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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

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FORM 10-KSB

(Mark One)

|/x/ | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------

For the fiscal year ended September 30, 2001

|/ / | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 0-18785

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LOGO

OXBORO MEDICAL, INC.(Name of small business issuer in its charter)

Minnesota(State or Other Jurisdiction of
Incorporation or Organization)

41-1391803(I.R.S. Employer
Identification No.)


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13828 Lincoln Street N.E., Ham Lake, Minnesota 55304(Address of Principal Executive Offices, including Zip Code)

(763) 755-9516(Issuer's Telephone Number)

Securities
registered under Section 12(b) of the Exchange Act:NoneSecurities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $.01 Per Share(Title of Class)

Three-Year Common Stock Purchase Warrant(Title of Class)

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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 / /

Check
if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. / /

State
issuer's revenues for its most recent fiscal year: $6,547,824.

Based
upon the closing price of the issuer's Common Stock as reported by The Nasdaq SmallCap Stock Market, the aggregate market value of such Common Stock held by nonaffiliates of the
issuer as of December 5, 2001, was approximately $7,249,365.

As
of December 5, 2001, the issuer had outstanding 1,719,217 shares of Common Stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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|           |                                                                                                                         | Page No.
|---------- | ----------------------------------------------------------------------------------------------------------------------- | --------
|PART I     |                                                                                                                         | 1       
|           | ITEM 1. DESCRIPTION OF BUSINESS                                                                                         |         
|           | ITEM 2. DESCRIPTION OF PROPERTY                                                                                         |         
|           | ITEM 3. LEGAL PROCEEDINGS                                                                                               |         
|           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |         
|PART II    |                                                                                                                         | 7       
|           | ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |         
|           | ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                       |         
|           | ITEM 7. FINANCIAL STATEMENTS                                                                                            |         
|           | ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            |         
|PART III   |                                                                                                                         | 10      
|           | ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |         
|           | ITEM 10. EXECUTIVE COMPENSATION                                                                                         |         
|           | ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                 |         
|           | ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                 |         
|           | ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                                                                               |         
|SIGNATURES |                                                                                                                         | 21      

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

Forward Looking Statements

The information presented in this Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words "believe," "expect," "will," "can," "estimate," "anticipate" and similar expressions are intended to identify such
forward-looking statements. Forward looking statements herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties, including those discussed under "Risk Factors", that could cause actual results to differ materially from those anticipated. All forward-looking statements involve
risks and uncertainty and readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors that could cause actual results to differ materially are the
following: acceptance of new products, pricing strategies of competitors, general conditions in the industries served by the Company's products, ability to maintain adequate inventories to respond to
customer demand, changes in regulatory requirements for health care related products, and overall economic conditions, including stock market fluctuation or disruption, inflation and consumer buying
patterns. We do not intend to update any forward-looking statements.

Introduction

Oxboro Medical, Inc. ("Oxboro") was incorporated in Minnesota in 1978. Oxboro develops, assembles, and markets single-use medical and
surgical products. On April 27, 2001, Oxboro created a wholly-owned subsidiary to acquire the Sterion business line from Johnson & Johnson Medical Division of Ethicon, Inc on
May 25, 2001. This subsidiary is now called Sterion, Inc. ("Sterion"). Sterion also develops and markets medical and surgical products. Oxboro, including its Sterion subsidiary, is
sometimes referred to as the "Company."

Principal Products

Principal medical products produced and sold by Oxboro include silicone surgical loops, silicone and fabric surgical clamp covers, surgical instrument
protection guards, suture aid booties, surgical instrument identification sheet and roll tape, surgical instrument cleaning brushes and various holders and organizers for surgical instruments used in
the operating room. Principal products produced and sold by Sterion are a proprietary line of surgical instrument sterilization containers and related disposable supplies. Oxboro's and Sterion's
products are primarily used in the operating room and instrument reprocessing areas of hospitals, surgical centers, and clinics.

Raw
materials and parts for the products are produced to the Company's specifications by various outside vendors. The Company uses a clean room facility to assemble, package, and
inspect its sterilized products. The assembled products that are sold sterile are sent to an independent contract sterilizer, and samples are tested at an independent laboratory.

Product Distribution

Oxboro's medical products are marketed through its telemarketing department directly to hospitals throughout the United States and Canada and through dealers
and kit packaging companies domestically. International sales of Oxboro medical products are made through distributors and accounted for approximately 8% of medical product sales during both fiscal
2001 and 2000.

Sterion's
medical products are marketed in the United States through selected distributors, manufacturers' representatives, and Oxboro's telemarketing department.

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Sterion markets its products outside the United States through sales organizations that operate primarily as distributors. Sterion uses approximately 30 international sales
organizations to sell its products into 25 countries. These organizations typically carry a limited inventory of Sterion products and sell these products in specific geographic areas, generally on an
exclusive basis. Sterion international sales accounted for 25% of total Sterion sales during the Company's fourth quarter ended September 30, 2001. All of the Company's international sales are
made on a United States dollar-denominated basis to distributors.

Sources Of Supply

The raw materials used for the extruding, molding, and weaving of the Company's various products are readily available from multiple sources.

Patents, Trademarks, Licenses

The Company has in the past pursued and will, when appropriate, pursue registrations in patents and trademarks and license arrangements in connection with the
marketing of its products. In connection with the acquisition of the Sterion product line, the Company acquired 20 United States patents and approximately 25 related foreign patents. Patent
applications relating to Sterion products are also pending in the United States and in other countries. Protection under United States patents generally expires 20 years from issuance. Sterion
patents expire between 2006 and 2019. In connection with the acquisition of the Sterion product line, the Company also acquired trademarks registered in both the United States and in various countries
throughout the world relating to the Sterion name. Sterion currently licenses the technology of certain patents and know-how for its products from inventors Robert Nichols, William
Patterson, Ronald Cocquyt and Richard Mayfield. Under the terms of the license, Sterion is obligated to pay the inventors an aggregate royalty of 5% on the worldwide net sales of products licensed to
Sterion through February 13, 2007.

Some
of the products currently being marketed by the Company are not unique. With respect to these products, the Company believes that the improvement of existing products, reliance
upon trade secrets and unpatented proprietary know-how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive
advantage. If the Company were to develop products with patentable features, patent protection could be important to the Company in maintaining its competitive advantage. However, the Company would
likely incur substantial costs in attempts to secure patent protection.

Competition

The medical products market is extremely competitive. The Company believes that among its direct competitors are firms with substantially greater assets,
marketing capability, and experience than the Company. In addition, such competitors are often able to offer lower prices than the Company and thus can limit the Company's penetration and market
share. We believe that the Company has achieved a substantial portion of the markets in which it competes by offering a balance of competitive factors including selection, price, customer service,
convenience, product quality, reliability and speed of order fulfillment. Our continued success will depend upon the ability of our sales and marketing program to implement and close sales. In
addition, our principal executive officers and key personnel have extensive experience in sales of medical products.

Research And Development Expenditures

In the fiscal years ended September 30, 2001 and 2000, the Company spent $14,257 and $53,021, respectively, for research and development of medical
products.

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Government Regulation

Because Oxboro and Sterion manufactures and sells medical products, both the products and the manufacturing procedures are subject to regulation in the United
States by the Food and Drug Administration and in the European Community by the Medical Device Directives. Pursuant to the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act,
and regulations promulgated thereunder, medical devices intended for human use are classified into three categories (Classes I, II and III), depending upon the degree of regulatory control to which
they will be subject. Classification is based on the controls necessary to reasonably ensure the safety and efficacy of medical devices. Both Oxboro's and Sterion's products are Class I
products.

Many
Class I devices have been exempted from pre-market notification requirements by the FDA. These products can be adequately regulated by the same types of
controls the FDA has used on devices since the passage of the Act in 1938. These "general controls" include provisions related to labeling, producer registration, defect notification, records and
reports and good manufacturing practices. The good manufacturing practice regulation has been recently replaced by a more comprehensive Quality System Regulation ("QSR"), including regulations on Good
Manufacturing Practices that require written manufacturing specifications and processing procedures. QSRs also require implementation of quality assurance programs, written distribution procedures and
record keeping requirements.

The
Company believes that its manufacturing and quality control procedures substantially conform to the requirements of FDA regulation. In addition, the Company's sales and marketing
practices are subject to regulation by the U.S. Department of Health and Human Services pursuant to federal anti-kickback laws, and are also subject to similar state laws.

The
Company's products may also be subject to regulation in foreign countries, including ISO 9000 certification, in order to conduct business in the European Community. Sterion
products received ISO 9000 certification and also received an EC certificate, allowing Sterion to use the CE Mark on its products offered in Europe. Depending upon the distribution relationships
established to Sterion products in countries outside the European Community, the Company may be responsible for obtaining approval to sell in those countries.

The
Company may be required to devote substantial financial and human resources to comply with these extensive regulation by the FDA and other government agencies. In addition, should
the Company fail to comply with such regulations it would be subject to administrative and criminal actions, which could have a material adverse effect on the Company's business. The Company's
operations may also be affected if Congress or the European Community passes new legislation or if courts issue new rulings with respect to existing legislation. Continued compliance with all
regulatory requirements may be costly.

Employees

As of September 30, 2001, the Company employed 73 full-time and 12 part-time employees.

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RISKS RELATED TO OUR BUSINESS

The following are important factors that could cause actual results to differ materially from those anticipated in any forward-looking
statements made by or on behalf of the Company.

Our success depends upon our ability to integrate newly acquired products.In May 2001, Oxboro acquired the
Sterion product line from Johnson and Johnson Medical Division of Ethicon, Inc. On October 16, 2001, Oxboro entered into an asset purchase agreement with Surgidyne, Inc. pursuant
to which Oxboro would acquire the Surgidyne line of surgical drainage and fluid containment systems.

Our
success will depend, in part, on its ability to integrate the Sterion product line and any future products into our existing business expeditiously and at reasonable cost. In
connection with the integration of a new product line, we must maintain sufficient facilities and qualified personnel to manufacture and market the new products on a competitive basis. We also must
monitor and control costs of our expanding operations. Further, if the product lines acquired are medical devices, we must obtain and maintain all required government authorizations, including
authorizations from foreign governments. We may not employ the measures described above when necessary and even if such measures are taken, we may not execute them properly or they may prove
ineffective. If we are not able to successfully manage our expansion, our business and financial results will suffer.

We depend upon the successful introduction of new products.A significant element of the Company's growth strategy is
focused on successfully developing and marketing new products. In developing new products, we would incur additional research and development and marketing expenses. Our success will depend upon cost
effective development of new products. There can be no assurance that revenues, if any, from new products will be sufficient to recoup the Company's expenses in development and marketing any new
product. Moreover, there is no assurance that the Company can manufacture these new products at a cost or sell the new products at a price that will result in an acceptable rate of return for the
Company. Market acceptance of these new products may be slow or customers may not accept the new products at all. If the Company cannot successfully develop and market new products, its financial
performance and results of operations will be adversely affected.

The pricing strategies of our competitors and our response to those strategies may result in a decline in our
revenues.The medical products market is extremely competitive. We believe that the principal competitive factors in our market are selection, price, customer
service, convenience, product quality, reliability and speed of order fulfillment. Among our direct competitors are firms with longer operating histories, larger customer bases, greater financial and
marketing capability, and greater resources and
experience than us. We compete with companies such as Scanlon Instruments, Key Surgical and Healthmark. In addition, our competitors are often able to offer lower prices to customers. Competition from
these competitors could limit our market penetration and market share. These factors may have an adverse impact upon our business.

