("FAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived


                                       49
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Assets to be Disposed of." Long-lived assets consist of plant and equipment and
patents. Patents and non-competition agreements are being amortized on a
straight-line basis over their terms. Trade names are amortized on a
straight-line basis over ten to twenty-five years.. The carrying value of
long-lived assets will be reviewed if the facts and circumstances suggest that
they may be impaired. Impairment is determined based on undiscounted future cash
flows over the expected period of use. If impairment is indicated, the carrying
value of long-lived assets would be reduced to fair value. For the year ended
September 30, 2000, the Company incurred a charge of $139,000 to write-down
certain assets that were no longer utilized as a result of the Asset Sale. In
connection with the sale of the Company's GyneSys and HysteroSys product lines
in fiscal 1998, intangible assets of $1,133,000 were sold. Based upon the final
sales price of these assets, the Company reduced the carrying value of the
intangible assets to be disposed of to net realizable value. The total amount of
the charge, $531,000 has been included in the selling, general and
administrative expenses for the year ended October 2, 1999.

     Stock Based Compensation: The Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its employee
stock options. Under APB No. 25, if the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. The value of stock options,
warrants or stock exchanged for services provided by non-employees is expensed
over the period benefited. The options are valued using the Black Scholes option
pricing model. To calculate the expense, the Company uses either the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measured.

     Per Share Information: Earnings per common share are calculated in
accordance with SFAS No. 128, "Earnings Per Share." This statement requires the
dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS
excludes dilution and is computed by dividing net income or loss available to
common stockholders by the weighted average number of shares of common stock
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the Series A Convertible Preferred Stock was converted to common
stock and stock options or other contracts to issue common stock were exercised
and resulted in the issuance of common stock that then shared in the earnings or
loss of the Company. Diluted EPS is computed using the treasury stock method
when the effect of common stock equivalents would be dilutive. As a result of
the net loss for all periods presented weighted average shares used in the
calculation of basic and diluted loss per share are the same. Weighted average
shares exclude unvested restricted stock, which amounted to approximately
61,000, 71,000 and 139,000 shares for fiscal years 2001, 2000 and 1999,
respectively. Common stock equivalents are excluded from the loss per share
calculation for all periods presented because the effect would be anti-dilutive.

     Research  and Development Costs: Company-sponsored research and product
development costs are charged to expense when incurred.

     Advertising Costs: Advertising costs are charged to expense when incurred
and were approximately $424,000, $252,000 and $371,000 in fiscal years 2001,
2000 and 1999, respectively.



                                       50
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Note 3
Inventories

     dollars in thousands                          2001             2000
     --------------------------------------------------------------------------
     Finished products                               $602              $143
     Work in process                                  118               212
     Materials                                         --                78
     --------------------------------------------------------------------------
        Inventories                                  $720              $433
     ==========================================================================


Note 4
Bank Credit Agreement

     During fiscal years 1999 and 2000, the Company had an agreement, with
Transamerica Business Credit Corporation to provide senior secured financing. On
November 1, 1999, the Company borrowed $500,000 under the senior secured
financing facility. All borrowings under the senior secured financing facility
were collaterized by all of the assets of the Company.

     As a result of the Asset Sale, the amounts due under the senior secured
financing facility were repaid in full on December 8, 1999 and all of the
related agreements were terminated. Cancellation fees aggregating $85,000 were
incurred in connection with the termination of the agreement. Such fees, as well
as the unamortized portion of the deferred financing fees for the debt of
$45,000, have been reflected as an extraordinary loss in the accompanying
consolidated statement of operations.

     Interest expense of $43,000 and $89,000 was paid under this facility in
fiscal years 2000 and 1999, respectively.


Note 5
Marketable securities

     Marketable securities are recorded at fair market value and reflect funds
invested in a Nonqualified Deferred Compensation Plan Trust (the "Trust") and
designated to be used exclusively for the benefit of participants in the
Company's Nonqualified Deferred Compensation Plan (the "Plan"), however
participants in the Plan or their beneficiaries have no preferred claim on, or
any beneficial ownership interest in, any assets of the Trust.








