<PAGE>
                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, 2002
                                       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 SMALL BUSINESS ISSUER IN ITS CHARTER)

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

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

         Issuer'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)

      CHECK WHETHER THE ISSUER (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____.

      CHECK 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|

      ISSUER'S REVENUES FOR FISCAL YEAR ENDED DECEMBER 31, 2002: $2,060,000.

      AT MARCH 14, 2003 (BASED UPON THE LAST REPORTED SALES PRICE OF $.003 PER
SHARE), THE AGGREGATE MARKET VALUE OF THE COMMON STOCK, $.001 PAR VALUE, OF THE
ISSUER HELD BY NON-AFFILIATES WAS APPROXIMATELY $27,319.

      AT MARCH 14, 2003, THERE WERE OUTSTANDING 12,121,492 SHARES OF COMMON
STOCK, $.001 PAR VALUE, OF THE ISSUER.

<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

      Certain statements contained in this Form 10-KSB, including but not
limited to statements made in this Item 1, "Description of Business" and those
made in Item 6, "Management's Discussion and Analysis or Plan of Operation," 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 1 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 the 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

      On February 17, 2003, we announced the execution of a letter of intent
with Davol, Inc. ("Davol"), whereby Davol has agreed to purchase substantially
all assets of the Company relating to the Protractor line in consideration for
cash of $7 million. Any transaction with Davol will be subject to numerous
conditions to closing, including approval of the stockholders and creditors of
the Company, completed due diligence by Davol to its satisfaction, approval of
the Board of Directors of Davol, execution and delivery of a definitive purchase
and sale agreement satisfactory to the Company and Davol, termination of the
distribution rights relating to the Protractor line and the restructure of
certain intellectual property rights relating to the Protractor line and other
conditions.

      On September 11, 2002, the Company entered into an agreement with United
States Surgical Corporation ("U.S. Surgical"), a division of Tyco Healthcare
Group LP, which could ultimately settle all claims and counter claims between
the two parties. The pertinent terms of the settlement agreement are as follows:

      -     The Company represents and warrants it is in the process of
            negotiating the sale of the Dexterity Protractor(R) product line.

      -     Within seven (7) days of the closing of the sale, the Company will
            pay U.S. Surgical $800,000 in full settlement of the $2,500,000
            trade accounts payable to U.S. Surgical currently recorded on the
            Company's books and records. The $800,000 payment is due on or
            before April 20, 2003, and, in the event such payment is not made by
            the deadline, U.S. Surgical would be entitled to enforce its
            judgement against us. We intend to request an extension of the
            payment deadline; however, there


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            can be no assurance that U.S. Surgical will grant us an extension. A
            cost of litigation settlement of $287,000 was recorded in September
            2002.

      -     Should the sale of the Protractor(R) line not take place, U.S.
            Surgical may enforce a Stipulated Judgment foR $2,500,000 in favor
            of U.S. Surgical as filed by both parties on September 30, 2002.

      -     However, should the sale close, U.S. Surgical has executed a
            satisfaction of judgment which will be filed on the ninety-first day
            after payment of $800,000 upon closing.

      If and when the sale of the Protractor line closes, the Company expects to
owe approximately $325,000 to $700,000 in additional legal and closing costs.

      Although the Company is pursuing the sale of the Protractor line (which
accounted for 67% of net sales in 2002 and 50% of net sales in 2001), two
significant approvals must be obtained prior to the sale being consummated: (1)
the sale will require shareholder approval through the formal proxy process and
a special shareholders meeting and (2) two secured creditors, who were owed
amounts of $2,632,563 and $645,995 as of December 31, 2002, must agree to both
the sale and an agreement on settlement of the Company's debt. Accordingly,
because of the significance of the above conditions, the Protractor line has not
been classified as available for sale at December 31, 2002.

      Virtually all debts and obligations of the Company are in default. 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 demanded immediate repayment of the entire amount outstanding,
which was $2,632,563 at December 31, 2002. This default, in turn, invoked the
cross-default clause in the Company's line of credit agreement, under which
$645,995 was outstanding at December 31, 2002. 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 to the former
stockholders of Dexterity Incorporated. The Company currently does not have
sufficient resources to fund such amounts. 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. IF THE
RESTRUCTURING IS NOT SUCCESSFUL WE WOULD LIKELY BE REQUIRED TO SEEK PROTECTION
UNDER THE UNITED STATES BANKRUPTCY LAWS.