The success of competitive products could have an adverse effect on our business.The medical products industry is
intensely competitive and hospitals have a wide variety of product choices and technologies from which to choose. The success of any competing alternative product to those provided by Oxboro could
have a material adverse effect on our business, financial condition and results of operations. Our competitors are companies with substantially greater financial capabilities for product development
and marketing and can therefore market their products or procedures to hospitals and the medical community more effectively than we could. In addition, companies having proprietary rights to the
products we sell could choose to market their products directly to our customers and competitors selling the same or similar products may duplicate our marketing methods and reduce our ability to
effectively sell our product lines. The success of alternative products or of competitors selling those products will have a material adverse impact on our business.

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We are dependent on our management and key personnel to succeed.We depend on the extensive experience in sales of
medical products of our principal executive officers and key personnel. Our business requires significant research and development efforts to bring our products to market. Our continued success also
depends on the ability of our marketing and sales program to implement and close the sales. The loss of the services of any of our executive officers or other key personnel, or our failure to attract
and retain other skilled and experienced personnel on acceptable terms, could impede the achievement of our business objectives and have a material adverse effect on our business.

Changes in government regulation of the products we sell may negatively affect our business.Our products are regulated
by government agencies in the United States and foreign countries. In the United States, our products are regulated by the Food and Drug Administration. The FDA regulates, among other things,
(1) the content of our products, (2) the product labels, (3) the claims in our product literature and advertising, and (4) the manufacture of the products. The FDA and
other government agencies may in the future issue new regulations, or issue new interpretations of existing regulations, which affect the manufacture, marketing and sale of our products. Our
operations may also be affected if Congress passes new legislation or if courts issue new rulings with respect to existing legislation. We can offer no assurance that we will not be adversely affected
by new, or newly interpreted, regulatory requirements.

We depend upon third party suppliers.We currently purchase our component materials from several sources. Alternative
suppliers for these materials exist should the current suppliers discontinue production or distribution. However, we would need to investigate the materials obtained from any new suppliers for quality
and performance. Additionally, limited notice of the need to switch suppliers for any reason could affect on our ability to fulfill customer orders, which would have a material adverse
effect on our profitability. We have not experienced any difficulty with suppliers to date. However, there can be no assurance that delays in the distribution or sale of our products will not occur in
the future.

Fluctuations in our quarterly operating results may negatively affect our stock price.We may experience variability in
our net sales and operating profit on a quarterly basis as a result of many factors, including, among other things, the buying habits of our customers, size and timing of orders by certain customers,
shifts in demand for types of products, technological changes and industry announcements of new products. If revenues do not meet expectations in any given quarter, our stock price may be materially
adversely affected.

Our stock price may be materially affected by market volatility.The stock market has, from time to time, experienced
significant price and volume fluctuations affecting the market prices of companies similar to ours. These fluctuations may be due to changes in the economy or world events and are often unpredictable
and unrelated to the operating performance of such companies. Moreover, factors not directly related to our performance, such as negative industry reports or disappointing earnings announcements by
publicly traded competitors, also may have an adverse impact on the market price of our Common Stock. In the past, following periods of volatility in the market price of a company's securities,
securities class action claims have often been brought against that company. This litigation could result in substantial costs and a diversion of management's attention and resources.

If a product we sell injures a user, we could be subject to a product liability exposure.We sell medical products
which may involve product liability risk. We carry general casualty insurance, including coverage for product liability claims up to $1 million per incident and $2 million aggregate per
year. We also carry liability umbrella coverage of $10 million. However, there can be no assurance that this coverage will be adequate for any claims that may be raised. We are not aware of any
pending product liability claims against us. However, a successful product liability suit could have a material adverse effect our business operations.

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There is no assurance that future capital will be available to us, and additional capital will dilute the holdings of our
stockholders.Our shareholders have no preemptive rights. If we:



our
shareholders, who may not participate in any future stock issuance, will experience dilution of their equity investment. At this time, we cannot determine the potential dilution to our
shareholders. We cannot assure that additional financing will be available, or if available, that it will be available on terms favorable to our shareholders. If funds are not available to satisfy our
short-term and long-term operating requirements, we may limit or suspend our operations in the entirety or, under certain circumstances, seek protection from creditors. We
believe that future financing undertaken may contain terms that could result in more substantial dilution than we now have, which would adversely affect our business.

We may be adversely affected by statutory anti-takeover provisions.As a Minnesota corporation, we are
subject to certain anti-takeover provisions of the Minnesota Business Corporation Act. The authority of the Board with regard to the anti-takeover provisions of the Act could
have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for our Common Stock at a premium over the then prevailing market price, and may adversely
affect the market price of, and the voting and other rights of the holders of our Common Stock. If we issue additional shares, whether for purposes of raising additional capital or otherwise, it could
have the effect of making a takeover more difficult.

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ITEM 2. DESCRIPTION OF PROPERTY

The Company's office, manufacturing, and warehouse facilities are located in a 30,000 square foot building on 2.41 acres in Ham Lake, a suburb of Minneapolis,
Minnesota. The building is approximately 10 years old. See Notes 7 of Notes to Consolidated Financial Statements (included in Item 7 hereof) regarding the terms of a mortgage on the property.
Sterion's office and manufacturing facilities are located in a leased 30,000 square foot building in Jacksonville, Texas.

ITEM 3. LEGAL PROCEEDINGS

None.

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

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on The Nasdaq SmallCap Market under the symbol "OMED." The following table sets forth the quarterly high and low closing
bid prices for the Company's Common Stock for each quarter of the past two fiscal years as reported by Nasdaq. All prices have been adjusted to reflect the Company's 1-for-5
reverse stock split effected August 13, 1999.

|            |                | Closing Bid Price
|----------- | -------------- | -----------------
|
|
|Fiscal 2000 |                |                  
|            | First Quarter  |                  
|            | Second Quarter |                  
|            | Third Quarter  |                  
|            | Fourth Quarter |                  
|Fiscal 2001 |                |                  
|            | First Quarter  |                  
|            | Second Quarter |                  
|            | Third Quarter  |                  
|            | Fourth Quarter |                  

As
of December 5, 2001, there were approximately 221 holders of record of Common Stock. As of December 5, 2001, there were approximately 10 registered holders of three
year warrants, or "incentive warrants," for the purchase of Common Stock of the Company. The Company has paid no cash dividends on its Common Stock and does not intend to pay any dividends in the
future.

Recent Sales of Unregistered Securities

The Company issued a warrant dated November 17, 2000, for the purchase of the Company's Common Stock to each of two rights warrant holders who had
exercised their rights warrants prior to the commencement of the incentive warrant offering. One warrant was for the purchase of 2,177 shares of the Company's Common Stock; the other was for the
purchase of 4,800 shares of the Company's Common Stock. Except that the warrants are unregistered and not freely transferable, the terms of the
warrants are governed in all respects by the warrant agreement dated August 23, 2000 between the Company and its transfer agent, Wells Fargo Shareowner Services, relating to the warrants
offered by the Company in the incentive warrant offering. The Board of Directors determined that, based upon considerations of equity and fairness, it would offer the warrants to the two rights
holders for no

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consideration, just as the incentive warrants were offered to rights holders generally. The Company believes this issuance of securities is exempt from registration under Section 4(2) of the
Securities Act of 1933.

Securities Issued in Incentive Warrant Offering

On August 23, 2000, the Securities and Exchange Commission declared effective the Company's Registration Statement on Form S-3 (File
No. 333-43616) relating to the offering of 417,794 three year common stock purchase warrants, the "incentive warrants" and 417,794 shares of the Company's Common Stock issuable upon
exercise of the Common Stock purchase warrants issued in connection with the Company's September 1, 1999 rights offering, or the "rights warrants." The aggregate offering price of the
securities registered was $1,671,176.

The
Company offered one incentive warrant to each holder of the rights warrants. For each rights warrant which was properly exercised after August 23, 2000 and on or before
September 30, 2000, the Company issued one incentive warrant to the rights warrant holder at no cost. The rights warrants were exercisable at a price of $2.75 per share of Common Stock. The
incentive warrants have a term of three years and will expire on September 29, 2003. The incentive warrants may be exercised at an exercise price of $4.00 per share of Common Stock. Each
incentive warrant entitles the holder to receive the one share of Common Stock of the Company upon exercise.

On
October 16, 2000 the incentive warrant offering was extended from September 30, 2000 until October 20, 2000 to accommodate warrant holders who were unable to
exercise their rights warrants during the initial offering period as a result of administrative difficulties discovered by the Company following the termination of the initial offering period. The
incentive warrant offering terminated on October 20, 2000.

Gross
proceeds from the exercise of the rights warrants were approximately $1,159,000. As a result of the incentive warrant offering and the exercise of rights warrants, the Company
issued an additional 392,435 shares of its Common Stock. After payment of legal fees, printing costs and expenses associated with the offering, net proceeds to the Company were $1,081,995.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

Net sales for the twelve-month period ended September 30, 2001 were $6,547,824 as compared to $4,967,217 for the corresponding period in the previous
fiscal year. This represents an increase of $1,580,607 or approximately 32%. The principal reason for the increase is due to sales generated by Sterion for the period since the Company completed the
purchase of the assets related to Sterion on May 25, 2001. The sales generated by Sterion were $1,262,261. Continued competition and pricing pressure have constrained revenue growth in the
Company's existing product lines; however several new products have recently been added and the Company expects these new products, together with future additions to contribute to sales growth in the
future.

Gross
profit as a percent of net sales for the twelve months of fiscal 2001 and 2000 was 58% and 63%, respectively. The decrease in gross profit percentage for fiscal year 2001
results from a increase in labor and overhead costs being absorbed into cost of goods sold, with a corresponding decrease in general and administrative expenses. The gross profit percentage for
Sterion for the four months of June-September 2001 was 52%. Based on current information it is management's belief the gross profit percentage for Sterion products will be typically
lower than products sold by Oxboro. Gross profit dollars increased for the twelve months ended September 30, 2001 compared to the corresponding period in the prior year by $638,662. The
principal reason for the increase in gross profit for the periods is due to gross profit of $659,147 contributed by the Sterion business.

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Income from operations for the twelve months of fiscal year 2001 was $557,918 as compared to $787,986 in the same period of fiscal 2000. In the current year, general and
administrative expenses have increased because of increased staffing for future new product support and selling, general and administrative expenses related to Sterion in the amount of $489,411.

Liquidity and Capital Resources

The Company has typically financed its operations through internal working capital and a bank line of credit. Financing of its building has been through
long-term bank financing. In addition, the Company financed the purchase of Sterion, in part, through long term bank financing. The Company believes it
has adequate capital to meet its cash requirements for the next twelve months. As of September 30, 2001, the Company had working capital of $5,360,629 as compared to $3,977,601 at
September 30, 2000, and long-term debt of $2,078,635 at September 30, 2001 compared to $379,551 at September 30, 2000. The increase in working capital and
long-term debt principally relates to the proceeds of approximately $605,000 (net of previous mortgage paid off of approximately $370,000) of the new mortgage payable entered into in
January 2001 (see Note 7) and the assumption of approximately $1.5 million in new debt to finance the acquisition of the Sterion assets. As of September 30, 2001, the
Company had $2,328,063 in cash and cash equivalents as compared to $461,108 at September 30, 2000. The increase in cash and cash equivalents of approximately $1.9 million principally
relates to warrant proceeds of approximately $1.1 million received and the net mortgage proceeds previously noted.

