<PAGE>

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

                                    FORM 10-Q

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended June 30, 2001 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from        to       .
                                                         -------  -------


                         Commission file number 0-17885

                        BEI MEDICAL SYSTEMS COMPANY, INC.
             (Exact name of Registrant as specified in its charter)


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


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


                                 (201) 727-4900
                                 --------------
                         (Registrant's telephone number)

     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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

           Common Stock:  $.001 Par Value, 7,714,905 shares as of August 1, 2001



                                     -----
                                       1
<PAGE>

                                      INDEX

<TABLE>
<CAPTION>

     PART 1.             FINANCIAL INFORMATION   (Unaudited)                                                PAGE
                         ---------------------                                                              ----
<S>                                                                                                        <C>
     Item 1.           Financial Statements

                              Condensed Consolidated Balance Sheets -- June 30, 2001 (unaudited)
                                and September 30, 2000                                                       3

                              Condensed Consolidated Statements of Operations -- Three Months
                                Ended June 30, 2001 (unaudited) and July 1, 2000 (unaudited) and
                                Nine Months ended June 30, 2001 (unaudited) and July 1, 2000
                                (unaudited)                                                                  4

                              Condensed Consolidated Statements of Cash Flows -- Three Months
                                Ended June 30, 2001 (unaudited) and July 1, 2000 (unaudited)
                                                                                                             5

                              Notes to Condensed Consolidated Financial Statements -- June 30, 2001
                                                                                                             6

     Item 2.           Management's Discussion and Analysis of Financial Condition and Results of            10
                         Operations

     PART II.            OTHER INFORMATION
                         -----------------

     Item 4.           Submission of Matters to a Vote of Security Holders                                   14

     Item 5.           Other Information                                                                     14

     Item 6.           Exhibits and Reports on Form 8-K                                                      22

                           (a)        Exhibits


                           (b)        Reports on Form 8-K


                    SIGNATURES                                                                               23
</TABLE>

                                     -----
                                       2
<PAGE>

                              FINANCIAL INFORMATION


Item 1.  Financial Statements

<TABLE>
<CAPTION>

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

(dollars in thousands)                                            June 30,               September 30,
                                                                    2001                     2000
                                                                (Unaudited)            (See note below)
-------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                      <C>
 ASSETS
 Current assets
   Cash and cash equivalents                                         $4,329                    $4,228
   Restricted cash                                                      158                       157
   Marketable securities                                                428                       311
   Trade receivables, net                                                95                        59
   Inventories                                                          430                       433
   Refundable income taxes                                               --                       367
   Other current assets                                                 192                        97
-------------------------------------------------------------------------------------------------------
 Total current assets                                                 5,632                     5,652
 Plant and equipment, net                                               304                       216
 Patents, net                                                           168                       179
 Other assets                                                            68                        91
-------------------------------------------------------------------------------------------------------
 Total assets                                                        $6,172                    $6,138
=======================================================================================================

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities
   Trade accounts payable                                              $483                      $304
   Accrued expenses and other liabilities                             1,049                     1,063
   Current portion of long term lease obligation                         25                        --
-------------------------------------------------------------------------------------------------------
 Total current liabilities                                            1,557                     1,367

   Long term lease obligation, less current portion                     130                        --
   Stockholders' equity                                               4,485                     4,771
-------------------------------------------------------------------------------------------------------
 Total liabilities and stockholders' equity                          $6,172                    $6,138
=======================================================================================================
</TABLE>

See notes to condensed consolidated financial statements.

Note: The balance sheet at September 30, 2000 has been derived from the audited
consolidated balance sheet at that date but does not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements.


                                     -----
                                       3
<PAGE>

<TABLE>
<CAPTION>

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)

                                                           Quarter Ended                   Nine Months Ended
 (amounts in thousands except per                      June 30,         July 1,          June 30,       July 1,
 share amounts)                                          2001             2000             2001           2000
 -------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>              <C>           <C>
    Revenues                                              $84             $43              $155          $1,313
    Cost of revenues                                      183             226               493           1,274
 -------------------------------------------------------------------------------------------------------------------
    Gross profit (loss)                                   (99)           (183)             (338)             39

    Selling, general and administrative
      expenses                                          1,212             951             2,778           3,238
    Research, development and related
      expenses                                            361             553             1,183           1,280
    Gain on Asset Sale                                     --              --                --          (1,913)
 -------------------------------------------------------------------------------------------------------------------
                                                        1,573           1,504             3,961           2,605
 -------------------------------------------------------------------------------------------------------------------
    Loss from operations                               (1,672)         (1,687)           (4,299)         (2,566)

