<PAGE>

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


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                   FORM 10-QSB

[ X ]          QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
     
[   ]          TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________

COMMISSION FILE NUMBER 0-22247

                             NUTRITION MEDICAL, INC.
        (Exact name of Small Business Issuer as specified in its charter)


     MINNESOTA                                       41-1756256
(State or other jurisdiction                      (I.R.S. Employer
of incorporation or organization)                 Identification Number)

            9850 51ST AVENUE NORTH, SUITE 110, MINNEAPOLIS, MN  55442
                    (Address of principal executive offices)

                                 (612) 551-9595
                           (Issuer's telephone number)

     Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 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______   
 
     State the number of shares outstanding of each of the issuer's classes 
of common equity, as of the last practicable date:

          Class                         Outstanding as of November 10, 1997
Common Stock, $.01 par value                     5,456,024 shares

Transitional Small Business Disclosure Format (Check one):  Yes____    No____X 

===============================================================================
<PAGE>

                             NUTRITION MEDICAL, INC.

                                      INDEX


                         PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements                                         Page No.

          Statements of Operations (Unaudited) For the Three and 
               Nine Months Ended September 30, 1997 and 1996               2   

          Balance Sheets (Unaudited) As of September 30, 1997 and
               December 31, 1996                                           3   

          Statements of Cash Flows (Unaudited) For the Nine Months 
               Ended September 30, 1997 and 1996                           4   

          Notes to Financial Statements (Unaudited)                        5   

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                              7   

                           PART II - OTHER INFORMATION


Item 1.   Legal Proceedings                                                13

Item 2.   Changes in Securities and Use of Proceeds                        13

Item 6.   Exhibits and Reports on Form 8-K                                 14 

                                       1

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                             NUTRITION MEDICAL, INC.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                 Three months ended            Nine months ended
                                                     September 30,                 September 30,
                                           ---------------------------   -----------------------------
                                                 1997           1996           1997          1996
                                                 ----           ----           ----          ----
<S>                                        <C>              <C>          <C>              <C>
Net sales                                  $  1,934,518     $  645,208   $  4,478,496     $  1,731,257
Cost of goods sold                            1,473,170        400,293      3,404,604        1,082,487
                                           ------------     ----------   ------------     ------------
Gross profit                                    461,348        244,915      1,073,892          648,770

Operating expenses:
     Selling, general and administrative        796,511        375,936      2,076,614          953,615
     Research and development                    94,649         51,823        331,653          147,978
                                           ------------     ---------    -----------      ------------
                                                891,160        427,759      2,408,267        1,101,593
                                           ------------     ----------   ------------     ------------
Operating loss                                (429,812)      (182,844)    (1,334,375)        (452,823)

Other income (expense):
     Interest income                             22,006          7,619        109,124           27,087
     Interest expense                          (51,243)          (554)      (142,388)          (3,458)
                                           ------------     ----------   ------------      ------------
                                               (29,237)          7,065       (33,264)           23,629
                                           ------------     ----------   ------------     ------------
Net loss                                   $  (459,049)   $  (175,779)   $(1,367,639)      $  (429,194)
                                           ------------     ----------   ------------      ------------
                                           ------------     ----------   ------------      ------------

Net loss per share                             $  (.08)       $  (.04)       $  (.25)          $  (.10)
                                           ------------     ----------   ------------      ------------
                                           ------------     ----------   ------------      ------------

Weighted average number of shares 
   outstanding                                5,455,024      4,270,543      5,411,255         4,245,680
                                           ------------     ----------   ------------      ------------
                                           ------------     ----------   ------------      ------------
</TABLE>


                 See accompanying notes to financial statements

                                       2

<PAGE>
                             NUTRITION MEDICAL, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                               September 30,   December 31,
                                                   1997           1996
                                              --------------  -------------
                                               (Unaudited)
<S>                                             <C>           <C>
                       ASSETS
Current assets:
     Cash and cash equivalents                  $  1,836,910   $  2,553,955
     Short-term investments                               --      1,671,596
     Accounts receivable (net)                     1,051,465        356,240
     Inventories                                   1,972,781        460,115
     Prepaid expenses                                145,162         34,039
                                                ------------   ------------