During
the twelve months ended September 30, 2001, the Company generated $171,480 in net cash from operating activities. This decrease from the prior year was primarily due to
financing and working capital for the acquisition of the Sterion assets. The Company used $1,339,291 in investing activities during the twelve months ended September 30, 2001, primarily due to
the purchases of equipment and assets of approximately $3,002,171, proceeds received of approximately $1,765,997 on the sale of available-for-sale equity securities, receipt of
approximately $151,000 of cash value of life insurance and the purchase of available-for-sale securities of approximately $254,117. The Company generated $3,034,766 in cash
from financing activities due to warrant proceeds of approximately $1.1 million received, additional net borrowings of $1,972,152 million of long term bank financing related to the
Sterion business.

During
fiscal year 2002, the Company currently expects to spend approximately $400,000 on capital improvements. We believe we have the financial resources to meet our future business
requirements for at least the next twelve months.

ITEM 7. FINANCIAL STATEMENTS

|Report of Independent Public Accountants         |                                                                | F-2
|------------------------------------------------ | -------------------------------------------------------------- | ---
|For the years ended September 30, 2001 and 2000: |                                                                |    
|                                                 | Consolidated Balance Sheets                                    |    
|                                                 | Consolidated Statements of Operations and Comprehensive Income |    
|                                                 | Consolidated Statements of Stockholders' Equity                |    
|                                                 | Consolidated Statements of Cash Flows                          |    
|                                                 | Notes to Consolidated Financial Statements                     |    

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth certain information with respect to our directors and executive officers:

|Name                     |  | Age |  | Position                |  | Director Since
|------------------------ |  | --- |  | ----------------------- |  | --------------
|Allan D. Anderson(3)(4)  |  | 48  |  | Director                |  | 2000          
|Kenneth W. Brimmer(2)(4) |  | 46  |  | Director                |  | 1998          
|Gary W. Copperud(2)(4)   |  | 43  |  | Director                |  | 1998          
|Gervaise Wilhelm(1)      |  | 58  |  | Director                |  | 2000          
|J. David Berkley         |  | 53  |  | President               |  |              
|Ramon L. Burton          |  | 51  |  | Chief Financial Officer |  |              

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Allan D. Anderson.Mr. Anderson is currently the Chief Financial Officer and a director of
Reliafund, Inc. Reliafund is a third-party processing company of ACH transactions. In January 2001, Mr. Anderson sold his interest in RiverBend Solutions ("RiverBend") having
served as President since August 2000 and as Chief Financial Officer since January 2000. He was a director of RiverBend from 1995 to 2001. Mr. Anderson was the President of
Metropolitan Financial Management, Inc. from 1997 to 1999 and served as its Treasurer from 1995 to 1999. He was a director of Metropolitan Financial Management, Inc. from 1991 through
1999. Prior to joining Metropolitan, he was the Chief Financial Officer of Pan Am Systems, Inc. from 1994 through 1995.

Kenneth W. Brimmer.Mr. Brimmer presently serves as Chairman and Director of Active IQ Technologies, Inc.
Previously, Mr. Brimmer was President of Rainforest Cafe, Inc. from April 1997 until April 2000 and was Treasurer from its inception in 1995. Prior to that,
Mr. Brimmer was employed by Grand Casinos, Inc. and its predecessor from October 1990 until April 1997, serving as Special Assistant to the Chairman and CEO.
Mr. Brimmer currently serves on the boards of directors of New Horizons Kid Quest, Inc., and Hypertension Diagnostics, Inc., where he is also Chairman. Mr. Brimmer also
served as the Company's interim Chief Executive Officer from October 2000 to November 18, 2000.

Gary W. Copperud.He has been president/general manager of CMM Properties, LLC, an investment company located in Fort
Collins, Colorado, with holdings in real estate and stocks, since 1993. Prior to that, Mr. Copperud was self-employed in the fields of securities and real estate investment and real
estate development.

Gervaise Wilhelm.Ms. Wilhelm has been a partner with Surgical Safety Associates, a manufacturer of surgical
safety disposable devices, since October 1999. Since 1997, Ms. Wilhelm has also served as a consultant to start-up medical device companies, including companies operating in
the medical specialty areas of urology, surgery, cardiology, gastroenterology and critical care medicine. From 1994 to 1997, Ms. Wilhelm served as president and chief executive officer of
Internventional Innovations, Inc., now XRT/Medtronic, a medical device company. Ms. Wilhelm currently serves on the board of directors of Paradigm Diagnostics LLC.

10

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J. David Berkley.Mr. Berkley has served as the President of the Company since October 16, 2000. Prior to
joining the Company, Mr. Berkley was employed in various capacities by Minnesota Mining and Manufacturing Company (3M) from 1977 to 1999. Mr. Berkley was the Executive General Manager of
3M's Security Market Center in 1999. From 1997 to 1999 he served as the Vice President, Strategic Development, Health Care of 3M. From 1995 to 1997, he was 3M's Vice President, Medical Surgical
Markets Division. Mr. Berkley was the General Manager of 3M's Consumer Professional Health Care Division from 1993 to 1995.

Ramon L. Burton.Mr. Burton has served as the Chief Financial Officer of the Company since December 21,
2000. Prior to joining the Company, Mr. Burton was employed by Twin City Fan Companies, Ltd. for more than fourteen years, first as its Controller, and then from 1991-2000 as
its Chief Financial Officer and Vice President. Mr. Burton is an attorney-at-law and has over twenty-five years experience in accounting, law and accounting
systems.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) under the Securities Exchange Act of 1934, executive officers, directors and 10% shareholders (insiders) of the Company are
required to file reports on Forms 3, 4, and 5 of their beneficial holdings and transactions in the Company's Common Stock. To the Company's knowledge, all insiders of the Company made timely filings
of Forms 3, 4 or 5 with respect to transactions or holdings during fiscal year 2000, except Mr. Burton's Form 3 was not timely filed within ten days of his employment date with the
Company and Mr. Copperud failed to timely file one Form 4 with respect to acquisitions of Common Stock by CMM Properties, LLC.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the cash and non-cash compensation for the years indicated earned by or awarded to J. David Berkley, the President,
Kenneth W. Brimmer who served as the Company's Chief Executive Officer on an interim basis during the fiscal year ended September 30, 2001 and Company's only other executive officers whose
total cash compensation exceeded $100,000 (the "Named Executive Officers") in fiscal year 2001.

Summary Compensation Table

|                                |  |                |  |   |             |  |       | Long-Term Compensation Awards |       | 
|------------------------------- |  | -------------- |  | - | ----------- |  | ----- | ----------------------------- | ----- | 
|
|
|
|J. David Berkley(1)
  President |  | 2001
2000
1999 |  | $ | 141,346

 |  | 

 |                               | 

 | 
|Kenneth W. Brimmer(2)           |  | 2001
2000
1999 |  |   | 

       |  | 

 |                               | 

 | 

---

11

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The
following table provides information about each stock option grant made during the fiscal year ended September 30, 2001 to the Named Executive Officers.

Option Grants In Fiscal Year 2001

|Name             |  | Number of Securities Underlying Options Granted |  | Percent of Total Options
Granted to Employees in
Fiscal Year |   | Exercise or Base
Price ($/Share) |       | Expiration Date
|---------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------ | - | -------------------------------- | ----- | ---------------
|J. David Berkley |  | 100,000                                         |  | 44.4                                                         | % | $                                | 3.75  |                
|Kenneth Brimmer  |  | 5,000                                           |  | 2.2                                                          | % | $                                | 3.625 |                

The
following table summarizes stock option exercises during the fiscal year ended September 30, 2001 and the total number of options held at the end of fiscal year 2001 by the
Named Executive Officers.

Aggregated Option Exercises in Fiscal Year 2001 and
Fiscal Year End Option Values

|                 |  |   |  |   |  | Number of Securities Underlying Unexercised Options at Sept 30, 2001 |  | Value of Unexercised In-the-Money Options at Sept 30, 2001(1)
|---------------- |  | - |  | - |  | -------------------------------------------------------------------- |  | -------------------------------------------------------------
|
|
|J. David Berkley |  |  |  |  |  |                                                                     |  | 100,000                                                      
|Kenneth Brimmer  |  |   |  |  |  | 5,000                                                                |  |                                                             

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Employment Agreements

On February 10, 1999, Matthew Bellin entered into a letter agreement with the Company to serve as its President, Chief Operating Officer and interim
Chief Financial Officer. Pursuant to the letter agreement, Mr. Bellin would be paid an annual salary of $100,000 per year plus 20% of such salary upon the achievement of mutually agreed upon
objectives. After 30 days of employment, Mr. Bellin was entitled to Company benefits customary to the office of President. In addition, Mr. Bellin received an option to purchase
20,000 shares of Common Stock of the Company (as adjusted to reflect the Company's 1-for-5 reverse stock split, effective August 13, 1999), at an exercise price of $7.50
per share, vesting with respect to 4,000 shares (adjusted for the reverse split) annually. As a condition of his employment, Mr. Bellin also executed an Employee Noncompetition and
Confidentiality Agreement with the Company under which he agreed not to engage in activities (described in the Agreement) hostile or adverse to the Company or Oxboro Outdoors, Inc. or that
would interfere with his exercise of independent judgment in the Company's best interests. The Agreement prohibits Mr. Bellin from disclosing or using proprietary information, as described in
the Agreement, relating to the Company or Oxboro Outdoors. Under the terms of the Agreement, for a period of one year after termination of the Agreement, Mr. Bellin is prohibited from engaging
in activities that are competitive to the Company or Oxboro Outdoors (as described in the Agreement) or from attempting to employ any Company or Outdoors employee or persuading such person to
terminate employment with the Company or Oxboro Outdoors. Mr. Bellin's annual salary was increased to $120,000 effective October 1, 1999.

Mr. Bellin
ceased serving as an officer of the Company effective October 6, 2000. In connection with his resignation, he executed a letter agreement dated
October 12, 2000 with the Company. The letter agreement provided that, in exchange for consulting services to the Company, Mr. Bellin would

12

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be paid his usual salary through December 1, 2000. The letter agreement also summarized the exerciseability of nonqualified options granted to Mr. Bellin on February 15, 1999;
options which were not vested as of October 6, 2000 expired. Of the nonqualified options granted to Mr. Bellin on February 15, 1999, options for the purchase of 13,000 shares of
our Common Stock were vested as of October 6, 2000 and may be exercised, if at all, on or before April 6, 2001 and additional options to purchase 4,000 were vested as of
October 6, 2000 and may be exercised, if at all, on or before January 6, 2001. In the letter agreement, Mr. Bellin also agreed to release the Company and its affiliates from
certain claims.

The
Company and J. David Berkley entered into an agreement effective October 16, 2000 under which Mr. Berkley agreed to serve as the President of Oxboro
Medical, Inc. on an "at will" basis. The Agreement provided for an annual salary of $150,000, with a salary review at the end of the first year. Mr. Berkley is also be eligible for a
bonus of up to 100% of his salary, based upon the performance of the Company.

As
part of Mr. Berkley's compensation, he received options to purchase 100,000 shares of the Common Stock of the Company. The options are exercisable at $3.75 per share. The
options vest on the seventh anniversary of employment; however, vesting is accelerated if the Company reaches certain performance goals.

The
Company and Ramon L. Burton entered into an agreement effective December 21, 2000 under which Mr. Burton agreed to serve as the Chief Financial Officer of Oxboro
Medical, Inc. on an "at will" basis. The agreement provides for an annual salary of $90,000, with a salary review at the end of the first year. Mr. Burton would also be eligible to
receive a bonus of up to 50% of his salary, based upon the financial performance of the Company. As part of Mr. Burton's compensation, he received options to purchase 25,000 shares of the
Company's Common Stock. The options are exercisable at $4.25 per share. The options vest on the seventh anniversary of employment; however, vesting is accelerated if the Company reaches certain
performance goals.

