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

                             -----------------------

                                   FORM 10-KSB


       (MARK ONE)
          [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF
                 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       OR

           :      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ........ to ........

                         Commission file number 0-20532

                            DEXTERITY SURGICAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                 Delaware                                  74-2559866
    (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                    Identification No.)


     12961 PARK CENTRAL, SUITE 1300
            SAN ANTONIO, TEXAS                                78216
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)


       Registrant's telephone number, including area code: (210) 495-8787

                             -----------------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $.001 PAR VALUE
                                (TITLE OF CLASS)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X]  NO [ ].

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT 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  [X]

REGISTRANT'S REVENUES FOR FISCAL YEAR ENDED DECEMBER 31, 2001:  $4,166,000.

AT MARCH 15, 2002 (BASED UPON THE LAST REPORTED SALES PRICE OF $.02 PER SHARE),
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK, $.001 PAR VALUE, OF THE
REGISTRANT HELD BY NON-AFFILIATES WAS APPROXIMATELY $183,469. AT MARCH 15, 2002,
THERE WERE OUTSTANDING 12,121,492 SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
THE REGISTRANT.

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                       DOCUMENT                                                        FORM 10-KSB PART
                       --------                                                        ----------------

<S>                                                                             <C>
Definitive Proxy Statement for 2002 Annual Meeting of Stockholders              Part III, Items 9, 10, 11 and 12
Transitional Small Business Disclosure Format.  Yes [ ]  No  [X].
</TABLE>

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<PAGE>

                                     PART I

ITEM 1.                             BUSINESS
-------

         Certain statements contained in this Form 10-KSB, including but not
limited to statements made in this Item 1, "Business" and those made in Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Specifically, all
statements other than statements of historical fact included in this Item 2
regarding Dexterity Surgical, Inc. and its subsidiary's and affiliates'
(collectively, the "Company") financial position, business strategy and plans
and objectives of management of the Company for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company or Company's
management are intended to identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions related to certain
factors including, without limitation, the Company's ability to raise capital,
the Company's dependence on its sole manufacturer and sole distributor, the
Company's ability to distribute safe and effective products on a cost-effective
basis, demand for and acceptance of the Company's products, the level of
competition in the marketplace, the ability of the Company's customers to be
reimbursed by third-party payors, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, technological change,
changes in industry practices, one-time events and other factors described
herein, and in the Company's annual, quarterly and other reports filed with the
SEC (collectively, "cautionary statements"). Although the Company believes that
its expectations are reasonable, it can give no assurance that such expectations
will prove to be correct. Based upon changing conditions, should any one or more
of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the applicable cautionary statements. The Company does not intend to
update these forward-looking statements.

         In this Annual Report on Form 10-KSB, the "Company," "we," "our," or
"us" refers to Dexterity Surgical, Inc. and its wholly owned subsidiaries.

CURRENT FINANCIAL CONDITION

         The Company does not believe its revenues and other sources of
liquidity will provide adequate funding for its current capital requirements.
The Company is presently in negotiations to make arrangements to restructure its
cash obligations, including its debentures, line of credit and royalty
obligations. However, there can be no assurance that the Company will be able to
restructure these obligations. The holder of the Company's convertible
debentures has the right to demand immediate repayment of the entire amount
outstanding, which was $2,633,000 at December 31, 2001. In addition, at December
31, 2001, the current portion of the Company's other long-term obligations was
approximately $4,702,000. There can be no assurance that additional funding will
be available on terms attractive to the Company or at all. In the event the
Company is required to raise additional funds, it does not believe it will be
able to obtain such financing from traditional commercial lenders. Rather, the
Company likely will have to conduct additional sales of its equity and/or debt
securities through public or private financings, collaborative relationships or
other arrangements. Substantial and immediate dilution to existing stockholders
likely would result from any sales of equity securities or other securities
convertible into equity securities. THERE IS NO ASSURANCE THAT WE WILL BE ABLE
TO RAISE ANY ADDITIONAL CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED AND WE
ARE UNABLE TO SUBSTANTIALLY REDUCE OUR EXPENSES AND RESTRUCTURE OUR CASH
OBLIGATIONS, WE WOULD SUFFER MATERIAL ADVERSE CONSEQUENCES TO OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND WOULD LIKELY BE REQUIRED TO
SEEK OTHER ALTERNATIVES UP TO AND INCLUDING PROTECTION UNDER THE UNITED STATES
BANKRUPTCY LAWS.


                                       2
<PAGE>
GENERAL

         Dexterity Surgical, Inc. (the "Company"), is engaged in the
distribution of instruments, equipment and surgical supplies used in and
hand-assisted laparoscopic surgery ("HALS") through an exclusive distribution
agreement with Weck Closure Systems, LLC ("Weck").

         HALS is a hybrid between open and laparoscopic surgery during which the
surgeon inserts one hand into the abdominal cavity during laparoscopic surgery.
By having his or her hand in the abdomen when performing laparoscopic surgery,
the surgeon has tactile feedback, rapid finger dissection, enhanced retraction
capabilities and simplified hemostasis.

         The Pneumo Sleeve(R) is a device that allows the surgeon to insert one
hand into the abdominal cavity while preserving pneumoperitoneum1 during
laparoscopic surgery. This new surgical modality, called Hand Assisted
Laparoscopic Surgery (HALS), is a hybrid between open and laparoscopic surgery.
This enabling technology is expected to greatly increase the number of advanced
minimal access surgeries as well as the number of surgeons who perform these
procedures. In addition to being used with the Dexterity(R) Pneumo Sleeve(R),
the Dexterity(R) Protractor(R) is used as a stand-alone product for open
surgery, providing atraumatic retraction and wound protection.

         The Company acquired Dexterity Incorporated, a Delaware corporation
("Dexterity"), in March 1999. Dexterity was located in the Philadelphia,
Pennsylvania metropolitan area and has the exclusive rights of the Pneumo
Sleeve(R) and Protractor(R) proprietary instruments, equipments and supplies
used in HALS. Effective with such acquisition, the Company changed its name from
LifeQuest Medical, Inc. to Dexterity Surgical, Inc.

         The Company was incorporated on December 23, 1988 as a Delaware
corporation and commenced operations on January 1, 1989. In August 1992, the
Company completed its initial public offering of Common Stock, which is
currently traded on the OTC Bulletin Board. The Company's executive offices are
located at 12961 Park Central, Suite 1300, San Antonio, Texas 78216, and its
telephone number is (210) 495-8787.

RECENT DEVELOPMENTS

         Effective October 24, 2000, following the delisting of the Company's
Common Stock from trading on the NASDAQ SmallCap Market, the Company's Common
Stock began trading on the National Association of Securities Dealer's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's Common
Stock may likely be impaired, not only in the number of shares which can be
bought and sold, but also through delays in the timing of the transactions,
reduction in security analysts' and the news media coverage, if any, of the
Company and lower prices for the Company's securities than might otherwise have
prevailed.

         Pursuant to a private placement which occurred in July and August 2000,
the Company issued to TFX Equities, Inc., a business development subsidiary of
Teleflex, Inc. and Cuda Products Company, whose chief executive officer is a
director of the Company, an aggregate of 400 shares of Series C Cumulative
Convertible Preferred Stock, $.001 par value ("Series C Preferred Stock") for
aggregate proceeds of $400,000. The Company used such proceeds for working
capital. The annual dividends on the Series C Preferred Stock are cumulative at
a rate of $80 per share. The Series C Preferred Stock is currently convertible
into shares of Common Stock at a conversion price of $1.00 per share, for an
aggregate of 400,000 shares of Common Stock. The conversion price for the Series
C Preferred Stock is subject to downward adjustment in the event the Company
sells shares of Common Stock, or securities convertible into shares of Common
Stock, at a per share price less than $1.00. The holders of Series C Preferred
Stock, are entitled to one vote per share on all matters submitted to a vote of
the stockholders of the Company, and the affirmative vote of the holders of 66
2/3% of the votes entitled to be cast by the holders of the Series C Preferred
Stock is required in order to amend the Company's Certificate of Incorporation
or Bylaws to materially affect the rights of the holders of Series C Preferred
Stock, including authorizing and creating a class of stock having rights prior
to or senior to the Series C Preferred Stock. In the event two quarterly
dividends payable on the Series C Preferred Stock are in arrears, the holders of
the Series C Preferred Stock, by a majority vote, shall be entitled to designate
two additional directors to serve on the Company's Board of Directors. The
Company does not have sufficient resources to continue paying dividends on the
Series C Preferred Stock.

----------------------------
(1) the presence of air or gas in the preperitoneal space; it may occur
spontaneously or be deliberately introduced as an aid to radiologic examination
and diagnosis.


                                       3
<PAGE>
         On June 29, 2000, the Company announced it had signed an exclusive
agreement under which Weck Closure Systems (WCS) will distribute the
Dexterity(R) Pneumo Sleeve(R) and the Dexterity(R) Protractor(R) in the United
States. The agreement also covers international distribution except in those
areas for which Dexterity has signed previous exclusive sales and distribution
agreements still in effect. Under the terms of the agreement, WCS (a unit of
Teleflex Incorporated) is required to purchase certain minimum quantities. Also,
per the agreement, WCS and the Company will combine elements of both sales
forces under the WCS umbrella. The Company and WCS will continue as separate
business entities. Sales to WCS represented 68% of total net sales for the year
ended December 31, 2001.

         In June 2001, the Company and WCS amended the agreement which adjusted
various aspects of the contract to more accurately reflect current existing
market conditions. Effective July 1, 2001, WCS continues its exclusive right to
distribute the Dexterity Protractor, however, WCS will distribute the Dexterity
Pneumo Sleeve on a non-exclusive basis. Also, certain guaranteed minimum
purchase requirements by WCS, which originally were scheduled to expire December
31, 2001, are extended until December 31, 2003.

         In February 2000, the Company's principal supplier, General Surgical
Innovations, Inc. ("GSI"), terminated its distribution agreement with the
Company. GSI supplied products which accounted for 38% of the Company's revenue
in 1999 and 50% of the Company's revenue from May 1, 1999, the effective date of
the distribution agreement, through the termination date. The Company took
several steps in response to this action, including:

         o    restructured its debt obligations;
         o    modified its royalty agreement to provide for non-cash royalty
              payments;
         o    reduced its general and administrative costs by converting its
              entire sales force from employees to independent sales
              representatives;
         o    entered into a long-term agreement with Weck Closure Systems (a
              unit of Teleflex, Inc.) for the exclusive distribution of the
              PneumoSleeve and Protractor product lines;
         o    restructured its compensation packages with certain officers; and
         o    eliminated additional administrative staff.

DEXTERITY ACQUISITION

         In January 1998, the Company acquired approximately 20% of the common
stock of Dexterity, which was a business development subsidiary of Teleflex,
Inc. In March 1999, the Company acquired the remaining capital stock of
Dexterity by merging Dexterity into the Company (the "Dexterity Merger"),
pursuant to a Plan of Merger and Acquisition Agreement between the Company and
Dexterity (the "Dexterity Agreement"). Under the terms of the Dexterity
Agreement, which was approved by the stockholders of the Company March 18, 1999,
the Dexterity stockholders, other than the Company (the "Former Dexterity
Stockholders"), received an aggregate of:

         o    $1,500,000 cash;
         o    3,000,000 shares of common stock, $.001 par value ("Common
              Stock"), of the Company;
         o    warrants to purchase an aggregate of 1,500,000 shares of Common
              Stock, at an exercise price per share of $2.00 (the "Warrants");
         o    promissory notes in the aggregate amount of $1,000,000 (the
              "Notes"); and
         o    a royalty for seven years in an amount equal to 15% of all sales
              of Dexterity products (the "Royalty") pursuant to a royalty
              agreement (the "Royalty Agreement") among the Company and the
              Former Dexterity Stockholders. The Royalty is subject to minimum
              annual payments which aggregate, over the seven years of the
              Royalty Agreement, approximately $9,695,095.

         The Company determined the fair market value of the above consideration
to be approximately $16,000,000. The Company launched distribution of
Dexterity's primary products, the Dexterity(R) Pneumo Sleeve(R) and Dexterity(R)
Protractor(R), in March 1998. Simultaneous with the effectiveness of the
Dexterity Merger, the Company changed its name from LifeQuest Medical, Inc. to
Dexterity Surgical, Inc.

         In March 2000, the Warrants, Notes and Royalty Agreement were
restructured. The maturity date of the Notes was extended by 19 months to
October 18, 2001. The interest expense on the Notes for the year 2000 was


                                       4
<PAGE>

paid in shares of Common Stock at a per share price of $1.00. The Warrants were
amended to reflect an exercise price per share of Common Stock of $1.00. In
addition, the Royalty Agreement was restructured to allow the Company to pay the
first $400,000 in Royalty due for 2000 in shares of Common Stock, valued at
$1.00 per share. The Company does not have the available resources to pay the
guaranteed minimum royalty due quarterly or the $1 million Notes that were due
October 18, 2001. The Company is presently in negotiations to renew these
obligations. However, there can be no assurance these negotiations will be
successful.

INDUSTRY BACKGROUND

         The health care industry continues to undergo change, led primarily by
market forces demanding greater efficiencies and reduced costs. Government
proposed health care mandates in the United States have not occurred, and it is
unclear whether, and to what extent, any future government mandates will affect
the domestic health care market. Industry led changes are expected to continue
irrespective of any governmental efforts toward health care reform. The scope
and timing of any further government sponsored proposals for health care reform
are presently unclear.

         The primary trend in the industry is toward cost containment. Payors
and managed care organizations have been able to exercise greater influence
through managed treatment and hospitalization patterns, including a shift from
reimbursement on a retrospective basis to prospective limits for patient
treatment. Hospitals have been severely impacted by the resulting cost
restraints and are competing for business and becoming more sophisticated in
management and marketing. The increasing use of managed care, centralized
purchasing decisions, consolidations among hospitals and hospital groups, and
integration of health care providers, are continuing to affect purchasing
patterns in the health care system. Purchasing decisions are often shared by a
coalition of surgeons, nursing staff, and hospital administrators, with
purchasing decisions taking into account whether a product reduces the cost of
treatment and/or attracts additional patients to a hospital. All of these
factors, along with competition, have contributed to continuing reductions in
prices for the Company's products and, in the near term, to slower acceptance of
more advanced surgical procedures in which the Company's products are used,
given hospital and surgeon concerns as to the costs of training and
reimbursement by payors. In addition, the primary care physician is expected to
exercise significant influence on referrals of patients for surgical procedures
under managed care.

         The Company could potentially benefit from this focus on cost
containment and on managed care. Both minimally invasive surgery, or MIS and
HALS decrease operating room time, including anesthesia and patient recovery
time, and is highly cost effective. Doctors, patients, employers and payors all
value decreased patient recovery time. This could lead to potential increases in
volume as minimally invasive procedures are selected over alternative
techniques. However, an undue focus on discrete costs or similar limits which
fail to consider the overall value of these advanced procedures could adversely
impact the Company. Some hospitals may also lose per night revenues through
reduced post-operative care requirements as to procedures performed by MIS and
HALS, which could influence their analysis of acceptance of newer procedures.
The Company is adapting itself to this environment by promoting the cost
effectiveness of its products, by striving to efficiently produce and/or
distribute the highest quality products at the lowest cost, and by assisting
hospitals and payors in achieving meaningful cost reductions for the health care
system while retaining the quality of care permitted by the Company's products.

         MIS refers to surgical procedures which can be accomplished without a
major incision or other traumatization to the patient, in some cases without
general anesthesia. Endoscopy is one of the most important minimally invasive
surgical techniques. In addition to decreasing patient trauma or frequently
avoiding general anesthesia, endoscopy can substantially reduce or eliminate
postoperative hospitalization, thereby decreasing overall costs. The Company
believes that the current pressures for medical cost containment could result in
greater utilization of cost-effective, less invasive procedures. There can be no
assurance, however, that greater utilization of such procedures will result, or,
if greater utilization of such procedures does result, that the Company will
benefit.

         The availability of innovative medical technologies, patient demand and
the motivation of physicians and payors are among the driving forces behind the
movement toward, and the wide acceptance of, minimally invasive surgical
procedures. The Company believes that these minimally invasive techniques are
desired because they benefit all significant participants in the healthcare
system: the patient experiences less pain and trauma and enjoys a more rapid
recovery; surgeons and hospitals or other surgical centers that adopt these
techniques enhance their practices and reputations; and the healthcare payor
incurs lower overall costs. The Company believes that the


                                       5
<PAGE>

growing acceptance of minimally invasive surgical procedures is changing the
standards of practice over a wide range of surgical specialties and that this
trend should create significant business opportunities for manufacturers of
minimally invasive surgical products.

PROPRIETARY PRODUCTS

         The Company's proprietary products are the Dexterity PneumoSleeve and
the Dexterity Protractor.

DISTRIBUTION

         The Company markets its proprietary products to hospitals, purchasing
groups and surgeons through Weck as its sole distributor. The Company
distributes MIS products of other companies through its independent contractors.

COMPETITION

         The primary market in which the Company competes is the HALS instrument
market. This market is highly competitive and in the current healthcare
environment, cost containment has become a significant factor in purchasing
decisions by hospitals. The Company competes in the HALS market with Applied
Medical, Smith & Nephew and Ethicon Endo-Surgery ("Ethicon"), a Johnson &
Johnson company. The HALS market also competes with the MIS market. The MIS
market is dominated by two large, well-positioned entities that are intensely
competitive and frequently offer substantial discounts as a competitive tactic.
The United States Surgical Corporation ("U.S. Surgical") is primarily engaged in
developing, manufacturing and marketing surgical wound management products, and
has historically been the firm most responsible for providing products that have
led to the growth of the industry. U.S. Surgical supplies a broad line of
products to the MIS industry, including products which facilitate access,
assessment and treatment. Ethicon has made a major investment in the MIS field
in recent years and is one of the leading suppliers of hospital products in the
world. Furthermore, U.S. Surgical and Ethicon each utilize purchasing contracts
that link discounts on the purchase of one product to purchases of other
products in their broad product lines. Substantially all of the hospitals in the
United States have purchasing contracts with one or both of these entities.
Accordingly, customers may be dissuaded from purchasing access products from the
Company rather than U.S. Surgical or Ethicon to the extent it would cause them
to lose discounts on products that they regularly purchase from U.S. Surgical or
Ethicon.

         The Company believes that the primary competitive factors affecting its
business are the safety and effectiveness of the products offered, ease of
product use, product reliability, price, physician familiarity with the
manufacturer and its products, distribution channels, third party reimbursement
policies and the timing of market introduction of its competitors' products.

         All of the Company's competitors and potential competitors have
substantially greater resources, including easier access to capital, research
and development personnel, extensive manufacturing and marketing capabilities,
broad and well established product lines as well as ancillary services, such as
training programs. Some of the Company's competitors have long-term or
preferential supply arrangements with certain hospitals. Such arrangements may
prevent the Company from obtaining access to such hospitals. In addition, it is
possible that other large healthcare companies may enter the MIS device market
in the future. Competing companies may succeed in developing products that are
more efficacious or less costly than any that may be developed or distributed by
the Company and such companies also may be more successful than the Company in
production and marketing. Rapid technological development by others may result
in the Company's products becoming obsolete before the Company recovers a
significant portion of the development and commercialization expenses incurred
with respect to those products.

         The impact of competition will likely have a continuing effect on sales
volumes and on prices charged by the Company. The Company faces a formidable
task in successfully gaining significant revenues within the MIS market. In
order to succeed, management believes that the Company will need to objectively
demonstrate substantial product benefits, and its sales effort must be able to
effectively present such benefits to both clinicians and health care
administrators as well as third party payers.


                                       6
<PAGE>

         There can be no assurance that the Company will be able to successfully
compete in the MIS market, and failure to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.