                                       51

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Note 6
Accrued Expenses and Other Liabilities

<TABLE>
<CAPTION>

     dollars in thousands                                              2001             2000
     ----------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
     Professional fees                                                   $215              $209
     Employee compensation                                                392               226
     Nonqualified deferred compensation plan                              452               311
     Commissions                                                           32                 4
     Royalties and related costs                                            2                 5
     Other                                                                220               308
     ----------------------------------------------------------------------------------------------
        Accrued Expenses and Other Liabilities                         $1,313            $1,063
     ==============================================================================================
</TABLE>


Note 7
Long-Term Lease Obligation

     In November 2000, the Company entered into a long-term capital lease for
$157,000 to finance the purchase, implementation and support of an enterprise
resource planning system. The agreement provides for 60 monthly payments of
$3,396 beginning June 2001. The following schedule reflects the repayment terms
of obligation under capital leases:

<TABLE>
<CAPTION>

        dollars in thousands
        ------------------------------------------------------------------------------
<S>     <C>                                                                  <C>
        2002                                                                  $41
        2003                                                                   41
        2004                                                                   41
        2005                                                                   41
        2006                                                                   26
        ------------------------------------------------------------------------------
                                                                              190
           Less amount representing interest                                  (41)
        ------------------------------------------------------------------------------
        Total minimum lease payments                                         $149
        ==============================================================================
</TABLE>

     The value of the computer equipment and software financed under the capital
lease obligations of $115,000 is included in property and equipment at September
29, 2001 and the amount related to non-capital costs of $42,000, was expensed at
the inception of the lease.


Note 8
Income Taxes

     Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income



                                       52
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


tax purposes. Significant components of the Company's deferred tax liabilities
and assets as of September 29, 2001 and September 30, 2000 are as follows:

<TABLE>
<CAPTION>

    dollars in thousands                                                   2001             2000
    -------------------------------------------------------------------------------------------------
    Deferred tax liabilities
<S>                                                                        <C>              <C>
       Property and equipment                                              ($17)            ($20)
    -------------------------------------------------------------------------------------------------

    Deferred tax assets
       Allowance for doubtful accounts                                       25               12
       Inventory valuation                                                   68               36
       Federal tax credits                                                  141              141
       Federal net operating loss carryforwards                           3,664            2,060
       Accrued expenses and other                                           320              209
       State net operating loss carryforwards, net                        1,654            1,865
    -------------------------------------------------------------------------------------------------
          Total deferred tax assets                                       5,872            4,323
       Valuation allowance for deferred tax assets                       (5,571)          (4,022)
    -------------------------------------------------------------------------------------------------
          Net deferred tax assets                                          $284             $281
    =================================================================================================
</TABLE>


     As of September 29, 2001, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $10.8 million, which expire
through 2021 and net operating loss carryforwards for state income tax purposes
of approximately $27.5 million, which expire from 2002 through 2008. As of
September 29, 2001, a valuation allowance has been established equal to the
entire net tax benefit associated with all carryforwards and temporary
differences, except as noted below, as their realization is uncertain.

     On November 26, 2001, the Company received approval for the sale of
$4,021,000 of New Jersey net operating loss carryforwards, pursuant to the New
Jersey Technology Business Tax Certificate Program. This program allows for the
sales of New Jersey net operating loss carryforwards to profitable New Jersey
corporations. Cash in the amount of $284,000 was received from this sale.
Accordingly, the Company reduced its valuation allowance by such amount at
September 29, 2001.






                                       53
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


     Significant components of the provision (benefit) for income taxes are as
follows:

<TABLE>
<CAPTION>

                                                                               Year Ended
                                                          ---------------------------------------------------
    dollars in thousands                                        2001              2000             1999
    ---------------------------------------------------------------------------------------------------------
    Current
<S>                                                        <C>                  <C>              <C>
       Federal                                             $      --            ($299)           ($553)
       State                                                      --               --               --
    ---------------------------------------------------------------------------------------------------------
          Total current                                           --             (299)            (553)
    Deferred
       Federal                                                    --               --              174
       State                                                    (284)            (281)              --
    ---------------------------------------------------------------------------------------------------------
          Total deferred                                        (284)            (281)             174
    ---------------------------------------------------------------------------------------------------------
    Total income tax benefit                                   ($284)           ($580)           ($379)
    =========================================================================================================

<CAPTION>

     A reconciliation of the statutory federal income tax rate to the Company's
effective rate is presented below.

                                                                               Year Ended
                                                          ----------------------------------------------------
    dollars in thousands                                        2001              2000             1999
    ----------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>               <C>
    Expected tax benefit at the statutory rate of 34%         ($2,001)          ($1,155)          ($2,478)
    Goodwill amortization and sale                                 --             1,346               121
    Increase (decrease) in valuation allowance                  1,549              (423)            2,661
    Tax settlement                                                 --              (299)               --
    Other                                                         168               (49)               75
    ----------------------------------------------------------------------------------------------------------
       Income tax benefit                                      ($284)           ($580)           ($379)
    ==========================================================================================================
</TABLE>

     The income tax benefit in fiscal year 2000 resulted from the favorable
settlement of a disputed tax item related to the spin-off of BEI Technologies,
Inc. In connection with the Distribution, the Company entered into a Tax
Allocation and Indemnity Agreement with Technologies as amended December 15,
1998. Under the terms of the agreement, Technologies and the Company are each
responsible for the payment of 100% of the portion of federal and state taxes
related to their respective subsidiaries activities for the periods prior to the
Distribution in which both parties were included in consolidated income tax
returns and are entitled to their portion of any income tax refunds for the same
periods. For the periods after the Distribution, the Company is entitled to 100%
of any carryback of losses or credits to prior years.