    Interest income                                        55              87               174             227
    Interest expense                                       (2)             --                (3)            (50)
 -------------------------------------------------------------------------------------------------------------------
    Loss before income taxes and                       (1,619)         (1,600)           (4,128)         (2,389)
      extraordinary item

    Income taxes                                           --            (299)               --            (299)
 -------------------------------------------------------------------------------------------------------------------
    Net loss before extraordinary item                 (1,619)         (1,301)           (4,128)         (2,090)

    Extraordinary loss on extinguishment of
      debt                                                 --              --                --            (130)
 -------------------------------------------------------------------------------------------------------------------
    Net loss                                          ($1,619)        ($1,301)          ($4,128)        ($2,220)
 ===================================================================================================================


 Loss per Common Share
    Loss before extraordinary loss per common
      share, basic and diluted                         ($0.21)         ($0.17)           ($0.54)         ($0.27)
 ===================================================================================================================

    Extraordinary loss on extinguishment of
      debt, basic and diluted                           --              --                --             ($0.02)
 ===================================================================================================================

    Net loss per common share, basic and
      diluted                                          ($0.21)         ($0.17)           ($0.54)         ($0.29)
 ===================================================================================================================

    Weighted average shares outstanding                 7,677           7,622             7,658           7,611
 ===================================================================================================================
     See notes to condensed consolidated financial statements.
</TABLE>


                                     -----
                                       4
<PAGE>

<TABLE>
<CAPTION>

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Medical Systems Company, Inc. and Subsidiaries
 (Unaudited)

                                                                                       Nine Months Ended
                                                                         -----------------------------------------
 (dollars in thousands)                                                    June 30, 2001          July 1, 2000
------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                   <C>
Net cash provided by (used in) operating activities                            ($3,453)              ($3,549)

Cash flows from investing activities:
  Purchases of equipment                                                           (50)                  (16)
  Purchases of marketable securities                                              (130)                   --
  Reduction of other assets                                                         23                    --
  Net proceeds from Asset Sale                                                      --                 8,871
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                               (157)                8,855

Cash flows from financing activities:
  Net proceeds from issuance of Series A Convertible
    Preferred Stock                                                              3,701                    --
  Proceeds from the exercise of options                                             10                    --
  Proceeds from revolving credit note                                               --                   500
  Payments on long-term debt and revolving credit note                              --                (1,500)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing                                         3,711                (1,000)
activities

------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                          101                 4,306

Cash and cash equivalents at beginning of period                                 4,228                 1,654
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                      $4,329                $5,960
==================================================================================================================
     See notes to condensed consolidated financial statements.

</TABLE>

                                     -----
                                       5
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)

June 30, 2001


Note 1
Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
September 29, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's Annual Report on Form 10-K for
the year ended September 30, 2000.

         THE ASSET SALE: On December 8, 1999, BEI Medical Systems Company, Inc.
(the "Company" or "BEI") completed the sale of a substantial portion of the
assets of the Company to CooperSurgical Acquisition Corp., a Delaware
corporation ("CSAC"), pursuant to an Asset Purchase Agreement, dated as of
October 1, 1999, by and between the Company and CSAC, as amended (the "Asset
Purchase Agreement") (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 first fiscal quarter ended January 1, 2000, approximately 95.9% 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, approximately $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.

     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
            Less: transaction costs                  (1,292)
                                               ------------------
            Net proceeds                              8,965
            Less: net assets sold                    (7,052)
                                               ------------------
            Gain on Asset Sale                       $1,913
                                               ==================

     The following unaudited pro forma statement of operations data for the nine
months ended July 1, 2000 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.


                                     -----
                                       6
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)

June 30, 2001


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

<TABLE>
<CAPTION>
                                                                           NINE MONTHS ENDED JULY 1, 2000
                                                                           ------------------------------
                                                                     HISTORICAL        Pro Forma    Pro Forma
                                                                     ----------       ADJUSTMENTS       as
                                                                                      -----------    ADJUSTED
                                                                                                     --------
<S>                                                                     <C>             <C>              <C>
   Revenues.....................................................          $1,313          $1,184 (1)        $129
   Cost of revenues.............................................           1,274             642 (1)         632
                                                                    ------------------------------------------------
       Gross profit (loss)......................................              39             542 (1)        (503) (4)