DEPENDENCE ON WECK AND MCT

         Because we have no sales, marketing, distribution or manufacturing
capabilities, we will depend on third parties to successfully perform these
functions on our behalf. We rely completely on Weck Closure Systems for our
sales, marketing and distribution of our products. Weck is a subsidiary of our
largest shareholder. Weck currently sells products that are similar to and
competitive with our products and may develop and commercialize, either alone or
with others, other products that are similar to or competitive with the products
we sell. Our agreement with Weck is subject to termination under various
circumstances, including, in many cases, on short notice. If Weck terminated our
distribution agreement, we would have difficulty arranging for another third
party to distribute our products and our business and financial condition would
be materially impaired.

         We currently rely upon Medical Creative Technologies, Inc., or MCT, to
manufacture our products. MCT and the Company each own certain patents covering
our proprietary products and share ownership of other patents covering these
products. MCT has granted the Company an exclusive license to the patents it
holds covering the Company's proprietary products. We do not currently have a
written manufacturing agreement with MCT, but the Company is in negotiations to
enter into such a written agreement. MCT could terminate the oral manufacturing
agreement at any time. If the agreement is terminated, the Company believes
other companies could manufacture its products. However, the transition from MCT
to another manufacturer could cause delays in shipments of our products and may
reduce our revenues. If we are unable to arrange for third party manufacturing
of our products, or to do so on commercially reasonable terms, we may not be
able to market our products. Reliance on third party manufacturers entails risks
to which we would not be subject if we manufactured products ourselves,
including reliance on the third party for regulatory compliance and quality
assurance, the possibility of breach of the manufacturing agreement by the third
party because of factors beyond our control and the possibility of termination
or nonrenewal of the agreement by the third party, based on its own business
priorities, at a time that is costly or inconvenient for us.

DEPENDENCE ON KEY PERSONNEL

         The success of the Company will be largely dependent on the efforts of
Richard A. Woodfield, President and Chief Executive Officer of the Company and
Randall K. Boatright, Executive Vice President, Chief Financial Officer and
Secretary of the Company. The Company has entered into employment agreements
with each of Mr. Boatright and Mr. Woodfield. The Company does not maintain key
man life insurance on either Mr. Boatright or Mr. Woodfield. The loss of the
services of one or more key employees could have an adverse effect on the
Company.

GOVERNMENT REGULATION

         As a developer and distributor of medical devices, the Company is
subject to regulation by, among other governmental entities, the FDA and the
corresponding agencies of states and foreign countries in which the Company
sells its products. These regulations govern the introduction of new medical
devices, the observance of certain standards with respect to the manufacture and
labeling of such devices, the maintenance of certain records and the reporting
of potential product defects and other matters. Failure to comply with such
regulations may have a material adverse effect on the Company.

         With the enactment of the Medical Device Amendments in May 1976 to the
Federal Food, Drug and Cosmetic Act (the "FDC Act"), the FDA classified medical
devices in commercial distribution into three classes, Class I, II or III. This
classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of the medical device. Class I devices are those
devices whose safety and effectiveness can reasonably be ensured through general
controls such as adequate labeling, premarket notification and adherence to Good
Manufacturing Practices ("GMP") regulations. Some Class I devices are further
exempted from some of the general controls. Class II devices are those devices
whose safety and effectiveness can reasonably be ensured through the use of
special controls such as performance standards, post-market surveillance,
patient registries and FDA


                                       7
<PAGE>

guidelines. Class III devices are devices which must receive premarket approval
by the FDA pursuant to a Premarket Approval ("PMA") application to ensure their
safety and effectiveness. Generally, Class III devices are limited to
life-sustaining, life-supporting or implantable devices.

         Most medical instruments introduced to the United States market are
required by the FDA, as a condition of marketing, to secure either clearance of
a premarket notification pursuant to Section 510(k) of the FDC Act (a "510(k)
Notification") or an approved PMA. Obtaining a PMA can take several years. In
contrast, the process of obtaining a 510(k) Notification clearance requires the
submission of substantially less data and generally involves a shorter review
period.

         In general, clearance of a 510(k) Notification may be obtained if a
manufacturer or distributor of medical devices can establish that a new device
is "substantially equivalent" to a legally marketed medical device. The 510(k)
Notification and the claim of substantial equivalence may have to be supported
by various types of information indicating that the device is as safe and
effective for its intended use as a legally marketed predicate device. In
addition to requiring clearance for new products, FDA rules typically require a
filing and a waiting period prior to marketing modified versions of existing
products. The Company anticipates that most of the products it develops will be
eligible for the 510(k) Notification procedure. At this time, the FDA typically
responds to a submission of a 510(k) Notification within 180 to 360 days. Market
clearance may take three to 12 months or longer. In the event that the shorter
510(k) Notification procedure is not available, the Company will be required to
file a PMA.

         Under the Safe Medical Devices Act of 1990 ("SMDA"), the FDA is
directed to adopt new 510(k) Notification regulations which could potentially
make the approval process for the Company's products more time-consuming,
difficult and expensive. The SMDA includes new provisions relating to
post-market surveillance requirements for certain types of devices and
authorizes the FDA to adopt new controls to be applied to certain devices such
as some currently being developed by the Company, including the promulgation of
a performance standard, requirements for patient registries, distributor and
purchaser reporting and imposition of guidelines.

         The process of obtaining necessary government approvals can be
time-consuming and expensive. There can be no assurance that the necessary
approvals will be obtained by the Company or, if they are obtained, that they
will be obtained on a timely basis. Furthermore, the Company or the FDA may
suspend clinical trials at any time upon a determination that the subjects or
patients are being exposed to an unacceptable health risk. The FDA may also
require post-approval testing and surveillance programs to monitor the effects
of the Company's products and the products it distributes as a condition of
approval. Approvals that have been or may be granted are subject to continual
review and surveillance programs required by regulatory agencies, and later
discovery of previously unknown problems may result in product labeling
restrictions or withdrawal of products from marketing.

         Manufacturers of medical devices marketed in the United States are
required to adhere to applicable regulations setting forth detailed GMP
requirements, which include testing, control and documentation requirements.
Manufacturers also must comply with Medical Device Reporting ("MDR")
requirements which require that a firm report to the FDA certain adverse events
associated with the Company's devices. The Company is subject to routine
inspection by the FDA and certain state agencies for compliance with GMP
requirements, MDR requirements and other applicable regulations. The FDA is
using its statutory authority more vigorously during inspections of companies
and in other enforcement matters. The FDA has promulgated new GMP regulations
and MDR regulations, both of which will likely increase the cost of compliance
with GMP requirements. The Company also is subject to numerous federal, state
and local laws relating to matters such as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. Changes in existing
requirements or adoption of new requirements could have a material adverse
effect on the Company's business, financial condition or results of operations.
Although the Company believes that it is in compliance with all applicable
regulations of the FDA and the various states in which it operates, current
regulations depend heavily on administrative interpretation and there can be no
assurance that the Company will not incur significant costs to comply with laws
and regulations in the future or that laws and regulations will not have a
material adverse effect upon the Company's business, financial condition or
results of operations. In addition, the potential effects on the Company of
heightened enforcement of federal and state regulations cannot be predicted.


                                       8
<PAGE>

         All of the products manufactured by or on behalf of the Company have
received all regulatory approvals as required, and the Company believes, to its
best knowledge, that all of the products it distributes but does not manufacture
have received all regulatory approvals as required. The Company has no
applications for approval before either the FDA or any similar regulatory body
in other countries nor does the Company anticipate filing any applications in
the near future. The Company has never had any sales in Europe nor has it ever
applied for the CE mark for sales in Europe.

         In addition to the statutes and regulations enforced by the FDA, the
Company is also subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and potential future
federal, state and local statutes, regulations and ordinances, including those
promulgated by the Environmental Protection Act and the Department of Labor.
Regulations regarding the manufacture and sale of the Company's products are
subject to change. The Company cannot predict what impact, if any, such changes
might have on its business.

THIRD-PARTY REIMBURSEMENT

         The health care industry continues to undergo change, led primarily by
market forces which are demanding greater efficiencies and reduced costs.
Government proposed health care mandates in the United States generally have not
occurred, and it is unclear whether, and to what extent, any government mandate
will affect the domestic health care market. Industry led changes are expected
to continue irrespective of any governmental efforts toward health care reform.
The scope and timing of any further government sponsored proposals for health
care reform are presently unclear.

         The primary trend in the industry is toward consolidation and cost
containment. Third-party payors, principally federal Medicare, state Medicaid
and private health insurance plans, have been able to exercise greater influence
through managed treatment and hospitalization patterns, including a shift from
reimbursement on a cost basis to per capita limits for patient treatment.
Hospitals have been severely impacted by the resulting cost restraints. The
increasing use of managed care, centralized purchasing decisions through group
purchasing organizations, consolidations among hospitals and hospital groups,
and integration of health care providers are continuing to affect purchasing
patterns in the health care system. Purchasing decisions are often shared by a
coalition of surgeons, nursing staff, and hospital administrators, with
purchasing decisions taking into account whether a product reduces the cost of
treatment and/or attracts additional patients to a hospital. Managed care
providers are attempting to control the cost of health care by authorizing fewer
elective surgical procedures. All of these factors have contributed to
reductions in prices for the Company's products, to a reduction in the volume of
hospital purchasing and, in the near term, slower acceptance of more advanced
surgical procedures in which the Company's products are used, given hospital and
surgeon concerns as to the costs of training and reimbursement by payors. While
the Company has implemented programs to assist hospitals in cost containment
through more efficient surgical practices and application of minimally invasive
surgery, there can be no assurance that the Company will not continue to be
adversely affected by these matters. There can be no assurance as to the impact
of cost containment on the Company's future operations.

         The Company's products are purchased by hospitals, physicians, and
other health care providers, which bill various third-party payors, such as
government health programs, private health insurance plans, managed care
organizations and other similar programs, for the health care goods and services
provided to their patients. Third-party payors may deny reimbursement if they
determine that a product was not used in accordance with established payor
protocol regarding cost-effective treatment methods, or was used for an
unapproved treatment. Increasingly, third-party payors are also contesting the
prices charged for medical products and services and, in some instances, have
put pressure on medical device suppliers to lower their prices. There is no
assurance that reimbursement for the Company's products will be available or, if
available, that payors' reimbursement levels will not adversely affect the
Company's ability to sell its products on a profitable basis. Failure by
hospitals and other users of the Company's products to obtain reimbursement from
third-party payors, and changes in third-party payors' policies towards
reimbursement for procedures using the Company's products, could have a material
adverse effect on the Company's financial position, results of operations and
cash flows.


                                       9
<PAGE>

PRODUCT LIABILITY AND INSURANCE

         The sale of HALS products by the Company entails the risk of product
liability claims, involving both potential financial exposure and associated
adverse publicity. The Company's current product liability insurance coverage
limits are $1,000,000 per occurrence and $2,000,000 in the aggregate, and there
can be no assurance that such coverage limits are adequate to protect the
Company from any liabilities it might incur in connection with the development,
manufacture and sale of its current and potential products. In addition, the
insurance is expensive and may not be available in the future on acceptable
terms, or at all. In addition, if such insurance is available, there can be no
assurance that the limits of coverage of such policies will be adequate. A
successful product liability claim in excess of the Company's insurance coverage
could have a material adverse effect on the Company's business, financial
condition or results of operations.

         The Company's products are purchased by hospitals, physicians, and
other health care providers, which in turn bill various third-party payors, such
as government health programs, private health insurance plans, managed care
organizations and other similar programs, for the health care goods and services
provided to their patients. Third-party payors may deny reimbursement if they
determine that a product was not used in accordance with established payor
protocol regarding cost-effective treatment methods, or was used for an
unapproved treatment. Increasingly, third-party payors are also contesting the
prices charged for medical products and services and, in some instances, have
put pressure on medical device suppliers to lower their prices. There is no
assurance that reimbursement for procedures performed by healthcare providers
utilizing the Company's products will be available or, if available, that the
third- party payors' reimbursement levels will not adversely affect the
Company's ability to sell its products on a profitable basis. Failure by
hospitals and other users of the Company's products to obtain reimbursement from
third-party payors, and changes in third-party payors' policies towards
reimbursement for procedures utilizing the Company's products, could have a
material adverse effect on the Company's financial position, results of
operations and cash flows.

ADDITIONAL BUSINESS RISKS

         HISTORY OF LOSSES; PROFITABILITY UNCERTAIN. The Company has experienced
operating losses since its inception on January 1, 1989. At December 31, 2001,
the Company had an accumulated deficit of approximately $44.7 million, including
losses applicable to common stockholders of $16.0 million and $5.9 million in
2001 and 2000, respectively. Prior to 1996, the Company was a development stage
company focused primarily on obtaining FDA approval of two medical devices.
However, the Company determined not to initiate any further work on obtaining
FDA approval of the devices and in 1998, sold their rights to such devices for a
cash payment and a royalty on all future sales of such devices. The Company
generated revenues of approximately $4.2 million during the year ended December
31, 2001.

         There can be no assurance that the Company will not continue to incur
losses, that the Company will be able to raise cash as necessary to fund
operations or that the Company will ever achieve profitability.

         FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL
WILL BE AVAILABLE. The Company does not believe its revenues and other sources
of liquidity will provide adequate funding for its current capital requirements.
The Company is presently in negotiations to make arrangements to restructure its
cash obligations, including its debentures, line of credit and royalty
obligations. However, there can be no assurance that the Company will be able to
restructure these obligations. The holder of the Company's convertible
debentures has the right to demand immediate repayment of the entire amount
outstanding, which was $2,633,000 at December 31, 2001. In addition, at December
31, 2001, the current portion of the Company's other long-term obligations was
approximately $4,702,000. There can be no assurance that additional funding will
be available on terms attractive to the Company or at all. In the event the
Company is required to raise additional funds, it does not believe it will be
able to obtain such financing from traditional commercial lenders. Rather, the
Company likely will have to conduct additional sales of its equity and/or debt
securities through public or private financings, collaborative relationships or
other arrangements. Substantial and immediate dilution to existing stockholders
likely would result from any sales of equity securities or other securities
convertible into equity securities. THERE IS NO ASSURANCE THAT WE WILL BE ABLE
TO RAISE ANY ADDITIONAL CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED AND WE
ARE UNABLE TO SUBSTANTIALLY REDUCE OUR EXPENSES AND RESTRUCTURE OUR CASH
OBLIGATIONS, WE WOULD SUFFER MATERIAL ADVERSE CONSEQUENCES TO OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND WOULD LIKELY BE


                                       10
<PAGE>

REQUIRED TO SEEK OTHER ALTERNATIVES UP TO AND INCLUDING PROTECTION UNDER THE
UNITED STATES BANKRUPTCY LAWS.

         BECAUSE WE HAVE NO SALES, MARKETING, DISTRIBUTION OR MANUFACTURING
CAPABILITIES, WE WILL DEPEND ON THIRD PARTIES TO SUCCESSFULLY PERFORM THESE
FUNCTIONS ON OUR BEHALF. WE HAVE NO SALES, MARKETING, DISTRIBUTION OR
MANUFACTURING CAPABILITIES. We rely completely on Weck Closure Systems for our
sales, marketing and distribution of our products. Weck is a subsidiary of our
largest shareholder. Weck currently sells products that are similar to and
competitive with our products and may develop and commercialize, either alone or
with others, other products that are similar to or competitive with the products
we sell. Our agreement with Weck is subject to termination under various
circumstances, including, in many cases, on short notice. If Weck terminated our
distribution agreement, we would have difficulty arranging for another third
party to distribute our products and our business and financial condition would
be materially impaired.

         We currently rely upon Medical Creative Technologies, Inc., or MCT, to
manufacture our products. MCT and the Company equally own the patent covering
our products. We do not currently have a written agreement with MCT, but the
Company is negotiating to enter into such a written agreement. MCT could
terminate the oral agreement at any time. If the agreement is terminated, the
Company believes other companies could manufacture its products. However, the
transition from MCT to another manufacturer could cause delays in shipments of
our products and may reduce our revenues. If we are unable to arrange for third
party manufacturing of our products, or to do so on commercially reasonable
terms, we may not be able to market our products. Reliance on third party
manufacturers entails risks to which we would not be subject if we manufactured
products ourselves, including reliance on the third party for regulatory
compliance and quality assurance, the possibility of breach of the manufacturing
agreement by the third party because of factors beyond our control and the
possibility of termination or nonrenewal of the agreement by the third party,
based on its own business priorities, at a time that is costly or inconvenient
for us.

         PRIVATE PLACEMENTS. Pursuant to a private placement which occurred in
July and August 2000, the Company issued to TFX Equities, Inc., a business
development subsidiary of Teleflex, Inc. and Cuda Products Company, whose chief
executive officer is a director of the Company, an aggregate of 400 shares of
Series C Cumulative Convertible Preferred Stock, $.001 par value ("Series C
Preferred Stock") for aggregate proceeds of $400,000. The Company used such
proceeds for working capital. The annual dividends on the Series C Preferred
Stock are cumulative at a rate of $80 per share. The Series C Preferred Stock is
currently convertible into shares of Common Stock at a conversion price of $1.00
per share, for an aggregate of 400,000 shares of Common Stock. The conversion
price for the Series C Preferred Stock is subject to downward adjustment in the
event the Company sells shares of Common Stock, or securities convertible into
shares of Common Stock, at a per share price less than $1.00. The holders of
Series C Preferred Stock, are entitled to one vote per share on all matters
submitted to a vote of the stockholders of the Company, and the affirmative vote
of the holders of 66 2/3% of the votes entitled to be cast by the holders of the
Series C Preferred Stock is required in order to amend the Company's Certificate
of Incorporation or Bylaws to materially affect the rights of the holders of
Series C Preferred Stock, including authorizing and creating a class of stock
having rights prior to or senior to the Series C Preferred Stock. In the event
two quarterly dividends payable on the Series C Preferred Stock are in arrears,
the holders of the Series C Preferred Stock, by a majority vote, shall be
entitled to designate two additional directors to serve on the Company's Board
of Directors. The Company does not have sufficient resources to continue paying
dividends on the Series C Preferred Stock.

         Pursuant to a private placement which occurred in November 1998, the
Company issued to two affiliates of Renaissance Capital Group, Inc.
(collectively, "Renaissance") and one individual, who is an officer and director
of the Company, an aggregate of 1,025 shares of Series B Cumulative Convertible
Preferred Stock, $.001 par value ("Series B Preferred Stock") for aggregate
proceeds of $1,025,000. The Company used such proceeds for working capital. The
annual dividends on the Series B Preferred Stock are cumulative at a rate of $80
per share. The Series B Preferred Stock is currently convertible into shares
of Common Stock at a conversion price of $1.54 per share, for an aggregate of
665,584 shares of Common Stock. The conversion price for the Series B Preferred
Stock is subject to downward adjustment in the event the Company sells shares of
Common Stock, or securities convertible into shares of Common Stock, at a per
share price less than $1.54. The holders of Series B Preferred Stock are
entitled to one vote per share on all matters submitted to a vote of the
stockholders of the Company, and the affirmative vote of the holders of 66K% of
the votes entitled to be cast by the holders of the Series B Preferred Stock is
required in


                                       11
<PAGE>

order to amend the Company's Certificate of Incorporation or Bylaws to
materially affect the rights of the holders of Series B Preferred Stock,
including authorizing and creating a class of stock having rights prior to or
senior to the Series B Preferred Stock. In the event two quarterly dividends
payable on the Series B Preferred Stock are in arrears, the holders of Series B
Preferred Stock, by a majority vote, shall be entitled to designate two
additional directors to serve on the Company's Board of Directors. The Company
does not have sufficient resources to continue paying dividends on the Series B
Preferred Stock.