Outside Director Compensation

Each director of the Company who is not an employee receives $1,000 per quarter and the Chairman of the Board receives $1,250 per quarter. The aggregate fees
paid to non-management directors for services rendered for the year ended September 30, 2001 were approximately $17,000.

13

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table presents, as of November 19, 2001, certain information regarding beneficial ownership of our Common Stock by (1) each person
known by us to beneficially own more than 5% of the outstanding shares of Common Stock, (2) each of our directors and executive officers, and (3) all of our current directors and
executive officers as a group. Unless otherwise indicated, the persons listed below have sole voting and investment power with respect to the shares and may be reached at the Company's offices at
13828 Lincoln Street N.E., Ham Lake, MN 55304.

|                                                  |  |         |     | Shares Beneficially Owned |     |         | 
|------------------------------------------------- |  | ------- | --- | ------------------------- | --- | ------- | 
|
|Allan D. Anderson                                 |  | 0       |     | 5,000                     |     | 5,000   | 
|Kenneth W. Brimmer                                |  | 252,526 | (2) | 77,842                    | (3) | 330,368 | 
|Gary C. Copperud                                  |  | 501,718 |     | 134,879                   | (4) | 636,597 | 
|CMM Properties, LLC                               |  | 501,718 |     | 129,879                   |     | 631,597 | 
|Gervaise Wilhelm                                  |  | 4,300   |     | 10,000                    |     | 14,300  | 
|J. David Berkley                                  |  | 0       |     | 0                         |     | 0       | 
|Ramon L. Burton                                   |  | 0       |     | 0                         |     | 0       | 
|All Officers and Directors as a Group (6 persons) |  | 758,544 |     | 227,721                   |     | 986,265 | 

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Agreements with Larry A. Rasmusson

The Company has entered into several agreements with Larry A. Rasmusson, a former Chief Executive Officer and Chief Financial Officer of the Company. Pursuant
to an exclusive license agreement, Mr. Rasmusson, as licensor, granted the Company, as licensee, the exclusive right to make, use, and sell certain medical products and to receive information
and assistance from Mr. Rasmusson to make, use and sell the products. Mr. Rasmusson is to receive royalties in the amount of 4% of the "net sales price" (as defined) of all licensed
products sold. Royalties continue for the life of the product. If at any time a product covered by the agreement is no longer sold by the Company (defined as a reduction by
50% in sales from the previous calendar year), the license will no longer be exclusive as to that product. The agreement contains a provision for increasing the royalty amount if royalty rates

14

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paid by the Company to others for similar products are higher than 4%. The agreement also provides that upon the termination of the employment of a former officer, the royalty will be increased from
4% to 6% on certain products, and Mr. Rasmusson and the former officer will each receive royalties of 3% on sales of such products. During fiscal 2001 and 2000, Mr. Rasmusson earned
$46,635 and $44,076, respectively, in royalties under this agreement.

On
March 30, 1999 the Company was notified by Mr. Rasmusson that it was in default of royalty agreements related to certain medical products because of nonpayment of
royalties. At the time of the notification the Company believed and continues to believe that no events of default have occurred. The Company has continued to pay royalties to Mr. Rasmusson and
has received no correspondence from Mr. Rasmusson regarding this matter since June 17, 1999.

The
Company has adopted a split dollar life insurance plans for the benefit of Mr. Rasmusson. The Company maintains the annual premiums on two $500,000 insurance policies (the
"Policies") on Mr. Rasmusson's life so long as Mr. Rasmusson pays and maintains his portion of the monthly premiums on said Policies in a timely manner. The Policies are owned by
Mr. Rasmusson. The Company will recover all premium payments, interest, and advances made by it on account of the Policies upon Mr. Rasmusson's death or the surrender of the policies for
cash. However, if the Company fails to maintain payments or terminates either or both of said Policies or if the Policies cancel or terminate for any reason other than Mr. Rasmusson's death,
Mr. Rasmusson shall receive the net cash value and/or termination value. Premiums paid in fiscal 2001 and 2000 on behalf of Mr. Rasmusson totaled $47,775 and $47,775, respectively.

Transactions with Directors

On September 22, 2000, a Schedule 13D was filed with the Securities and Exchange Commission on behalf of the Company, Kenneth W. Brimmer and Gary
Copperud relating to their respective interests in Minntech Corporation. Messrs. Brimmer and Copperud are directors of the Company. The Company reported that, as of September 12, 2000,
it had acquired a 3% interest in Minntech Corporation through open market purchases of 200,000 shares that company's common stock. As disclosed in the Schedule 13D, the Company would
beneficially own 5.7% of Minntech Corporation if the Company's shares were aggregated with those owned by Kenneth W. Brimmer and Gary Copperud. On April 9, 2001, the Company and
Messrs. Brimmer and Copperud filed Amendment No. 1 to Schedule 13D relating to changes in their respective interests in Minntech Corporation. As reported in Amendment No. 1
to Schedule 13D, as of March 8, 2001 the Company held 190,000 shares of common stock or a 2.8% interest in Minntech Corporation. As further reported in Amendment No. 1 to
Schedule 13D, if the Company's shares were aggregated with those owned by Messrs. Brimmer and Copperud, the Company would beneficially own 324,200 shares or 4.8% interest in Minntech
Corporation. The
Company disclaims ownership of the shares held by Messrs. Brimmer and Copperud. With the filing of the Amendment No. 1 to the Schedule 13D, the Company is no longer a reporting
person with respect to the shares it owns in Minntech Corporation. During 2001, the Company sold its shares of common stock of Minntech Corporation or Cantel Medical Corp., which acquired Minntech
Corporation by merger on September 7, 2001.

Active
IQ Technologies, Inc. ("Active IQ") has performed e-services consulting and website services for the Company on the same terms as such services have been
provided to unrelated parties. The aggregate amount paid by the Company to Active IQ for these services was $15,000.

15

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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:

(a)  Exhibits.

|Exhibit
Number |   | Description                                                                                                                                                                                                                                                                                                                                                                                                
|-------------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |   | Agreement for Purchase and Sale of Stock, effective June 30, 1999, by and between the Company and John McGuire, Stephen Kaminski and Charles Kruse (incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1999 as filed with the Securities and Exchange Commission (the "Commission") on August 13, 1999 (the "June 1999 Form 10-QSB")).
|2.2            |   | Promissory Note dated June 30, 1999, issued to the Company by John McGuire, Stephen Kaminski and Charles Kruse, in the principal amount of $265,000 (incorporated by reference to Exhibit 2.2 to the Company's June 1999
Form 10-KSB).                                                                                                                                                                     
|3.1            |   | Composite Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000).                                                                                                                                                                                                              
|3.2            |   | Amended and Restated Bylaws effective February 23, 1995 (incorporated by reference to Exhibit 3.1(b) to the Company's Annual Report on Form 10-KSB for the year ended September 30, 1998 (the "1998 Form 10-KSB")).                                                                                                                                                                                        
|4.1            |   | Form of Rights Subscription Certificate (incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-3 (File No. 333-83469) filed on July 22, 1999, as amended (the "1999 Form S-3")
).                                                                                                                                                                                    
|4.2            |   | Form of Common Stock Certificate (incorporated by reference to Exhibit 4(b) to the 1999 Form S-3).                                                                                                                                                                                                                                                                                                         
|4.3            |   | Warrant Agreement between the Company and Norwest Bank Minnesota, N.A. dated September 30, 1999 with respect to the rights offering (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-KSB for the
year ended September 30, 1999 (the "1999 10-KSB")).                                                                                                                    
|4.4            |   | Specimen Warrant Certificate of the Company (incorporated by reference to Exhibit 4(e) to the 1999 Form S-3).                                                                                                                                                                                                                                                                                              
|4.5            |   | Warrant Agreement between the Company and Wells Fargo Bank Minnesota, N.A. dated August 23, 2000 (incorporated by reference to Exhibit 4(d) to the Company's Registration Statement on Form S-3 (File No. 333-43616) filed on
August 11, 2000 (the "2000 Form S-3")).                                                                                                                                      
|4.6            |   | Form of Warrant Certificate (incorporated by reference to Exhibit 4(e) to the 2000 Form S-3).                                                                                                                                                                                                                                                                                                              
|10.1           | * | Transfer of Technology Agreement by and between Project Heart Limited Partnership and LexTen, Inc., effective September 30, 1997 (incorporated by reference to Exhibit 10.1 to the Company's 1998 Form 10-KSB).                                                                                                                                                                                            
|10.2           | * | Termination of Stock Award Agreement effective September 30, 1997, between the Company and Larry A. Rasmusson (incorporated by reference to Exhibit 10.2 to the 1998 Form 10-KSB).                                                                                                                                                                                                                         

16

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|10.3 | (a)* | Exclusive License Agreement between the Company and Larry Rasmusson dated April 1, 1990 (the "Exclusive License Agreement") (incorporated by reference to Exhibit 10.3(a) to the 1998 Form 10-KSB).                                             
|---- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3 | (b)* | First Amendment to Exclusive License Agreement effective November 8, 1995 (incorporated by reference to Exhibit 10.3(b) to the 1998 Form 10-KSB).                                                                                               
|10.3 | (c)* | Second Amendment to Exclusive License Agreement effective September 1, 1998 (incorporated by reference to Exhibit 10.3(c) to the 1998 Form 10-KSB).                                                                                             
|10.4 | (a)* | Employment Agreement between the Company and Larry A. Rasmusson dated April 1, 1993 (incorporated by reference to Exhibit 10.4(a) to the 1998 Form 10-KSB).                                                                                     
|10.4 | (b)* | First Amendment to Employment Agreement effective December 21, 1993 (incorporated by reference to Exhibit 10.4(b) to the 1998 Form 10-KSB).                                                                                                     
|10.4 | (c)* | Second Amendment to Employment Agreement effective October 1, 1997 (incorporated by reference to Exhibit 10.4(c) to the 1998 Form 10-KSB).                                                                                                      
|10.4 | (d)* | Third Amendment to Employment Agreement effective February 25, 1998 (incorporated by reference to Exhibit 10.4(d) to the 1998 Form 10-KSB).                                                                                                     
|10.5 | (a)* | Exclusive License and Royalty Agreement between Oxboro Outdoors, Inc. and Larry Rasmusson dated April 17, 1993 the ("Exclusive License and Royalty Agreement") (incorporated by reference to Exhibit 10.5(a) to the 1998
Form 10-KSB).          
|10.5 | (b)* | First Amendment to Exclusive License and Royalty Agreement effective December 21, 1993 (incorporated by reference to Exhibit 10.5(b) to the 1998 Form 10-KSB).                                                                                  
|10.5 | (c)* | Second Amendment to Exclusive License and Royalty Agreement effective November 8, 1995 (incorporated by reference to Exhibit 10.5(c) to the 1998 Form 10-KSB).                                                                                  
|10.5 | (d)* | Third Amendment to Exclusive License and Royalty Agreement effective February 25, 1998 (incorporated by reference to Exhibit 10.5(d) to the 1998 Form 10-KSB).                                                                                  
|10.5 | (e)* | Fourth Amendment to Exclusive License and Royalty Agreement, effective as of the 1st day of September, 1998 (incorporated by reference to Exhibit 10.5(e) to the 1998 Form 10-KSB).                                                             
|10.6 | (a)* | Consulting Agreement effective November 1, 1995, by and between the Company and Larry A. Rasmusson (the "Consulting Agreement") (incorporated by reference to Exhibit 10.6(a) to the 1998 Form 10-KSB).                                         
|10.6 | (b)* | First Amendment to the Consulting Agreement effective October 1, 1997 (incorporated by reference to Exhibit 10.6(b) to the 1998 Form 10-KSB).                                                                                                   
|10.6 | (c)* | Second Amendment to the Consulting Agreement effective September 1, 1998 (incorporated by reference to Exhibit 10.6(c) to the 1998 Form 10-KSB).                                                                                                
|10.7 | (a)* | Stock Option Agreement effective August 17, 1995, by and between the Company and Larry A. Rasmusson (incorporated by reference to Exhibit 10.7(a) to the 1998 Form 10-KSB).                                                                     
|10.7 | (b)* | Stock Option Exercise and Loan Agreement for the Purchase of 20,536 shares of Common Stock of the Company, between Company and Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.7(b) to the 1998
Form 10-KSB).