                                       54
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Note 9
Stockholder's Equity

     On February 14, 2001, the Company completed a private placement of
1,114,485 shares of its Series A Convertible Preferred Stock ("Series A
Preferred") at $3.75 per share, resulting in gross cash proceeds to the Company
of $4,179,000. Shares of Series A Preferred are convertible at any time into an
aggregate of 2,228,970 shares of Common Stock of the Company at an initial
conversion price of $1.88 per common share. The initial conversion price will be
adjusted for stock splits, combinations, certain dividends and distributions and
other similar events and could also be adjusted on a weighted average basis in
the event the Company issues additional securities at a per share price below
$1.88.

     The holders of Series A Preferred are entitled to participate, on an
as-converted to Common Stock basis, in any dividends paid on the Common Stock,
when and if declared by the Board of Directors. In addition, the holders of the
Series A Preferred have the right to a separate vote on certain items (as
described in the certificate of designations), including but not limited to (i)
amendments to the Company's Certificate of Incorporation or Bylaws that
adversely affect the rights, privileges or restrictions of the Series A
Preferred, (ii) the payment or declaration of a dividend on any shares of Common
Stock, (iii) a decrease or increase in the number of authorized directors, (iv)
authorization or designation of any new class or series of stock or other
securities of the Company ranking on parity with or senior to the Series A
Preferred in right of redemption, liquidation preference, voting or dividends or
any increase in the authorized or designated number of any such new class or
series, (v) any liquidation or winding up of the Company, or (vi) entering into
an agreement regarding a merger, acquisition or sale of voting control or sale
or lease of substantially all of the assets of the Company whereby the holders
of the Series A Preferred would not receive a minimum amount of consideration
ranging from two to four times their original purchase price paid for each share
of Series A Preferred. In addition, in the event any of the items identified in
(v) or (vi) above or a greater than 50% change of control approved by the Board
of Directors occurs, the holders of the Series A Preferred shall be entitled to
receive, in preference to the holders of Common Stock, a per share amount equal
to the original purchase price of the Series A Preferred (as adjusted for any
stock splits, dividends and the like) plus any declared but unpaid dividends.
The Company has reserved 2,228,970 shares of common stock for future issuance
upon conversion of the Series A Preferred.

     As part of the private placement, the Company expanded its Board of
Directors from five members to six and provided the holders of the Series A
Preferred, voting as a separate class the right to elect one director.

     On September 4, 2001, the Company completed a private placement to
accredited investors of 1,952,273 shares of its common stock and warrants to
purchase 1,093,261 shares of its common stock, immediately exercisable at $3.69
per unit, the ("First Closing") resulting in gross cash proceeds to the Company
of $7,200,000. The fair value of the warrants issued in the First Closing was
$1,423,000. Warrants issued in the First Closing to purchase 624,722 shares of
common stock will terminate after one year and warrants to purchase 468,539
shares of common stock will terminate after two years. On September 27, 2001,
the Company completed a second and final closing of a private placement of its
common stock and warrants (the "Second Closing"), (together with the First
Closing, the "Private Placement"). In the Second Closing, the Company issued
117,948 shares of its common stock and warrants to purchase 66,048 shares of its
common stock, immediately exercisable at $3.69 per unit, resulting in



                                       55
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


gross cash proceeds to the Company of $435,000. Warrants issued in the Second
Closing to purchase 37,742 shares of common stock will terminate after one year
and warrants to purchase 28,306 shares of common stock will terminate after two
years. The fair value of the warrants issued in the Second Closing was $102,000.

     On March 9, 2001, the Company issued 18,416 shares of common stock to
Transamerica Credit Corp in a cashless exchange for a warrant to purchase 92,307
shares of common stock then outstanding based on the difference between the fair
market value of the common stock at that time and the warrants exercise price of
$1.63 per share.

     On January 26, 2001 the Company amended its existing HTA royalty agreement
to reduce future royalty payments on certain of its HTA disposable treatment
components in exchange for a warrant to purchase 150,000 shares of common stock
of the Company at an exercise price of $1.88 per share. The fair market value of
the warrants using the Black Scholes option-pricing model, $142,500, was charged
to operations during the second quarter of fiscal 2001.

     On February 14, 2001, the Company issued warrants to purchase 25,000 shares
of common stock at an exercise price of $1.88 per share in exchange for services
related to the sale of Series A Preferred Stock. The fair market value of the
warrants using the Black Scholes option-pricing model of $24,000 was charged to
paid-in-capital during the second quarter of fiscal 2001.