         In August 1998, pursuant to a private placement, the Company issued to
Renaissance and two individuals, including one who is an officer and director of
the Company, an aggregate of 1,170 shares of 8% Series A Cumulative Convertible
Preferred Stock, $.001 par value ("Series A Preferred Stock"), for aggregate
proceeds of $1,170,000. The Company used such proceeds for working capital. In
March 2000, 150 shares of Series A Preferred Stock were converted into 93,750
shares of Common Stock. Annual dividends on the Series A Preferred Stock are
cumulative at a rate of $80 per share. The Series A Preferred Stock is currently
convertible into shares of Common Stock at a conversion price of $1.54 per
share, for an aggregate of 662,338 shares of Common Stock. The conversion price
for the Series A Preferred Stock is subject to downward adjustment in the event
the Company sells shares of Common Stock, or securities convertible into shares
of Common Stock, at a per share price less than $1.54. The holders of Series A
Preferred Stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders of the Company, and the affirmative vote of the holders
of 66K% of the votes entitled to be cast by the holders of the Series A
Preferred Stock is required in order to amend the Company's Certificate of
Incorporation or Bylaws to materially affect the rights of the holders of Series
A Preferred Stock, including authorizing and creating a class of stock having
rights prior to or senior to the Series A Preferred Stock. In the event two
quarterly dividends payable on the Series A Preferred Stock are in arrears, the
holders of Series A Preferred Stock, by a majority vote, shall be entitled to
designate two additional directors to serve on the Company's Board of Directors.
The Company does not have sufficient resources to continue paying dividends on
the Series A Preferred Stock.

         In December 1997, the Company sold 250,000 shares of Common Stock to
Renaissance in a private placement for aggregate proceeds of $1,000,000 and
placed $3,000,000 in 9% Convertible Debentures (the "Debentures") with
Renaissance. The proceeds from the private placement were used to repay the
Company's line of credit with another financial institution, to make the January
1998 equity investment in Dexterity, and for working capital purposes. The
Debentures are secured by substantially all of the assets of the Company and
require monthly payments of interest and, unless sooner paid, redeemed or
converted, require monthly principal payments commencing in December 2000 of $10
per $1000 of the then remaining principal amount. In March 2000, the Debentures
were modified to provide that the interest payable between February 1, 2000
through January 31, 2001 shall be paid in shares of Common Stock, valued at
$1.00 per share. The remaining principal balance will mature in December 2004.
The Debentures currently require the Company to comply with the following
financial covenants: (i) a Debt to Net Worth Ratio of no greater than .99:1;
(ii) an Interest Coverage Ratio of at least .60:1; (iii) a Debt Coverage Ratio
of at least .10:1; and (iv) a Current Ratio of at least .68:1. The Company is
currently not in compliance and therefore, is in default under the Debentures.
Accordingly, the holders have the right to demand the immediate repayment of the
entire amount outstanding. The Company is not current on its interest and
principal repayment obligations under the Debentures and does not have
sufficient resources to fund such amounts in the event of acceleration of the
entire amount outstanding. The holders of the Debentures have the option to
convert at any time all or a portion of the Debentures into shares of Common
Stock at an initial price of $1.00 per share of Common Stock. The conversion
price is subject to downward revision if the Company sells shares of its Common
Stock, or securities convertible into Common Stock, at a price less than $1.00
per share of Common Stock, subject to certain allowed exceptions, during the
term of the Debentures. The Debentures are currently convertible for an
aggregate of 3,000,000 shares of Common Stock; however, since the conversion
price is subject to downward adjustment as described above, and there is no
minimum conversion price, the maximum number of shares of Common Stock which may
be issued pursuant to the Debentures is undeterminable. The provisions of the
Debentures provide that the holders of the Debentures have an option to redeem
the Debentures, in an amount equal to an 18 percent annual yield on the
principal balance, upon the occurrence of certain events, including the
delisting of Common Stock from the NASDAQ SmallCap Market and certain "change of
control" provisions, as defined in the Debentures, as they relate to the
Company. As the Common Stock was delisted from the NASDAQ SmallCap Market on
October 24, 2000, the holder now has the option to redeem the Debentures for the
entire amount outstanding, which was $2,633,000 at December 31, 2001. The
Company may redeem the Debentures at its option


                                       12
<PAGE>

subject to certain share price and market activity levels being obtained. The
Company's right of redemption is subject to the holder's prior right of
conversion of the Debenture.

         POTENTIAL ADVERSE EFFECTS OF CONVERSION OF DEBENTURES AND PREFERRED
STOCK AND EXERCISE OF WARRANTS. The Company cannot predict what effect, if any,
(i) the conversion of the Debentures or Preferred Stock or exercise of warrants
into Common Stock or (ii) the payment of interest and the Royalty in shares of
Common Stock and/or the sale of such Common Stock into the public market will
have on the market price of the Company's Common Stock. Offers or sales of
significant quantities of the Company's Common Stock, or the perception that
such sales may occur or have occurred, could adversely affect the market price.
The conversion features of the Debentures and Preferred Stock operates such that
the holders thereof receive more shares of the Common Stock upon conversion if
the conversion price is adjusted downward as described above. The holders of the
Debentures claim that the conversion price of the Debentures requires a downward
adjustment to $.03 as a result of the shares of Common Stock issued by the
Company in settlement of the Andrieni lawsuit (See "Legal Proceedings" in Item 3
for a description of the Andrieni lawsuit). The Company disputes the claim of
the Debenture holders and believes the conversion price should remain at $1.00.
However, there can be no assurance that the Debenture holders will not prevail
in their claim for a downward adjustment to the conversion price, in which case
the Company would be required, upon conversion of the Debentures, to issue
approximately thirty-three times the number of shares that would be issuable at
a $1.00 conversion price. Any issuance of shares of Common Stock upon the
conversion of the Preferred Stock or the Debentures will substantially dilute
the voting rights and other interests of stockholders of the Company. As the
number of shares of Common Stock issuable upon the conversion of the Preferred
Stock and the Debentures is indeterminate, the Company is unable to predict to
what extent the Company's stockholders' rights will be diluted. Such uncertainty
creates downward pressure on the public market price of the Company's Common
Stock. In the event such holders convert their Debentures or shares of Preferred
Stock, as applicable, and sell a large number of shares of Common Stock into the
public market over a short time, the market price for the Common Stock could
decline. Such a decline may make future equity financings more difficult for the
Company to obtain on an acceptable basis, if at all.

         EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET; LACK OF LIQUIDITY OF
LOW PRICED STOCKS. On October 24, 2000, the Company's Common Stock was delisted
from the Nasdaq SmallCap Market. Trading in the Common Stock is now conducted in
the National Association of Securities Dealer's "Electronic Bulletin Board."
Consequently, the liquidity of the Company's Common Stock has been impaired, not
only in the number of shares which could be bought and sold, but also through
delays in the timing of the transactions, reduction in security analysts' and
the news media's coverage of the Company and lower prices for the Company's
securities.

         In addition, trading in the Common Stock is also subject to the
requirements of certain rules promulgated under the Exchange Act, which require
additional disclosures by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stock to persons other than established customers and accredited
investors (which are generally institutions). For these types of transactions,
the broker-dealer must make a special suitability determination for the purchase
and have received the purchaser's written consent to the transaction prior to
the sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in the
Common Stock which could severely limit the market liquidity of Common Stock and
the ability of stockholders to sell their shares of Common Stock in the
secondary market.

         STOCK PRICE VOLATILITY. The stock market in general, and stocks of
medical device companies and stocks traded on the "Bulletin Board" in
particular, have from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These broad market fluctuations have in the past and may continue in
the future to adversely affect the market price of the Company's Common Stock.
In addition, the market price of the Common Stock has been and is likely to
continue to be highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, the FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents of proprietary rights, public concern as to the safety of products
developed or marketed by the Company or others, changes in health care policy


                                       13
<PAGE>
in the United States and internationally, changes in stock market analyst
recommendations regarding the Company, or the medical device industry generally
or general market conditions may have a significant effect on the market price
of the Company's Common Stock.

         SHARES ELIGIBLE FOR FUTURE SALE OR ISSUANCE. Sales of shares of Common
Stock by existing stockholders under Rule 144 of the Securities Act, or through
the exercise of outstanding vested options or the conversion of the Debentures
or Preferred Stock, could have an adverse effect on the price of the Common
Stock. At March 15, 2002, virtually all of the 12,121,492 shares of Common Stock
outstanding are eligible for sale in the public market. In addition, at December
31, 2001 there were outstanding options to acquire up to approximately 1,295,800
shares of Common Stock, warrants to acquire 1,697,500 shares of Common Stock,
3,000,000 shares of Common Stock issuable upon conversion of the Debentures
(subject to being increased upon any downward adjustment to the conversion price
as described above under "Potential Adverse Effects of Conversion of Debentures
and Preferred Stock and Exercise of Warrants), 662,338 shares of Common Stock
issuable upon conversion of Series A Preferred Stock, 665,584 shares of Common
Stock issuable upon conversion of the Series B Preferred Stock and 400,000
shares of Common Stock issuable upon conversion of Series C Preferred Stock. In
the event a large number of shares are sold in the public market over a short
period of time, the market price for Common Stock could decline.

         RIGHTS AGREEMENT. On June 21, 1995, the Board of Directors of the
Company declared a dividend of one Common Stock purchase right (a "Right") for
each share of Common Stock outstanding. Each Right entitles the holder to
purchase one share of the Company's Common Stock at an initial exercise price of
$7.00 per share, subject to adjustment, upon the terms and subject to the
conditions set forth in a Rights Agreement dated as of June 20, 1995, between
the Company and American Stock Transfer & Trust Company, as the Rights Agent.
The Rights trade with the Common Stock and will not detach from the Common Stock
or become exercisable until the earlier of (i) ten business days after a public
announcement that a person or group of affiliated or associate persons
("Acquiring Person") has acquired beneficial ownership of 15% or more of the
Company's Common Stock (a "Shares Acquisition Date") and (ii) ten business days
after the commencement of, or the first public announcement of an intention to
make, a tender offer or exchange offer for the Common Stock, the consummation of
which would result in beneficial ownership by a person or group.

         If any person or group acquires beneficial ownership of 15% or more of
the outstanding shares of the Company's Common Stock, each Right (other than the
Rights held by the Acquiring Person, which shall be void), will entitle its
holder to purchase at the exercise price an additional number of shares of
Common Stock equal to the amount determined by dividing the exercise price by
50% of the then current market price of the Common Stock.

         In addition, if following the Shares Acquisition Date, the Company is
acquired in a merger or other business-combination transaction, or sells more
than 50% of its assets or earning power to any person, each Right (other than
those beneficially held by an Acquiring Person) will entitle its holder to
purchase at the existing exercise price a number of shares of common stock of
the acquiring company having twice the value of the exercise price.

         The Company may redeem the Rights at $.02 per Right at any time on or
prior to the tenth business day following the first public announcement of the
acquisition by a person of 15% or more of its Common Stock or the commencement
of a tender offer or exchange offer for such 15% ownership.

         The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group who attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being acquired.
The Rights may also deter a person or group from attempting to acquire the
Company and therefore may inhibit the ability of stockholders of the Company to
sell their shares of Common Stock at a premium price in a takeover situation.
The Rights should not interfere with any merger or other business combination
approved by the Board of Directors of the Company since the Board of Directors
may, at its option, at any time prior to the close of business on the tenth
business day after the Shares Acquisition Date, redeem all the then outstanding
Rights at a price of $.02 per Right.

         CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND DELAWARE LAW. Certain provisions of the Delaware General
Corporation Law ("DGCL") and the Company's Certificate of Incorporation could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company. Such
provisions could limit the price that certain investors might be


                                       14
<PAGE>

willing to pay in the future for shares of Common Stock. These provisions of the
DGCL and provisions of the Company's Certificate of Incorporation may also have
the effect of discouraging or preventing certain types of transactions involving
an actual or threatened change of control of the Company (including unsolicited
takeover attempts), even though such a transaction may offer the Company's
stockholders the opportunity to sell their stock at a price above the prevailing
market price. The Company is subject to the provisions of Section 203 of the
DGCL. In general, Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
such transaction, did own) 15% or more of the corporation's voting stock.

         The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by its Board of Directors. The Board of Directors may issue one or more
series of preferred stock, without any action on the part of the stockholders of
the Company, the terms of which may adversely affect the rights of holders of
Common Stock. Issuance of preferred stock, which may be accomplished through a
public offering or a private placement, may dilute the voting power of holders
of Common Stock (such as by issuing preferred stock with super voting rights)
and may render more difficult the removal of current management, even if such
removal may be in the stockholders' best interests.

         The issuance of preferred stock, for example, could decrease the amount
of earnings or assets available for distribution to the holders of Common Stock
or could adversely affect the rights and powers, including voting rights, of the
holders of Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock, as well as having the
anti-takeover effect discussed above. Further, the issuance of preferred stock
may be used as an "anti-takeover" device without further action on the part of
the stockholders. Although the Company issued 1,170 shares of preferred stock in
August 1998, 1,000 shares of preferred stock in November 1998 and 25 shares of
preferred stock in January 1999, it has no present intention to issue any
additional shares of its preferred stock; however, there can be no assurance
that it will not do so in the future.

         NON-PAYMENT OF DIVIDENDS. The Company has never declared or paid
dividends on Common Stock and does not anticipate paying dividends on Common
Stock at any time in the foreseeable future. The terms of the convertible
debentures and certain of the Company's loan agreements restrict the payment of
dividends on Common Stock.

EMPLOYEES

         As of March 15, 2002, the Company employed 5 persons, of which 4 were
full-time and 1 was part-time. None of the Company's employees are represented
by a union for collective bargaining purposes. The Company considers its
relations with its employees to be satisfactory.


                                       15
<PAGE>

EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

         The executive officers and directors of the Company as of March 15,
2002 and their names, ages, positions/occupations and tenure as an officer with
the Company are as follows:

<Table>
<Caption>
                                                                                                   OFFICER
            NAME                       AGE                 POSITION/OCCUPATION                      SINCE
            ----                       ---                 -------------------                      -----
<S>                                    <C>      <C>                                                <C>
Richard A. Woodfield                    59      President, Chief Executive Officer and              1998
                                                Director of Dexterity Surgical, Inc.

Randall K. Boatright                    53      Executive Vice President, Chief                     1992
                                                Financial Officer, Secretary and
                                                Director of Dexterity Surgical, Inc.

Jeffrey H. Berg                         58      President of Health Care Insights,                   N/A
                                                Edison, NJ and Director of Dexterity
                                                Surgical, Inc.

Christopher K. Black                    45      Investor and Director of Dexterity                   N/A
                                                Surgical, Inc.
</Table>

         There are no arrangements or understandings pursuant to which any of
the officers listed were elected as officers. Officers are elected annually by
the Board of Directors at its first meeting following the Annual Meeting of
Stockholders, each to hold office until the corresponding meeting of the Board
in the next year or until his successor shall have been elected or shall have
been qualified.

ITEM 2.  PROPERTIES

         The Company currently leases corporate headquarters in San Antonio,
Texas, under a lease expiring in July 2002. The Company's lease of office and
distribution facilities in Atlanta, Georgia expired on February 28, 2002. During
2001 the Company incurred aggregate rental expense of approximately $67,000,
which was net of sublease income of approximately $147,000.

ITEM 3.  LEGAL PROCEEDINGS

         The Company filed a lawsuit for breach of contract on September 11,
2000 in the Superior Court of the State of California, City and County of San
Francisco, against General Surgical Innovations, Inc. and United States Surgical
Corporation. The lawsuit relates to the unilateral termination of the Company's
distribution agreement with General Surgical Innovations, Inc. On October 15,
2001, General Sugical Innovations, Inc. and Tyco Healthcare Group, L.P. filed a
cross complaint against the Company for breach of contract related to the same
distribution agreement in the Superior Court of the State of California, City
and County of San Francisco. The cross-complainants seek damages in excess of
$2,500,000.

         On February 19, 2001, in Andrieni v. Lifequest Medical, Inc., et al.,
Civil Action File No. E-71617 in Fulton County (Georgia) Superior Court, the
jury rendered a verdict in favor of plaintiffs in the amount of $297,000, plus
statutory interest. The Company recorded an expense and accrued liability of
approximately $360,000 as of December 31, 2000. Subsequently, the Company
settled the Andrieni complaint for consideration primarily consisting of cash,
future installment payments, and 600,000 shares of common stock valued at
approximately $30,000. The settlement's estimated fair value is $168,000. The
resulting change in estimate of the expense and accrued liability of $192,000
was recorded in October 2001.

         By letter dated January 7, 2002, Surgical Visions I, Inc. and various
individuals, including K.C. Fadem, a former director of the Company, threatened
to file a lawsuit against the Company and certain of its officers and directors
alleging, among other things, conspiracy to defraud minority shareholders,
breach of fiduciary duty, falsification of corporate minutes, issuance of false
and misleading public filings and press releases and bribery. The Company
believes these claims and the threatened lawsuit are without merit and intends
to vigorously defend itself in the event such lawsuit is filed.


                                       16
<PAGE>

         By letter dated February 7, 2002, Robert Rambo, President of MCT,
claimed that the Company had underpaid royalties owed him on the Company's
products sold by Weck Closure Systems and requested the Company to recompute
such royalties and tender payment for any short-fall. There can be no assurance
that the Company will not be required to make such additional royalty payments.
Any such payments would have a material adverse effect on the Company's results
of operations.

         The Company is a party to claims and legal proceedings arising in the
ordinary course of business. The Company believes it is unlikely that the final
outcome of any of the claims or proceedings to which the Company is a party,
including the case described above, would have a material adverse effect on the
Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the resolution
of any particular claim or proceeding would not have an adverse effect on the
Company's results of operations for the interim period in which such resolution
occurred.

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

         Not applicable.


                                       17
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITYAND
         RELATED STOCKHOLDER MATTERS

The Common Stock, $.001 par value ("Common Stock"), of the Company trades on the
OTC Bulletin Board under the symbol "DEXT," and commenced trading in August
1992. The following table presents the range of high and low sales prices for
the Common Stock as reported by the Nasdaq Stock Market for the periods
indicated. The quotations represent prices in the over-the-counter market
between dealers in securities, do not include retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.

<Table>
<Caption>
QUARTER ENDED                  HIGH                  LOW
-------------                  ----                  ---
<S>                           <C>                   <C>
Fiscal 2001:

Fourth Quarter                $.0600                $.0100
Third Quarter                 $.1700                $.0500
Second Quarter                $.4000                $.1562
First Quarter                 $.2031                $.1094

Fiscal 2000:

Fourth Quarter                $.5000                $.0938
Third Quarter                 $.8438                $.3125
Second Quarter               $1.6250                $.6250
First Quarter                $3.7500                $.6875
</Table>


         At March 15, 2002, there were approximately 175 record holders of
Common Stock.

         The Company has not in the past declared any cash dividends on the
Common Stock, and does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future.



                                       18
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         Certain statements contained in this Item 6, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Specifically, all statements other than statements of historical
fact included in this Item 2 regarding Dexterity Surgical, Inc. and its
subsidiary's and affiliates' (collectively, the "Company") financial position,
business strategy and plans and objectives of management of the Company for
future operations are forward-looking statements. These forward-looking
statements are based on the beliefs of the Company's management, as well as
assumptions made by and information currently available to the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect" and "intend" and words or phrases of similar import, as
they relate to the Company or Company's management are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, the Company's ability to manufacture, market and distribute safe and
effective products on a cost-effective basis, demand for and acceptance of the
Company's products, the level of competition in the marketplace, the ability of
the Company's customers to be reimbursed by third-party payors, competitive
factors, general economic conditions, customer relations, relationships with
vendors, the interest rate environment, governmental regulation and supervision,
product introductions and acceptance, technological change, changes in industry
practices, one-time events and other factors described herein and in the
Company's annual, quarterly and other reports filed with the SEC (collectively,
"cautionary statements"). Although the Company believes that its expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements. The Company does not intend to update these
forward-looking statements.