17

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|10.7  | (c)* | Secured Promissory Note in the amount of $30,546 to Company from Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.7(c) to the 1998 Form 10-KSB).                                                                   
|----- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  | (d)* | Instruments Security Agreement between Company and Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.7(d) to the 1998 Form 10-KSB).                                                                                 
|10.7  | (e)* | First Amendment to August 17, 1995 Stock Option Agreement by and between the Company and Larry A. Rasmusson effective September 1, 1998 (incorporated by reference to Exhibit 10.7(e) to the 1998 Form 10-KSB).                                      
|10.8  | (a)* | Current Stock Option Agreement effective October 1, 1997, by and between the Company and Larry A. Rasmusson (incorporated by reference to Exhibit 10.8(a) to the 1998 Form 10-KSB).                                                                  
|10.8  | (b)* | Deferred Stock Option Agreement effective October 1, 1997, by and between the Company and Larry A. Rasmusson (incorporated by reference to Exhibit 10.8(b) to the 1998 Form 10-KSB).                                                                 
|10.8  | (c)* | Stock Option Exercise and Loan Agreement for the purchase of 200,000 shares of Common Stock of the Company, between the Company and Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.8(c) to the 1998
Form 10-KSB).
|10.8  | (d)* | Secured Promissory Note in the Amount of $200,000 to Company from Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.8(d) to the 1998 Form 10-KSB).                                                                  
|10.8  | (e)* | Instruments Security Agreement between the Company and Larry A. Rasmusson dated January 15, 1998 (incorporated by reference to Exhibit 10.8(e) to the 1998 Form 10-KSB).                                                                             
|10.8  | (f)* | First Amendment to October 1, 1997 Current Stock Option Agreement by and between the Company and Larry A. Rasmusson effective September 1, 1998 (incorporated by reference to Exhibit 10.8(f) to the 1998
Form 10-KSB).                              
|10.9  | *    | Mutual Release and Noncompetition Agreement by and between Larry A. Rasmusson and the Company effective September 1, 1998 (incorporated by reference to Exhibit 10.9 to the 1998 Form 10-KSB).                                                       
|10.10 | *    | Product Development and Incentive Agreement effective November 8, 1995, be and between the Company and Harley Haase (incorporated by reference to Exhibit 10.10 to the 1998 Form 10-KSB).                                                            
|10.11 | *    | Royalty Sharing Agreement effective November 21, 1995, by and between the Company, Oxboro Outdoors, Inc., Larry A. Rasmusson and Harley Haase (incorporated by reference to Exhibit 10.11 to the 1998 Form 10-KSB).                                  
|10.12 | *    | Settlement Agreement and Mutual Release of Claims by and between Harley Haase and the Company dated June 13, 1997 (incorporated by reference to Exhibit 10.12 to the 1998 Form 10-KSB).                                                              
|10.13 | (a)* | Stock Option Exercise and Loan Agreement for the purchase of 40,000 shares of Common Stock of the Company between the Company and Dennis L. Mikkelson dated January 15, 1998 (incorporated by reference to Exhibit 10.13(a) to the 1998
Form 10-KSB).

18

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|10.13 | (b)* | Secured Promissory Note in the amount of $45,000 to the Company from Dennis L. Mikkelson dated January 15, 1998 (incorporated by reference to Exhibit 10.13(b) to the 1998 Form 10-KSB).                                                     
|----- | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13 | (c)* | Instruments and Security Agreement between the Company and Dennis L. Mikkelson dated January 15, 1998 (incorporated by reference to Exhibit 10.13(c) to the 1998 Form 10-KSB).                                                               
|10.14 | (a)* | Stock Option Agreement effective June 19, 1997 by and between the Company and John Walter (incorporated by reference to Exhibit 10.14(a) to the 1998 Form 10-KSB).                                                                           
|10.14 | (b)* | Stock Option Exercise and Loan Agreement for the purchase of 40,000 shares of Common Stock of the Company between the Company and John Walter dated January 15, 1998 (incorporated by reference to Exhibit 10.14(b) to the 1998
Form 10-KSB).
|10.14 | (c)* | Secured Promissory Note in the amount of $43,200 to the Company from John Walter dated January 15, 1998 (incorporated by reference to Exhibit 10.14(c) to the 1998 Form 10-KSB).                                                             
|10.14 | (d)* | Instruments and Security Agreement between the Company and John Walter dated January 15, 1998 (incorporated by reference to Exhibit 10.14(d) to the 1998 Form 10-KSB).                                                                       
|10.15 | *    | Nonqualified Stock Option Agreement dated January 28, 1998, between the Company and Robert S. Garin (incorporated by reference to Exhibit 10.15 to the 1998 Form 10-KSB).                                                                    
|10.16 | *    | Nonqualified Stock Option Agreement dated February 20, 1998, between the Company and John Sayer (incorporated by reference to Exhibit 10.16 to the 1998 Form 10-KSB).                                                                        
|10.17 | *    | Temporary Services Agreement effective September 8, 1998 by and between the Company and Critical Care Anesthetists, P.A. and Christopher J. Turnbull (incorporated by reference to Exhibit 10.17 to the 1998
Form 10-KSB).                   
|10.18 | *    | Temporary Services Agreement effective September 17, 1998 by and between the Company and Richard Ulvenes (incorporated by reference to Exhibit 10.18 to the 1998 Form 10-KSB).                                                               
|10.19 | *    | Letter Employment Agreement dated February 10, 1999 between the Company and Matthew E. Bellin (incorporated by reference to Exhibit 10.19 to the 1999 Form 10-KSB).                                                                          
|10.20 | *    | Employee Noncompetition/Confidentiality Agreement dated February 10, 1999 between the Company and Matthew E. Bellin (incorporated by reference to Exhibit 10.20 to the 1999 Form 10-KSB).                                                    
|10.21 | *    | Stock Option Agreement, effective as of February 15, 1999, between Matthew E. Bellin and the Company (incorporated by reference to Exhibit 10.21 to the 1999 Form 10-KSB).                                                                   
|10.22 | *    | Non-qualified Stock Option Agreement between Gary W. Copperud and the Company effective as of April 20, 1999 (incorporated by reference to Exhibit 10.22 to the 1999 Form 10-KSB).                                                           
|10.23 | *    | Non-qualified Stock Option Agreement between Kenneth W. Brimmer and the Company effective as of April 20, 1999 (incorporated by reference to Exhibit 10.23 to the 1999 Form 10-KSB).                                                         

19

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|10.24 | * | Non-qualified Stock Option Agreement between Robert S. Garin and the Company effective as of April 20, 1999 (incorporated by reference to Exhibit 10.24 to the 1999 Form 10-KSB).                                                                                                                  
|----- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.25 | * | Non-qualified Stock Option Agreement between John E. Sayer and the Company effective as of April 20, 1999 (incorporated by reference to Exhibit 10.25 to the 1999 Form 10-KSB).                                                                                                                    
|10.26 |   | Amendment of August 25, 1999 to Restated Term Loan and Credit Agreement dated November 3, 1998 between the Company and Norwest Bank Minnesota, N.A (incorporated by reference to Exhibit 10.26 to the 1999
Form 10-KSB).                                                                           
|10.27 | * | Agreement dated October 12, 2000 between the Company and Matthew E. Bellin (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-KSB for the year ended September 30, 2000 (the
"2000 10-KSB"))                                                                    
|10.28 | * | Agreement dated October 31, 2000 between the Company and J. David Berkley (incorporated by reference to Exhibit 10.28 to the 2000 10-KSB).                                                                                                                                                         
|10.29 | * | Agreement dated December 21, 2000 between the Company and Ramon L. Burton                                                                                                                                                                                                                          
|10.30 |   | Asset Purchase Agreement dated as of April 24, 2001 between Johnson & Johnson Medical Division of Ethicon, Inc. as Seller and Oxboro Medical, Inc. as Buyer (incorporated by reference to Exhibit 10.29 to the Company's Current Report
on Form 8-K filed May 9, 2001).                            
|10.31 |   | Amendment No. 1 to Asset Purchase Agreement dated as of April 26, 2001 between Johnson & Johnson Medical Division of Ethicon, Inc., Oxboro Acquisition, Inc., and Oxboro Medical, Inc. (incorporated by reference to Exhibit 10.30
to the Company's Current Report on Form 8-K filed July 9, 2001).
|21    |   | List of Subsidiaries.                                                                                                                                                                                                                                                                              
|23.1  |   | Consent of Virchow, Krause & Company, LLP.                                                                                                                                                                                                                                                         

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(b)  Reports on Form 8-K.

On July 9, 2001, the Company filed an Amendment No. 1 to Form 8-K to provide Financial Statements, Unaudited Pro Forma
Financial Information and Exhibits relating to the Company's acquisition of the assets of the Sterion business unit of Johnson & Johnson Medical Division of Ethicon, Inc.

20

---



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on December 13, 2001.

| |  | OXBORO MEDICAL, INC.
| |  | --------------------
| |  | By:                 

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints J. David Berkley and Kenneth W. Brimmer as his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any of all amendments to this Annual Report on Form 10-KSB and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 13,
2001.

|                                        |  |          |  | 
|--------------------------------------- |  | -------- |  | 
|/s/KENNETH W. BRIMMERKenneth W. Brimmer |  | Director |  | 
|/s/GARY COPPERUDGary Copperud           |  | Director |  | 
|/s/GERVAISE WILHELMGervaise Wilhelm     |  | Director |  | 
|/s/ALLAN D. ANDERSONAllan D. Anderson   |  | Director |  | 

21

---

OXBORO MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                           |                                                   | Page  
|------------------------------------------ | ------------------------------------------------- | ------
|Report of Independent Public Accountants   |                                                   | F-2   
|Consolidated Financial Statements:         |                                                   |       
|                                           | Balance Sheets                                    |       
|                                           | Statements of Operations and Comprehensive Income |       
|                                           | Statements of Stockholders' Equity                |       
|                                           | Statements of Cash Flows                          |       
|Notes to Consolidated Financial Statements |                                                   | F-7-19

F1

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
Oxboro Medical, Inc.:

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

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oxboro Medical, Inc. and
subsidiaries as of September 30, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in
the United States of America.