          Total current assets                     5,006,318      5,075,945

Equipment and office furniture                     1,307,922        182,881
Less accumulated depreciation                        239,785         50,512
                                                ------------   ------------
     Equipment and office furniture (net)          1,068,137        132,369
Goodwill (net)                                     3,259,104             --
                                                ------------   ------------
               Total assets                     $  9,333,559   $  5,208,314
                                                ------------   ------------
                                                ------------   ------------

          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                             $  811,694     $  269,037
     Accrued expenses                                129,087         84,487
     Accrued lease costs                                  --         75,000
     Accrued payroll and taxes                       111,795         80,554
                                                ------------   ------------
          Total current liabilities                1,052,576        509,078

Subordinated note payable, including accrued 
   interest                                        1,736,138             --

Shareholders' equity:
     Common stock, $.01 par value, 20,000,000 shares
       authorized, 5,455,024 and 4,593,024 issued and 
       outstanding in 1997 and 1996                   54,550         45,930
     Additional paid-in capital                   10,147,917      6,943,287
     Accumulated deficit                         (3,657,622)    (2,289,981)
                                                ------------   ------------
          Total shareholders' equity               6,544,845      4,699,236
                                                ------------   ------------

            Total liabilities and shareholders'  
              equity                             $ 9,333,559   $  5,208,314
                                                ------------   ------------
                                                ------------   ------------
</TABLE>

                 See accompanying notes to financial statements

                                       3

<PAGE>

                             NUTRITION MEDICAL, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Nine months ended 
                                                      September 30,
                                                ----------------------------
                                                   1997             1996
                                                   ----             ----
<S>                                                <C>              <C>
OPERATING ACTIVITIES                                        
     Net loss                                   $(1,367,639)   $  (429,194)
     Adjustments to reconcile net loss to net 
      cash used in operating activities:

          Amortization                               327,208             --
          Depreciation                               189,273         17,259
          Value of warrants granted for services 
            performed                                     --         14,500
          Changes in operating assets and 
            liabilities:
                   Accounts receivable             (745,225)      (195,724)
                   Inventories                   (1,012,667)         32,331
                   Prepaid expenses                (111,123)      (289,508)
                   Accounts payable                  592,658         53,044
                   Accrued expenses                   65,090        171,938
                                                ------------     ----------

Net cash used in operating activities            (2,062,425)     (625,354) 

INVESTING ACTIVITIES
     Proceeds from sale of short-term investments  1,671,596             --
     Purchase of goodwill                           (58,174)             --
     Purchase of equipment and office furniture    (275,042)       (14,420)
                                                 -----------     ----------
Net cash provided by (used in) investing 
   activities                                      1,338,380       (14,420)

FINANCING ACTIVITIES
     Payments on notes payable                            --      (100,000)
     Proceeds from issuance of common stock            7,000        125,000
                                                 -----------     ----------                                                 
Net cash provided by financing activities              7,000         25,000
                                                 -----------     ----------

Decrease in cash                                   (717,045)      (614,774)
Cash and cash equivalents at beginning of period   2,553,955      1,127,247
                                                 -----------     ----------

Cash and cash equivalents at end of period      $  1,836,910     $  512,473
                                                 -----------     ----------


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTMENT AND
          FINANCING ACTIVITIES
     Acquisition of Elan Pharma, Inc. product 
      line through:                                           
          Issuance of note payable              $  1,593,750
          Issuance of common stock                 3,206,250

</TABLE>

                 See accompanying notes to financial statements

                                       4

<PAGE>
              
                            NUTRITION MEDICAL, INC.
                  NOTES TO FINANCIAL STATEMENTS (continued)
                                 (UNAUDITED)

1. BASIS OF PRESENTATION

   The financial statements as of September 30, 1997 and for the three and 
nine-month periods ended September 30, 1997 and 1996 included in this Form 
10-QSB have been prepared by the Company pursuant to the rules and 
regulations of the Securities and Exchange Commission.  Certain information 
and footnote disclosures, normally included in financial statements prepared 
in accordance with generally accepted accounting principles, have been 
condensed or omitted pursuant to such rules and regulations.  These financial 
statements should be read in conjunction with the financial statements and 
related notes thereto included in the Company's December 31, 1996 Annual 
Report on Form 10-KSB.