CURRENT FINANCIAL CONDITION

         The Company is in violation of certain affirmative financial covenant
requirements associated with its convertible debentures and has not made
required monthly principal and interest payments during 2002 because it lacked
the funds to do so. Also, certain redemption rights of the holder of its
convertible debentures were triggered by the delisting of the Company's common
Stock from the NASDAQ SmallCap Market. Therefore, the Company is in default
under the Debentures and the holder has the right to demand immediate repayment
of the entire amount outstanding. This default, in turn, invoked the
cross-default clause in the Company's line of credit agreement. Further, the
Company is in default on the $1,000,000 Notes due on October 18, 2001 and does
not have the available resources to pay the guaranteed minimum royalty. The
Company currently does not have sufficient resources to fund such amounts in the
event of demands for payment. The Company is presently in negotiations to make
arrangements to restructure its cash obligations, including its Debentures, line
of credit and royalty obligations. However, there can be no assurance that the
Company will be able to restructure these obligations. There can be no assurance
that such additional funding will be available on terms attractive to the
Company or at all. The Company does not believe it will be able to obtain
financing from traditional commercial lenders. Rather, the Company likely will
have to conduct additional sales of its equity and/or debt securities through
public or private financings, collaborative relationships or other arrangements.
Substantial and immediate dilution to existing stockholders likely would result
from any sales of equity securities or other securities convertible into equity
securities. THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO RAISE ANY ADDITIONAL
CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED AND WE ARE UNABLE TO
SUBSTANTIALLY REDUCE OUR EXPENSES AND RESTRUCTURE OUR CASH OBLIGATIONS, WE WOULD
SUFFER MATERIAL ADVERSE CONSEQUENCES TO OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND WOULD LIKELY BE REQUIRED TO SEEK OTHER ALTERNATIVES UP
TO AND INCLUDING PROTECTION UNDER THE UNITED STATES BANKRUPTCY LAWS.


                                       19
<PAGE>

OVERVIEW

         In February 2000, the Company's principal supplier, General Surgical
Innovations, Inc. ("GSI"), terminated its distribution agreement with the
Company. As background, Origin Medsystems ("Origin) products accounted for 52%
of the Company's revenues during the first quarter of 1999. However, as a result
of the outcome of a patent infringement lawsuit between Origin and GSI in April
1999, the Company made the decision to discontinue distributing Origin products
and begin distributing GSI products. Subsequent to that decision, U. S. Surgical
Corporation ("Surgical") purchased the Origin product line and also announced
their acquisition of GSI. Then, in February 2000, GSI terminated its
distribution agreement with the Company. GSI supplied products which accounted
for 38% of the Company's revenue in 1999 and 50% of the Company's revenue from
May 1, 1999 (the effective date of the distribution agreement) through February
2000, the termination month. In response to this unilateral action by GSI, the
Company filed a lawsuit in September 2000 against Surgical and GSI. It is
management's belief the fee arrangement with its legal counsel will not
adversely affect the Company's cash flow as the case progresses toward
resolution, as legal fees will be based on results, if any, obtained. The
Company took several additional steps in response to this action. The Company
restructured its debt obligations, modified its royalty agreement to provide for
partial non-cash royalty payments, reduced its general and administrative costs
by converting its entire sales force from employees to independent sales
representatives and eliminated additional administrative staff. In aggregate,
the Company reduced its number of employees from 66 at January 1, 2000 to 4 at
March 15, 2002.

         From inception through December 31, 1995, the Company was a development
stage enterprise whose efforts and resources were devoted primarily to research
and development activities related to its initial products. During this
development stage, the Company generated minimal operating revenues and, thus,
was unprofitable. In 1996, the Company reduced investment in research and
development related to such technologies and focused its efforts on acquiring
and distributing minimally invasive surgical devices. Accordingly, during the
last five fiscal years, the Company has continued to decrease its engagement in
Company sponsored research and development. As of December 31, 2001, the Company
had an accumulated deficit of approximately $45,000,000. There can be no
assurance that the Company will not continue to incur losses, that the Company
will be able to raise cash as necessary to fund operations or that the Company
will ever achieve profitability.

         The Company's future operating results will depend on many factors,
including dependence on third parties for manufacturing, marketing and
distribution, future capital requirements, the Company's ability to obtain
additional funding, the Company's ability to restructure its cash obligations,
demand for and acceptance of the Company's products, the level of competition in
the marketplace, the ability of the Company's customers to be reimbursed by
third-party payors, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, product introductions and acceptance,
technological change, changes in industry practices, one-time events and other
factors described in this Annual Report on Form 10-KSB.

         Effective October 24, 2000, following the delisting of the Company's
Common Stock from trading on the NASDAQ SmallCap Market, the Company's Common
Stock began trading on the National Association of Securities Dealer's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's Common
Stock may likely be impaired, not only in the number of shares which can be
bought and sold, but also through delays in the timing of the transactions,
reduction in security analysts' and the news media's coverage, if any, of the
Company and lower prices for the Company's securities than might otherwise
prevail.

         As the Company's Common Stock was delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is below $5.00 per
share, trading in the Common Stock is subject to the requirements of certain
rules promulgated under the Exchange Act, which require additional disclosures
by broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors (which are
generally institutions). For these types of transactions, the broker-dealer must
make a special suitability determination for the purchase and have received the
purchaser's written consent to the transaction prior to the sale. The additional
burdens imposed upon


                                       20
<PAGE>

broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in the Common Stock which could severely limit the market liquidity
of Common Stock and the ability of stockholders to sell their shares of Common
Stock in the secondary market.

         In January 1998, the Company acquired approximately 20% of the common
stock of Dexterity Incorporated ("Dexterity"), a business development subsidiary
of Teleflex, Inc. In March 1999, the Company acquired the remaining common stock
of Dexterity by merging Dexterity into the Company (the "Dexterity Merger")
pursuant to a Plan of Merger and Acquisition agreement between the Company and
Dexterity (the "Dexterity Agreement"). Simultaneous with the effectiveness of
the Dexterity Merger, the Company changed its name to Dexterity Surgical, Inc.
Under the terms of the Dexterity Agreement, which was approved by the
stockholders of the Company at a special meeting held March 18, 1999, the
Dexterity stockholders, other than the Company, received an aggregate of:

         o    $1,500,000 cash;

         o    3,000,000 shares of Common Stock;

         o    warrants to purchase an aggregate of 1,500,000 shares of Common
              Stock, at an exercise price per share of $2.00 (the "Warrants");

         o    promissory notes in the aggregate amount of $1,000,000 (the
              "Notes"); and

         o    a royalty for seven years in an amount equal to 15% of all sales
              of Dexterity products (the "Royalty") pursuant to a royalty
              agreement (the "Royalty Agreement") among the Company and the
              Dexterity stockholders, other than the Company. The Royalty is
              subject to minimum annual payments which aggregate, over the seven
              years of the Royalty Agreement, approximately $9,695,095.

         The Company determined the fair market value of the above consideration
to be approximately $16,000,000. The Company launched distribution of
Dexterity's primary products, the Dexterity(R) Pneumo Sleeve and Dexterity(R)
Protractor, in March 1998. The Dexterity Merger was accounted for using the
purchase method of accounting.

         On June 29, 2000, the Company announced it had signed an exclusive
agreement under which Weck Closure Systems (WCS) will distribute the
Dexterity(R) Pneumo Sleeve(R) and the Dexterity(R) Protractor(R) in the United
States. The agreement also covers international distribution except in those
areas for which Dexterity has signed previous exclusive sales and distribution
agreements still in effect. Under the terms of the agreement, WCS (a unit of
Teleflex Incorporated) is required to purchase certain minimum quantities. Also,
per the agreement, WCS and the Company will combine elements of both sales
forces under the WCS umbrella. The Company and WCS will continue as separate
business entities. Sales to WCS represented 68% of total net sales for the year
ended December 31, 2001.

         In June 2001, the Company and WCS amended the agreement which adjusted
various aspects of the contract to more accurately reflect current existing
market conditions. Effective July 1, 2001, WCS continues its exclusive right to
distribute the Dexterity Protractor, however, WCS will distribute the Dexterity
Pneumo Sleeve on a non-exclusive basis. WCS is currently selling products that
are similar to and competitive with our products. Also, certain guaranteed
minimum purchase requirements by WCS, which originally were scheduled to expire
December 31, 2001, are extended until December 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

         By letter dated February 7, 2002, Robert Rambo, President of MCT,
claimed that the Company had underpaid royalties owed him on the Company's
products sold by Weck Closure Systems and requested the Company to recompute
such royalties and tender payment for any short-fall. There can be no assurance
that the Company will not be required to make such additional royalty payments.
Any such payments would have a material adverse effect on the Company's results
of operations.

                                       21
<PAGE>
         On February 19, 2001, in Andrieni v. Lifequest Medical, Inc., et al.,
Civil Action File No. E-71617 in Fulton County (Georgia) Superior Court, the
jury rendered a verdict in favor of plaintiffs in the amount of $297,000, plus
statutory interest. The Company recorded an expense and accrued liability of
approximately $360,000 as of December 31, 2000. Subsequently, the Company
settled the Andrieni complaint for consideration primarily consisting of cash,
future installment payments, and common stock. The settlement's estimated cost
is $168,000. The resulting reduction in estimated expense and accrued liability
of $192,000 was recorded in December 2001.

         Pursuant to a private placement which occurred in July and August 2000,
the Company issued to TFX Equities, Inc., a business development subsidiary of
Teleflex, Inc., and Cuda Products Company, whose chief executive officer is a
director of the Company, an aggregate of 400 shares of Series C Cumulative
Convertible Preferred Stock, $.001 par value ("Series C Preferred Stock") for
aggregate proceeds of $400,000. The Company used such proceeds for working
capital. The annual dividends on the Series C Preferred Stock are cumulative at
a rate of $80 per share. The Series C Preferred Stock is currently convertible
into shares of Common Stock at a conversion price of $1.00 per share, for an
aggregate of 400,000 shares of Common Stock. The conversion price for the Series
C Preferred Stock is subject to downward adjustment in the event the Company
sells shares of Common Stock, or securities convertible into shares of Common
Stock, at a per share price less than $1.00. The holders of Series C Preferred
Stock, are entitled to one vote per share on all matters submitted to a vote of
the stockholders of the Company, and the affirmative vote of the holders of 66
2/3% of the votes entitled to be cast by the holders of the Series C Preferred
Stock is required in order to amend the Company's Certificate of Incorporation
or Bylaws to materially affect the rights of the holders of Series C Preferred
Stock, including authorizing and creating a class of stock having rights prior
to or senior to the Series C Preferred Stock. In the event two quarterly
dividends payable on the Series C Preferred Stock are in arrears, the holders of
the Series C Preferred Stock, by a majority vote, shall be entitled to designate
two additional directors to serve on the Company's Board of Directors. The
Company does not have sufficient resources to continue paying dividends on the
Series C Preferred Stock.

         In March 2000, the Warrants, Notes and Royalty Agreement were
restructured. The maturity date of the Notes was extended by 19 months to
October 18, 2001. The interest expense on the Notes for the year 2000 was paid
in shares of Common Stock at a per share price of $1.00. The Warrants were
amended to reflect an exercise price per share of Common Stock of $1.00. In
addition, the Royalty Agreement was restructured to allow the Company to pay the
first $400,000 in Royalty due for 2000 in shares of Common Stock, valued at
$1.00 per share. The Company does not have the available resources to pay the
guaranteed minimum royalty due quarterly or the $1 million Notes that were due
October 18, 2001. The Company is presently in negotiations to renew these
obligations. However, there can be no assurance these negotiations will be
successful.

         At December 31, 2001, the Company had current assets of $517,000 and
current liabilities of $10,511,000 resulting in a working capital deficit of
$9,994,000. This compares to a working capital deficit of $7,314,000 at December
31, 2000. The increase in working capital deficit is primarily due to the
operating losses incurred during 2001.

         The Company maintains a maximum $5,000,000 revolving line of credit
whereby all inventories, accounts receivable and intangibles of the Company are
pledged as collateral. At December 31, 2001, the outstanding balance due on such
line of credit was $646,000 and there are no additional funds available under
the current borrowing base. The default under the Debentures (discussed below)
triggered the cross-default clause in the line of credit agreement. Therefore,
the lendor has the right to demand immediate repayment of the entire amount
outstanding. In May 2001, Teleflex, Inc., a major shareholder in the Company
purchased this instrument from the previous lendor. Teleflex, Inc. and the
Company are currently negotiating new terms and conditions for the line of
credit. The outstanding balance continues to be classified as a current
liability and interest at prime rate plus 1.5% continues to accrue until
negotiations are completed.

         Pursuant to a private placement which occurred in November 1998, the
Company issued to two affiliates of Renaissance Capital Group, Inc.
(collectively, "Renaissance") and one individual, who is an officer and director
of the Company, an aggregate of 1,025 shares of Series B Cumulative Convertible
Preferred Stock, $.001 par value ("Series B Preferred Stock") for aggregate
proceeds of $1,025,000. The Company used such proceeds for working capital. The
annual dividends on the Series B Preferred Stock are cumulative at a rate of $80
per share. The Series B Preferred Stock is currently convertible into shares of
Common Stock at a conversion price of $1.54 per share, for an aggregate of
665,584 shares of Common Stock. The conversion price for the Series B Preferred
Stock is subject


                                       22
<PAGE>

to downward adjustment in the event the Company sells shares of Common Stock, or
securities convertible into shares of Common Stock, at a per share price less
than $1.54. The holders of Series B Preferred Stock, are entitled to one vote
per share on all matters submitted to a vote of the stockholders of the Company,
and the affirmative vote of the holders of 66 2/3% of the votes entitled to be
cast by the holders of the Series B Preferred Stock is required in order to
amend the Company's Certificate of Incorporation or Bylaws to materially affect
the rights of the holders of Series B Preferred Stock, including authorizing and
creating a class of stock having rights prior to or senior to the Series B
Preferred Stock. In the event two quarterly dividends payable on the series B
Preferred Stock are in arrears, the holders of Series B Preferred Stock, by a
majority vote, shall be entitled to designate two additional directors to serve
on the Company's Board of Directors. The Company does not have sufficient
resources to continue paying dividends on the Series B Preferred Stock.

         In August 1998, pursuant to a private placement, the Company issued to
Renaissance and two individuals, including one who is an officer and director of
the Company, an aggregate of 1,170 shares of series A Cumulative Convertible
Preferred Stock, $.001 par value ("Series A Preferred Stock"), for aggregate
proceeds of $1,170,000. The Company used such proceeds for working capital.
During March 2000, 150 shares of Series A Preferred stock were converted to
93,750 shares of Common Stock. Annual dividends on the Series A Preferred Stock
are cumulative at a rate of $80 per share. The Series A Preferred Stock is
currently convertible into share of Common Stock at a conversion price of $1.54
per share, for an aggregate of 662,338 shares of Common Stock. The conversion
price for the Series A Preferred Stock is subject to downward adjustment in the
event the Company sells shares of Common Stock, or securities convertible into
shares of common Stock, at a per share price less than $1.54. The holders of
Series A Preferred Stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders of the Company, and the affirmative vote
of the holders of 66 2/3% of the votes entitled to be cast by the holders of the
Series A Preferred Stock is required in order to amend the Company's Certificate
of Incorporation or Bylaws to materially affect the rights of the holders of
Series A Preferred Stock, including authorizing and creating a class of stock
having rights prior to or senior to the Series A Preferred Stock. In the event
two quarterly dividends payable on the Series A Preferred Stock are in arrears,
the holders of Series A Preferred Stock, by a majority vote, shall be entitled
to designate two additional directors to serve on the Company's Board of
Directors. The Company does not have sufficient resources to continue paying
dividends on the Series A Preferred Stock.

         In December 1997, the Company sold 250,000 shares of Common Stock to
Renaissance in a private placement for aggregate proceeds of $1,000,000 and
placed $3,000,000 in 9% Convertible Debentures (the "Debentures") with
Renaissance. The proceeds from the private placement were used to repay the
Company's line of credit with another financial institution, to make the January
1998 equity investment in Dexterity, and for working capital purposes. The
Debentures are secured by substantially all of the assets of the Company and
require monthly payments of interest and also require monthly principal
payments, which commenced in December 2000 of $10 per $1000 of the then
remaining principal amount. The remaining principal balance will mature in
December 2004. In March 2000, the Debentures were modified to provide that the
interest payable between February 1, 2000 through January 31, 2001 shall be paid
in shares of Common Stock, valued at $1.00 per share. Upon modification, 270,000
shares of Common Stock valued at $270,000 were issued in advance of interest due
through January 31, 2001.

         The Debentures currently require the Company to comply with the
following financial covenants: (i) a Debt-to-Net Worth Ratio of no greater than
..99:1; (ii) an Interest Coverage Ratio of at least .60:1; (iii) a Debt Coverage
Ratio of at least .10:1; and (iv) a Current Ratio of at least .68:1. The Company
is currently not in compliance with these covenants and is not current on its
interest and principal repayment obligations under the Debentures and,
therefore, is in default under the Debentures. As discussed in Note 1, the
delisting of the Company's common stock in October 2000 also creates an event of
default. Under these events of default, the holders have the right to demand the
immediate repayment of the entire amount outstanding. Accordingly, the entire
balance due of $2,632,563 is classified as a current liability as of December
31, 2001. The Company is not current on its interest and principal repayment
obligations and currently does not have, nor does it believe it could obtain,
sufficient resources to fund such amount in the event of such acceleration.

         The holders of the Debentures have the option to convert at any time
all or a portion of the Debentures into shares of Common Stock at an initial
price of $1.00 per share of Common Stock. The conversion price is subject to
downward revision if the Company sells shares of its Common Stock, or securities
convertible into Common Stock, at a price less than $1.00 per share of Common
Stock, subject to certain allowed exceptions, during the term of the


                                       23
<PAGE>

Debentures. The Debentures are currently convertible for an aggregate of
2,632,563 shares of Common Stock; however, since the conversion price is subject
to downward adjustment as described above, and there is no minimum conversion
price, the maximum number of shares of Common Stock which may be issued pursuant
to the Debentures is undeterminable. The holders of the Debentures claim that
the conversion price of the Debentures requires a downward adjustment to $.03 as
a result of the shares of Common Stock issued by the Company in settlement of
the Andrieni lawsuit (See Item 3 "Legal Proceedings" for a description of the
Andrieni lawsuit). The Company disputes the claim of the Debenture holders and
believes the conversion price should remain at $1.00. However, there can be no
assurance that the Debenture holders will not prevail in their claim for a
downward adjustment to the conversion price, in which case the Company would be
required, upon conversion of the Debentures, to issue approximately thirty-three
times the number of shares that would be issuable at a $1.00 conversion price.
Any issuance of shares of Common Stock upon the conversion of the Preferred
Stock or the Debentures will substantially dilute the voting rights and other
interests of stockholders of the Company. As the number of shares of Common
Stock issuable upon the conversion of Preferred Stock and the Debentures is
indeterminate, the Company is unable to predict to what extent the Company's
stockholders rights will be diluted. Such uncertainty creates downward pressure
on the public market price of the Company's Common Stock. In the event such
holders convert their Debentures or shares of Preferred Stock, as applicable,
and sell a large number of shares of Common Stock into the public market over a
short time, the market price for the Common Stock could decline. Such a decline
may make future equity financing more difficult for the Company to obtain on an
acceptable basis, if at all. The provisions of the Debentures provide that the
holders of the Debentures have an option to redeem the Debentures, in an amount
equal to an 18 percent annual yield on the principal balance, upon the
occurrence of certain events, including the delisting of Common Stock from the
NASDAQ SmallCap Market and certain "change of control" provisions, as defined in
the Debentures, as they relate to the Company. As the Common Stock was delisted
from the NASDAQ SmallCap Market on October 24, 2000, the holder now has the
option to exercise these redemption rights. The Company may redeem the
Debentures at its option subject to certain share price and market activity
levels being obtained. The Company's right of redemption is subject to the
holder's prior right of conversion of the Debenture.

         For the year ended December 31, 2001, operating activities provided
cash of $693,000. Investment activities during the period utilized cash of
$35,000. During the period, the Company's financing activities used cash of
$641,000 primarily from the net decrease in debt obligations.

         For the year ended December 31, 2000, operating activities provided
cash of $987,000. Investment activities during the period utilized cash of
$36,000. During 2000, the Company's financing activities used cash of $1,023,000
primarily from the net decrease in the outstanding balance of the line of
credit.