Minneapolis,
Minnesota
November 16, 2001

F2

---



OXBORO MEDICAL, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        SEPTEMBER 30, 2001 AND 2000

|                                       |                                                                                                                                                                                                                  | 2001                       |           | 2000     
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ---------
|ASSETS                                
|Current assets:                        |                                                                                                                                                                                                                  |                            |           |          
|                                       | Cash and cash equivalents                                                                                                                                                                                        |                            | $         | 2,328,063
|                                       | Warrant proceeds due from trustee                                                                                                                                                                                |                            |           | 58,008   
|                                       | Accounts receivable, net                                                                                                                                                                                         |                            |           | 1,315,070
|                                       | Inventories, net                                                                                                                                                                                                 |                            |           | 1,824,353
|                                       | Available-for-sale securities                                                                                                                                                                                    |                            |           | 612,724  
|                                       | Deferred income taxes                                                                                                                                                                                            |                            |           | 189,000  
|                                       | Other current assets                                                                                                                                                                                             |                            |           | 117,427  
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | Total current assets       |           |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|Property and equipment, net            |                                                                                                                                                                                                                  |                            | 1,764,396 |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|Other assets:                          |                                                                                                                                                                                                                  |                            |           |          
|                                       | Intangible assets, net                                                                                                                                                                                           |                            |           | 1,185,946
|                                       | Cash surrender value of life insurance, net of loans                                                                                                                                                             |                            |           | 32,084   
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | Total other assets         |           |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | $                          | 9,427,071 |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|LIABILITIES AND STOCKHOLDERS' EQUITY  
|Current liabilities:                   |                                                                                                                                                                                                                  |                            |           |          
|                                       | Current portion of long-term debt                                                                                                                                                                                |                            | $         | 323,951  
|                                       | Accounts payable                                                                                                                                                                                                 |                            |           | 416,942  
|                                       | Accrued payroll and related taxes                                                                                                                                                                                |                            |           | 185,307  
|                                       | Accrued income taxes                                                                                                                                                                                             |                            |           | 28,250   
|                                       | Other accrued expenses                                                                                                                                                                                           |                            |           | 129,566  
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | Total current liabilities  |           |          
|Long-term debt, net of current portion |                                                                                                                                                                                                                  |                            | 2,078,635 |          
|Deferred income taxes                  |                                                                                                                                                                                                                  |                            | 27,000    |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | Total liabilities          |           |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|Stockholders' equity:                  |                                                                                                                                                                                                                  |                            |           |          
|                                       | Capital stock, $.01 par value, 20,000,000 common shares authorized, 5,000,000 undesignated shares authorized, 1,783,185 and 1,755,495 common shares issued and 1,776,885 and 1,755,495 common shares outstanding |                            |           | 17,769   
|                                       | Additional paid-in capital                                                                                                                                                                                       |                            |           | 3,350,281
|                                       | Retained earnings                                                                                                                                                                                                |                            |           | 2,812,716
|                                       | Accumulated other comprehensive income                                                                                                                                                                           |                            |           | 56,654   
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | Total stockholders' equity |           |          
|                                       |                                                                                                                                                                                                                  |                            |           |          
|                                       |                                                                                                                                                                                                                  | $                          | 9,427,071 |          
|                                       |                                                                                                                                                                                                                  |                            |           |          

See
accompanying notes to consolidated financial statements.

F4

---

OXBORO  MEDICAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME        FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000

|                                                                  |                                               | 2001               |           | 2000      |        
|----------------------------------------------------------------- | --------------------------------------------- | ------------------ | --------- | --------- | -------
|
|Sales, net                                                        |                                               | $                  | 6,547,824 |           | 100.0  
|Cost of goods sold                                                |                                               |                    | 2,751,160 |           | 42.0   
|                                                                  |                                               |                    |           |           |        
|Gross profit                                                      |                                               |                    | 3,796,664 |           | 58.0   
|Selling, general and administrative expenses                      |                                               |                    | 3,238,746 |           | 49.5   
|                                                                  |                                               |                    |           |           |        
|Income from operations                                            |                                               |                    | 557,918   |           | 8.5    
|                                                                  |                                               |                    |           |           |        
|Other income (expense):                                           |                                               |                    |           |           |        
|                                                                  | Investment income                             |                    |           | 72,725    |        
|                                                                  | Interest expense                              |                    |           | (114,897  | )      
|                                                                  | Gain on sale of available-for-sale securities |                    |           | 689,815   |        
|                                                                  | Loss on disposal of property and equipment    |                    |           | (59,616   | )      
|                                                                  | Other income                                  |                    |           | 10,596    |        
|                                                                  |                                               |                    |           |           |        
|                                                                  |                                               | Total other income |           |           | 598,623
|                                                                  |                                               |                    |           |           |        
|Income before income taxes                                        |                                               |                    | 1,156,541 |           | 17.6   
|Benefit from income taxes                                         |                                               |                    | 160,450   |           | 2.5    
|                                                                  |                                               |                    |           |           |        
|Net income                                                        |                                               |                    | 1,316,991 |           | 20.1   
|Other comprehensive income, net of income taxes of $27,000 and $0 |                                               |                    | 32,789    |           | 0.7    
|                                                                  |                                               |                    |           |           |        
|Comprehensive income                                              |                                               | $                  | 1,349,780 |           | 20.8   
|                                                                  |                                               |                    |           |           |        
|Net earnings per share:                                           |                                               |                    |           |           |        
|                                                                  | Basic                                         |                    | $         | 0.74      |        
|                                                                  |                                               |                    |           |           |        
|                                                                  | Diluted                                       |                    | $         | 0.69      |        
|                                                                  |                                               |                    |           |           |        
|Weighted average common and common equivalent shares outstanding: |                                               |                    |           |           |        
|                                                                  | Basic                                         |                    |           | 1,769,074 |        
|                                                                  |                                               |                    |           |           |        
|                                                                  | Diluted                                       |                    |           | 1,915,579 |        
|                                                                  |                                               |                    |           |           |        

See
accompanying notes to consolidated financial statements.

F5

---



OXBORO  MEDICAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000

|                           |                                                                                  | Common Stock |         |   |        |       |   | Accumulated
Other
Comprehensive
Income |           |   |          
|-------------------------- | -------------------------------------------------------------------------------- | ------------ | ------- | - | ------ | ----- | - | -------------------------------------- | --------- | - | ---------
|
|
|BalanceSeptember 30, 1999 |                                                                                  | 742,468      |         | $ | 7,425  |       | $ | 1,536,580                              |           | $ | 591,055  
|                           | Shares issued related to rights offering (net of expenses of $38,794)            |              | 591,534 |   |        | 5,915 |   |                                        | 694,709   |   |          
|                           | Exercise of warrants (net of expenses of $77,111)                                |              | 421,493 |   |        | 4,215 |   |                                        | 1,077,780 |   |          
|                           | Net income                                                                       |              |        |   |        |      |   |                                        |          |   |          
|                           | Unrealized gain on available-for-sale securities, net of income taxes of $0      |              |        |   |        |      |   |                                        |          |   |          
|                           |                                                                                  |              |         |   |        |       |   |                                        |           |   |          
|BalanceSeptember 30, 2000 |                                                                                  | 1,755,495    |         |   | 17,555 |       |   | 3,309,069                              |           |   | 1,495,725
|                           | Exercise of warrants (net of expenses of $9,899)                                 |              | 27,690  |   |        | 277   |   |                                        | 85,571    |   |          
|                           | Net income                                                                       |              |        |   |        |      |   |                                        |          |   |          
|                           | Repurchase of common shares                                                      |              | (6,300  | ) |        | (63   | ) |                                        | (44,359   | ) |          
|                           | Unrealized gain on available-for-sale securities, net of income taxes of $27,000 |              |        |   |        |      |   |                                        |          |   |          
|                           |                                                                                  |              |         |   |        |       |   |                                        |           |   |          
|BalanceSeptember 30, 2001 |                                                                                  | 1,776,885    |         | $ | 17,769 |       | $ | 3,350,281                              |           | $ | 2,812,716
|                           |                                                                                  |              |         |   |        |       |   |                                        |           |   |          

See accompanying notes to consolidated financial statements.

F6

---

OXBORO  MEDICAL, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000

|                                             |                                                                                       | 2001                                          |                                   | 2000                                 |         
|-------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------- | --------------------------------- | ------------------------------------ | --------
|Cash flows from operating activities:        |                                                                                       |                                               |                                   |                                      |         
|                                             | Net income                                                                            |                                               | $                                 | 1,316,991                            |         
|                                             | Adjustments to reconcile net income to cash flows from operating activities:          |                                               |                                   |                                      |         
|                                             |                                                                                       | Depreciation and amortization                 |                                   |                                      | 276,470 
|                                             |                                                                                       | Gain on sale of available-for-sale securities |                                   |                                      | (689,815
|                                             |                                                                                       | Loss on disposal of property and equipment    |                                   |                                      | 59,616  
|                                             |                                                                                       | Deferred income taxes                         |                                   |                                      | (189,000
|                                             |                                                                                       | Changes in operating assets and liabilities:  |                                   |                                      |         
|                                             |                                                                                       |                                               | Accounts receivable, net          |                                      |         
|                                             |                                                                                       |                                               | Inventories, net                  |                                      |         
|                                             |                                                                                       |                                               | Income taxes receivable           |                                      |         
|                                             |                                                                                       |                                               | Other current assets              |                                      |         
|                                             |                                                                                       |                                               | Other assets                      |                                      |         
|                                             |                                                                                       |                                               | Accounts payable                  |                                      |         
|                                             |                                                                                       |                                               | Accrued payroll and related taxes |                                      |         
|                                             |                                                                                       |                                               | Accrued income taxes              |                                      |         
|                                             |                                                                                       |                                               | Other accrued expenses            |                                      |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|                                             |                                                                                       |                                               |                                   | Cash flows from operating activities |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|Cash flows from investing activities:        |                                                                                       |                                               |                                   |                                      |         
|                                             | Purchases of property and equipment                                                   |                                               |                                   | (132,061                             | )       
|                                             | Proceeds from sale of available-for-sale securities                                   |                                               |                                   | 1,765,997                            |         
|                                             | Purchases of available-for-sale securities                                            |                                               |                                   | (254,117                             | )       
|                                             | Purchase of certain assets of the Johnson & Johnson Medical Division of Ethicon, Inc. |                                               |                                   | (2,870,110                           | )       
|                                             | Proceeds from loans on cash surrender value of life insurance                         |                                               |                                   | 151,000                              |         
|                                             | Purchases of intangible assets                                                        |                                               |                                   | 0                                    |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|                                             |                                                                                       |                                               |                                   | Cash flows from investing activities |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|Cash flows from financing activities:        |                                                                                       |                                               |                                   |                                      |         
|                                             | Payments on line of creditbank, net                                                  |                                               |                                   | 0                                    |         
|                                             | Proceeds from long-term debt                                                          |                                               |                                   | 2,475,000                            |         
|                                             | Payments on long-term debt                                                            |                                               |                                   | (502,848                             | )       
|                                             | Proceeds from rights offering, net                                                    |                                               |                                   | 0                                    |         
|                                             | Proceeds from exercise of stock warrants, net                                         |                                               |                                   | 1,107,036                            |         
|                                             | Repurchase of common shares                                                           |                                               |                                   | (44,422                              | )       
|                                             |                                                                                       |                                               |                                   |                                      |         
|                                             |                                                                                       |                                               |                                   | Cash flows from financing activities |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|Increase in cash and cash equivalents        |                                                                                       |                                               | 1,866,955                         |                                      |         
|Cash and cash equivalents, beginning of year |                                                                                       |                                               | 461,108                           |                                      |         
|                                             |                                                                                       |                                               |                                   |                                      |         
|Cash and cash equivalents, end of year       |                                                                                       | $                                             | 2,328,063                         |                                      | $       
|                                             |                                                                                       |                                               |                                   |                                      |         

See
accompanying notes to consolidated financial statements.