GENERAL

      We are engaged in the distribution of instruments, equipment and surgical
supplies used in a hand-assisted laparoscopic surgery ("HALS") through an
exclusive distribution agreement with Weck Closure Systems, LLC ("WCS").

      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 homeostasis.

      The Pneumo Sleeve is a device that allows the surgeon to insert one hand
into the abdominal cavity while preserving pneumoperitoneum(1) during
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 Pneumo Sleeve, the Dexterity Protractor is used as a stand-alone
product for open surgery, providing atraumatic retraction and wound protection.

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


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

      We were incorporated on December 23, 1988 as a Delaware corporation and
commenced operations on January 1, 1989. In August 1992, we completed our
initial public offering of common stock, which is currently traded on the OTC
Bulletin Board. Our executive offices are located at 12961 Park Central, Suite
1300, San Antonio, Texas 78216, and our telephone number is (210) 495-8787.

RECENT DEVELOPMENTS

      On February 17, 2003, we announced the execution of a letter of intent
with Davol, whereby Davol has agreed to purchase substantially all assets of the
Company relating to the Protractor line in consideration for cash of $7 million.
Any transaction with Davol will be subject to numerous conditions to closing,
including approval of the stockholders and creditors of the Company, completed
due diligence by Davol to its satisfaction, approval of the Board of Directors
of Davol, execution and delivery of a definitive purchase and sale agreement
satisfactory to the Company and Davol, termination of the distribution rights
relating to the Protractor line and the restructure of certain intellectual
property rights relating to the Protractor line and other conditions.

      On September 11, 2002, the Company entered into an agreement with United
States Surgical Corporation ("U.S. Surgical"), a division of Tyco Healthcare
Group LP, which could ultimately settle all claims and counter claims between
the two parties. The pertinent terms of the settlement agreement are as follows:

      -     The Company represents and warrants it is in the process of
            negotiating the sale of the Dexterity Protractor(R) product line.

      -     Within seven (7) days of the closing of the sale, the Company will
            pay U.S. Surgical $800,000 in full settlement of the $2,500,000
            trade accounts payable to U.S. Surgical currently recorded on the
            Company's books and records. The $800,000 payment is due on or
            before April 20, 2003, and, in the event such payment is not made by
            the deadline, U.S. Surgical would be entitled to enforce its
            judgement against us. We intend to request an extension of the
            payment deadline; however, there can be no assurance that U.S.
            Surgical will grant us an extension. A cost of litigation settlement
            of $287,000 was recorded in September 2002.

      -     Should the sale of the Protractor(R) line not take place, U.S.
            Surgical may enforce a Stipulated Judgment for $ 2,500,000 in favor
            of U.S. Surgical as filed by both parties on September 30, 2002.

      -     However, should the sale close, U.S. Surgical has executed a
            satisfaction of judgment which will be filed on the ninety-first day
            after payment of $800,000 upon closing.

      If and when the sale of the Protractor line closes, the Company expects to
owe approximately $325,000 to $700,000 in additional legal and closing costs.

      On September 29, 2000, we signed an exclusive agreement, effective July 1,
2000, under which Weck Closure Systems (WCS) distributes the Dexterity Pneumo
Sleeve and the Dexterity Protractor in the United States. The agreement also
covers international distribution. 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 combined elements of both sales
forces under the WCS umbrella. The Company and WCS will continue as separate
business entities. 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 continued 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. The WCS
agreement may be renewed for one year periods upon such terms as the parties may
mutually agree.


                                       4
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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:

      -     $1,500,000 cash;

      -     3,000,000 shares of common stock, $.001 par value ("Common Stock"),
            of the Company;

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

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

      -     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.

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

      As described above, on February 17, 2003, we announced the execution of a
letter of intent with Davol, whereby Davol has agreed to purchase substantially
all assets of the Company relating to the Protractor line in consideration for
cash of $7 million.

PROPRIETARY PRODUCTS

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

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 our products and, in the near term, to slower acceptance of


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more advanced surgical procedures in which our 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.

      We 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 us. 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. We are
adapting to this environment by promoting the cost effectiveness of our
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 our 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. We believe 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 we 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. We believe 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. We believe that the 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.

DISTRIBUTION

      We market our proprietary products to hospitals, purchasing groups and
surgeons through WCS as its sole distributor. We distribute MIS products of
other companies through independent contractors.