     Transactions relating to the common stock warrants are summarized as
follows:

<TABLE>
<CAPTION>

                                                        Number of           Exercise
                                                          Common             Price
                                                          Shares           Per Share
---------------------------------------------------------------------------------------
Warrants issued in fiscal 1999 and outstanding at
<S>                                                     <C>             <C>
October 2, 1999 and September 30, 2000                      92,307               $1.63

   Granted                                               1,334,309         1.88 - 3.69

   Exercised                                               (92,307)               1.63
---------------------------------------------------------------------------------------
Warrants outstanding at September 29, 2001               1,334,309       $1.88 - $3.69
=======================================================================================
</TABLE>

     At a special stockholders meeting held on June 7, 2001 the stockholders of
the Company voted to amend the Company's Certificate of Incorporation to
increase the authorized number of shares of common stock from 20,000,000 to
30,000,000 and to increase the authorized number of shares of preferred stock
from 2,000,000 to 5,000,000.

     The Company's preferred stock may be issued from time to time in one or
more series. The Board of Directors is authorized to establish from time to time
the number of shares to be included in each series, and to designate the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences.

     The Company has also adopted a Stockholder Rights Plan that would cause
substantial dilution to a person who attempts to acquire it on terms not
approved by the Board of Directors. In addition, the Board of Directors has the
authority to issue up to approximately 3,700,000


                                       56
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by our
stockholders. Any such preferred stock could contain dividend rights, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences or other rights superior to the rights of holders of common stock.
The Board of Directors has no present intention of issuing any additional shares
of preferred stock (1,114,485 shares of Series A convertible preferred stock
were outstanding as of December 11, 2001), but reserves the right to do so in
the future. Further, the Company's Certificate of Incorporation provides for
staggered terms for the members of the Board of Directors. The staggered Board
of Directors and certain other provisions of the Certificate of Incorporation
and Bylaws may have the effect of delaying or discouraging changes in control or
management of BEI.


Note 10
Stock Option and Restricted Stock Plans

     The Amended 1987 Stock Option Plan: Pursuant to the Company's Amended 1987
Stock Option Plan (the "Amended Plan") the Company may grant both incentive and
non-statutory stock options to employees as well as grant stock options to
non-employee consultants to the Company. The Amended plan provides for the grant
of options to purchase up to 2,600,000 shares of common stock, of which 589,432
remain available for grant as of September 29, 2001. The Amended plan expires on
January 15, 2007. The exercise price of options granted pursuant to the Amended
Plan must be not less than the fair market value of the common stock on the date
such options are granted, as determined by the Board of Directors. Options
generally become exercisable in four equal installments commencing one year from
the date of grant and such vesting may be accelerated upon the occurrence of
certain events.

     On December 14, 1998, options representing the right to purchase 102,847
shares of the Company's common stock outstanding under the Amended Plan at
exercise prices ranging from $3.74 to $4.00 per share were repriced to $1.63 per
share, an amount equal to the fair market value of the common stock outstanding
at that time.







                                       57
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


     Transactions relating to the Amended Plan are summarized as follows:

<TABLE>
<CAPTION>

                                                          Number of       Exercise     Weighted Average
                                                           Common           Price       Exercise Price
                                                           Shares         Per Share        Per Share
--------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>                <C>
Options outstanding as of October 3, 1998                  744,067       $0.31 - $4.00      $1.19

   Granted                                                 367,600       $1.44 - $1.63      $1.54

   Terminated                                             (106,970)      $1.63 - $4.00      $2.24
--------------------------------------------------------------------------------------------------------
Options outstanding at October 2, 1999                   1,004,697       $0.31 - $1.94      $1.02

   Granted                                                 274,000       $0.94 - $1.63      $1.23

   Terminated                                             (120,750)      $0.94 - $1.94      $1.67

   Exercised                                                  (401)              $1.63      $1.63
--------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 2000                1,157,546       $0.31 - $1.63      $1.00

   Granted                                                 246,000       $3.35 - $3.72      $3.49

   Terminated                                                5,625       $1.44 - $1.63      $1.46

   Exercised                                               (10,381)      $1.44 - $1.63      $1.53
--------------------------------------------------------------------------------------------------------
Options outstanding at September 29, 2001                1,387,540       $0.31 - $3.72      $1.40
========================================================================================================
</TABLE>








                                       58
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


     Details of the options outstanding as of September 29, 2001 were as
follows:

<TABLE>
<CAPTION>

                                             Weighted Average
                                                 Remaining     Weighted Average                   Weighted Average
                                             Contractual Life   Exercise Price                         Exercise
           Exercise             Options           (Years)          Per Share          Number            Price
            Prices            Outstanding                                          Exercisable        Per Share
     ---------------------------------------------------------------------------------------------------------------
<S>       <C>                    <C>               <C>               <C>               <C>              <C>
          $0.31                    366,821          3.8              $0.31             366,821          $0.31
          $0.54                     52,403          4.3              $0.54              52,403          $0.54
          $0.70                    107,564          4.6              $0.70             107,564          $0.70
          $0.94                     10,000          8.1              $0.94               2,500          $0.94
          $1.16                    124,000          9.0              $1.16              31,000          $1.16
          $1.25                    111,500          8.3              $1.25              27,875          $1.25
          $1.44                    151,000          8.1              $1.44              75,500          $1.44
          $1.63                    218,252          6.4              $1.63             117,926          $1.63
          $3.35                    125,000          9.8              $3.35                   0            $0
          $3.63                    102,000         10.0              $3.63                   0            $0
          $3.72                     19,000          9.6              $3.72                   0            $0
     ---------------------------------------------------------------------------------------------------------------
          $0.31 - $3.72          1,387,540          6.7              $1.40             781,589          $0.76
     ===============================================================================================================
</TABLE>

     The Restricted Plan: In February 1992, the Company's Board of Directors
approved the 1992 Restricted Stock Plan (the "Restricted Plan"), ratified by the
Company's stockholders in February 1993, authorizing up to 350,000 shares of the
Company's common stock to be issued to certain key individuals subject to
forfeiture if employment terminated prior to the end of prescribed vesting
periods. In March 1997, the stockholders approved an amendment to the Restricted
Plan to increase the shares reserved for issuance under the plan from 350,000 to
700,000, imposed a limit on the number of shares which any one participant may
receive under the Restricted Plan in any one fiscal year and extended the term
of the restricted Plan to January 15, 2007. In March of 1999, the stockholders
approved an amendment to the Restricted Plan to increase the shares reserved for
issuance under the plan from 700,000 to 900,000.

     As of September 29, 2001, 477,850 shares of the Company's common stock had
been issued pursuant to awards of restricted stock granted under the Restricted
Plan (including 354,250 shares issued to employees of Technologies prior to the
Distribution and excluding any shares that have been returned to the Restricted
Plan as a result of termination or forfeiture) and 422,150 shares (plus any
shares that might in the future be returned to the Restricted Plan as a result
of termination or forfeiture) remained available for future issuance under the
Restricted Plan. Of the outstanding shares, 399,876 had vested. All of the
restricted shares outstanding are included in the Company's total common stock
outstanding. The market value at the date of grant of shares awarded under the
plan is recorded as unearned restricted stock.


                                       59
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


The market value of shares granted is amortized to compensation expense over the
periods of vesting. In fiscal year 2001 no compensation expense was incurred. In
fiscal years 2000 and 1999, $20,000 and $56,000, respectively of compensation
expense was recognized.

     Pro forma Information: Pro forma information regarding net loss and net
loss per common share, basic and diluted is required by SFAS No. 123, and has
been determined as if the Company had been accounting for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for fiscal years 2001, 2000 and 1999:
weighted-average risk-free interest rate of 5.72%, 6.02% and 6.10%,
respectively; no dividends; volatility factors of the expected market price of
the Company's common stock of 0.850, 1.087 and 0.611, respectively and a
weighted average expected life of the options of 9.8, 9.5 and 9.3 years,
respectively.

     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 are subject to vesting
and have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value.

     For purposes of pro forma disclosures, the estimated fair value of the
options granted in 2001 is amortized to expense over the options' vesting
period. The weighted-average grant date fair value of options granted during
fiscal years 2001, 2000 and 1999 was $2.33, $1.13 and $1.45, respectively. The
Company's pro forma net loss was $5,866,000, $3,097,000 and $7,171,000 for
fiscal years 2001, 2000 and 1999, respectively, and pro forma net loss per
common share, basic and diluted, was $0.75, $0.41 and $0.96, respectively.

     The pro forma disclosures presented for fiscal years 2001, 2000 and 1999
may not necessarily be indicative of the pro forma effect of SFAS No. 123 for
future periods in which options may be granted.


Note 11
Employee Benefit Plans

     The Company has a defined contribution retirement plan for the benefit of
all eligible employees. The plan qualifies under Section 401(k) of the Internal
Revenue Code thereby allowing eligible employees to make tax-deductible
contributions to the plan. Non-discretionary employer contributions are based on
a fixed percentage of total eligible employee compensation and a formula based
matching of the participant's contribution to the plan. Additional contributions
are at the discretion of the Board of Directors. The Company's contributions to
the plan for fiscal year 2001, 2000 and 1999 were approximately $35,000, $51,000
and $72,000, respectively.