   Selling, general and administrative expenses.................           3,238             434 (1)       2,804
   Research, development and related expenses...................           1,280              --           1,280
   Gain on Asset Sale...........................................          (1,913)         (1,913) (2)         --
                                                                    ------------------------------------------------
                                                                           2,605          (1,479)          4,084
                                                                    ------------------------------------------------
       Income (loss) from operations............................          (2,566)          2,021          (4,587)

   Interest income..............................................             227              --             227
   Interest expense.............................................             (50)            (50) (3)         --
                                                                    ------------------------------------------------
       Income (loss) before income taxes and
         extraordinary item                                               (2,389)          1,971          (4,360)

   Income tax benefit...........................................            (299)             --            (299)
                                                                    ------------------------------------------------
       Income (loss) before extraordinary item..................          (2,090)          1,971          (4,061)
   Extraordinary loss on extinguishment of debt.................            (130)           (130)(3)          --
                                                                    ------------------------------------------------
       Net income (loss) .......................................         ($2,220)         $1,841         ($4,061)
                                                                    ================================================

Loss per Common Share:
   Loss before extraordinary loss per common share,
      basic and diluted.........................................         ($0.27)                          ($0.53)
                                                                    ================================================
   Extraordinary loss on extinguishment of debt, basic
      and diluted ..............................................         ($0.02)                           --
                                                                    ================================================

   Net loss per common share, basic and diluted.................         ($0.29)                          ($0.53)
                                                                    ================================================

   Weighted average shares outstanding..........................           7,611                           7,611
                                                                    ================================================
</TABLE>

------------------
(1)      To give retroactive effect to the decrease in revenues and operating
         expenses estimated by the Company to be 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
         Transamerica Business Credit Corporation credit facility, assuming the
         application of proceeds from the Asset


                                     -----
                                       7
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)

June 30, 2001


         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 nine months ended July 1,
         2000, of $503,000, reflects direct product costs and fixed
         manufacturing costs for the HTA business of $330,000, as well as pro
         forma allocation of $302,000 of fixed manufacturing overhead costs
         prior to the Asset Sale, which were projected to continue following the
         Asset Sale.

Note 2
Inventories
                                               June 30,         September 30,
      (dollars in thousands)                     2001                2000
--------------------------------------------------------------------------------
     Finished products                            $420                $143
     Work in process                                10                 212

     Materials                                      --                  78
--------------------------------------------------------------------------------
     Inventories                                  $430                $433
================================================================================

Note 3
Series A Convertible Preferred Stock

     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") 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 $1.875 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
$1.875.

     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 of any liquidation of the
Company, the holders of the Series A Preferred, shall be entitled to receive, in
preference to the holders of Common Stock, a per share amount


                                     -----
                                       8
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)

June 30, 2001


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.

     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.


Note 4
Loss Per Share

     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 shares exclude unvested restricted stock, which amounted to 28,000 and
64,000 shares on June 30, 2001 and July 1, 2000, respectively. Common stock
equivalents are excluded from the loss per share for all periods presented
because the effect would be anti-dilutive.








                                     -----
                                       9
<PAGE>

Item 2.  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 ThermAblater
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
into the fourth calendar quarter of 2001, 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
under the caption "Risk Factors" and elsewhere in this Quarterly Report on Form
10-Q and in our Annual Report on Form 10-K for the period ended September 30,
2000. The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto included in Item 1 of this Quarterly Report on
Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2000.

     The following discussion and analysis of the financial condition and
results of operations as it relates to the nine month period ended July 1, 2000,
principally reflects 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 Food and Drug Administration ("FDA") Phase III clinical trials
and commercialization of the Hydro ThermAblator(R), or HTA(R) technology.

     The United States Food and Drug Administration ("FDA"), on April 20, 2001,
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.


Three Months Ended June 30, 2001 and July 1, 2000

     Revenues for the three-months ended June 30, 2001, were $84,000 compared to
$43,000 for the three-month period ended July 1, 2000. The increased revenue
reflects revenue from initial shipments in the United States of the HTA control
units and HTA disposable sterile procedure sets following the receipt of FDA
approval to market the HTA on April 20, 2001.


                                     ------
                                       10
<PAGE>

International shipments during the period were $14,000 compared to $40,000 for
the three-month period ended July 1, 2000.