COMPETITION

      The primary market in which we compete is the HALS instrument market. This
market is highly competitive and in the current healthcare environment, in which
cost containment has become a significant factor in purchasing decisions by
hospitals. We compete 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 that 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 us to the extent it would cause
them to lose discounts on products that they regularly purchase from U.S.
Surgical or Ethicon.


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      We believe that the primary competitive factors affecting our 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 our competitors' products.

      All of our 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 our competitors have long-term or preferential supply
arrangements with certain hospitals. Such arrangements may prevent us 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 us and such companies
also may be more successful than the Company in production and marketing. Rapid
technological development by others may result in our products becoming obsolete
before we recover 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 the prices we charge. We face 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 present
effectively such benefits to both clinicians and health care administrators as
well as third party payers.

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

DEPENDENCE ON WCS 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 or WCS for
our sales, marketing and distribution of our products. WCS is a subsidiary of
our largest shareholder. WCS 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 WCS is subject to termination under various
circumstances, including, in many cases, on short notice. If WCS 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. In May 2002, we entered into
a manufacturing agreement with MCT that expires in May of 2003. If this
agreement is terminated or is not renewed, we believe other companies could
manufacture our 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


                                       7
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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 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.


                                       8
<PAGE>


      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.

      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 reduction
in the volume growth of hospital purchasing and, in the near term, slower
acceptance of more advanced surgical procedures in which our products are used,
given hospital and surgeon concerns as to the costs of training and
reimbursement by payors. There can be no assurance that the Company will


                                       9
<PAGE>


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.

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, 2002,
the Company had an accumulated deficit of approximately $47.9 million, including
losses applicable to common stockholders of $3.4 million and $16 million in 2002
and 2001, 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 its rights to such devices for a
cash payment and a royalty on all future sales of such devices. The Company
generated revenues of approximately $2.1 million during the year ended December
31, 2002.

      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.


                                       10
<PAGE>


      FUTURE ADDITIONAL CAPITAL REQUIREMENTS. On February 17, 2003, we announced
the execution of a letter of intent with Davol, whereby Davol has agreed to
purchase substantially all assets of the Company relating to the Protractor line
in consideration for cash of $7 million. Any transaction with Davol will be
subject to numerous conditions to closing, including approval of the
stockholders and creditors of the Company, completed due diligence by Davol to
its satisfaction, approval of the Board of Directors of Davol, execution and
delivery of a definitive purchase and sale agreement satisfactory to the Company
and Davol, termination of the distribution rights relating to the Protractor
line and the restructure of certain intellectual property rights relating to the
Protractor line and other conditions.

      Although the Company is pursuing the sale of the Protractor line (which
accounted for 67% of net sales in 2002 and 50% of net sales in 2001), two
significant approvals must be obtained prior to the sale being consummated: (1)
the sale will require shareholder approval through the formal proxy process and
a special shareholders meeting and (2) two secured creditors, who were owed
amounts of $2,632,563 and $645,995 as of December 31, 2002, must agree to both
the sale and an agreement on settlement of the Company's debt. Accordingly,
because of the significance of the above conditions, the Protractor line has not
been classified as available for sale at December 31, 2002.

      Virtually all debts and obligations of the Company are in default. 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 demanded immediate repayment of the entire amount outstanding,
which was $2,632,563 at December 31, 2002. This default, in turn, invoked the
cross-default clause in the Company's line of credit agreement, under which
$645,995 was outstanding at December 31, 2002. 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 to the former
stockholders of Dexterity Incorporated. The Company currently does not have
sufficient resources to fund such amounts. 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. IF THE
RESTRUCTURING IS NOT SUCCESSFUL WE WOULD LIKELY BE REQUIRED TO SEEK 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 WCS Closure Systems for our
sales, marketing and distribution of our products. WCS is a subsidiary of our
largest shareholder. WCS 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 WCS is subject to termination under various
circumstances, including, in many cases, on short notice. If WCS 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 MCT to manufacture our products. MCT and the
Company equally own the patent covering our products. In May 2002, we entered
into a manufacturing agreement with MCT that expires in May of 2003. If this
agreeement is terminated or is not renewed, 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.