         The Company does not believe its revenues and other sources of
liquidity will provide adequate funding for its current capital requirements.
The Company is presently in negotiations to make arrangements to restructure
certain obligations including the Debentures, line of credit and Royalty
obligation. However, there can be no assurance that the Company will be able to
restructure these obligations. There can be no assurance that such additional
funding will be available on terms attractive to the Company or at all. In the
event the Company is required to raise additional funds, it does not believe it
will be able to obtain such financing from traditional commercial lenders.
Rather, the Company likely will have to conduct additional sales of its equity
and/or debt securities through public or private financings, collaborative
relationships or other arrangements. Substantial and immediate dilution to
existing stockholders likely would result from any sales of equity securities or
other securities convertible into equity securities. THERE IS NO ASSURANCE THAT
WE WILL BE ABLE TO RAISE ANY ADDITIONAL CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE
RAISED AND WE ARE UNABLE TO SUBSTANTIALLY REDUCE OUR EXPENSES AND RESTRUCTURE
OUR CASH OBLIGATIONS, WE WOULD SUFFER MATERIAL ADVERSE CONSEQUENCES TO OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND WOULD LIKELY BE
REQUIRED TO SEEK OTHER ALTERNATIVES UP TO AND INCLUDING PROTECTION UNDER THE
UNITED STATES BANKRUPTCY LAWS.

RESULTS OF OPERATIONS FOR YEAR ENDING DECEMBER 31, 2001

         In February 2000, the Company's principal supplier, GSI terminated its
distribution agreement with the Company. As background, Origin products
accounted for 52% of the Company's revenues during the first quarter


                                       24
<PAGE>

of 1999. However, as a result of the outcome of a patent infringement lawsuit
between Origin and GSI in April 1999, the Company made the decision to
discontinue distributing Origin products and begin distributing GSI products.
Subsequent to that decision, Surgical purchased the Origin product line and also
announced their acquisition of GSI. Then, in February 2000, GSI terminated its
distribution agreement with the Company. GSI supplied products which accounted
for 38% of the Company's revenue in 1999 and 50% of the Company's revenue from
May 1, 1999 (the effective date of the distribution agreement) through February
2000, the termination month. In response to this unilateral action by GSI, the
Company filed a lawsuit in September 2000 against Surgical and GSI. It is
management's belief the fee arrangement with its legal counsel will not
adversely affect the Company's cash flow as the case progresses toward
resolution, as legal fees will be based on results, if any, obtained. The
Company took several additional steps in response to this action. The Company
restructured its debt obligations, modified its royalty agreement to provide for
partial non-cash royalty payments, reduced its general and administrative costs
by converting its entire sales force form employees to independent sales
representatives and eliminated additional administrative staff. In addition,
certain officers of the Company agreed to restructure their compensation
packages to increase short term cash flow.

         For the year ended December 31, 2001, the Company reported a loss from
operations of $13,569,000 as compared with a loss from operations of $4,384,000
for the year ended December 31, 2000. For the year ended December 31, 2001, the
Company reported a net loss applicable to common stock of $16,028,000 or $1.38
per basic and diluted share. This compares with a net loss applicable to common
stock of $5,923,000 or $.53 per basic and diluted share for the year ended
December 31, 2000. The increased loss is primarily due to the impairment of
intangible assets and goodwill discussed below.

         Net sales decreased 37% in 2001 as compared with 2000. Net sales were
$4,166,000 for 2001 and $6,587,000 for 2000. These declines were primarily due
to the cancelled GSI agreement.

         Gross profit from net sales was $1,388,000 in 2001 versus $3,325,000 in
2000. The corresponding gross profit margins were 33% in 2001 and 50% in 2000.
The decline in gross profit margins was primarily due to the standard
distribution discount as per the WCS agreement and increase to the reserve for
inventory obsolescence of $780,000 during 2001.

         In 2001, selling, general and administrative expenses, which consist
primarily of salaries and other costs necessary to support the Company's
infrastructure, decreased 71% to $1,499,000 from $5,094,000 in 2000. The decline
in these expenses was primarily due to the previously discussed cost cutting
actions taken by the Company in response to the cancellation of the GSI
agreement. As a percentage of net sales, selling, general and administrative
expenses have also decreased: 36% for 2001 versus 77% for 2000. The Company
continues to strive to reduce fixed costs whenever possible. In May 2000, the
Company subleased approximately 65% of the San Antonio facility at a savings of
$8,000 per month. Also, in March 2001, the Company closed the Atlanta facility
at a cost savings of approximately $15,000 per month.

         In 2001, the Company recognized impairments of approximately
$10,400,000 on licensed technology rights for the Pneumo Sleeve and Protractor
due to the lack of expected future cash flows, specifically the reduced minimum
purchase guarantees under the Weck agreement. In the fourth quarter of 2001, the
fair value of goodwill was determined to be $0, and the Company recognized an
impairment loss of approximately $1,100,000. An other than temporary impairment
charge of $751,566 was also taken in the fourth quarter on the investment in
Ana-Tech as determined by the latest expected sale of ownerships interests by
Ana-Tech for cash to third parties.

         Depreciation and amortization expense increased 10% to $1,993,000 in
2001 from $1,982,000 in 2000.

         Interest expense was $1,517,000 in 2001 and $1,439,000 in 2000, an
increase of 5%. Interest expense includes the non-cash accretion of the minimum
royalty obligation, interest on the line of credit, debenture interest and
interest on the note payable due to the former stockholders of Dexterity.


                                       25
<PAGE>
RESULTS OF OPERATIONS FOR YEAR ENDING DECEMBER 31, 2000

         For the year ended December 31, 2000, the Company reported a loss from
operations of $4,384,000 as compared with a loss from operations of $2,079,000
for the year ended December 31, 1999. For the year ended December 31, 2000, the
Company reported a net loss applicable to common stock of $5,923,000 or $.53 per
basic and diluted share. This compares with a net loss applicable to common
stock of $3,273,000 or $.34 per basic and diluted share for the year ended
December 31, 1999. The increased loss is primarily due to the aforementioned
loss of the GSI contract, as well as the unfavorable judgment in the Andrieni
litigation. Also, the loss includes the impairment loss related to the licensed
rights to the impact mount technology of $427,000 and the Apollo clip applier
technology of $200,000.

         Net sales decreased 69% in 2000 as compared with 1999. Net sales were
$6,587,000 for 2000 and $21,013,000 for 1999. These declines were primarily due
to the cancelled GSI agreement.

         Gross profit from net sales was $3,325,000 in 2000 versus $9,198,000 in
1999. The corresponding gross profit margins were 50% in 2000 and 44% in 1999.
The improvement in margins is primarily due to the increased proportion of the
Company's proprietary products, the Dexterity(R) Pneumo Sleeve(R) and the
Dexterity(R) Protractor(R), within the sales mix. Margins for 2000 would have
been higher except for a $550,000 addition to the inventory reserve for
discontinued product lines.

         In 2000, selling, general and administrative expenses, which consist
primarily of sales commissions, salaries and other costs necessary to support
the Company's infrastructure, decreased 47% to $5,094,000 from $9,630,000 in
1999. The decline in these expenses was primarily due to the previously
discussed cost cutting actions taken by the Company in response to the
cancellation of the GSI agreement. However, as a percentage of net sales,
selling, general and administrative expenses have increased: 77% for 2000 versus
46% for 1999. This percentage increase is due to fixed expenses and the sales
decline. The Company continues to strive to reduce fixed costs whenever
possible. In May 2000, the Company subleased approximately 65% of the San
Antonio facility at a savings of $8,000 per month. Also, in March 2001, the
Company closed the Atlanta facility and anticipates an expense savings of
approximately $15,000 per month.

         Depreciation and amortization expense increased 26% to $1,982,000 in
2000 from $1,577,000 in 1999. This increase is due to a full year of
amortization of the licensed technology rights acquired in conjunction with
Dexterity.

         Interest expense was $1,439,000 in 2000 and $1,104,000 in 1999, an
increase of 30%. Interest expense includes the non-cash accretion of the minimum
royalty obligation, interest on the line of credit and interest on the note
payable due to the former stockholders of Dexterity.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and supplementary data described in Item 13(a)
herein are attached hereto.

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

         Not applicable.

                                    PART III

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

         Information required under this Item will be contained in the Company's
Proxy Statement for 2002 Annual Meeting, which is incorporated herein by
reference.


                                       26
<PAGE>

         See also "Executive Officers and Directors of the Registrant" under
Part I, Item 1, herein.

ITEM 10. EXECUTIVE COMPENSATION

         Information required under this Item will be contained in the Company's
Proxy Statement for 2002 Annual Meeting, which is incorporated herein by
reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information required under this Item will be contained in the Company's
Proxy Statement for 2002 Annual Meeting, which is incorporated herein by
reference.


                                       27
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required under this Item will be contained in the Company's
Proxy Statement for 2002 Annual Meeting, which is incorporated herein by
reference.

                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1.   CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                         PAGE
                                                                                                         ----
<S>                                                                                                     <C>
         Report of Independent Auditors..............................................................     F-2

         Consolidated Balance Sheets at December 31, 2001 and 2000...................................     F-3

         Consolidated Statements of Operations for the years ended
         December 31, 2001 and 2000..................................................................     F-5

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 2001 and 2000..................................................................     F-6

         Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000........     F-7

         Notes to Consolidated Financial Statements..................................................     F-9
</TABLE>

2.       EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           IDENTIFICATION OF EXHIBIT
------                           -------------------------
<S>      <C>
2.1      Plan of Merger and Acquisition Agreement dated December 18, 1998
         between Dexterity Incorporated and the Company (incorporated by
         reference herein to Exhibit 2.8 to the Company's Annual Report on Form
         10-KSB for the year ended December 31, 1998).

3.1      Restated Certificate of Incorporation, as amended (incorporated
         by reference herein to Exhibit 3.1 to the Company's Annual Report on
         Form 10-KSB for the year ended December 31, 2000).

3.2      Bylaws of the Registrant (incorporated by reference herein to Exhibit
         3.2 to the Company's Registration Statement on Form S-1 filed on August
         19, 1992, Registration No. 33-49196).

4.1      Convertible Loan Agreement among the Company, Renaissance Capital
         Growth and Income Fund III, Inc., Renaissance US Growth and Income
         Trust PLC and Renaissance Capital Group, Inc. dated December 19, 1997
         (incorporated by reference herein to Exhibit 4.1 to the Company's
         Annual Report on Form 10-KSB for the fiscal year ended December 31,
         1997).

10.1     1989 Stock Option Plan of LifeQuest Medical, Inc. (incorporated by
         reference herein to Exhibit 4.4 to the Company's Registration Statement
         on Form S-8 filed on October 12, 1993, Registration No. 33-70174).

10.2     Incentive Stock Option Agreement dated October 17, 1994, between
         LifeQuest Medical, Inc. and Randall K. Boatright (incorporated herein
         by reference to Exhibit 10.16 to the Company's Annual Report on Form
         10-K for the fiscal year ended December 31, 1994).

10.3     1994 Non-Employee Director Stock Option Plan (incorporated herein by
         reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
         for the fiscal year ended December 31, 1994).
</TABLE>


                                       28
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           IDENTIFICATION OF EXHIBIT
------                           -------------------------
<S>      <C>
10.4     Non-Qualified Stock Option Agreement dated October 17, 1994, between
         LifeQuest Medical, Inc. and Robert B. Johnson (incorporated herein by
         reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
         for the fiscal year ended December 31, 1994).

10.5     Non-Qualified Stock Option Agreement dated March 2, 1995, between
         LifeQuest Medical, Inc. and Jeffrey H. Berg, Ph.D. (incorporated herein
         by reference to Exhibit 10.22 to the Company's Annual Report on Form
         10-K for the fiscal year ended December 31, 1994).

10.6     Employment Agreement dated December 27, 1996, between Val-U-Med
         Acquisition Co. and K.C. Fadem (incorporated by reference herein to
         Exhibit 10.1 to the Company's Current Report on Form 8-K filed January
         10, 1997).

10.7     Non-Qualified Stock Option Agreement dated December 27, 1996, between
         LifeQuest Medical, Inc. and K.C. Fadem (incorporated by reference
         herein to Exhibit 10.2 to the Company's Current Report on Form 8-K
         filed January 10, 1997).

10.8     Employment Agreement dated December 27, 1996, between Val-U-Med
         Acquisition Co. and Robert Fadem (incorporated by reference herein to
         Exhibit 10.3 to the Company's Current Report on Form 8-K filed January
         10, 1997).

10.9     Non-Qualified Stock Option Agreement dated December 27, 1996, between
         LifeQuest Medical, Inc. and Robert Fadem (incorporated by reference
         herein to Exhibit 10.4 to the Company's Current Report on Form 8-K
         filed January 10, 1997).

10.10    Lease Agreement dated April 28, 1997, between Interpark Jack Limited
         Partnership and LifeQuest Medical, Inc. (incorporated by reference
         herein to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
         for the quarterly period ended June 30, 1997).

10.11    Lease Agreement dated March 1, 1997, between Williams North Fulton
         Group and the Company (incorporated by reference herein to Exhibit 10.2
         to the Company's Quarterly Report on Form 10-Q for the quarterly period
         ended June 30, 1997).

10.12    Employment Agreement dated September 30, 1997, between William H.
         Bookwalter and the Company (incorporated by reference herein to Exhibit
         No. 10.1 to the Company's Quarterly Report on Form 10-Q for the
         quarterly period ended September 30, 1997).

10.13    Distribution Agreement dated May 1, 1997 between LifeQuest Medical,
         Inc. and Origin MedSystems, Inc. (incorporated by reference herein to
         Exhibit No. 10.27 to the Company's Annual Report on Form 10-KSB/A for
         the year ended December 31, 1997).

10.14    Employment Agreement dated April 1, 1998 between the Company and
         Randall K. Boatright (incorporated herein by reference to Exhibit 10.1
         to the Company's Form 10-Q for the quarter ended June 30, 1998).

10.15    Series A Cumulative Convertible Stock Purchase Agreement dated August
         11, 1998, among the Company, Renaissance Capital Growth & Income Fund
         III, Inc. and Renaissance U.S. Growth & Income Trust, PLC (incorporated
         herein by reference to Exhibit 10.5 to the Company's Form 10-Q for the
         quarter ended June 30, 1998).

10.16    Series A Cumulative Convertible Preferred Stock Purchase Agreement
         dated August 11, 1998, among the Company, Richard A. Woodfield and R.
         Michael Yates (incorporated herein by reference to Exhibit 10.6 to the
         Company's Form 10-Q for the quarter ended June 30, 1998).

10.17    Series B Convertible Stock Purchase Agreement dated November 19, 1998,
         among the Company, Renaissance Capital Growth & Income Trust Fund III,
         Inc. and Renaissance U.S. Growth & Income Trust, PLC. (incorporated by
         reference herein to Exhibit 10.18 to the Company's Annual Report on
         Form 10-KSB for the year ended December 31, 1998).
</TABLE>


                                       29
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           IDENTIFICATION OF EXHIBIT
------                           -------------------------
<S>      <C>
10.18    Amended Employment Agreement between the Company and Richard A.
         Woodfield dated December 15, 1998. (incorporated by reference herein to
         Exhibit 10.19 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 1998).

10.19    Amended Stock Option Agreement between the Company and Richard A.
         Woodfield dated December 15, 1998. (incorporated by reference herein to
         Exhibit 10.20 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 1998).

10.20    Series B Convertible Preferred Stock Purchase agreement dated January
         21, 1999 between the Company and Richard A. Woodfield (incorporated by
         reference herein to Exhibit 10.1 to the Company's Quarterly Report on
         Form 10-QSB filed May 14, 1999).

10.21    Consulting Agreement between the Company and Christopher Black dated
         March 18, 1999 (incorporated by reference herein to Exhibit 10.2 to the
         Company's Quarterly Report on Form 10-QSB filed May 14, 1999).

10.22    Royalty Agreement among the Company and TFX Equities Incorporated dated
         March 18, 1999 (incorporated by reference herein to Exhibit 10.3 to the
         Company's Quarterly Report on Form 10-QSB filed May 14, 1999).

10.23    Registration Rights Agreement among the Company and Dexterity
         Stockholders dated March 18, 1999 (incorporated by reference herein to
         Exhibit 10.4 to the Company's Quarterly Report on Form 10-QSB filed May
         14, 1999.

10.24    Exclusive Distribution Agreement between the Company and Weck Closure
         Systems, LLC dated July 1, 2000 (incoporated herein by reference to
         Exhibit 99.2 to the Company's Current Report on Form 8-L filed
         September 13, 2000).

10.25    Amended Employment Agreement between the Company and Randall K.
         Boatright dated December 1, 2000 (incorporated herein by reference to
         Exhibit 10.25 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 2000).

10.26    Series C Convertible Preferred Stock Purchase Agreement dated July 31,
         2000 (incorporated herein by reference to Exhibit 10.26 to the
         Company's Annual Report on Form 10-KSB for the year ended December 31,
         2000).

10.27    Distribution Agreement between the Company and Weck Closure Systems LLC
         dated June 5, 2001 (incorporated herein by reference to Exhibit 10.1 to
         the Company's Quarterly Report on Form 10-QSB filed August 10, 2001).

22       Subsidiaries

                                      State of            Name Under Which
         Name                         Incorporation       Doing Business
         -----------------------------------------------------------------------
         ValQuest Medical, Inc.       Nevada              ValQuest Medical, Inc.


23.1*    Consent of Ernst & Young LLP
</TABLE>

*   Filed herewith


                                       30
<PAGE>

(b)      REPORTS ON FORM 8-K

         The Company did not file any reports on Form 8-K during the last
quarter of the period covered by this Form 10-KSB.



                                       31
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        DEXTERITY SURGICAL, INC.


April 1, 2002                           By:      /s/ Richard A. Woodfield
                                           -------------------------------------
                                                     Richard A. Woodfield
                                           President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
SIGNATURE                                               TITLE                                  DATE
---------                                               -----                                  ----
<S>                                      <C>                                              <C>
/s/ Richard A. Woodfield                 President, Chief Executive Officer               April 1, 2002
------------------------------------     and Director (Principal Executive
Richard A. Woodfield                     Officer


/s/ Randall K. Boatright                 Executive Vice President, Chief                  April 1, 2002
------------------------------------     Financial Officer and Director
Randall K. Boatright                     (Principal Financial and Accounting
                                         Officer Officer)


/s/ Jeffrey H. Berg, Ph.D.               Director                                         April 1, 2002
------------------------------------
Jeffrey H. Berg, Ph.D.


/s/ Christopher K. Black                 Director                                         April 1, 2002
------------------------------------
Christopher K. Black
</Table>


                                       32
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----

<S>                                                                                                      <C>
Report of Independent Auditors.......................................................................     F-2

Consolidated Balance Sheets at December 31, 2001 and 2000............................................     F-3

Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000...........................................................................     F-5

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001 and 2000...........................................................................     F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000.................     F-7

Notes to Consolidated Financial Statements...........................................................     F-9
</TABLE>




                                      F-1
<PAGE>

                         Report of Independent Auditors

Board of Directors and Stockholders
Dexterity Surgical, Inc.

We have audited the consolidated balance sheets of Dexterity Surgical, Inc. (the
Company), formerly LifeQuest Medical, Inc. (a Delaware Corporation), and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, stockholders' (deficit) equity, and cash flows for
each of the two years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dexterity
Surgical, Inc. as of December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.

The accompanying financial statements have been prepared assuming that Dexterity
Surgical, Inc. will continue as a going concern. As more fully described in Note
1, the Company has incurred recurring net losses and has an accumulated deficit.
In addition, the Company has not complied with certain covenants associated with
its convertible debentures. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.