     The negative gross profit of $99,000 in the three-month period ended June
30, 2001 compared to $183,000 in the third quarter of fiscal 2000 reflects the
increased revenues and the reduction of fixed overhead expenditures. Overhead
expenditures during the three-month period ended July 1, 2000 reflected costs
associated with the transition period following the Asset Sale in December 1999.
Overhead expenses for the third quarter of fiscal 2001 were approximately
$123,000, compared to $164,000 in the same period of fiscal 2000.

     Selling, general and administrative expenses increased $261,000 to
$1,212,000 for the three-months ended June 30, 2001 compared to $951,000 for the
comparable period in fiscal 2000. The increase in expenses principally reflects
increased selling and marketing expenditures following the receipt of FDA
approval to market the HTA on April 20, 2001, and the beginning of the Company's
efforts to commercialize the HTA in the United States following the receipt of
such approval plus increased personnel requiting costs. The Company anticipates
that selling and marketing expenditures will continue to increase for the
foreseeable future.

     Research, development and related expenses were $361,000 in the third
quarter of fiscal 2001, a decrease of $192,000 or 34.7% from the comparable
period of fiscal 2000. The lower expenses reflects the absence of spending
related to the Company's FDA clinical trial, which was ongoing during the third
quarter of fiscal 2000.

     Interest income decreased to $55,000 in the three-month period ended June
30, 2001 compared to $87,000 in the three-month period ended July 1, 2000, as a
result of lower interest rates and lower average cash balances on hand during
the quarter.

     The Company recognized no income tax benefit for the three-month period
ended June 30, 2001 compared to a benefit of $299,000 for the three-month period
of July 1, 2000. The income tax benefit in fiscal 2000 resulted from the
favorable settlement of a disputed tax item related to the spin-off of BEI
Technologies, Inc. in September of 1997. The net cumulative operating losses as
of June 30, 2001 were approximately $8.3 million. The Company projects losses to
continue in fiscal year 2001. 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. There is no remaining loss carryback available to the
Company.


Nine Months Ended June 30, 2001 and July 1, 2000

     Revenues for the nine-months ended June 30, 2001, were $155,000, a decrease
of $1,158,000 from the comparable nine-month period of fiscal 2000. The lower
revenue reflects the impact of the Asset Sale on December 8, 1999. Approximately
$1,184,000, or 90.2% of the Company's revenues for the nine-months ended July 1,
2000, were derived from products that were included in the Base Business sold to
CSAC. The comparable nine-month period of fiscal year 2001 did not include
revenues from the Base Business. International revenues related to the HTA were
$83,000 in the nine-months ended June 30, 2001 versus $125,000 in the comparable
nine-month period of fiscal 2000. Domestic sales of the HTA were $70,000
following receipt of FDA approval to market the HTA on April 20, 2001, compared
to zero in the nine-month period of fiscal 2000.

     The negative gross profit of $338,000 in the nine-month period ended June
30, 2001 compared to the gross profit of $39,000 in the comparable nine-month
period of fiscal 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


                                     ------
                                       11
<PAGE>

associated with the products included in the Asset Sale was $542,000. Overhead
expenses for the first nine-month period of fiscal 2001 were approximately
$355,000, compared to $615,000 in the same period of fiscal 2000. Overhead
expenses in the nine-month period ended July 1, 2000 included approximately
$125,000 of costs allocated to the products included in the Asset Sale on a
proforma basis.

     Selling, general and administrative expenses declined $460,000 to
$2,778,000 for the nine-month period ended June 30, 2001 compared to $3,238,000
for the comparable nine-month period in fiscal 2000. The decline in expenses
reflects lower administrative expenses of $222,000, reflecting a 11.9% decline;
plus reduced amortization of intangible assets of $104,000. Following the Asset
Sale, the Company reduced personnel and related employee benefit costs, incurred
lower sales commissions, reduced marketing expenditures and had lower
amortization of 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 the above decrease. In
addition, the 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.

     Research, development and related expenses were $1,183,000 in the first
nine-months of fiscal 2001, a decrease of $97,000 or 7.6% from the comparable
period of 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
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 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 warrants to purchase common stock of the
Company that were issued in exchange for an amendment to the Company's existing
HTA royalty agreement to reduce future royalty payments on certain disposable
components of it's HTA. The fair market value of the warrants was charged to
product development during the second quarter of fiscal 2001.

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

     Interest income decreased to $174,000 in the nine-month period ended June
30, 2001, compared to $227,000 in the nine-month period ended July 1, 2000, as a
result of lower interest rates and lower average cash balances on hand during
the period.