                                       11
<PAGE>


      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. Quarterly dividends for four
quarters are in arrears in the aggregate amount of $32,000. 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. The
affirmative vote of 66 2/3% 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. Since two or more quarterly dividends payable on
the Series C preferred stock are in arrears, the holders of the Series C
preferred stock, by a majority vote, are 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 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. Quarterly dividends for four quarters are in arrears in the aggregate
amount of $82,000. 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. Certain holders of the Series B
preferred stock contend that the issuance of shares by the Company in settlement
of the Andrieni lawsuit in 2001 requires a downward adjustment to the conversion
price of the Series B preferred stock. The Company disputes the claim of such
holders of Series B preferred stock and believes the conversion price should
remain at $1.54. However, there can be no assurance that such holders of Series
B preferred stock will not prevail in their claim for a downward adjustment to
the conversion price, in which case the Company would be required to issue a
greater number of shares of common stock upon conversion of the Series B
preferred stock than would be issuable at a $1.54 conversion price. Any issuance
of common stock upon the conversion of preferred stock will substantially dilute
the voting rights and other interests of stockholders of the Company. 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. The affirmative
vote of 66 2/3% 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. Since two or more quarterly dividends payable on the series B
preferred stock are in arrears, the holders of Series B preferred stock, by a
majority vote, are 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. Annual dividends on the Series A preferred stock
are cumulative at a rate of $80 per share. Quarterly dividends for four quarters
are in arrears in the amount of $81,600. 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. Certain holders of
the Series A preferred stock contend that the issuance of shares by the Company
in settlement of the Andrieni lawsuit in 2001 requires a downward adjustment to
the conversion price of the Series A preferred stock. The Company disputes the
claim of such holders of Series A preferred stock and believes the conversion
price should remain at $1.54. However, there can be no


                                       12
<PAGE>


assurance that such holders of Series A preferred stock will not prevail in
their claim for a downward adjustment to the conversion price, in which case the
Company would be required to issue a greater number of shares of common stock
upon conversion of the Series A preferred stock than would be issuable at a
$1.54 conversion price. Any issuance of common stock upon the conversion of
preferred stock will substantially dilute the voting rights and other interests
of stockholders of the Company. 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. The affirmative vote of 66 2/3% 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. Since two or more
quarterly dividends payable on the Series A preferred stock are in arrears, the
holders of Series A preferred stock, by a majority vote, are entitled to
designate two additional directors to serve on the Company's Board of Directors.

      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 Debentures are secured by substantially all of the assets of
the Company. 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. The delisting of
the Company's common stock in October 2000 also created an event of default.
Under these events of default, the holders have demanded 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, 2002.
The Company currently does not have, nor does it believe it could obtain,
sufficient resources to fund such amount.

      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 2,632,563 shares of
common stock; however, since the conversion price is subject to downward
adjustment 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 $.02 as a result of the shares
of common stock issued by the Company in settlement of the Andrieni lawsuit in
2001. 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 fifty 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. 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 has demanded immediate repayment of the entire amount. 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.


                                       13
<PAGE>


      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 $.02 as a result of the shares of Common Stock issued by the
Company in settlement 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 fifty 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.

      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 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.


                                       14
<PAGE>


      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, 2003, 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, 2002 there were outstanding options to acquire up to approximately 1,348,600
shares of Common Stock, warrants to acquire 1,697,500 shares of Common Stock,
2,632,563 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 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 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.


                                       15
<PAGE>


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 14, 2003, 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.

ACCESS TO COMPANY INFORMATION

         The Company electronically files annual reports on Form 10-KSB,
quarterly reports on Form 10-QSB, current reports on Form 8-K and all amendments
to those reports with the Securities and Exchange Commission (SEC). The public
may read and copy any of the reports that are filed with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically, including the
Company.


                                       16
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY


      The Company currently leases corporate headquarters in San Antonio, Texas,
under a month-to-month lease. The Company's lease of office and distribution
facilities in Atlanta, Georgia expired on February 28, 2002. During 2002 the
Company incurred aggregate rental expense of approximately $52,000, which was
net of sublease income of approximately $70,000.

ITEM 3. LEGAL PROCEEDINGS

      On February 25, 2003, Surgical Visions I, Inc. and various individuals,
including K.C. Fadem, a former director of the Company, filed a lawsuit against
the Company, Teleflex, Incorporated and certain of the Company's 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 plaintiffs are seeking unspecified compensatory damages. The Company
believes this lawsuit is without merit and intends to vigorously defend its
position.