     On January 1, 2000, the Company due to the re-organization following the
Asset Sale initiated a "partial plan termination." The number of active
participants in the plan was significantly decreased as to deem it necessary to
declare a partial plan termination within the meaning of Code section 411(d)
(3). As a result, all employees affected by the re-organization after



                                       60
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


the Asset Sale became fully vested. There were 20 participants affected by the
partial plan termination who became eligible for 100% vesting. The total
additional cost to the Company for the increased vesting was approximately
$14,000.


Note 12
Lease and Other Commitments

     Leases: Operating leases consist principally of leases for facilities and
equipment, which expire through 2005. In fiscal year 2000 the Company amended
its facility lease for the Teterboro, New Jersey to reduce the space utilized by
the Company and its long-term lease commitments by approximately 52.5%. Certain
of the operating leases contain various options for renewal and/or purchase of
the related assets for amounts approximating their fair market value at the date
of exercise of the option. The future minimum payments for operating leases
consisted of the following at September 29, 2001:


        dollars in thousands
        ----------------------------------------------------------------------
        2002                                                         $241
        2003                                                          157
        2004                                                          113
        2005                                                           14
        ----------------------------------------------------------------------
        Total minimum lease payments                                 $525

        ======================================================================

     Total rental expense attributable to property and equipment amounted to
approximately $157,000, $319,000, and $374,000 for fiscal 2001, 2000 and 1999,
respectively.

     Minimum Royalty Payments: In 1993, the Company entered into a license
agreement for the HTA endometrial ablation technology whereby royalty payments
of 10% were payable on net revenues of certain HTA disposable products. On
January 26, 2001 the Company amended the existing HTA royalty agreement to
reduce future royalty payments on certain of its HTA disposable treatment
components in exchange for warrant to purchase shares of the Company's common
stock.

     The Company had also entered into a number of other license and royalty
agreements that required payments based upon revenues on the sales of certain
products ranging from 4% to 10% of revenue. Except for the endometrial ablation
license agreement mentioned above all other license and royalty agreements were
either assigned to CSAC in connection with the Asset Sale or terminated by the
Company by December 8, 1999. Total royalty expense attributable to various
license agreements amounted to approximately $17,000, $37,000, and $207,000 for
fiscal 2001, 2000 and 1999, respectively.


Note 13
Contingencies and Litigation

     From time to time, the Company may become involved in or subject to various
litigation and legal proceedings incidental to the normal conduct of its
business. The Company is not currently involved in any material legal
proceedings.




                                       61
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
September 29, 2001


Note 14
Quarterly Results of Operations (Unaudited)

     The tables below present unaudited quarterly financial information for
fiscal years 2001 and 2000:

<TABLE>
<CAPTION>

     dollars in thousands except per share amounts
                                                                          Three months ended
     ------------------------------------------------------------------------------------------------------
                                                            Dec. 30,     Mar. 31,   Jun. 30,     Sep. 29,
                                                              2000        2001        2001        2001
     ------------------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>         <C>        <C>
     Revenue                                                     $31         $40         $84        $321
     Gross profit (loss)                                       ($102)      ($137)       ($99)         $9
     Net loss                                                ($1,053)    ($1,456)    ($1,619)    ($1,472)
     Net loss per common share                                ($0.14)     ($0.19)     ($0.21)     ($0.18)

     ------------------------------------------------------------------------------------------------------
                                                             Jan. 1,     Apr. 1,    Jul. 1,     Sep. 30,
                                                              2000        2000        2000        2000
     ------------------------------------------------------------------------------------------------------
     Revenue                                                  $1,234         $36         $43         $62
     Gross profit (loss)                                        $410       ($188)      ($183)      ($128)
     Net income (loss)                                          $513     ($1,432)    ($1,301)      ($727)
     Net income (loss) per common share                        $0.06      ($0.19)     ($0.17)     ($0.10)
</TABLE>










                                       62

<PAGE>


                         Report of Independent Auditors



The Board of Directors and Stockholders
BEI Medical Systems Company, Inc.


     We have audited the accompanying consolidated balance sheets of BEI Medical
Systems Company, Inc. as of September 29, 2001 and September 30, 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 29, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BEI Medical
Systems Company, Inc. at September 29, 2001 and September 30, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 29, 2001 in conformity with accounting
principles generally accepted in the United States.




                                                        /s/ ERNST & YOUNG LLP
MetroPark, New Jersey
December 4, 2001



                                       63
<PAGE>

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE



     None.














                                       64
<PAGE>


                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Certain information with respect to directors and executive officers is set
forth in Part I of this Report. Additional information required by this Item is
incorporated herein by reference to the section entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" of the Proxy Statement
related to the Company's 2002 Annual Meeting of Stockholders to be filed by the
Company with the Securities and Exchange Commission (the "Definitive Proxy
Statement").


ITEM 11.          EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by reference
to the sections entitled "Executive Compensation" and "Certain Transactions" of
the Company's Definitive Proxy Statement.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Definitive Proxy Statement.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated herein by reference
to the sections entitled "Executive Compensation" and "Certain Transactions" of
the Definitive Proxy Statement.