     Interest expense of $3,000 for the nine-month period ended June 30, 2001,
primarily reflects capital lease interest expense related to the Company's
long-term lease with IBM Credit Corp. and interest expense of $50,000 for the
nine-month period ended July 1, 2000 reflects interest on borrowings under the
term note and related credit facility with Transamerica Business Credit
Corporation ("TBCC"), which were repaid by the Company in full on December 8,
1999.

     The Company recognized no income tax benefit for the nine-month period
ended June 30, 2001. The income tax benefit in fiscal 2000 resulted from the
favorable settlement of a disputed tax item related to the spin-off of BEI
Technologies, Inc. in September of 1997. The net cumulative operating losses as
of June 30, 2001 were approximately $8.3 million. The Company projects losses to
continue in fiscal year 2001. These losses remain available to the Company on a
carryforward basis to offset any future earnings, but they have been fully
offset

                                     ------
                                       12
<PAGE>

by a valuation allowance in the financial statements, as their future
realization is uncertain. There is no remaining loss carryback available to the
Company.

     The extraordinary loss on extinguishment of debt incurred in fiscal 2000
resulted from repayment of borrowings from TBCC on December 8, 1999, the closing
of the Asset Sale. Cancellation fees aggregating $85,000 were incurred in
connection with such prepayment. 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 accompanying condensed consolidated statement of
operations.


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 initiate commercialization of 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 will provide adequate
funding to meet the Company's minimum capital requirements into the fourth
calendar quarter of 2001. However, this plan does not provide for all of the
investment in sales and marketing activities that the Company believes will be
required to successfully commercialize the HTA. The Company is currently
exploring options to fund operations beyond that period. There can be no
assurance that additional financing will be available on terms attractive to the
Company, or at all. Any additional equity financing may be dilutive to
stockholders and debt financing, if available, may involve restrictive
covenants.

     In order to attempt to maximize the return on assets of the Company and to
provide a contingency plan in the event the Company does not obtain the
additional capital necessary to commercialize the HTA, the Board of Directors is
evaluating various strategic alternatives that may be available to the Company,
including: (i) an affiliation with a third party to exploit the HTA technology,
(ii) the licensing or sale of the HTA technology, and (iii) possible
reinvestment of the proceeds derived from such license or sale in an appropriate
business based on the Company's existing expertise and management.

     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 the first nine-months of fiscal 2001, cash used in operating
activities was $3,453,000, reflecting the net loss of $4,128,000. This loss was
partially offset by the receipt of $367,000 of refundable income taxes,
increases in accounts payable and accrued liabilities of $165,000, partially
offset by increases in current assets of $146,000; plus $289,000 of


                                     ------
                                       13
<PAGE>

adjustments to reconcile the net loss to net cash used in operating activities
for depreciation and amortization of $88,000, costs associated with the issuance
of warrants to purchase common stock of $143,000 and other non cash expense of
$58,000.

     Cash used in investing activities during the first nine months of fiscal
2001 was $157,000, reflecting purchases of plant and equipment of $50,000 and
increases in marketable securities of $130,000, partially offset by a reduction
in a long-term security deposit of $23,000.

     Cash received from financing activities was $3,711,000, primarily
reflecting gross proceeds from the Series A Preferred of $4,179,000, less
transaction costs of $478,000.

     In addition, in November 2000, the Company entered into a long-term lease
for $157,000 with IBM Credit Corp 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 June
30, 2001.


Effects of Inflation

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








                                     ------
                                       14
<PAGE>


                                    PART II.
                                OTHER INFORMATION




Item 4.  Submission of Matters to Vote of Security Holders

         (a)  A Special Meeting of Stockholders of the Company was held on June
              7, 2001.

         (b)  The matters voted upon at the meeting and the voting of the
              stockholders with respect thereto are as follows:

              1.    To approve the Company's Amended 1987 Stock Option Plan, as
                    amended, to increase the aggregate number of shares of
                    Common Stock authorized for issuance under such plan by
                    500,000 shares. The amendment was approved by a vote of
                    5,642,575 in favor, 807,059 against and 2,510 abstentions.

              2.    To approve the Certificate of Amendment of 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
                    amendment was approved by a vote of 5,664,883 in favor,
                    784,751 against and 2,510 abstentions.


Item 5.  Other Information


                                  RISK FACTORS

         The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may impair our business operations. If any
of the following risks actually occur, 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 two or three years as we expend substantial resources:

o        for expansion of marketing and sales activities;

o        for research and development;

o        for start-up manufacturing costs; and

o        in support of regulatory and reimbursement approvals.