      On September 11, 2002, the Company entered into an agreement with United
States Surgical Corporation (U.S. Surgical), a division of Tyco Healthcare Group
LP, which could ultimately settle all claims and counter claims between the two
parties. The pertinent terms of the settlement agreement are as follows:

1. The Company represents and warrants it is in the process of negotiating the
sale of the Dexterity(R) Protractor(R) product line.

2. Within seven (7) days of the closing of the sale, the Company will pay U.S.
Surgical $800,000 in full settlement of the $2,500,000 trade accounts payable to
U.S. Surgical currently recorded on the Company's books and records. The
$800,000 payment is due on or before April 20, 2003, and, in the event such
payment is not made by the deadline, U.S. Surgical would be entitled to enforce
its judgement against us. We intend to request an extension of the payment
deadline; however, there can be no assurance that U.S. Surgical will grant us an
extension. A cost of litigation settlement of $287,000 was recorded in September
2002.

3. Should the sale of the Protractor(R) line not take place, U.S. Surgical may
enforce a Stipulated Judgment for $2,500,000 in favor of U.S. Surgical as filed
by both parties on September 30, 2002.

4. However, should the sale close, U.S. Surgical has executed a satisfaction of
judgment which will be filed on the ninety-first day after payment of $800,000
upon closing.

If and when the sale of the Protractor(R) line closes, the Company expects to
owe approximately $325,000 to $700,000 in additional legal and closing costs.

      Although the Company is pursuing the sale of the Protractor(R) line (which
accounted for 67% of net sales in 2002 and 50% of net sales in 2001), two
significant approvals must be obtained prior to the sale being consummated: 1)
the sale will require shareholder approval through the formal proxy process and
a special shareholders meeting and 2) two secured creditors, who are owed
amounts of $2,632,563 and $645,995 at December 31, 2002, must agree to both the
sale and an agreement on settlement of the Company's debt. Accordingly, because
of the significance of the above conditions, the Protractor(R) line has not been
classified as available for sale at December 31, 2002.

      By letter dated February 7, 2002, Robert Rambo, President of MCT, claimed
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. Accordingly, as a compromise, a contingent
note payable was issued in May of 2002 by the Company to Mr. Rambo in the amount
of $116,421. This note is payable only upon the occurrence of any one of certain
events, including sale of the Company and sale of any of the Company's major
product lines, which includes the Protractor(R)line.


                                       17
<PAGE>


      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

      No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 31, 2002.


                                       18
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Our common stock 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 our 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>
FISCAL YEAR ENDED                HIGH                LOW
-----------------               ------              ------
<S>                             <C>                 <C>
December 31, 2002:

Fourth Quarter                  $.0100              $.0010
Third Quarter                   $.0250              $.0080
Second Quarter                  $.0450              $.0080
First Quarter                   $.0500              $.0150

December 31, 2001:

Fourth Quarter                  $.0600              $.0100
Third Quarter                   $.1700              $.0500
Second Quarter                  $.4000              $.1562
First Quarter                   $.2031              $.1094
</TABLE>

      On March 14, 2003, the last reported sales price of our common stock on
the OTC Bulletin Board was $.003 per share. At March 7, 2003, there were
approximately 184 record holders of our common stock.

      We have never declared or paid cash dividends on our common stock and do
not anticipate paying dividends on our common stock at any time in the
foreseeable future.


                                       19
<PAGE>


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

      Certain statements contained in this Item 6, "Management's Discussion and
Analysis or Plan of Operation," 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 6
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, 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 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

      On February 17, 2003, we announced the execution of a letter of intent
with Davol, Inc. ("Davol"), whereby Davol has agreed to purchase substantially
all assets of the Company relating to the Protractor line in consideration for
cash of $7 million. Any transaction with Davol will be subject to numerous
conditions to closing, including approval of the stockholders and creditors of
the Company, completed due diligence by Davol to its satisfaction, approval of
the Board of Directors of Davol, execution and delivery of a definitive purchase
and sale agreement satisfactory to the Company and Davol, termination of the
distribution rights relating to the Protractor line and the restructure of
certain intellectual property rights relating to the Protractor line and other
conditions.

      On September 11, 2002, we entered into an agreement with United States
Surgical Corporation (U.S. Surgical), a division of Tyco Healthcare Group LP,
which could ultimately settle all claims and counter claims between the two
parties. The pertinent terms of the settlement agreement are as follows:

      -     The Company represents and warrants it is in the process of
            negotiating the sale of the Dexterity Protractor(R) product line.