                                       65
<PAGE>

<TABLE>
<CAPTION>

                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     The following documents are filed as part of this Form 10-K.
                                                                                                                Form 10-K
                                                                                                              Page Number
<S>          <C>                                                                                                   <C>
(a)(1)       Index to Consolidated Financial Statements.

             The following Consolidated Financial Statements of BEI Medical Systems
                 Company, Inc. are filed as part of this Form 10-K:

             Consolidated Balance Sheets -
                 September 29, 2001 and September 30, 2000                                                          37

             Consolidated Statements of Operations -
                 Years ended September 29, 2001, September 30, 2000
                  and October 2, 1999                                                                               38

             Consolidated Statements of Cash Flows -
                 Years ended September 29, 2001, September 30, 2000
                 and October 2, 1999                                                                                39

             Consolidated Statements of Stockholders' Equity -
                 Years ended September 29, 2001, September 30, 2000
                 and October 2, 1999                                                                                41

             Notes to Consolidated Financial Statements -
                 September 29, 2001                                                                                 43

             Report of Independent Auditors                                                                         57


(a)(2)       Index to Financial Statement Schedule.

             The following Consolidated Financial Statement Schedule of BEI
                 Medical Systems Company, Inc. for each of the years ended
                 September 29, 2001, September 30, 2000 and October 2, 1999 is
                 filed as part of this Form 10-K:

             Schedule II                     Valuation and Qualifying Accounts                                     S-1

                                             Independent Auditors' Report                                          S-2
</TABLE>

Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the Consolidated Financial Statements or Notes thereto.

                                       66
<PAGE>

      (b) On September 7, 2001, the Registrant filed a Current Report on Form
8-K announcing the private placement of 1,952,273 shares of its common stock and
short term warrants to purchase 1,093,261 shares of it common stock.

<TABLE>
<CAPTION>

(a)(3)       Listing of Exhibits
             -------------------

             Exhibit Numbers                 Description                                                 Footnote
             ---------------                 -----------                                                 --------

<S>                                          <C>                                                         <C>
                      3.1                    Restated Certificate of Incorporation                         (ii)

                      3.2                    Amended Bylaws of the Company as of August 21, 2001
                                                                                                           (xi)

                      3.3                    Certificate of Designation of Series A Junior
                                             Participating Preferred Stock                                 (iii)

                      3.4                    Certificate of Designations, Preferences and Rights of
                                             Series A Convertible Preferred Stock                          (xii)

                      3.5                    Certificate of Amendment of Certificate of Incorporation      (xiii)

                      4.1                    Reference is made to exhibits 3.1, 3.2 and 3.3

                      4.2                    Form of Rights Certificate                                    (iii)


                      4.3                    Summary of Rights to Purchase Preferred Shares                (iii)

                      4.4                    Registration Rights Agreement dated February 14, 2001
                                                                                                           (xiv)

                      4.5                    Registration Rights Agreement dated September 4, 2001
                                                                                                           (xi)

                     10.2      *             Registrant's Amended 1987 Stock Option Plan                   (iv)


                     10.3      *             Standard option grant form used in connection with
                                             Registrant's Amended 1987 Stock Option Plan.                  (v)

                     10.6      *             Description of Management Incentive Bonus Plan                (ii)

                     10.8      *             Registrant's 1992 Restricted Stock Plan, as amended           (iv)

</TABLE>

                                       67
<PAGE>

<TABLE>
<CAPTION>

<S>                                          <C>                                                           <C>
                      10.9                   Tax Allocation and Indemnity Agreement between BEI
                                             Electronics, Inc. and BEI Technologies, Inc. dated as of
                                             September 26, 1997                                             (i)

                      10.10                  Assumption of Liabilities and Indemnity Agreement
                                             between BEI Electronics, Inc. and BEI Technologies, Inc.
                                             dated as of September 26, 1997                                 (i)

                      10.11                  Technology Transfer and License Agreement by and between
                                             BEI Electronics, Inc. and BEI Technologies, Inc. dated
                                             as of September 26, 1997                                       (i)

                      10.12                  Trademark Assignment and Consent Agreement by and
                                             between BEI Electronics, Inc. and BEI Technologies, Inc.
                                             dated as of September 26, 1997                                 (i)

                      10.27                  Rights Agreement dated June 30, 1997 between the
                                             Registrant and ChaseMellon Shareholder Services, LLC
                                                                                                           (iii)

                      10.30    *             Severance Agreement between the Registrant and Thomas W.
                                             Fry dated February 12, 1997                                   (vii)

                      10.31                  Amendment to Tax Allocation and Indemnity Agreement
                                             dated December 15, 1998 between the Registrant and
                                             BEI Technologies dated as of September 26, 1997.              (vii)