                                     ------
                                       15
<PAGE>

     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:

o is an attractive safe treatment alternative for dysfunctional menstrual
bleeding;

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

o 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 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. We recently received PMA
approval of the HTA for treatment of menorrhagia or dysfunctional uterine
bleeding. 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.


                                     ------
                                       16
<PAGE>

     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. 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.

     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.


If we fail to obtain the capital necessary to fund our operations, we will 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:

o    the resources required to initiate commercialization of the HTA in the
     United States; and

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

     We believe that our existing cash balances will provide adequate funding to
meet our minimum capital requirements into the fourth quarter of calendar 2001.
However, this plan does not provide for the investment in sales and marketing
activities that we believe will be required to successfully commercialize the
HTA. We intend to raise additional capital to fund operations beyond that
period. 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.


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.


We have no manufacturing experience and will rely on contract manufacturers. If
we are unable to successfully manufacture our HTA in commercial quantities,


                                     ------
                                       17
<PAGE>

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:

o    production yields;

o    quality control;

o    component supply; and

o    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 we 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 have 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 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 entered into manufacturing
representative agreements with a number of marketing specialty organizations to
promote the HTA in the United States. We cannot guarantee you that


                                     ------
                                       18
<PAGE>

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 will 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.

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:

o        government and regulatory controls;

o        export license requirements;

o        political instability;

o        trade restrictions;

o        changes in tariffs and other local taxes;

o        difficulties in managing international operations;

o        fluctuations in foreign currency exchange rates; and

o        freight and transportation costs.

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


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


                                     ------
                                       19
<PAGE>

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. 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 health care reimbursement and reform.
If patients are not reimbursed by third parties for the cost of the diagnostic
or 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 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


                                     ------
                                       20
<PAGE>

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.

     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 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 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.


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 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 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. One
of the principal competitors for our HTA is Gynecare, a subsidiary of Ethicon,
Inc./Johnson & Johnson, whose ThermaChoice balloon, a device for endometrial
ablation, was cleared to be marketed in the United States by the FDA in December
1997. In addition, 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.

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


o    NovaSure, a product of Novacept, which utilizes a bipolar electrosurgical
     probe that


                                     ------
                                       21
<PAGE>

     incorporates an expandable conductive mesh that is brought into contact
     with the lining of the uterus through the application of suction; and

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

     Other competitive technologies that are being sold internationally but not
domestically include:

o    Cavaterm, a product of Wallsten Medical SA, which is a hand held balloon
     similar to that of the ThermaChoice balloon; and

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

     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.


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 results 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
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.


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:

o    actions relating to reimbursement and regulatory matters;

o    the extent to which the HTA gains market acceptance;

o    timing of regulatory approval, if any, of competitive products and the rate
     of market penetration of competing products; and

o    timing of regulatory approvals.


                                     ------
                                       22
<PAGE>

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
33.4% of the outstanding common stock (assuming exercise of vested stock
options) as of August 1, 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 preventing a
change of control of BEI. In addition, we have 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 2,000,000 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 April 15, 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
preventing changes in control or management of BEI, which could adversely affect
the market price of our common stock.


                                     ------
                                       23
<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 $1.875 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 $1.875. Accordingly, if all of the shares of Series A
convertible preferred stock are converted into common stock, there will be
dilution of at least 2,228,970 shares of common stock, or approximately 28.9% of
the 7,714,905 million shares of common stock outstanding on August 1, 2001.


Item 6.  Exhibits and Reports on Form 8-K

         (a)  Exhibits

              3.1  Certificate of Amendment of Certificate of Incorporation

         (b)  Reports on Form 8-K

              (i)  The Company filed a Form 8-K Report dated April 20, 2001,
                   reporting the receipt of approval from the FDA to market the
                   HTA in the United States.




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                                       24
<PAGE>



                                   SIGNATURES


     Pursuant to the requirements 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 on August 14, 2001.







                                   BEI Medical Systems Company, Inc.





                                   By:    /s/ Thomas W. Fry
                                         ------------------------------------

                                         Thomas W. Fry
                                         Vice President of Finance and
                                         Administration, Secretary and Treasurer
                                         (Chief Financial Officer)



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                                       25
<PAGE>



                                INDEX TO EXHIBITS


     Exhibit

     Number
     ------


     3.1     Certificate of Amendment of Certificate of Incorporation of BEI
             Medical Systems Company, Inc.















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                                       26