San Antonio, Texas
March 1, 2002



                                      F-2
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

                           Consolidated Balance Sheets

<Table>
<Caption>
                                                                             DECEMBER 31
                                                                     2001                   2000
                                                            -----------------------------------------------
<S>                                                             <C>                    <C>
ASSETS
Current assets:
   Cash and cash equivalents                                    $         59,008       $         42,085
   Accounts receivable (net of allowance for doubtful
     accounts of $28,119 and $46,418 in 2001 and 2000,
     respectively)                                                       217,629                730,306
   Accounts receivable from related parties                               14,308                 15,000
   Inventories, net                                                      127,904              1,050,927
   Prepaid and other assets                                               98,048                238,923
                                                            -----------------------------------------------
Total current assets                                                     516,897              2,077,241

Property, plant, and equipment:
   Furniture and fixtures                                                144,916                140,844
   Computers and equipment                                               445,658                445,658
   Machinery and equipment                                               644,596                614,061
   Leasehold improvements                                                145,301                145,301
                                                            -----------------------------------------------
                                                                       1,380,471              1,345,864
   Less accumulated depreciation                                       1,055,933                812,128
                                                            -----------------------------------------------
Net property, plant, and equipment                                       324,538                533,736

Deferred finance charges                                                 140,662                215,494

Investments                                                              450,934              1,202,500

Intangible assets:
   Licensed technology rights and other, less
     accumulated amortization of $0 and $2,679,609
     in 2001 and 2000, respectively                                    3,239,720             15,160,883

   Goodwill, net, less accumulated amortization of $0
     and $839,150 in 2001 and 2000, respectively                               -              1,293,082
                                                            -----------------------------------------------
Net intangible assets                                                  3,239,720             16,453,965
                                                            -----------------------------------------------

Total assets                                                    $      4,672,751       $     20,482,936
                                                            ===============================================
</Table>



                                      F-3
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

                     Consolidated Balance Sheets (continued)

<Table>
<Caption>
                                                                             DECEMBER 31
                                                                     2001                   2000
                                                                -------------------------------------------
<S>                                                             <C>                    <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
   Accounts payable                                             $      2,563,549       $      2,732,846
   Accrued liabilities                                                   613,047                539,379
   Current portion of long-term obligations,
     including debt and royalty obligations in default
     of $3,632,563 and $414,318, respectively, at
     December 31, 2001 and debt in default of $2,970,000
     at December 31, 2000                                              7,334,743              6,119,039
Total current liabilities                                             10,511,339              9,391,264

Minority interest                                                         47,248                 47,248

Royalty obligation                                                     4,060,221              4,992,864

Commitments and contingencies

Stockholders' (deficit) equity:
   Preferred stock, $.001 par value; 2,000,000 shares
     authorized; 2,445 shares issued and outstanding in
     2001 and 2000                                                             2                      2
   Common stock, $.001 par value; 50,000,000 shares
     authorized; 12,121,492 (2001) and 11,521,492
     (2000) shares issued and outstanding                                 12,122                 11,522
   Additional paid-in capital                                         32,362,904             32,333,504
   Warrants                                                            2,370,900              2,370,900
   Accumulated deficit                                               (44,691,985)           (28,664,368)
                                                            -----------------------------------------------
Total stockholders' (deficit) equity                                  (9,946,057)             6,051,560

                                                            -----------------------------------------------
Total liabilities and stockholders' (deficit) equity            $      4,672,751       $     20,482,936
                                                            ===============================================
</Table>


See accompanying notes.



                                      F-4
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

                      Consolidated Statements of Operations

<Table>
<Caption>
                                                                        YEAR ENDED DECEMBER 31
                                                                     2001                   2000
                                                            -----------------------------------------------
<S>                                                             <C>                    <C>
Net sales                                                       $      4,166,463       $      6,586,678

Cost and expenses:
   Cost of sales                                                       2,778,547              3,261,533
   Research and development                                                    -                  6,265
   Selling, general, and administrative                                1,498,723              5,093,637
   Depreciation and amortization                                       1,993,307              1,982,332
   Impairment of intangible assets, goodwill, and
     other                                                            11,464,743                627,273
                                                            -----------------------------------------------
                                                                      17,735,320             10,971,040
                                                            -----------------------------------------------
Loss from operations                                                 (13,568,857)            (4,384,362)

Other income (expense):
   Interest expense                                                   (1,516,570)            (1,438,548)
   Investment and other income                                             4,976                 17,463
   Loss on investment                                                   (751,566)                     -
                                                            -----------------------------------------------
Net loss before minority interest                                    (15,832,017)            (5,805,447)

Minority interest in net loss of consolidated
   subsidiary                                                                  -                 58,909
                                                            -----------------------------------------------
Net loss                                                             (15,832,017)            (5,746,538)

Less: dividend requirement on cumulative
   convertible preferred stock                                           195,600                176,933
                                                            -----------------------------------------------

Net loss applicable to common stock                             $    (16,027,617)      $     (5,923,471)
                                                            ===============================================

Basic and diluted loss per share of common stock                $          (1.38)      $          (0.53)
                                                            ===============================================

Weighted average shares outstanding used in
   computing basic and diluted loss per share
   of common stock                                                    11,619,853             11,130,368
                                                            ===============================================
</Table>

See accompanying notes.



                                      F-5

<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

            Consolidated Statements of Stockholders' (Deficit) Equity

<Table>
<Caption>
                                      PREFERRED STOCK              COMMON STOCK
                               ----------------------------------------------------------
                                 SHARES ISSUED               SHARES ISSUED
                                      AND        $.001 PAR        AND        $.001 PAR
                                  OUTSTANDING      VALUE      OUTSTANDING       VALUE
                               -----------------------------------------------------------
<S>                                 <C>           <C>          <C>           <C>
Balance, December 31, 1999             2,195       $   2        10,212,742    $ 10,213
   Conversion of preferred
     stock into common stock            (150)          -            93,750          94
   Issuance of stock, interest
     and royalty obligations               -           -           790,000         790
   Issuance of stock,
     acquisition of MedWorks
     assets                                -           -           400,000         400
   Sale of preferred stock               400           -                 -           -
   Issuance of common stock
     for services                          -           -            25,000          25
   Preferred stock dividends               -           -                 -           -
   Net loss                                -           -                 -           -
                               -----------------------------------------------------------
Balance, December 31, 2000             2,445           2        11,521,492      11,522
   Issuance of stock, Andrieni
     settlement                            -           -           600,000         600
   Preferred stock dividends               -           -                 -           -
   Net loss                                -           -                 -           -
                               -----------------------------------------------------------
Balance, December 31, 2001             2,445       $   2        12,121,492    $ 12,122
                               ===========================================================


<CAPTION>
                                   ADDITIONAL
                                    PAID-IN                         ACCUMULATED
                                    CAPITAL          WARRANTS         DEFICIT            TOTAL
                               ---------------------------------------------------------------------
<S>                              <C>              <C>             <C>                <C>
Balance, December 31, 1999       $  30,742,313    $   2,370,900   $  (22,740,897)    $  10,382,531
   Conversion of preferred
     stock into common stock               (94)               -                -                 -
   Issuance of stock, interest
     and royalty obligations           789,210                -                -           790,000
   Issuance of stock,
     acquisition of MedWorks
     assets                            399,600                -                -           400,000
   Sale of preferred stock             400,000                -                -           400,000
   Issuance of common stock
     for services                        2,475                -                -             2,500
   Preferred stock dividends                 -                -         (176,933)         (176,933)
   Net loss                                  -                -       (5,746,538)       (5,746,538)
                               ---------------------------------------------------------------------
Balance, December 31, 2000          32,333,504        2,370,900      (28,664,368)        6,051,560
   Issuance of stock, Andrieni
     settlement                         29,400                -                -            30,000
   Preferred stock dividends                 -                -         (195,600)         (195,600)
   Net loss                                  -                -      (15,832,017)      (15,832,017)
                               ---------------------------------------------------------------------
Balance, December 31, 2001       $  32,362,904    $   2,370,900   $  (44,691,985)    $  (9,946,057)
                               =====================================================================
</Table>


See accompanying notes.


                                      F-6
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows

<Table>
<Caption>
                                                                         YEAR ENDED DECEMBER 31
                                                                       2001                  2000
                                                              ---------------------------------------------
<S>                                                               <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                          $    (15,832,017)      $   (5,746,538)
Adjustments to reconcile net loss to net cash provided by
   operating activities:
     Depreciation                                                          243,805              232,110
     Amortization                                                        1,749,502            1,750,222
     Accretion of royalty obligation                                       728,736              747,786
     Amortization of deferred finance charges                               74,832               74,832
     Noncash interest expense                                               22,500              367,500
     Noncash consulting expense                                                  -               42,375
     Impairment of intangible assets, goodwill, and other               11,464,743              627,273
     Loss on investment                                                    751,566                    -
     Minority interest in net loss of consolidated
       subsidiary                                                                -              (58,909)
     Changes in operating assets and liabilities:
       Decrease in accounts receivable, net                                512,677            2,135,518
       Decrease in accounts receivable from related parties                    692               26,066
       Decrease in inventories, net                                        923,023            1,283,337
       Decrease (increase) in prepaid and other assets                     118,375             (136,292)
       Decrease in accounts payable                                       (169,297)            (114,733)
       Increase (decrease) in accrued liabilities                          103,668             (243,367)
                                                              ---------------------------------------------
Net cash provided by operating activities                                  692,805              987,180

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment                                (34,607)             (49,318)
Proceeds on disposal of property, plant, and equipment                           -               13,500
                                                              ---------------------------------------------
Net cash used in investing activities                                      (34,607)             (35,818)
</Table>



                                      F-7
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

                Consolidated Statements of Cash Flows (continued)

<Table>
<Caption>
                                                                         YEAR ENDED DECEMBER 31
                                                                       2001                  2000
                                                              ---------------------------------------------
<S>                                                               <C>                    <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt - net                                  $       (337,437)      $      (30,000)
Net payments on line of credit                                            (108,238)          (1,068,219)
Proceeds from issuance of preferred stock                                        -              400,000
Payments on royalty obligation                                                   -             (147,509)
Payments of preferred stock dividends                                     (195,600)            (176,933)
                                                              ---------------------------------------------
Net cash used in financing activities                                     (641,275)          (1,022,661)
                                                              ---------------------------------------------
Net increase (decrease) in cash and cash equivalents                        16,923              (71,299)

Cash and cash equivalents, beginning of year                                42,085              113,384
                                                              ---------------------------------------------

Cash and cash equivalents, end of year                            $         59,008       $       42,085
                                                              =============================================

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
   AND FINANCING ACTIVITIES
Common stock issued in connection with interest obligations       $              -       $      390,000
Common stock issued for minimum royalty obligation                               -              400,000
Common stock issued in connection with
   acquisitions/investments                                                      -              400,000
Common stock issued in settlement of litigation judgment                    30,000                    -
Fair value of common stock and warrants issued for
   professional services                                                         -                2,500
</Table>


See accompanying notes.



                                      F-8
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                           December 31, 2001 and 2000

1.  ORGANIZATION AND DESCRIPTION OF THE COMPANY AND RISK FACTORS

Dexterity Surgical, Inc., a Delaware corporation (Dexterity or the Company),
formerly LifeQuest Medical, Inc. (LifeQuest), was incorporated on December 23,
1988, and commenced operations on January 1, 1989. The Company is engaged in the
development, commercialization, and distribution of proprietary and
nonproprietary medical devices. Effective January 1, 1998, the Company merged
each of its wholly owned subsidiaries, LifeQuest Endoscopic Technologies, Inc.
(LQET), Klein Medical, Inc. (Klein), and Val-U-Med, Inc., into the Company. The
Company also owns 82% of ValQuest Medical, Inc. (Valquest). The accompanying
consolidated financial statements include the accounts of Dexterity and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years have been
reclassified to conform to the 2001 presentation.

In February 2000, the United States Surgical Corporation (U.S. Surgical), a
division of Tyco Healthcare Group LP, terminated its General Surgical
Innovations, Inc. (GSI) distribution agreement with the Company related to
balloon dissector, blunt tip trocar, and tacker products associated with
minimally invasive hernia surgery. These products accounted for approximately
50% of sales and 44% of gross profit of Dexterity from the effective date of the
distribution agreement, which was May 1, 1999, through February 2000, the
termination month. The Company does not believe that U.S. Surgical has any right
to cancel the agreement and is currently vigorously pursuing legal negotiations
and remedies.

At December 31, 2001, the Company had an accumulated deficit of approximately
$44.7 million. During the years ended December 31, 2001 and 2000, the Company
incurred net losses of approximately $15.8 million and $5.7 million,
respectively. The Company's cumulative losses have been funded primarily through
the Company's initial public offering of common stock, private sales of common
stock and preferred stock, debt financing, and the sale of convertible
debentures. As discussed in Note 8, the Company is in violation of certain
affirmative financial covenant requirements associated with its convertible
debentures. Also, certain redemption rights of the holder associated with its
convertible debentures were triggered by the delisting of the Company's Common
Stock from the NASDAQ SmallCap Market. Therefore, the Company is in technical
default under the Debentures, and the holder has the right to demand immediate
repayment of the entire amount outstanding, which is approximately $2,633,000 at
December 31, 2001.


                                      F-9
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000

1.  ORGANIZATION AND DESCRIPTION OF THE COMPANY AND RISK FACTORS (CONTINUED)

The Company currently does not have sufficient resources to fund such amounts in
the event of acceleration of the entire amount outstanding. Additionally, the
current portion of other long-term obligations due in 2002 totals approximately
$4,702,000 at December 31, 2001. In the event the Company is required to raise
additional funds, it does not believe it will be able to obtain such financing
from traditional commercial lenders. Rather, the Company likely will have to
conduct additional sales of its equity and/or debt securities through public or
private financings, collaborative relationships, or other arrangements.
Substantial and immediate dilution to existing stockholders likely would result
from any sales of equity securities or other securities convertible into equity
securities.

During 2001, the Company took steps to improve its operating results and
anticipated cash flows. Steps to improve operating results included reductions
in selling, general, and administrative costs. The Company is attempting to
restructure agreements in the current year to satisfy certain 2001 obligations
with equity instruments. Based on current projections for 2002, management
believes that the Company's operating results for 2002 will not generate
sufficient working capital. Accordingly, the Company is negotiating to transfer
the manufacturing process to a new, lower-cost operator. During this transition
period estimated to be four to six months, the Company will be unable to obtain
Dexterity products for sale. Therefore, during this period, the Company will be
dependent on loans and advances from industry partners to sustain its operations
throughout the year. However, there can be no assurances that these events will
occur, that the Company can achieve all of the planned operating improvements,
or that ultimately the projections of operating results will be achieved.

The medical devices industry in which the Company competes is highly competitive
and dominated by a relatively small number of competitors with financial and
other resources much greater than those possessed by the Company. The Company's
ability to achieve increases in sales or to sustain current sales levels depends
in part on the ability of the Company's suppliers to provide products in the
quantities the Company requires. While the Company has written distribution
agreements with certain of its suppliers, these agreements in certain instances
provide for nonexclusive distribution rights and often include territorial
restrictions that limit the geographical area in which the Company is permitted
to distribute the products. The agreements are also generally short-term, are
subject to periodic renewal, and often contain provisions permitting termination
by either party without cause upon relatively short notice.


                                      F-10
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


1.  ORGANIZATION AND DESCRIPTION OF THE COMPANY AND RISK FACTORS (CONTINUED)

These, and other factors which are beyond the control of the Company, provide no
assurances that the Company will be able to successfully raise additional funds
as needed or compete in the medical devices market. Failure to do so would have
a material adverse effect on the Company's business, financial condition,
results of operations, and ability to continue operations.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue when each of the following four criteria are met:
1) a contract or sales arrangement exists; 2) products have been shipped or
services have been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured.

Product sales are recognized upon the shipment of products to the customer.
Commissions earned are recognized when customer orders are placed with product
suppliers. Customers may return products in the event of product defect or
inaccurate order fulfillment. The Company maintains an allowance for sales
returns based upon a historical analysis of returns. Substantially all returns
relate to inaccurate order fulfillment.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original maturity of
ninety days or less to be cash equivalents.

INVENTORIES

Inventories consist of raw materials, work in process, and finished goods which
are stated at the lower of cost (determined on an average-cost basis which
approximates the first-in, first-out basis) or market. The Company increased its
reserve for obsolete inventory on products selling below their historical cost
by $779,672 and $478,518 for the years ended December 31, 2001 and 2000,
respectively, which is included in cost of sales on the income statement.



                                      F-11
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

FIXED ASSETS AND DEPRECIATION

Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided utilizing the straight-line method over the estimated useful lives of
the respective assets (three to seven years). Additions and improvements that
extend the useful life of an asset are capitalized. Repairs and maintenance are
charged to expense as incurred.

LICENSED TECHNOLOGY RIGHTS

Licensed technology rights are amortized upon the commencement of commercial
sales of the underlying products. The amortization periods range from 7 to 17
years.

The carrying value of licensed technology rights, as well as related goodwill,
is periodically reviewed by the Company for indicators of impairment.
Impairments are recognized when the expected future operating cash flows derived
from such licensed technology rights are less than their carrying value, and are
measured by comparing the carrying value of the asset to discounted future cash
flows.

In 2000, the Company recognized impairments of approximately $627,000 on certain
licensed technology rights due to a lack of expected future cash flows from the
development of these technologies. In 2001, the Company recognized impairments
of approximately $10,400,000 on licensed technology rights for the Pneumo Sleeve
and Protractor due to the lack of expected future cash flows, specifically the
reduced minimum purchase quarantees under the Weck Closure Systems agreement.
The Company's analysis of the undiscounted cash flows based on the  minimum
purchase guarantees supports this balance.


                                      F-12
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

GOODWILL

The Company records the assets and liabilities of businesses acquired at fair
value as of the purchase date. The excess of the purchase price over the net
tangible and intangible assets acquired is recorded as goodwill and is being
amortized over 10 years. In the fourth quarter of 2001, the fair value of
goodwill was determined to be $-0- and the Company recognized an impairment
loss of approximately $1,100,000.

SEGMENT DISCLOSURE

In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(FAS 131). FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and interim financial reports. FAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The adoption of FAS 131 did not affect results of operations or
financial position. The Company currently manages its medical devices business
as one operating segment.

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation" (FAS 123), establishes
the use of the fair value-based method of accounting for stock-based
compensation arrangements, under which compensation cost is determined as of the
grant date and is recognized over the periods in which the related services are
rendered. FAS 123 also permits companies to elect to continue using the
intrinsic value accounting method specified in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), to account
for stock-based compensation related to option grants to employees and
directors. The Company accounts for its stock-based award plans in accordance
with APB 25, and related interpretations, under which compensation expense is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price. Note 11 provides pro forma net loss and pro forma
loss per


                                      F-13
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

share disclosures as if the stock-based awards had been accounted for using the
provisions of FAS 123.

Awards granted to nonemployees for goods and services are accounted for using
the Black-Scholes method prescribed by FAS 123 in accordance with Emerging
Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." These awards are subject to periodic revaluation
over their vesting terms. Any compensation is recognized over the vesting
period, which is generally the performance period of the related contract.

ADVERTISING

The Company expenses advertising costs as they are incurred. Advertising expense
was approximately $-0- and $17,000 in 2001 and 2000, respectively.

SHIPPING AND HANDLING

Amounts billed to customers for shipping and handling costs are included in net
sales. Costs incurred for shipping and handling are included in selling,
general, and administrative expenses. Shipping and handling costs were
approximately $43,000 and $98,000 in 2001 and 2000, respectively.

NET LOSS PER SHARE

Basic earnings per share (EPS) is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. As the Company had a net
loss for the years ended December 31, 2001 and 2000, diluted EPS equals basic
EPS, as potentially dilutive common stock equivalents, which consist of options,
warrants, and convertible debt and equity securities, are antidilutive in loss
periods. The average market price per share of the Company's common stock for
the years ended December 31, 2001 and 2000 was $.13 and $.85, respectively.


                                      F-14
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 may differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets," effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. The Company is in the process of determining the effects of
applying the nonamortization provisions of the statement on net income and
earnings per share. During 2002, the Company will perform the first of the
required impairment tests of goodwill and indefinite-lived intangible assets as
of January 1, 2002, and has not yet determined what the effect of these tests
will be on the earnings and financial position of the Company.