F7

---



OXBORO MEDICAL, INC. AND  SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        SEPTEMBER 30, 2001 AND 2000

(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of businessOxboro Medical, Inc. (the Company) was incorporated in Minnesota in 1978. The Company changed its
name from Oxboro Medical International, Inc. to Oxboro Medical, Inc. on March 17, 2000. The Company develops, assembles and markets disposable medical products for use in general
and cardiovascular surgery and develops, manufactures and markets sterilization containers and filters for use by hospitals, clinics and surgery centers. The Company sells its products to customers
located throughout the world.

Principles of consolidationThe consolidated financial statements include the accounts of Oxboro Medical, Inc. and
its wholly-owned subsidiaries, Oxboro, Inc. (formerly known as Oxboro Medical, Inc.)
and Sterion, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalentsThe Company includes as cash equivalents money market and all other investments with maturities
of three months or less when purchased, which are readily convertible into known amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times, may
exceed the federally insured limits.

Accounts receivableAccounts receivable have been reduced by an allowance for uncollectible accounts of $41,000 and $34,700
at September 30, 2001 and 2000. The Company believes all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of the provided allowance are
determined uncollectible, they are charged to expense in the year that determination is made. The Company extends unsecured credit to customers in the normal course of business.

InventoriesInventories consist principally of medical supplies, sterilization containers and filters and are recorded at
the lower of cost (first-in, first-out) or market.

Income taxesThe Company accounts for income taxes using the asset and liability approach, which requires the recognition
of deferred tax assets and liabilities for tax consequences of temporary differences between the financial statement and income tax reporting bases of assets and liabilities based on currently enacted
rates and laws. These temporary differences include depreciation, related party accruals, allowance for doubtful accounts, inventory valuation adjustments and net operating losses. Deferred taxes are
reduced by a valuation allowance to the extent that realization of the related deferred tax assets is not assured.

DepreciationProperty and equipment are recorded at cost. Depreciation is provided for using the straight-line
method over estimated useful lives ranging from five to thirty years. Improvements are capitalized while maintenance, repairs and minor renewals are expensed when incurred.

Intangible assetsIntangible assets consist primarily of patent costs acquired with the purchase of Sterion, Inc.,
and are being amortized using the straight-line method over their estimated useful lives of 30 to 166 months. Accumulated amortization was $82,590 and $0 at September 30,
2001 and 2000.

Long-lived assetsThe Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the

F8

---

assets to future net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.

Available-for-sale securitiesInvestments held by the Company are classified as
available-for-sale securities under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Investments classified as available-for- sale securities are carried at quoted market prices of the underlying security with any unrealized holding gains and
losses, net of any related tax effect, presented as accumulated other comprehensive income within stockholders' equity. There were unrealized gains of $32,789 and $23,865 for the years ended
September 30, 2001 and 2000, net of income taxes of $27,000 and $0 for the years ended September 30, 2001 and 2000 and net of reclassification adjustment for gains included in net income
of $23,865 and $0 for the years ended September 30, 2001 and 2000. Realized gains are determined on the specific identification method and are reflected in net income.

Revenue recognition and shipping and handling costsThe Company records sales revenue at the time merchandise is shipped.
The Company ensures that the transaction complies with the seven conditions and the six considerations contained in Accounting and Auditing Enforcement Release No. 108 of the Securities and
Exchange Commission (SEC).

In
November 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101, as amended, sets forth the SEC staff's position
regarding the point at which it is appropriate for a registrant to recognize revenue. The staff believes that revenue is realizable and earned when all of the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or service has been rendered, the seller's price to the buyer is fixed or determinable and collectibility is reasonably assured. The Company
uses the above criteria to determine whether revenue can be recognized. The Company adopted SAB No. 101 during the year ended September 30, 2001 and the effect of adoption was not
material to the consolidated financial statements.

Effective
January 1, 2001, the Company began recording amounts being charged to customers for shipping and handling as sales in accordance with recently released Emerging
Issues Task Force (EITF) Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." Historically, the Company had netted the shipping and handling revenue with the cost of
shipping and handling in cost of sales. Prior period consolidated financial statements have been reclassified for comparative purposes to conform with the presentation in the current period
consolidated financial statements. These reclassifications had no effect on net income or stockholders' equity.

Research and developmentThe Company expenses all costs related to product research and development as incurred. Research
and development expense was $14,257 and $53,021 for the years ended September 30, 2001 and 2000.

Advertising costsAdvertising costs are charged to expense as incurred. Advertising expense was $68,613 and $11,242 for the
years ended September 30, 2001 and 2000.

Stock-based compensationIn accordance with APB Opinion No. 25, the Company uses the intrinsic value-based method
for measuring stock-based compensation cost which measures compensation cost as the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the
employee must pay for the stock. The Company's policy is to grant

F9

---

stock options at fair value at the date of grant. Required pro forma disclosures of compensation expense determined under the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation," are presented in Note 9.

Net earnings per shareBasic earnings per share is computed by dividing the net income by the weighted average number of
common shares outstanding for the reporting period. The Company's diluted net earnings per share is computed by dividing net income by the weighted average number of common shares outstanding and
common share equivalents, when dilutive, for the reporting period. Options totaling 60,400 and 46,500 were excluded from the computation of diluted earnings per share for the years ended
September 30, 2001 and 2000 as their effect was antidilutive. Following is a reconciliation of basic and diluted net earnings per share:

Fiscal 2001

Fiscal 2000Net earnings per sharebasic:Net income

$
1,316,991

$
904,670Weighted average shares Outstanding


1,769,074


1,259,743Net earnings per sharebasic

$
0.74

$
0.72Net earnings per sharediluted:Net income

$
1,316,991

$
904,670Weighted average shares Outstanding


1,769,074


1,259,743Effect of diluted securities


146,505


132,546Weighted average shares Outstanding


1,915,579


1,392,289Net earnings per shareDiluted

$
0.69

$
0.65


Comprehensive incomeSFAS No. 130 "Reporting Comprehensive Income" (Statement 130), establishes standards for
reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of the Company's net income and net unrealized gain on
available-for-sale securities and is presented in the consolidated statements of operations and
comprehensive income. Statement 130 only requires additional disclosures in the consolidated financial statements. It does not affect the Company's consolidated financial position or results of
operations.

Management's use of estimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Impact of recently issued accounting standardsSFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended is effective for years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. Special accounting for qualifying hedges allows a derivative's gains or losses to
offset related results on the

F10

---

hedged item in the statement of operations and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The adoption of
SFAS No. 133 did not have a material effect on the Company's consolidated financial position or results of operations.

In
June 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS No. 141 further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 141 are effective for any business combination accounted for the purchase method that is completed after June 30,
2001. The adoption of SFAS No. 141 will not have an effect on the Company's consolidated financial position or results or operations.

In
June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. The adoption of SFAS
No. 142 will not have an effect on the Company's consolidated financial position or results of operations.

In
June 2001, the FASB issued SFAS No. 143. "Accounting for Asset Retirement Obligations." SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The Company is currently evaluating the impact of SFAS No. 143.

In
August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB Opinion
No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for segments of a business to be disposed of. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The provisions
of SFAS No. 144 generally are to be applied prospectively. The Company is currently evaluating the impact of SFAS No. 144.

Financial instrumentsThe carrying amounts for all financial instruments approximates fair value. The carrying amounts for
cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The fair value of
long-term debt approximates the carrying amounts based upon the Company's expected borrowing rate for debt with similar remaining maturities and comparable risk.

ReclassificationsCertain accounts in the prior year consolidated financial statements have been reclassified for
comparative purposes to conform with the presentation in the current year consolidated
financial statements. These reclassifications had no effect on consolidated net income or stockholders' equity.

F11

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(2) ACQUISITION

During April 2001, the Company acquired all of the property, inventories, patents and assumed the warranty liabilities of the Johnson & Johnson
Medical Division of Ethicon, Inc. (Sterion) in Jacksonville, Texas for $2,817,110. The Company recorded the acquisition using the purchase method of accounting and Sterion's results have been
included in the Company's consolidated results since acquisition.

The
unaudited pro forma results of operation for the years ended September 30, 2001 and 2000 have not been presented as the results of operations of the acquired business will
be different going forward due to changes in the acquired business and the omission of various operating expenses. The allocation of the purchase price of Sterion (including transaction costs of
$53,000) was allocated as follows:

Property and equipment

$
753,285Inventories, net


888,289Intangible assets


1,228,536Total

$
2,870,110


(3) INVENTORIES

Inventories consisted of the following at September 30:

2001

2000Raw materials

$
830,468

$
497,950Work in process


641,977


77,675Finished goods


603,805


287,873Total


2,076,250


863,498Less: valuation reserve


(251,897
)

(102,203
)Inventories, net

$
1,824,353

$
761,295


(4) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30:

2001

2000Land

$
57,211

$
57,211Buildings


952,520


952,520Containers


425,148


0Furniture and equipment


1,527,927


1,130,945Total


2,962,806


2,140,676Less: accumulated depreciation and amortization


(1,198,410
)

(1,008,130
)Property and equipment, net

$
1,764,396

$
1,132,546


F12

---

Depreciation
and amortization expense on property and equipment was $193,880 and $124,582 for the years ended September 30, 2001 and 2000.

(5) OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following at September 30:

2001

2000Accrued royalties

$
43,719

$
0Accrued warranty costs


40,000


0Accrued professional fees


18,000


25,000Other accrued expenses


27,847


47,476Total

$
129,566

$
72,476


(6) LINE OF CREDITBANK

During May 2001, the Company entered into a $675,000 revolving line of credit with Crown Bank. The line of credit is subject to a defined borrowing
base. Amounts outstanding are due upon demand or if no demand is made, on May 31, 2002 and bear interest at prime (6% at September 30, 2001). The line is secured by substantially all of
the assets of the Company. At September 30, 2001, the Company was in compliance with all covenants. Outstanding borrowings were $0 at September 30, 2001.

The
Company had a $550,000 revolving line of credit and a $150,000 commercial note with Wells Fargo Bank. Both debt agreements were subject to a defined borrowing base. The lines
expired at March 31, 2001 and were not renewed. Outstanding borrowings were $0 at September 30, 2001 and 2000.

(7) LONG-TERM DEBT

Long-term debt consisted of the following at September 30:

|                                                                                                                                                                                  |  | 2001 |           | 2000 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | -
|Mortgage note payableStanCorp Mortgage Investors, LLCmonthly installments of $8,175 including interest at 8.5%, due February 2011, secured by building and land.                |  | $    | 964,595   |      | $
|Note payableCrown Bankmonthly installments of $29,702 including interest at prime (6% at September 30, 2001), due May 2004, secured by substantially all assets of the Company. |  |      | 1,416,244 |      |  
|Capital lease obligationmonthly installments of $3,424 including interest at 7.6%, due April 2002, secured by computer equipment.                                                |  |      | 21,747    |      |  
|Mortgage payableWells Fargo Bankpaid in full.                                                                                                                                   |  |      | 0         |      |  
|                                                                                                                                                                                  |  |      |           |      |  
|Total long-term debt                                                                                                                                                              |  |      | 2,402,586 |      |  
|Less: current portion                                                                                                                                                             |  |      | (323,951  | )    |  
|                                                                                                                                                                                  |  |      |           |      |  
|Long-term debt, net                                                                                                                                                               |  | $    | 2,078,635 |      |  
|                                                                                                                                                                                  |  |      |           |      |  

F13

---

Future
maturities of long-term debt are as follows for the year ending September 30:

2002

$
323,9512003


319,8812004


848,2942005


21,4302006


23,324Thereafter


865,706Total

$
2,402,586


(8) CAPITAL LEASE OBLIGATION

The Company leases computer equipment under an agreement which expires in April 2002. This lease has recorded as a capital lease obligation and bears
interest at 7.6%. The obligation is secured by the property under lease. Total cost and accumulated amortization of the leased equipment was $109,622 and $52,984 at September 30, 2001 and
$109,622 and $31,060 at September 30, 2000.