   The financial statements presented herein as of September 30, 1997 and for 
the three and nine-month periods ended September 30, 1997 and 1996 are 
unaudited, but in the opinion of management, reflect all adjustments, 
consisting of normal recurring adjustments, necessary for a fair presentation 
of financial position, results of operations and cash flows for the periods 
presented.  The results of operations for any interim period are not 
necessarily indicative of results for the full year.

2. PRODUCT LINE ACQUISITION

   On January 13, 1997 (the "Closing Date"), the Company executed an Asset 
Purchase Agreement (the "Agreement") whereby the Company acquired certain 
assets from Elan Pharma, Inc. ("Elan"), a U.S. subsidiary of Ireland-based 
Elan Corporation, plc.  The assets purchased include inventory and fixed 
assets relating to the production of the enteral (tube feeding) products (the 
"Acquired Products") of Elan as well as exclusive rights to manufacture and 
market the Acquired Products. In exchange for the Acquired Products and 
related assets, the Company issued Elan a subordinated promissory note in the 
amount of $3,000,000 (due in seven years along with interest accruing at 
three percent per annum) and 855,000 shares of the Company's common stock.  
The Agreement contains provisions which restrict Elan's ability to vote or 
sell the shares of Common Stock.  Total value of the transaction, after 
taking into consideration market interest rates on the note payable, and 
$58,174 in acquisition expenses associated with the purchase, was $4,858,174.

   The Agreement contains a provision for the forgiveness of up to 100% of 
the promissory note based on the Company's future stock performance.  The 
principal amount of the promissory note may be reduced on the fourth, through 
seventh anniversaries of the closing date.  The amount of the reduction will 
be determined by multiplying the number of shares sold by Elan during the 
respective year by one-half of the difference between the average sales price 
less $5 (year four), $6 (year five), $7 (year six) or $8 (year seven).    A 
similar reduction, using an eight dollar threshold will be applied to shares 
remaining unsold at the end of the seventh anniversary of the closing date.  
Any reduction in the principal amount of the promissory note under the 
aforementioned terms of the Agreement will be accounted for as a reduction of 
goodwill.  In the 

                                       5

<PAGE>
              
                            NUTRITION MEDICAL, INC.
                  NOTES TO FINANCIAL STATEMENTS (continued)
                                 (UNAUDITED)

2. PRODUCT LINE ACQUISITION (CONTINUED)

event that an adjustment exceeds the book value of goodwill on that date, 
such excess will be recorded as a direct increase in equity and no gain will 
be recognized.

    Based upon management's estimates of asset values, taking into 
consideration market values and condition of the assets, as well as the 
estimated future cash flows from the Acquired Products, the following 
represents a preliminary allocation of the purchase price to the acquired 
assets, with the excess of the purchase price over the assets allocated to 
goodwill:

<TABLE>
<CAPTION>

<S>                                                             <C>
      Inventory                                                 $   500,000
      Manufacturing equipment                                       500,000
      Leased pumps                                                  350,000
      Goodwill                                                    3,508,174
                                                                -----------
                                                                 $4,858,174
                                                                -----------
                                                                -----------
</TABLE>

   Pro-forma results of operations, as if the acquisition had taken place on 
January 1, 1996, for the nine month period ended September 30, 1996 are shown 
below.  Pro-forma results are not necessarily indicative of the results to be 
expected for the full year or the results that would have been achieved if 
the acquisition had actually taken place on that date. 

                       Pro-forma Statement of Operations

<TABLE>                                                            
<CAPTION>
                                                   Nine-month period ended
                                                       September 30, 1996

<S>                                                             <C>
      Net Sales                                                 $ 6,816,257
      Gross Profit                                                2,024,770
      Net Loss                                                   ( 834,194)
      Loss per share                                               $ (0.16)

</TABLE>
                   
   Pro-forma results for the nine-month period ended September 30, 1997 are 
not shown as the acquisition took place close to the beginning of the year in 
1997.