                      10.32                  Asset Purchase Agreement between the Registrant and
                                             CooperSurgical Acquisition Corp. dated October 1, 1999,
                                             as amended on November 2, 1999.                               (viii)

                      10.33                  Amendment No. 2 to the Asset Purchase Agreement, dated
                                             as of December 7, 1999.                                        (ix)

                      10.34                  Transition Agreement between the Registrant and
                                             CooperSurgical Acquisition Corp. dated December 8, 1999.
                                                                                                            (x)

                      10.35                  Noncompetition Agreement between the Registrant and
                                             CooperSurgical Acquisition Corp. dated December 8, 1999.
                                                                                                            (x)

                      10.36    *             Employment Agreement between the Registrant and Richard
                                             W. Turner dated October 7, 1999.                               (x)
</TABLE>

                                       68
<PAGE>

<TABLE>
<CAPTION>

<S>                                          <C>                                                          <C>
                      10.37                  Loan and Security Agreement between the Registrant and
                                             Transamerica Business Credit Corporation, and
                                             Streamlined Facility Agreement between the same parties,       (x)
                                             each dated May 6, 1999.

                      10.38                  Agreement of Lease between the Registrant and Hollister
                                             '97, L.L.C. for 100 Hollister Road, Teterboro, New
                                             Jersey facility, dated January 20, 1998.                       (x)

                      10.40                  Nonqualified Deferred Compensation Plan Trust Agreement
                                             between the Registrant and Merrill Lynch Trust, dated
                                             July 15, 1999.                                                 (x)

                      10.41                  First Amendment to Lease between Registrant and
                                             Hollister '97 L.L. C for 100 Hollister Road, Teterboro,
                                             New Jersey facility dated May 1, 2000.                        (xvi)

                      10.42                  Product Royalty Agreement by and between Registrant and
                                             Milton H. Goldrath, MD, dated December 23, 1993.
                                                                                                            (xv)

                      10.43                  Amendment No. 1 to Product Royalty Agreement by and
                                             between the Registrant and Milton H. Goldrath, MD dated
                                             January 29, 2001.                                              (xv)

                      10.44                  Waiver of Certain Rights of the Series A Preferred Stock
                                             of BEI Medical Systems Company, Inc. dated December 13, 2001.

                      21.1                   Subsidiaries of the Registrant

                      23.1                   Consent of Independent Auditors

                      24.1                   Power of Attorney

</TABLE>

           *  Indicates management contracts or compensatory plans or
              arrangements filed pursuant to Item 601(b)(10) of regulation S-K.

         (i)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Current Report on Form 8-K, filed on October 14,
              1997.

        (ii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Registration Statement on Form S-1 (File No.
              33-29032).

       (iii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Current Report on Form 8-K, filed on July 11, 1997.

        (iv)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Registration Statement on Form S-8 (File No.
              333-64155).

                                       69
<PAGE>

         (v)  Incorporated by reference. Previously filed as an exhibit to
              Amendment No. 1 to the Registrant's Registration Statement on Form
              S-1 (No. 33-29032).

        (vi)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 10-K, dated October 2, 1993.

       (vii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 10-K, dated October 3, 1998.

      (viii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's definitive proxy statement for the special meeting of
              stockholders held December 7, 1999 (0000929624-99-001921).

        (ix)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 8-K, filed on December 22, 1999.

         (x)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 10-K, dated October 2, 1999.

        (xi)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Registration Statement on Form S-3 (file No.
              333-71718).

       (xii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 8-K, filed on February 20, 2001.

      (xiii)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's amended Report on Form 10-Q, dated June 30, 2001.

       (xiv)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Registration Statement on Form S-3 (file No.
              333-57172).

        (xv)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 10-Q, dated March 30, 2001.

       (xvi)  Incorporated by reference. Previously filed as an exhibit to the
              Registrant's Report on Form 10-K, dated September 30, 2000.


                                       70
<PAGE>


                                   SIGNATURES



     Pursuant to the requirements of Section 13 or 15(d) 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.





                                       BEI MEDICAL SYSTEMS COMPANY, INC.
                                   By:    /s/ Thomas W. Fry
                                          --------------------------------------

                                   Thomas W. Fry
                                   Vice President of Finance and Administration,
                                   Secretary & Treasurer



                                   December 28, 2001











                                       71


<PAGE>



                                INDEX TO EXHIBITS


Exhibit
Number

   10.44    Waiver of Certain Rights of the Series A Preferred Stock of BEI
            Medical Systems Company, Inc. dated December 13, 2001

   21.1     Subsidiaries of the Registrant

   23.1     Consent of Independent Auditors (Reference is made to page 69 of the
            10-K)

   24.1     Power of Attorney (Reference is made to page 73 of the 10-K)