F14

---

Future minimum lease payments are as follows for the years ending September 30:

2002

$
22,267Less: amount representing interest


(520
)Present value of future minimum lease payments


21,747Less: current portion


(21,747
)Capital lease obligations, net of current portion

$
0


(9) STOCKHOLDERS' EQUITY

The Company initiated a common stock rights offering in 1999. For each share of common stock owned, stockholders were given a right to purchase two shares of
common stock and one warrant to purchase one additional share of common stock for a total purchase price of $2.50. The term of the warrant was for one year with an exercise price of $2.75. As of
September 30, 1999, 148,528 rights were sold which resulted in the issuance of 297,056 shares of common stock and warrants to purchase 148,528 additional shares of common stock. Gross proceeds
of $371,320 were held by the trustee at September 30, 1999 and were received by the Company on October 5, 1999. Net proceeds from the offering as of September 30, 1999 were
$221,123. In November 1999, the Company completed the rights offering. Rights sold in fiscal 2000 totaled 295,767, which resulted in the issuance of an additional 591,534 shares of common stock
and warrants to purchase 295,767 additional shares of common stock. Proceeds from the sale of rights in fiscal 2000 were $700,624, net of expenses of $38,794.

In
August 2000, the Company offered as an incentive to the holder of the warrants (Incentive Offering) to exercise the warrants received in the 1999 rights offering, one new
common stock warrant if exercised on or before October 20, 2000. During the year ended September 30, 2000, 421,493 warrants were exercised at an exercise price of $2.75 and proceeds were
$1,081,995, net of expenses of $77,111.

During
the year ended September 30, 2001, 27,690 warrants were exercised and proceeds were $85,848, net of expenses of $9,899. Gross proceeds of $58,008 were held by the
trustee at September 30, 2001 and were received by the Company in October 2001.

Stock warrantsIn connection with the Incentive Offering, the Company issued warrants to purchase shares of the Company's
common stock at $4.00 per share. The warrants expire on September 29, 2003. Outstanding warrants totaled 387,426 and 395,441 at September 30, 2001 and 2000.

Stock option planThe Company has a Stock Option Plan (the Plan) which provides for granting of incentive and nonstatutory
stock options to employees and others. The aggregate of 300,000 shares of the Company's common stock may be granted at exercise prices not less than fair market value at the date of grant (not less
than 110% of fair market value for significant stockholders). The Board of Directors or a committee administers the Plan. In general, options vest over five years and expire up to ten years from the
date of grant. In addition, the Company has issued options outside the Plan.

F15

---

Information regarding stock options is summarized below:

Number of Options

Weighted Average
Exercise Price

Range of Option
Exercise PriceOptions outstandingSeptember 30, 1999

50,400

$
6.81

$
5.00-8.13Granted

95,500


3.99


3.50-5.25Cancelled

(12,000
)

7.92


5.00-8.13Exercised







Options outstandingSeptember 30, 2000

133,900


4.77


3.50-7.50Granted

225,000


4.39


3.63-6.50Cancelled

(112,500
)

4.58


3.50-7.50Exercised







Options outstandingSeptember 30, 2001

246,400

$
4.52

$
3.63-7.50Options exercisableSeptember 30, 2001

50,900

$
4.85

$
4.63-7.50


The
weighted average fair value of options granted during the years ended September 30, 2001 and 2000 was $4.39 and $2.52. At September 30, 2001, the weighted average
remaining contractual life of outstanding options was 5.87 years.

The
following table summarizes information about stock options outstanding at September 30, 2001:

|  |            | Options outstanding |         | Options exercisable
|- | ---------- | ------------------- | ------- | -------------------
|
|$ | 3.63       |                     | 30,000  |                    
|$ | 3.75       |                     | 100,000 |                    
|$ | 4.00-$4.63 |                     | 45,000  |                    
|$ | 5.00-$5.25 |                     | 11,000  |                    
|$ | 6.08-$6.50 |                     | 58,000  |                    
|$ | 7.50       |                     | 2,400   |                    
|  |            |                     |         |                    
|$ | 3.63-$7.50 |                     | 246,400 |                    
|  |            |                     |         |                    

In
determining the compensation cost of the options granted during 2001 and 2000, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the
date of grant using the Black-Scholes option pricing model and the weighted average assumptions used in these calculations are summarized below:

Fiscal 2001

Fiscal 2000Risk free interest rate

5.0
%
6.0
%Expected life of options granted

5-10 years

5-10 yearsExpected volatility range

69.3
%
20.4
%Expected dividend yield

0
%
0
%


Had
compensation cost for the Company's stock options been determined based on fair value at the grant dates consistent with the method as defined under SFAS No. 123
"Accounting for Stock-

F16

---

Based Compensation", the Company's net income would have changed to the pro forma amounts indicated below:

Net income:As reported

$
1,316,991

$
904,670Pro forma

$
1,184,496

$
817,984Net earnings per share basic:As reported

$
0.74

$
0.72Pro forma

$
0.67

$
0.65Net earnings per share diluted:As reported

$
0.69

$
0.65Pro forma

$
0.62

$
0.59


The
resulting pro forma information may not be representative of that to be expected in future years.

(10) INCOME TAXES

The Company has net operating loss carryforwards of approximately $267,000 which, if not used, will expire in 2018. The Company also has research and
development credit carryforwards of approximately $10,000 which, if not used, will begin to expire in 2013. Future changes in the ownership of the Company may place limitations on the use of these
carryforwards.

The
Company's deferred tax assets and liabilities are as follows at September 30:

2001

2000Deferred tax assets:Accrued liabilities

$
18,000

$
26,000Allowance for doubtful accounts


14,000


12,000Inventory valuation adjustments


51,000


65,000Net operating loss carryforward


96,000


485,000Other


10,000


14,000189,000


602,000Valuation allowance


0


(582,000
)$
189,000

$
20,000Deferred tax liabilities:Available-for-sale securities


(27,000
)

0Depreciation


0


(20,000
)Total

$
(27,000
)
$
(20,000
)


F17

---

Reconciliation
between the statutory rate and the effective tax rate for the years ended September 30 is as follows:

2001

2000Federal statutory tax rate

34.0
%
34.0
%State taxes, net of federal benefit

2.0

2.0Change in valuation allowance

(50.3
)
(36.7
)Other

0.7

0.7Effective tax rate

(13.6
)%
0.0
%


(11) RELATED PARTY TRANSACTIONS

Significant stockholder and former officerThe Company entered into several agreements with a significant stockholder,
former chief executive officer and director, Larry Rasmusson (former officer) of the Company as noted:

In
September 1998, the Company entered into a Mutual Release and Noncompetition Agreement ("Release") with the former officer. The Release included a consulting agreement
requiring the Company to pay the former officer $485,000 in twenty-four equal monthly installments of $20,208, beginning in September 1998 and a noncompetition agreement requiring
payment of $150,000 in twenty-four equal monthly installments of $6,250, beginning in September 1998. The noncompete expense was $0 and $62,500 for the years ended
September 30, 2001 and 2000. The obligations under the consulting agreement and noncompetition agreement were paid in full as of September 30, 2000. The payments under the consulting and
noncompetition agreements were secured by a second mortgage on the Company's land and building.

The
Release also amended the exclusive license agreement between the Company and the former officer for specified Oxboro Outdoors, Inc. products invented or developed. Such
agreements were transferred to the buyer in conjunction with the sale of Oxboro Outdoors, Inc. in 1999.

The
former officer received royalties on medical product sales under certain royalty agreements. Royalty expense for the years ended September 30, 2001 and 2000 under these
agreements was $46,635 and $44,076.

(12) RETIREMENT SAVINGS PLAN

The Company has a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time employees who have reached the age of 18 and have been employed by the Company for one year or worked 1,000 or more hours during the year. Profit sharing
contributions by the Company are discretionary. The Company will match 25% of the first 6% of employee contributions. The Company's matching contributions for the years ended September 30, 2001
and 2000 were $12,623 and $10,354.

(13) COMMITMENTS AND CONTINGENCIES

Operating leasesThe Company leases a building under a lease expiring in December 2002 at a monthly base rent of
$9,000. The Company also has the option to purchase the building for $950,000 at any time during the lease term. In addition, the Company leases certain equipment under leases expiring through
July 2006. Monthly base rent is $3,218. Total rent expense was $37,890 and $9,162 for the years ended September 30, 2001 and 2000.

F18

---

Future minimum rental payments are as follows for the years ending September 30:

2002

$
136,9642003


55,2962004


7,4122005


2,7422006


1,485Total

$
203,899


Treasury stock purchase programIn September 2001, the Board of Directors authorized a treasury stock program under
which the Company is authorized to repurchase up to 175,000 common shares of the Company's stock. During the year ended September 30, 2001, the Company repurchased 6,300 common shares for
$44,422.

Legal proceedingsThe Company is involved in various legal actions in the ordinary course of its business. Although the
outcome of any such legal actions cannot be predicted, management believes that there is no pending legal proceedings against or involving the Company for which the outcome is likely to have a
material adverse effect upon the Company's financial position or results of operations.

Sterion royalty agreementDuring the year ended September 30, 2001, the Company entered into a royalty agreement
related to the Sterion acquisition. The agreement requires payments of 5% of worldwide net sales and rental revenues through February 2007. Royalty expense under this agreement was $60,431 for
the year ended September 30, 2001.

Royalty agreementAt September 30, 2001, the Company has a royalty agreement with an unrelated party. The agreement
requires monthly payments based on 4% of the net sales price of specific products developed by the individual and sold by the Company for the life of the product. Royalty expense under this agreement
was $46,635 and $44,079 for the years ended September 30, 2001 and 2000.

Commission agreementDuring the year ended September 30, 2001, the Company entered into a commission agreement with
an unrelated party that requires monthly payments of 5% of the sales price of products sold by the unrelated party. The agreement expires in June 2004. Commission expense related to the
agreement was $127,176 for the year ended September 30, 2001.

(14) CONTAINER RENTAL

The Company has arrangements with certain customers which provide the Company with monthly usage fees for the use of sterilization containers. These agreements
run from year to year. Future amounts due to the Company under these agreements approximate $408,000 for fiscal year 2002.

The
containers are depreciated over their useful lives of five years. Depreciation expense was $35,429 and $0 for the years ended September 30, 2001 and 2000. The cost and
related accumulated depreciation of $425,148 and $35,429 are included in property and equipment on the consolidated balance sheet at September 30, 2001.

F19

---

(15) SUPPLEMENTAL CASH FLOWS INFORMATION

2001

2000Cash paid for interest

$
114,897

$
42,043Cash paid (received) for income taxes

$
0

$
(52,758
)Noncash investing and financing activities:Shares issued related to exercise of warrants due from trustee

$
58,008

$
1,079,196Accrued warranty costs assumed in connection with the Sterion acquisition.

$
40,000

$
0


(16) INTERNATIONAL OPERATIONS

Included in the consolidated balance sheets are international inventories of $74,496 and $0 at September 30, 2001 and 2000. In addition, the Company had
international sales of approximately $738,000 and $397,000 for the years ended September 30, 2001 and 2000.

(17) SUBSEQUENT EVENT

During October 2001, the Company entered into a definitive agreement to acquire substantially all of the assets of Surgidyne, Inc for $200,000.

F20

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