3.  NET LOSS PER SHARE

   Net loss per share is computed using the weighted average number of common 
shares outstanding during the period.  Common equivalent shares from stock 
options and warrants are excluded from the computation as their effect is 
antidilutive.  In February 1997, the Financial Accounting Standards Board 
(FASB) issued FASB Statement No. 128, "EARNINGS PER SHARE".  This Statement 
replaces the presentation of primary earnings per share (EPS) with basic EPS 
and also requires dual presentation of basic and dilutive EPS for entities 
with complex capital structures.  This Statement is effective for the fiscal 
year ending December 31, 1997.  For the quarter ended September 30, 1997,  
there is no difference between basic earnings per share under Statement No. 
128 and primary net loss per share as reported. 

                                       6

<PAGE>

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


CAUTIONARY STATEMENT

   This Quarterly Report on form 10-QSB contains forward-looking statements 
within the meaning of Section 27A of the Securities Act of 1933, as amended, 
and Section 21E of the Securities Exchange Act of 1934, as amended.  When 
used in this Form 10-QSB and in future filings by the Company with the 
Securities and Exchange Commission, in the Company's press releases and in 
oral statements made with the approval of an authorized executive officer, 
the words or phrases "believes", "anticipates", "intends", "will likely 
result", "estimates", "projects" or similar expressions are intended to 
identify such forward-looking statements, but are not the exclusive means of 
identifying such statements. These forward-looking statements involve risks 
and uncertainties that may cause the Company's actual results to differ 
materially from the results discussed in the forward-looking statements.  The 
Company wishes to caution readers not to place undue reliance on any such 
forward-looking statements, which speak only as of the date made.  The 
Company undertakes no obligation to revise any forward-looking statements in 
order to reflect events or circumstances after the date of such statements.  
Readers are urged to carefully review and consider the various disclosures 
made by the Company in this report and in the Company's other reports filed 
with the Securities and Exchange Commission that attempt to advise interested 
parties of the risks and factors that may affect the Company's business.  
Such forward-looking statements are qualified in their entirety by the 
cautions and risk factors set forth under the "Cautionary Statement" filed as 
exhibit 99.1 to this Form 10-QSB.

GENERAL

   The Company develops and sells nutrition products marketed primarily as 
cost-effective, generic alternatives to equivalent national branded products. 
Products to date have focused on clinical products for the healthcare 
industry and adult nutrition supplements generally sold to large retailers 
under private label arrangements.  In addition, the Company is currently 
developing a national brand equivalent infant formula which is expected to be 
available for sale in 1998.

CLINICAL PRODUCTS
   The Company's initial product development efforts centered on branded 
generic products for the critical care and disease specific nutrition market. 
These products are sold to hospitals and other health care providers to feed 
critically ill or disabled patients who cannot consume adequate nutrients 
orally and consequently require specialized feeding via tubes into the 
intestinal tract.  As of September 30, 1997, the Company had developed eight 
such products. Critical care and disease specific nutrition products are 
generally purchased by a relatively large customer base which typically 
places orders in relatively small order quantities.

   On January 13, 1997, the Company expanded its clinical products line by 
acquiring the inventory and fixed assets associated with the production of 

                                       7

<PAGE>

the enteral (tube feeding) products of Elan Pharma, Inc., as well as the 
exclusive rights to manufacture and market approximately 40 enteral products 
consisting of special formulas, disposable administration hardware and the 
related delivery pumps.

   During the nine-month period ended September 30, 1997, the Company added 
two formulas to its clinical product line.  In May 1997, the Company launched 
Pro-Peptide-TM- For Kids, a critical care formula designed specifically for 
gastrointestinally-impaired children between the ages of one and ten.  This 
product is being marketed primarily to hospitals, particularly those with 
active pediatric programs.  In June 1997, the Company introduced 
Gluco-Pro-TM-, a disease specific formula for people with hyperglycemia and 
diabetes.  This formula will also be marketed to hospitals, but, unlike many 
of the Company's critical care products, it also has many applications in 
long-term care and home-care environments.  As with other new products, the 
Company expects that customer trial and acceptance will vary.