On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which is applicable to financial statements
issued for fiscal years beginning after December 15, 2001 with transition
provisions for certain matters. The FASB's new rules on asset impairment
supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (FAS 121), and provide a single
accounting model for long-lived assets to be disposed of. The Company does not
believe this new pronouncement will have a material effect on its operations at
the time of adoption.


                                      F-15
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


3.  CONCENTRATION OF RISK

CREDIT RISK

The Company's accounts receivable are from various hospitals, clinics, and
practicing surgeons. Ongoing credit evaluations of customers' financial
conditions are performed, and generally, no collateral is required. The Company
maintains reserves for potential credit losses, and such losses have not
exceeded management's expectations.

CUSTOMERS

On June 29, 2000, the Company announced it had signed an exclusive agreement
under which Weck Closure Systems (WCS) will distribute the Dexterity Pneumo
Sleeve and the Dexterity Protractor in the United States. The agreement also
covers international distribution except in those areas for which Dexterity has
signed previous exclusive sales and distribution agreements still in effect.
Under the terms of the agreement, WCS (a unit of Teleflex, Inc.) is required to
purchase certain minimum quantities. Also, per the agreement, WCS and the
Company will combine elements of both sales forces under the WCS umbrella. The
Company and WCS will continue as separate business entities. The Company
believes this agreement will allow it to benefit from a large, established
worldwide sales force and to continue to reduce overhead expenses.

In June 2001, the Company and WCS amended the agreement which adjusted various
aspects of the contract to more accurately reflect current existing market
conditions. Effective July 1, 2001, WCS continues its exclusive right to
distribute the Dexterity Protractor; however, WCS will distribute the Dexterity
Pneumo Sleeve on a non-exclusive basis. Also, certain guaranteed minimum
purchase requirements by WCS, which originally were scheduled to expire December
31, 2001, were extended until December 31, 2003.

Sales to WCS and affiliates represented 77% and 29% of the Company's net sales
for the years ended December 31, 2001 and 2000, respectively. Receivables from
WCS and affiliates represented 79% and 71% of net accounts receivable at
December 31, 2001 and 2000, respectively.



                                      F-16
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


3.  CONCENTRATION OF RISK (CONTINUED)

SUPPLIERS

The manufacturer and supplier of the Pneumo Sleeve and Protractor accounts for
81% and 45% of purchases for the years ended December 31, 2001 and 2000,
respectively.

PRODUCTS

The Pneumo Sleeve and Protractor products account for 77% and 54% of net sales
for the years ended December 31, 2001 and 2000, respectively.

4.  INVENTORIES

Inventories at December 31 are summarized as follows:

     <Table>
     <Caption>
                                                                        2001                 2000
                                                                -------------------------------------------
<S>                                                                 <C>                  <C>
     Raw materials                                                  $        5,458       $        5,458
     Work in process                                                       339,476              341,964
     Finished goods                                                      1,282,642            1,423,505
     Allowances                                                         (1,499,672)            (720,000)
                                                                -------------------------------------------

                                                                    $      127,904       $    1,050,927
                                                                ===========================================
     </Table>

5.  INVESTMENTS

In June 1998, the Company issued 370,000 shares of common stock at a per-share
price of $3.25 with an aggregate value of $1,202,500 in exchange for
approximately 4% of the ownership interests of Ana-Tech Medical Corporation
(Ana-Tech), pursuant to a subscription agreement dated June 9, 1998. At the same
time, Ana-Tech sold ownership interests for cash to third parties at the same
unit price. The Company accounts for the investment in Ana-Tech using the cost
method of accounting. An impairment charge of approximately $752,000 was taken
in the fourth quarter as determined by the latest expected sales price of
ownership interests by Ana-Tech for cash to third parties, that was considered
to be an other than temporary impairment.



                                      F-17
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


6.  FEDERAL INCOME TAXES

As of December 31, 2001, the Company had net operating loss (NOL) carryforwards
of approximately $21,143,943 for federal income tax purposes that are available
to reduce future taxable income and will expire in 2006 through 2021 if not
utilized. For federal income tax purposes, the Company has deferred, for future
amortization, certain acquisition and research and development costs in the
amount of $1,292,000. Such costs, which have been expensed for financial
reporting purposes, will be amortized for tax purposes over future years when
associated commercial operations commence. The Company received Internal Revenue
Service (IRS) approval of its request for a change of tax accounting method to
expense research and development costs for expenditures incurred in 1992 and
future years. The Company also has research and development credit carryforwards
that are available to offset future income taxes and expire in 2005 through
2010.

The tax effects of significant temporary differences representing income tax
assets at December 31, 2001 and 2000 are as follows:

<Table>
<Caption>
                                                                        2001                 2000
                                                                -------------------------------------------
<S>                                                                 <C>                  <C>
     Capitalized research and development and acquisition costs     $      439,000       $      439,000
     Royalty obligation                                                     48,031              117,359
     Depreciation                                                           79,053               39,100
     Accruals                                                              532,127              311,411
     Reserves not deductible for tax                                       130,091              130,635
     Write down of investment                                              255,532                    -
     Research and development credit carryforwards                         560,920              560,920
     Tax loss carryforwards                                              7,188,941            6,627,174
                                                                -------------------------------------------
     Net deferred tax assets                                             9,233,695            8,225,599
     Deferred tax valuation reserve                                     (9,233,695)          (8,225,599)
                                                                -------------------------------------------

     Net deferred tax assets                                        $            -       $            -
                                                                ===========================================
</Table>

As there is no assurance of future income, a 100% valuation reserve in 2001 and
2000 has been established against the Company's net deferred tax assets. The
Company will continue to evaluate the necessity for such valuation reserve in
the future.


                                      F-18
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


6.  FEDERAL INCOME TAXES (CONTINUED)

The Company's ability to use its NOL carryforwards to offset future taxable
income is subject to restrictions enacted in the U.S. Internal Revenue Code of
1986 as amended (the Code). These restrictions provide for limitations on the
Company's utilization of its NOL carryforwards following certain ownership
changes described in the Code. As a result of ownership changes, the Company's
existing NOL carryforwards are subject to limitation and may become further
limited by future ownership changes. Additionally, because United States tax
laws limit the time during which NOL and tax credit carryforwards may be applied
against future taxable income and tax liabilities, the Company may not be able
to take full advantage of its NOL and tax credits for federal income tax
purposes.

7.  LEASE OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES

OPERATING LEASES

The Company leases office space under noncancelable operating leases expiring in
2002. Rentals are subject to escalation for increases in property taxes,
insurance, and various other expenses. The Company is currently attempting to
negotiate a new month-to-month lease on the San Antonio facility commencing in
August 2002. Future minimum rental payments of the Company under existing and
pending operating lease agreements, net of sublease income of $59,000, at
December 31, 2001 are as follows:

     2002                                                     $  43,000

Rent expense totaled approximately $67,000 and $154,000 for the years ended
December 31, 2001 and 2000, respectively. Rent expense for the years ended
December 31, 2001 and 2000 is net of sublease income of approximately $147,000
and $61,000, respectively.

EMPLOYMENT AGREEMENTS

As of December 31, 2001, the Company has entered into various employment
agreements that provide for compensation for future services. Future payments
under the employee agreements are as follows:

     2002                                                     $  260,000
     2003                                                         60,000



                                      F-19
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


7.  LEASE OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)

Certain of the Company's employees have an opportunity to earn bonuses based
upon the achievement of specified performance criteria.

CONTINGENCIES

On February 19, 2001, in Andrieni v. Lifequest Medical, Inc., et al., Civil
Action File No. E-71617 in Fulton County (Georgia) Superior Court, the jury
rendered a verdict in favor of plaintiffs in the amount of $297,000, plus
statutory interest. The Company recorded an expense and accrued liability of
approximately $360,000 as of December 31, 2000. During 2001, the Company settled
the Andrieni complaint for consideration primarily consisting of cash, future
installment payments of $6,000 per month for eighteen months totaling $108,000,
and 600,000 shares of common stock valued at approximately $30,000. The
settlement's estimated fair value is $168,000. The resulting change in estimate
of the expense and accrued liability of $192,000 was recorded in October 2001.
At December 31, 2001, $102,000 remains outstanding on the cash installment
obligation. In the event of Dexterity's failure to make any of the monthly cash
installment payments within a ten-day period after such payment is due, the
plaintiff retains the right to demand the immediate repayment of the entire
amount remaining unpaid.

Included in accounts payable at December 31, 2001 and 2000 is approximately
$2,213,000 owed to U.S. Surgical, a former supplier, for goods shipped prior to
the cancellation of the GSI distribution agreement. The Company chose to
withhold payment of the liability when U.S. Surgical stopped further shipments
under the agreement. During 2001, U.S. Surgical filed a counterclaim to collect
the amount owed by the Company.

The Company is also a party to claims and legal proceedings arising in the
ordinary course of business. The Company believes it is unlikely that the final
outcome of any of the claims or proceedings to which the Company is a party
would have a material adverse effect on the Company's financial statements.
However, due to the inherent uncertainty of litigation, the range of possible
loss, if any, cannot be estimated with a reasonable degree of precision, and
there can be no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on the Company's results of
operations for the interim period in which such resolution occurred.


                                      F-20
<PAGE>

                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000



8.  DEBT AND OTHER LONG-TERM OBLIGATIONS

Debt and other long-term obligations were outstanding as follows:

<Table>
<Caption>
                                                                             DECEMBER 31
                                                                     2001                   2000
                                                            -----------------------------------------------
<S>                                                             <C>                    <C>
     Dexterity notes (in default at December 31, 2001) (1)      $      1,000,000       $      1,000,000
     Line of credit (2)                                                  645,995                754,233
     Royalty obligation (in default at
       December 31, 2001) (3)                                          7,116,406              6,387,670
     Convertible debentures (in default at December 31,
       2001 and 2000) (4)                                              2,632,563              2,970,000
                                                            -----------------------------------------------
                                                                      11,394,964             11,111,903
     Less current portion                                              7,334,743              6,119,039
                                                            -----------------------------------------------

     Total long-term obligations                                $      4,060,221       $      4,992,864
                                                            ===============================================
</Table>

(1)  Unsecured notes payable related to Dexterity acquisition, bearing interest
     at 12%, interest due quarterly, matured in October 2001. The Company is
     presently in default of and in negotiations to renew this obligation. The
     Company does not have sufficient resources to satisfy this obligation in
     the event of demand for payment. In February 2000, the Company and the
     lender amended the notes to allow interest for the period January 1, 2000
     through December 31, 2000 to be paid in shares of common stock at a per
     share price of $1.00. Interest subsequent to December 31, 2000 has been
     paid in cash.

(2)  Revolving line of credit secured by accounts receivable, inventories, and
     intangible assets. In May 2001, Teleflex, Inc., a major stockholder in the
     Company, purchased this instrument from the previous lender. Teleflex, Inc.
     and the Company are negotiating new terms and conditions for the line of
     credit. The outstanding balance continues to be classified as a current
     liability, and interest at prime rate plus 1.5% continues to accrue until
     negotiations are completed. There are no additional funds available under
     the current borrowing base.



                                      F-21
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


8.   DEBT AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)

(3)  Royalty obligation in default related to Dexterity acquisition, subject to
     annual minimum payments over a period of seven years, discounted at 12%.
     The minimum payments aggregate approximately $9.7 million over the
     seven-year royalty period. The Company does not have sufficient resources
     to satisfy this obligation in the event of demand for payment.

     The agreement between the Company and the holders of the obligation
     specifies that a penalty of 12% shall be applied to any royalty amounts not
     paid when due. Penalty payments of $37,289 are included in accrued
     liabilities at December 31, 2001.

     Subsequent to December 31, 1999, the Company and holders of the royalty
     obligation agreed to an amendment to the royalty agreement whereby a
     portion of the royalties due for the period January 1, 2000 through
     December 31, 2000 would be paid in shares of common stock at a per share
     price of $1.00. The amount paid in stock approximated $400,000. Royalties
     payable at and subsequent to December 31, 2000 are payable in cash and
     remain outstanding at December 31, 2001.

     Future minimum royalty obligations are due as follows at December 31, 2001:

<Table>
<S>                                                                                      <C>
              Unpaid royalty obligations at December 31, 2001                            $    1,394,806
              2002                                                                            1,661,379
              2003                                                                            1,779,401
              2004                                                                            1,779,401
              2005                                                                            1,779,401
              Thereafter                                                                        444,850
                                                                                     ----------------------
              Gross minimum royalty obligation                                                8,839,238
              Less amount representing interest                                               1,722,832
                                                                                     ----------------------
              Discounted royalty obligation                                                   7,116,406
              Less current portion                                                            3,056,185
                                                                                     ----------------------

              Long-term royalty obligation                                               $    4,060,221
                                                                                     ======================
</Table>


                                      F-22
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


8.  DEBT AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)

(4)  In December 1997, the Company sold 250,000 shares of common stock to
     affiliates of Renaissance Capital Group, Inc. (Renaissance), in a private
     placement for aggregate proceeds of $1,000,000, and placed $3,000,000 in 9%
     Convertible Debentures (Debentures) with Renaissance. The Debentures are
     secured by substantially all of the assets of the Company and require
     monthly payments of interest beginning in February 1998 and, unless sooner
     paid, redeemed, or converted, monthly principal payments commencing in
     December 2000 of $10 per $1,000 of the then-remaining principal amount. The
     remaining principal balance will mature in December 2004. Subsequent to
     year-end, the Company is in technical default as to monthly principal and
     interest payments. The Company and Renaissance are discussing a possible
     restructuring of the Debentures. However, no assurance can be given that a
     restructuring will actually occur.

     The Debentures are convertible into shares of the Company's common stock,
     in whole or in part, at any time at the option of the holder. The
     Debentures are currently convertible at a price of $1.00 per share of
     common stock, or 2,632,563 shares. The conversion price is subject to
     downward revision if the Company sells shares of its common stock, or
     securities convertible into shares of its common stock, at a price less
     than $1.00 per share of common stock, subject to certain allowed
     exceptions, during the term of the Debentures.

     The Debentures currently require the Company to comply with the following
     financial covenants: (i) a Debt-to-Net Worth Ratio of no greater than
     .99:1; (ii) an Interest Coverage Ratio of at least .60:1; (iii) a Debt
     Coverage Ratio of at least .10:1; and (iv) a Current Ratio of at least
     .68:1. The Company is currently not in compliance and, therefore, is in
     technical default under the Debentures. Accordingly, the holders have the
     right to demand the immediate repayment of the entire amount outstanding.
     Accordingly, the entire balance due of $2,632,563 has been classified as a
     current liability as of December 31, 2001. The Company currently does not
     have sufficient resources to fund such amounts in the event of such
     acceleration.

     Additionally, an amendment allowed for interest on the Debentures to be
     paid in shares of common stock at a per share price of $1.00 for the period
     February 1, 2000 through January 31, 2001. Interest subsequent to January
     31, 2001 has been paid in cash.


                                      F-23
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


8.  DEBT AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)


     If not accelerated by demand of the holders, the obligation is due as
     follows under its original maturity schedule:

<Table>
<S>                                                                                      <C>
         2002                                                                            $      297,563
         2003                                                                                   265,000
         2004                                                                                 2,070,000
                                                                                     ----------------------

         Total                                                                           $    2,632,563
                                                                                     ======================
</Table>

     Interest expense was incurred as follows during 2001 and 2000:

<Table>
<Caption>
                                                                          YEAR ENDED DECEMBER 31
                                                                        2001                 2000
                                                                -------------------------------------------
<S>                                                                 <C>                  <C>
     Dexterity notes                                                $      120,000       $      120,000
     Line of credit                                                         74,803              153,597
     Royalty obligation                                                    728,736              747,786
     Convertible debentures                                                506,064              325,161
     Deferred finance and other charges                                     86,967               92,004
                                                                -------------------------------------------

     Total                                                          $    1,516,570       $    1,438,548
                                                                ===========================================
</Table>


                                      F-24
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


8.  DEBT AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)

     Interest expense was paid as follows in 2001 and 2000:

<Table>
<Caption>
                                                             SHARES OF       NONCASH           TOTAL
                                                              COMMON      ACCRETION AND      INTEREST
                                                 CASH         STOCK        AMORTIZATION        PAID
                                            -------------------------------------------------------------
<S>                                           <C>             <C>           <C>             <C>
     2001:
       Dexterity notes                        $    90,000     $        -    $           -   $     90,000
       Line of credit                              34,803              -                -         34,803
       Royalty obligation                               -              -          728,736        728,736
       Convertible debentures                     230,225         22,500                -        252,725
       Deferred finance and other charges          12,135              -           74,832         86,967
                                           ----------------------------------------------------------------

     Total                                    $   367,163     $   22,500    $     803,568   $  1,193,231
                                           ================================================================

     2000:
       Dexterity notes                        $         -     $  120,000    $           -   $    120,000
       Line of credit                             153,597              -                -        153,597
       Royalty obligation                               -              -          747,786        747,786
       Convertible debentures                      22,500        247,500                -        270,000
       Deferred finance and other charges          17,172              -           74,832         92,004
                                           ----------------------------------------------------------------
     Total                                    $   193,269     $  367,500    $     822,618   $  1,383,387
                                           ================================================================
</Table>

In February 2000, the Company and the lender amended the Dexterity notes to
allow interest for the period January 1, 2000 through December 31, 2000 to be
paid in shares of common stock at a per share price of $1.00. During 2000
120,000 shares were issued to satisfy interest obligations during the year.
Interest subsequent to December 31, 2000 has been paid in cash.

An amendment on the Debentures allowed for interest to be paid in shares of
common stock at a per share price of $1.00 for the period February 1, 2000
through January 31, 2001. During 2000 270,000 shares were issued. These shares,
which related to the satisfaction of 2001 interest obligations, are included in
prepaid and other assets on the December 31, 2000 balance sheet. Interest
subsequent to January 31, 2001 has been paid in cash.



                                      F-25
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


9.  PREFERRED STOCK PLACEMENTS

Pursuant to a private placement which occurred in July and August 2000, the
Company issued to TFX Equities, Inc., a business development subsidiary of
Teleflex, Inc., and Cuda Products Company, whose chief executive officer is a
director of the Company, an aggregate of 400 shares of Series C Cumulative
Convertible Preferred Stock, $.001 par value (Series C Preferred Stock), for
aggregate proceeds of $400,000. The Company used such proceeds for working
capital. The annual dividends on the Series C Preferred Stock are cumulative at
a rate of $80 per share. The Series C Preferred Stock is currently convertible
into shares of common stock at a conversion price of $1.00 per share, for an
aggregate of 400,000 shares of common stock. The conversion price for the Series
C Preferred Stock is subject to downward adjustment in the event the Company
sells shares of common stock, or securities convertible into shares of common
stock, at a per share price less than $1.00. The holders of Series C Preferred
Stock are entitled to one vote per share on all matters submitted to a vote of
the stockholders of the Company, and the affirmative vote of the holders of
66 2/3% of the votes entitled to be cast by the holders of the Series C
Preferred Stock is required in order to amend the Company's Certificate of
Incorporation or Bylaws to materially affect the rights of the holders of Series
C Preferred Stock, including authorizing and creating a class of stock having
rights prior to or senior to the Series C Preferred Stock. In the event two
quarterly dividends payable on the Series C Preferred Stock are in arrears, the
holders of the Series C Preferred Stock, by a majority vote, shall be entitled
to designate two additional directors to serve on the Company's Board of
Directors.