RETAIL PRODUCTS-PRIVATE LABEL NUTRITION PRODUCTS
   In October 1995, the Company introduced an adult nutrition supplement 
product line.  Adult nutrition supplements are designed to provide balanced 
nutrition in beverage form as a supplement to, or substitute for, solid food 
for healthy individuals as well as those recovering from or affected by 
illness. These products are marketed to retail chains and are generally 
packaged using the retailer's proprietary store brand label. Such private 
label products allow the retailer to offer quality, low cost alternatives to 
national branded adult nutrition products.  The Company's private label 
nutrition product line currently consists of three adult nutrition 
supplements, each of which is available in three flavors.  "Light" versions 
of these products are currently under development. Adult nutrition 
supplements are generally purchased by a relatively small customer base which 
typically places relatively large orders.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

   NET SALES.  The Company's net sales for the three months ended September 
30, 1997 totaled $1,934,518, representing an increase of $1,289,310, or 200%, 
over net sales of $645,208 in the corresponding 1996 period.  Sales of the 
Company's clinical products, which in the 1996 period totaled $302,915, 
increased 313% to $1,250,644 in the three months ended September 30, 1997.  
Of this increase, a substantial portion is attributable to sales of the 
products acquired from Elan Pharma, Inc. in January 1997, with the balance 
associated with increased sales to existing customers, newly converted 
customers and sales of new products. Sales of the Company's retail products 
totaled $683,874 in the three months ended September 30, 1997, an increase of 
$341,581, or 100% over the corresponding 1996 three-month period sales of 
$342,293.  This increase is principally the result of a larger customer base 
and increased order levels within this customer base.  The Company expects 
fourth quarter sales to be at or below the third quarter as Elan-related pump 
shipments are expected to be lower than those of the third quarter.

   The prices of the Company's products remained relatively stable within and 
between the two reporting periods.  In response to the Company's strategy of 
marketing its critical care nutrition products as less expensive alternatives 
to established brands, one competitor of the 

                                       8

<PAGE>

Company, in late 1996, lowered its prices to select customers of its branded 
products, offsetting part or all of the price advantage of the Company's 
three competing products.  Although the Company continues to experience 
overall sales growth of these products, management believes that these 
selective price reductions resulted in lost sales and slowed the rate of 
sales growth of the Company's three competing products, and that this 
competitor will continue to use this form of selective price competition.  
Management further believes that the current impact of this competitor's 
price reductions on total sales has been reduced due to the Company's 
introduction of additional non-competing products in 1997.

   GROSS PROFIT.  The Company's gross profit increased 88% to $461,348 for 
the three months ended September 30, 1997, compared with $244,915 in the same 
period in 1996.  The following table sets forth the gross profit and gross 
profit percentage, by product line, for the three months ended September 30, 
1997 and 1996:

<TABLE>
<CAPTION>                   
        
                                   Three months ended September 30,
                      ---------------------------------------------------------------
                                1997                              1996
                      ----------------------------        ----------------------------

Product Line           Gross profit      % of Sales        Gross Profit     % of Sales
------------           ------------      ---------         ------------     ----------
<S>                    <C>               <C>               <C>              <C>
      
Clinical Products          $387,410          31.0%             $175,429          56.9%
Retail Products              73,938          10.8%               69,486          20.3%
                           --------          -----             --------          -----
     Total                 $461,348          23.9%             $244,915          38.0%

</TABLE>

The decrease in overall gross profit, as a percentage of sales, is related to 
product mix differences between the two periods and increased indirect 
production and distribution overhead costs.  The gross profit generated by 
the Company's clinical products decreased as a percentage of clinical sales, 
principally as a result of the introduction in the 1997 period of the lower 
gross margin products acquired from Elan.  In addition, these products 
generated a lower than expected gross profit in the third quarter of 1997 due 
to higher than anticipated freight costs and an increase in fixed costs as a 
percentage of sales.  Management expects that while increased sales of these 
acquired products will continue to generate an increase in the clinical 
product gross profit contribution, the overall gross profit, as a percentage 
of sales, will decline, particularly if sales of the lower gross profit 
acquired products increase as a proportion of total clinical product sales.  
The retail gross profit, as a percentage of sales, of 10.8% for the three 
months ended September 30, 1997 is lower than its overall historical 
performance levels because of higher production costs.  Margins in the retail 
portion of the business over the next quarter are expected to continue to be 
lower than historical averages.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses in the three months ended September 30, 1997, 
increased by $420,575, or 112% to $796,511, compared with the same period in 
1996. The increase is related to higher costs resulting from the continued 
development of the Company's sales and administration infrastructure, 
including costs associated with marketing the infant formula product line 
currently under development, and approximately 

                                       9

<PAGE>

$117,000 in depreciation and goodwill amortization charges related to the 
Elan Pharma, Inc. product line. 

     RESEARCH AND DEVELOPMENT.  Research and development costs increased 83% 
to $94,649 for the three months ended September 30, 1997, compared with 
$51,823 in the corresponding 1996 period.  The increase is attributable to 
higher costs associated with the Company's development of infant formula 
products.  Infant formula-related development costs are expected to increase 
significantly over the next two quarters as clinical trials commence.

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

     NET SALES.  Net sales for the nine months ended September 30, 1997 
totaled $4,478,496, compared to $1,731,257 for the same period in 1996,  an 
increase of $2,747,239, or 159%.  Sales of the Company's clinical products 
increased $1,846,672, or 218%, from $848,436 in the nine months ended 
September 30, 1996 to $2,695,108 in the corresponding 1997 period. A 
substantial portion of this increase is attributable to sales of the products 
acquired from Elan Pharma, Inc. in January 1997, with the balance 
attributable to an increased customer base and new products.  Sales of the 
Company's retail products increased $900,566, or 102%,  to $1,783,387 in the 
nine months ended September 30, 1997, compared to sales of $882,821 in the 
corresponding 1996 period. The 1997 period sales increase is principally the 
result of a larger customer base and increased order levels within this 
customer base.

     GROSS PROFIT.  The Company's gross profit increased 66% to $1,073,892 
for the nine months ended September 30, 1997, compared with $648,770 in the 
same period in 1996.  The following table sets forth the gross profit and 
gross profit percentage, by product line, for the nine months ended September 
30, 1997 and 1996:

<TABLE>
<CAPTION>
           
                                    Nine months ended September 30,
                       ---------------------------------------------------------------
                                1997                              1996
                       ---------------------------         ---------------------------

Product Line           Gross profit      % of Sales        Gross Profit     % of Sales
------------           ------------      ---------         ------------     ----------
<S>                    <C>               <C>               <C>              <C>
    
Clinical Products        $  859,674          31.9%             $482,325          56.8%
Retail Products             214,218          12.0%              166,445          18.8%
                         ----------          -----             --------          -----
     Total               $1,073,892          24.0%             $648,770          37.5%

</TABLE>

The decrease in overall gross profit, as a percentage of sales, is related to 
product mix differences between the two periods as well as certain indirect 
production and distribution overhead costs.  As a result of combining the 
lower gross margin products acquired from Elan Pharma, Inc. in January 1997 
with the Company's previous clinical product offerings, the gross profit, as 
a percentage of sales has declined.  Management expects that while increased 
sales of the Elan acquired products will continue to generate an increase in 
the clinical product gross profit contribution, the overall gross profit, as 
a percentage of sales, will decline, particularly if sales of the lower gross 
profit acquired products increase as a proportion of total clinical product 
sales.  The decrease in gross profit as a percentage of retail product sales 
in the 1997 period is 

                                      10

<PAGE>

attributable to a $40,000 write-off of dated product in the first quarter of 
1997 and higher costs of production which are expected to continue during the 
fourth quarter.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses in the nine months ended September 30, 1997 totaled 
$2,076,614, an increase of $1,122,999, or 118%, over the $953,615 expensed in 
the corresponding 1996 period.  The increase is related to higher costs 
resulting from the continued development of the Company's sales and 
administration infrastructure in support of new products and approximately 
$327,000 in depreciation and goodwill amortization charges related to the 
Elan Pharma, Inc. product acquisition.