Pursuant to a private placement which occurred in November 1998, the Company
issued to two affiliates of Renaissance and one individual, who is an officer
and director of the Company, an aggregate of 1,025 shares of Series B Cumulative
Convertible Preferred Stock, $.001 par value (Series B Preferred Stock), for
aggregate proceeds of $1,025,000. The Company used such proceeds for working
capital. The annual dividends on the Series B Preferred Stock are cumulative at
a rate of $80 per share. The Series B Preferred Stock is currently convertible
into shares of common stock at a conversion price of $1.54 per share, for an
aggregate of 665,584 shares of common stock. The conversion price for the Series
B Preferred Stock is subject to downward adjustment in the event the Company
sells shares of common stock, or securities convertible into shares of common
stock, at a per share price less than $1.54. The holders of Series B Preferred
Stock are entitled to one vote per share on all matters submitted to a vote of
the stockholders of the Company, and the affirmative vote of the holders of
66 2/3% of the votes entitled to be cast by the


                                      F-26
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


9.  PREFERRED STOCK PLACEMENTS (CONTINUED)

holders of the Series B Preferred Stock is required in order to amend the
Company's Certificate of Incorporation or Bylaws to materially affect the rights
of the holders of Series B Preferred Stock, including authorizing and creating a
class of stock having rights prior to or senior to the Series B Preferred Stock.
In the event two quarterly dividends payable on the Series B Preferred Stock are
in arrears, the holders of the Series B Preferred Stock, by a majority vote,
shall be entitled to designate two additional directors to serve on the
Company's Board of Directors.

In August 1998, pursuant to a private placement, the Company issued to
Renaissance and two individuals, including one who is an officer and director of
the Company, an aggregate of 1,170 shares of Series A Cumulative Convertible
Preferred Stock, $.001 par value (Series A Preferred Stock), for aggregate
proceeds of $1,170,000. The Company used such proceeds for working capital.
During March 2000, 150 shares of Series A Preferred Stock were converted to
93,750 shares of common stock. The annual dividends on the Series A Preferred
Stock are cumulative at a rate of $80 per share. The Series A Preferred Stock is
currently convertible into shares of common stock at a conversion price of $1.54
per share, for an aggregate of 662,338 shares of common stock. The conversion
price for the Series A Preferred Stock is subject to downward adjustment in the
event the Company sells shares of common stock, or securities convertible into
shares of common stock, at a per share price less than $1.54. The holders of
Series A Preferred Stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders of the Company, and the affirmative vote
of the holders of 66 2/3% of the votes entitled to be cast by the holders of the
Series A Preferred Stock is required in order to amend the Company's Certificate
of Incorporation or Bylaws to materially affect the rights of the holders of
Series A Preferred Stock, including authorizing and creating a class of stock
having rights prior to or senior to the Series A Preferred Stock. In the event
two quarterly dividends payable on the Series A Preferred Stock are in arrears,
the holders of Series A Preferred Stock, by a majority vote, shall be entitled
to designate two additional directors to serve on the Company's Board of
Directors.


                                      F-27
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


10.  EARNINGS PER SHARE

The following table sets forth the reconciliation from basic to diluted weighted
average shares of common stock outstanding and the calculation of net loss per
share of common stock:

<Table>
<Caption>
                                                                        YEAR ENDED DECEMBER 31
                                                                       2001                  2000
                                                              ---------------------------------------------
<S>                                                               <C>                    <C>
     Computation of basic loss per share:
       Net loss                                                   $    (15,832,017)      $   (5,746,538)
       Preferred stock dividends                                          (195,600)            (176,933)
                                                              ---------------------------------------------

     Net loss applicable to common stockholders                   $    (16,027,617)      $   (5,923,471)
                                                              =============================================

     Weighted average shares of common stock outstanding
       used for computation                                             11,619,853           11,130,368
                                                              =============================================

     Basic loss per share of common stock                         $          (1.38)        $      (0.53)
                                                              =============================================

     Computation of diluted loss per share:
       Net loss                                                   $    (15,832,017)      $   (5,746,538)
       Interest on convertible debentures                                  506,064              270,000
                                                              ---------------------------------------------

     Net loss used for computation                                $    (15,325,953)      $   (5,476,538)
                                                              =============================================

     Weighted average shares of common stock outstanding                11,619,853           11,130,368
     Weighted average incremental shares outstanding upon
       assumed conversion of options and dilutive
       securities                                                           45,868               61,635
     Weighted average incremental shares outstanding upon
       assumed conversion of convertible debentures and
       preferred stock                                                   4,518,820            4,501,883
                                                              ---------------------------------------------

     Weighted average shares of common stock and common
       stock equivalents outstanding used for computation               16,184,541           15,693,886
                                                              =============================================
     </Table>


                                      F-28

<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


10.  EARNINGS PER SHARE (CONTINUED)

<Table>
<Caption>
                                                                         YEAR ENDED DECEMBER 31
                                                                        2001                 2000
                                                                -------------------------------------------

<S>                                                                <C>                   <C>
     Diluted loss per common share and common share
       equivalents (a)                                                $  (0.95)           $  (0.35)
                                                                ===========================================
</Table>

     (a) This calculation is submitted in accordance with Item 601(b)(11) of
         Regulation SB. As the calculation is antidilutive in loss periods,
         diluted loss per common share equals basic loss per common share.

11.  STOCK OPTIONS AND WARRANTS

In December 1989, the Company adopted a stock option plan (the 1989 Plan). Under
the 1989 Plan, the Company may grant incentive and nonstatutory stock options to
employees, directors, and consultants of the Company. Unexercised options expire
10 years from the date of grant. The 1989 Plan expired in December 1999, and
347,950 shares of common stock are reserved for future issuance for options
still outstanding at December 31, 2001.

In August 1994, ValQuest adopted the 1994 Stock Option Plan (the 1994 Plan).
Under the 1994 Plan, ValQuest may grant incentive and nonstatutory stock options
to employees, directors, and consultants of ValQuest. The maximum number of
shares of ValQuest common stock available for grant under the 1994 Plan is
250,000. Stock options under the 1989 Plan and the 1994 Plan become exercisable
pursuant to the individual written agreements between the Company and ValQuest,
respectively, and the participants. Unexercised options expire 10 years from the
date of grant for the 1994 Plan. At December 31, 2001, 48,000 of the options
outstanding and exercisable are exercisable into the common stock of ValQuest.

In May 1995, the Company adopted the 1995 Non-Employee Director Stock Option
Plan (NEDSOP). Under NEDSOP, the Company may grant stock options to nonemployee
directors of the Company. The maximum number of shares available for grant under
NEDSOP is 400,000. The NEDSOP options vest in 25% increments on each succeeding
anniversary of the grant date, with unexercised options expiring on the tenth
anniversary of the date they vest. At December 31, 2001, 65,500 options are
outstanding under the NEDSOP.


                                      F-29
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


11.  STOCK OPTIONS AND WARRANTS (CONTINUED)

In December 1999, the Company adopted a stock option plan to replace the 1989
Plan (the 2000 Plan). Under the 2000 Plan, the Company may grant incentive and
nonstatutory stock options and restricted shares of common stock to employees,
directors, and consultants of the Company. Unexercised options vest in 25%
increments on each succeeding anniversary of the grant date, with unexercised
options expiring on the tenth anniversary of the date of grant. The maximum
number of shares available for grant under the 2000 Plan is 3,500,000, including
2,000,000 shares under option grants and 1,500,000 shares of restricted stock.
At December 31, 2001, 260,000 options are outstanding under the 2000 Plan.

Under all plans, the exercise price must be at least equal to the stock's market
price on the date of grant.

The Company periodically grants options to employees and directors outside of
any plan. During the year ended December 31, 2001, the Company did not grant
options outside of any option plan. At December 31, 2001, shares of common stock
are reserved for future issuance for the 701,950 options outstanding outside of
any plan.

Had compensation cost for these plans been determined consistent with FAS 123,
the Company's net loss applicable to common stock and net loss per share would
have been changed to the following pro forma amounts at December 31:

<Table>
<Caption>
                                                                      2001                   2000
                                                            -----------------------------------------------
<S>                                  <C>                       <C>                      <C>
      Net loss applicable to
       common stock                  As reported                $     (16,027,617)       $   (5,923,471)
                                     Pro forma                        (16,248,721)           (6,118,921)

     Loss per share, basic and
       diluted                       As reported                $        (1.38)          $     (0.53)
                                     Pro forma                           (1.40)                (0.55)
</Table>

Because the FAS 123 method of accounting has not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.



                                      F-30
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


11.  STOCK OPTIONS AND WARRANTS (CONTINUED)

A summary of the status of the Company's stock options at December 31, 2001 and
2000, and changes during the years then ended, is presented in the table below:

<Table>
<Caption>
                                                         2001                            2000
                                            ------------------------------- -------------------------------
                                                              WEIGHTED                   WEIGHTED AVERAGE
                                                          AVERAGE EXERCISE                   EXERCISE
                                                SHARES       PRICE PER         SHARES       PRICE PER
                                                (000S)         SHARE            (000S)        SHARE
                                            ------------------------------- -------------------------------
<S>                                              <C>          <C>                <C>          <C>
     Outstanding, beginning of year              1,620        $  1.99            1,544        $  2.33
       Granted                                     379           0.15              521            .97
       Canceled                                      -           -                 (50)          1.00
       Forfeited                                  (576)          1.08             (395)          2.07
                                            ------------------------------- -------------------------------

     Outstanding, end of year                    1,423        $  1.89            1,620        $  1.99
                                            =============================== ===============================

     Options exercisable, end of year            1,208        $  1.90              895        $  2.38
                                            =============================== ===============================

     Weighted average fair value of
       options granted                                        $  0.11                         $   .65
                                                          =================               =================
</Table>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model for a stock that does not pay dividends with
the following weighted average assumptions used for grants in 2001 and 2000:
risk-free interest rates based on market rates at grant date, ranging from 4.9%
to 6.8%; expected lives of five years; and expected volatility of 88 percent and
77 percent, respectively.


                                      F-31
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


11.  STOCK OPTIONS AND WARRANTS (CONTINUED)

The following table summarizes the information about options outstanding at
December 31, 2001:

<Table>
<Caption>
                                                       WEIGHTED AVERAGE            NUMBER
                                                          REMAINING              EXERCISABLE
                                                         CONTRACTUAL                 AT
      EXERCISE PRICES                NUMBER                 LIFE                DECEMBER 31,
         PER SHARE                OUTSTANDING             (YEARS)                   2001
-----------------------------------------------------------------------------------------------------------
<S>                                  <C>                 <C>                       <C>
         $    .001                      5,285               1.03                      5,285
              .14                     245,000               9.01                    245,000
              .33                      16,000               9.33                     16,000
              .75                      68,000               4.38                     68,000
             1.00                     270,000               7.98                    181,250
             1.88                      27,000               7.11                     13,500
             2.00                     364,500               6.68                    262,500
             2.25                      25,000               3.39                     25,000
             2.50                      20,050               3.67                     20,050
             3.00                     160,000               4.97                    160,000
             3.13                      11,700               5.07                     11,700
             3.25                      28,500               6.11                     28,500
             4.00                      30,700               2.79                     30,700
             4.25                      25,000               6.18                     18,750
             4.38                     108,433               5.93                    103,933
             4.88                       4,500               5.46                      4,500
             5.03                      13,332               5.75                     13,332
                           ---------------------------                    ---------------------------

                                    1,423,000                                     1,208,000
                           ===========================                    ===========================
</Table>

WARRANTS

At December 31, 2001, the Company has 1,697,500 warrants outstanding. Each
warrant, when exercised, is exchangeable for one share of the Company's common
stock.


                                      F-32
<PAGE>
                    Dexterity Surgical, Inc. and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

                           December 31, 2001 and 2000


11.  STOCK OPTIONS AND WARRANTS (CONTINUED)

The following table summarizes the information about warrants outstanding at
December 31, 2001:

<Table>
<Caption>
         EXERCISE                    NUMBER              NUMBER EXERCISABLE
           PRICE                  OUTSTANDING             DECEMBER 31, 2001             EXPIRATION
-----------------------------------------------------------------------------------------------------------
<S>                                  <C>                         <C>                 <C>
            $1.00                    1,500,000                   300,000             March 2009
            $1.50                       50,000                         -             *
            $2.00                       22,500                    22,500             December 2004
            $2.25                       25,000                    25,000             April 2004
            $3.00                       50,000                         -             *
            $4.00                       50,000                         -             *
</Table>

*  These warrants are exercisable when the Company's stock trades at various
   minimum prices for 10 consecutive days. These warrants expire December 2002.



                                      F-33


<PAGE>


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           IDENTIFICATION OF EXHIBIT
------                           -------------------------
<S>      <C>
2.1      Plan of Merger and Acquisition Agreement dated December 18, 1998
         between Dexterity Incorporated and the Company (incorporated by
         reference herein to Exhibit 2.8 to the Company's Annual Report on Form
         10-KSB for the year ended December 31, 1998).

3.1      Restated Certificate of Incorporation, as amended (incorporated
         by reference herein to Exhibit 3.1 to the Company's Annual Report on
         Form 10-KSB for the year ended December 31, 2000).

3.2      Bylaws of the Registrant (incorporated by reference herein to Exhibit
         3.2 to the Company's Registration Statement on Form S-1 filed on August
         19, 1992, Registration No. 33-49196).

4.1      Convertible Loan Agreement among the Company, Renaissance Capital
         Growth and Income Fund III, Inc., Renaissance US Growth and Income
         Trust PLC and Renaissance Capital Group, Inc. dated December 19, 1997
         (incorporated by reference herein to Exhibit 4.1 to the Company's
         Annual Report on Form 10-KSB for the fiscal year ended December 31,
         1997).

10.1     1989 Stock Option Plan of LifeQuest Medical, Inc. (incorporated by
         reference herein to Exhibit 4.4 to the Company's Registration Statement
         on Form S-8 filed on October 12, 1993, Registration No. 33-70174).

10.2     Incentive Stock Option Agreement dated October 17, 1994, between
         LifeQuest Medical, Inc. and Randall K. Boatright (incorporated herein
         by reference to Exhibit 10.16 to the Company's Annual Report on Form
         10-K for the fiscal year ended December 31, 1994).

10.3     1994 Non-Employee Director Stock Option Plan (incorporated herein by
         reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
         for the fiscal year ended December 31, 1994).

10.4     Non-Qualified Stock Option Agreement dated October 17, 1994, between
         LifeQuest Medical, Inc. and Robert B. Johnson (incorporated herein by
         reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
         for the fiscal year ended December 31, 1994).

10.5     Non-Qualified Stock Option Agreement dated March 2, 1995, between
         LifeQuest Medical, Inc. and Jeffrey H. Berg, Ph.D. (incorporated herein
         by reference to Exhibit 10.22 to the Company's Annual Report on Form
         10-K for the fiscal year ended December 31, 1994).

10.6     Employment Agreement dated December 27, 1996, between Val-U-Med
         Acquisition Co. and K.C. Fadem (incorporated by reference herein to
         Exhibit 10.1 to the Company's Current Report on Form 8-K filed January
         10, 1997).

10.7     Non-Qualified Stock Option Agreement dated December 27, 1996, between
         LifeQuest Medical, Inc. and K.C. Fadem (incorporated by reference
         herein to Exhibit 10.2 to the Company's Current Report on Form 8-K
         filed January 10, 1997).

10.8     Employment Agreement dated December 27, 1996, between Val-U-Med
         Acquisition Co. and Robert Fadem (incorporated by reference herein to
         Exhibit 10.3 to the Company's Current Report on Form 8-K filed January
         10, 1997).

10.9     Non-Qualified Stock Option Agreement dated December 27, 1996, between
         LifeQuest Medical, Inc. and Robert Fadem (incorporated by reference
         herein to Exhibit 10.4 to the Company's Current Report on Form 8-K
         filed January 10, 1997).

10.10    Lease Agreement dated April 28, 1997, between Interpark Jack Limited
         Partnership and LifeQuest Medical, Inc. (incorporated by reference
         herein to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
         for the quarterly period ended June 30, 1997).

10.11    Lease Agreement dated March 1, 1997, between Williams North Fulton
         Group and the Company (incorporated by reference herein to Exhibit 10.2
         to the Company's Quarterly Report on Form 10-Q for the quarterly period
         ended June 30, 1997).

10.12    Employment Agreement dated September 30, 1997, between William H.
         Bookwalter and the Company (incorporated by reference herein to Exhibit
         No. 10.1 to the Company's Quarterly Report on Form 10-Q for the
         quarterly period ended September 30, 1997).

10.13    Distribution Agreement dated May 1, 1997 between LifeQuest Medical,
         Inc. and Origin MedSystems, Inc. (incorporated by reference herein to
         Exhibit No. 10.27 to the Company's Annual Report on Form 10-KSB/A for
         the year ended December 31, 1997).

10.14    Employment Agreement dated April 1, 1998 between the Company and
         Randall K. Boatright (incorporated herein by reference to Exhibit 10.1
         to the Company's Form 10-Q for the quarter ended June 30, 1998).

10.15    Series A Cumulative Convertible Stock Purchase Agreement dated August
         11, 1998, among the Company, Renaissance Capital Growth & Income Fund
         III, Inc. and Renaissance U.S. Growth & Income Trust, PLC (incorporated
         herein by reference to Exhibit 10.5 to the Company's Form 10-Q for the
         quarter ended June 30, 1998).

10.16    Series A Cumulative Convertible Preferred Stock Purchase Agreement
         dated August 11, 1998, among the Company, Richard A. Woodfield and R.
         Michael Yates (incorporated herein by reference to Exhibit 10.6 to the
         Company's Form 10-Q for the quarter ended June 30, 1998).

10.17    Series B Convertible Stock Purchase Agreement dated November 19, 1998,
         among the Company, Renaissance Capital Growth & Income Trust Fund III,
         Inc. and Renaissance U.S. Growth & Income Trust, PLC. (incorporated by
         reference herein to Exhibit 10.18 to the Company's Annual Report on
         Form 10-KSB for the year ended December 31, 1998).
</TABLE>
<PAGE>


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           IDENTIFICATION OF EXHIBIT
------                           -------------------------
<S>      <C>
10.18    Amended Employment Agreement between the Company and Richard A.
         Woodfield dated December 15, 1998. (incorporated by reference herein to
         Exhibit 10.19 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 1998).

10.19    Amended Stock Option Agreement between the Company and Richard A.
         Woodfield dated December 15, 1998. (incorporated by reference herein to
         Exhibit 10.20 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 1998).

10.20    Series B Convertible Preferred Stock Purchase agreement dated January
         21, 1999 between the Company and Richard A. Woodfield (incorporated by
         reference herein to Exhibit 10.1 to the Company's Quarterly Report on
         Form 10-QSB filed May 14, 1999).

10.21    Consulting Agreement between the Company and Christopher Black dated
         March 18, 1999 (incorporated by reference herein to Exhibit 10.2 to the
         Company's Quarterly Report on Form 10-QSB filed May 14, 1999).

10.22    Royalty Agreement among the Company and TFX Equities Incorporated dated
         March 18, 1999 (incorporated by reference herein to Exhibit 10.3 to the
         Company's Quarterly Report on Form 10-QSB filed May 14, 1999).

10.23    Registration Rights Agreement among the Company and Dexterity
         Stockholders dated March 18, 1999 (incorporated by reference herein to
         Exhibit 10.4 to the Company's Quarterly Report on Form 10-QSB filed May
         14, 1999.

10.24    Exclusive Distribution Agreement between the Company and Weck Closure
         Systems, LLC dated July 1, 2000 (incoporated herein by reference to
         Exhibit 99.2 to the Company's Current Report on Form 8-L filed
         September 13, 2000).

10.25    Amended Employment Agreement between the Company and Randall K.
         Boatright dated December 1, 2000 (incorporated herein by reference to
         Exhibit 10.25 to the Company's Annual Report on Form 10-KSB for the
         year ended December 31, 2000).

10.26    Series C Convertible Preferred Stock Purchase Agreement dated July 31,
         2000 (incorporated herein by reference to Exhibit 10.26 to the
         Company's Annual Report on Form 10-KSB for the year ended December 31,
         2000).

10.27    Distribution Agreement between the Company and Weck Closure Systems LLC
         dated June 5, 2001 (incorporated herein by reference to Exhibit 10.1 to
         the Company's Quarterly Report on Form 10-QSB filed August 10, 2001).

22       Subsidiaries

                                      State of            Name Under Which
         Name                         Incorporation       Doing Business
         -----------------------------------------------------------------------
         ValQuest Medical, Inc.       Nevada              ValQuest Medical, Inc.


23.1*    Consent of Ernst & Young LLP
</TABLE>

*   Filed herewith