     RESEARCH AND DEVELOPMENT.  Research and development costs increased 
$183,675, or 124%, to $331,653 for the nine months ended September 30, 1997, 
compared with $147,978 in the corresponding 1996 period.  The increase is 
attributable to higher costs associated with the Company's development of 
infant formula products.  These costs are expected to increase significantly 
over the next two quarters.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company has incurred net losses and negative cash 
flows from operations.  On September 26, 1996, the Company's registration 
statement on Form SB-2 for its initial public offering was declared effective 
by the Securities and Exchange Commission. The Company sold pursuant to this 
registration statement, in a transaction that closed on October 1, 1996, 
1,437,500 shares of the Company's Common Stock at $3.50 per share, including 
an overallotment of 187,500 shares.  Net proceeds to the Company, after 
deducting all offering costs, totaled $4.24 million. Unused funds are 
invested in U.S. Treasury-backed funds with maturities ranging under three 
months.  

     Prior to the initial public offering, the Company's principal source of 
cash and working capital had been from the private placement of Common Stock, 
through which the Company received approximately $2,800,000 in net proceeds. 
The Company also obtained loans from the City of Buffalo, Minnesota totaling 
$100,000. These loans were repaid in July 1996 when the Company relocated to 
Minneapolis, Minnesota.  

     On January 13, 1997, the Company executed an Asset Purchase Agreement 
whereby the Company acquired certain assets from Elan Pharma, Inc. ("Elan"), 
a U.S. subsidiary of the Ireland-based Elan Corporation, plc. The agreement 
provides for the sale to the Company of the inventory and fixed assets 
relating to the production of the enteral (tube feeding) products of Elan as 
well as exclusive rights to manufacture the products. In exchange for the 
product rights and related assets, the Company issued the seller 855,000 
shares of common stock and a subordinated promissory note in the amount of 
$3,000,000.  The note, along with all interest, which accrues at 3% per 
annum, is due in seven years.

     In connection with the above described activities and results of 
operations, the Company's net cash used by operations, excluding the Elan 
acquisition, in the nine months ended September 30, 1997 totaled $2,062,425.  
Cash and cash equivalents as of September 30, 1997 totaled $1,836,910.  The 
Company has increased its working capital by approximately 

                                      11

<PAGE>

$1.3 million over the last nine months.  Accounts receivables have increased 
during the nine-month period by approximately $745,000 due to sales increases 
and due to some extended payment terms.  Inventories, not including those 
received in the Elan acquisition, have increased by approximately $1.0 
million offset by an increase of approximately $550,000 in accounts payables. 
The increased inventory is a carryover from high levels of production in 
June and July and are expected to decrease slightly over the fourth quarter.

     The Company has made additions to equipment, primarily for the packaging 
of Infant Formula products.  No additional significant capital expenditures 
are expected over the next few quarters.
     
     As discussed in Part II, Item 1, the Company was named as a defendant in 
a patent infringement lawsuit brought by Novartis.  It is not possible at 
this time to predict the outcome of the lawsuit, including whether the 
Company will have to cease selling L-Emental Plus, or to estimate the amount 
or range of potential loss, if any.

     The Company expects that the existing cash balances will be sufficient 
to fund operations of the Company through 1997. However, the Company's future 
liquidity and capital requirements will depend on numerous factors including 
competition, the extent to which the Company's products gain market 
acceptance and the costs and timing of expansion of sales, marketing and 
product development activities. There can be no assurance that the Company 
will not be required to raise additional capital before the end of 1997 or 
any time thereafter, or that such capital will be available on acceptable 
terms, or at all. The Company's strategy for 1997 includes pursuing the 
establishment of a bank line of credit to secure additional operating funds, 
should they be needed. There can be no assurance that such a credit line, if 
needed, can be secured on terms acceptable to the Company.

                                      12

<PAGE>

                          PART II - Other Information

ITEM 1.  LEGAL PROCEEDINGS

     In August 1995, the Company was named as a defendant in a patent 
infringement lawsuit brought by Novartis, formerly Sandoz Nutrition, in the 
United States District Court for the District of Minnesota.  The complaint 
asserts that one of the Company's products, L-Emental-TM- Plus, infringes on 
two patents held by Novartis and asks for relief in the form of an 
injunction, that would prevent the Company from selling the product, as well 
as damages of an unspecified amount. Both patents were issued subsequent to 
the Company's introduction of  L-Emental Plus. The Company responded with a 
counterclaim seeking a declaration of invalidity, unenforceability, 
non-infringement and inventorship of the subject patents.  A court order 
stayed the litigation pending reexamination of both patents by the United 
States Patent and Trademark Office.  On August 13, 1997, the Company received 
notification that the United States Patent and Trademark Office will issue 
the two patents under review. Though the patents were narrowed, the Company 
expects that the litigation which was stayed pending this determination will 
resume, and the Company intends to continue to vigorously defend against the 
claim.  Sales of L-Elemental Plus constituted $298,000, or 35%, and $458,000, 
or 19 %, of the Company's net sales in 1995 and 1996, respectively, and 
$307,500 or 7% of net sales for the nine months ended September 30, 1997.  It 
is not possible at this time to predict the outcome of the lawsuit, including 
whether the Company will have to cease selling L-Emental Plus, or to estimate 
the amount or range of potential loss, if any. To date, no injunction has 
been issued.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
     
              REPORT OF SALES OF SECURITIES AND USE OF PROCEEDS THEREFROM

     The Company had an initial public offering that commenced September 26, 
1996 and terminated with the sale of 1,437,500 shares of its common stock, 
par value $.01, at a price of $3.50 per share.  All shares registered with 
the Securities and Exchange Commission in connection with the Company's 
initial public offering were sold.  The managing underwriter for the public 
offering was Miller, Johnson & Kuehn, Incorporated. Total net proceeds from 
the offering were as follows:

<TABLE>
<CAPTION>

<S>                                                          <C>
          Gross Proceeds                                     $ 5,031,250
          Less:
          Underwriting discounts & commissions                   503,125
          Expenses paid to or for underwriters                    93,591
          Other expenses                                         197,534
                                                             -----------
               Total Expenses*                                   794,250
                                                             -----------

          Net proceeds from offering                         $ 4,237,000
                                                             -----------

</TABLE>

                                      13


<PAGE>

                          PART II - Other Information

ITEM 2. (CONTINUED)

<TABLE>
<CAPTION>
                                USE OF PROCEEDS*
                                ----------------

<S>                                                      <C>

          Purchase and installation of equipment         $     254,000
          Research and Development                             236,000
          Sales and Marketing                                  933,000
          Temporary Investments (U.S. Treasury Bills)        1,800,000
          Working Capital                                    1,014,000
                                                         -------------
               Total                                     $   4,237,000
                                                         -------------

</TABLE>

*None of such payments were made to the Company's directors and officers or 
their respective associates, beneficial owners of ten percent or more of 
the Company's common stock or affiliates of the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     a)   The following exhibits are included with this quarterly report on Form
     10-QSB as required by Item 601 of Regulation S-B.

          Exhibit                                      
          Number                     Description                 
          ------                     -----------
          
          27                         Financial data schedule
          99.1                       Cautionary Statement

     b)   Reports on Form 8-K.
          
          There were no reports on Form 8-K filed during the quarter ended
          September 30, 1997.

                                      14

<PAGE>

                                   SIGNATURE

     In accordance with the requirements of the Exchange Act, the registrant 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.

                            NUTRITION MEDICAL, INC.

     Dated:   November 10, 1997              By:/s/   Anwar H. Bhimani 
                                                ----------------------
                                             Anwar H. Bhimani
                                             Chief Financial Officer
                                   
                                      15

<PAGE>

                                EXHIBIT INDEX

          Exhibit                                      
          Number                     Description                 
          ------                     -----------
            27                 Financial data schedule
            99.1               Cautionary Statement

                                      16