      -     Within seven (7) days of the closing of the sale, the Company will
            pay U.S. Surgical $800,000 in full settlement of the $2,500,000
            trade accounts payable to U.S. Surgical currently recorded on the
            Company's books and records. The $800,000 payment is due on or
            before April 20, 2003, and, in the event such payment is not made by
            the deadline, U.S. Surgical would be entitled to enforce its
            judgement against us. We intend to request an extension of the
            payment deadline; however, there can be no assurance that U.S.
            Surgical will grant us an extension. A cost of litigation settlement
            of $287,000 was recorded in September 2002.

      -     Should the sale of the Protractor(R) line not take place, U.S.
            Surgical may enforce a Stipulated Judgment for $2,500,000 in favor
            of U.S. Surgical as filed by both parties on September 30, 2002.


                                       20
<PAGE>


      -     However, should the sale close, U.S. Surgical has executed a
            satisfaction of judgment which will be filed on the ninety-first day
            after payment of $800,000 upon closing.

      If and when the sale of the Protractor line closes, the Company expects to
owe approximately $325,000 to $700,000 in additional legal and closing costs.

      Although the Company is pursuing the sale of the Protractor line (which
accounted for 67% of net sales in 2002 and 50% of net sales in 2001), two
significant approvals must be obtained prior to the sale being consummated: (1)
the sale will require shareholder approval through the formal proxy process and
a special shareholders meeting and (2) two secured creditors, who were owed
amounts of $2,632,563 and $645,995 as of December 31, 2002, must agree to both
the sale and an agreement on settlement of the Company's debt. Accordingly,
because of the significance of the above conditions, the Protractor line has not
been classified as available for sale at December 31, 2002.

      Virtually all debts and obligations of the Company are in default. 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 demanded 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. 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. IF THE RESTRUCTURING IS
NOT SUCCESSFUL WE WOULD LIKELY BE REQUIRED TO SEEK PROTECTION UNDER THE UNITED
STATES BANKRUPTCY LAWS.

OVERVIEW

      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 seven years, the Company has continued to decrease its engagement in
Company sponsored research and development. As of December 31, 2002, the Company
had an accumulated deficit of approximately $47,900,000. The Company will likely
continue to incur losses. There can be no assurance 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 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 has been 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


                                       21
<PAGE>


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. These additional burdens could severely limit the market liquidity
of the Company's common stock and the ability of stockholders to sell their
shares of the Company's 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:

      -     $1,500,000 cash;

      -     3,000,000 shares of common stock;

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

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

      -     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 to 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 Pneumo Sleeve and Dexterity Protractor, in March
1998. The Dexterity Merger was accounted for using the purchase method of
accounting.

      On September 29, 2000, we signed an exclusive agreement, effective July 1,
2000, under which Weck Closure Systems (WCS) distributes 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 Incorporated) is
required to purchase certain minimum quantities. Also, per the agreement, WCS
and the Company combined elements of both sales forces under the WCS umbrella.
The Company and WCS will continue as separate business entities.

      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 continued 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. The WCS agreement may be
renewed for one year periods upon such terms as the parties may mutually agree.


                                       22
<PAGE>


      Sales to WCS and affilitates represented 67% and 77% of the Company's net
sales for the year ended December 31, 2002 and 2001, respectively.


                                       23
<PAGE>


RESULTS OF OPERATIONS FOR YEAR ENDING DECEMBER 31, 2002

      For the year ended December 31, 2002, the Company reported a loss from
operations of $1,090,000, as compared with a loss from operations of $13,569,000
for the year ended December 31, 2001. For the year ended December 31, 2002, the
Company reported a net loss applicable to common stock of $3,369,000 or $.28 per
basic and diluted share. This compares with a net loss applicable to common
stock of $16,028,000 or $1.38 per basic and diluted share for the year ended
December 31, 2001. The 2001 loss included a charge for impairment of intangible
assets and goodwill of $11,465,000.

      Net sales decreased 51% in 2002 as compared with 2001. Net sales were
$2,060,000 for 2002 and $4,166,000 for 2001. The decline in net sales was due
primarily to the amended WCS agreement, which calls for lower minimum purchase
requirements but extends the contract until December 31, 2003. The WCS agreement
may be renewed for one year periods upon such terms as the parties may mutually
agree.

      Gross profit from net sales decreased 14% to $1,194,000 in 2002 from
$1,388,000 in 2001. The corresponding gross profit margins increased to 58% in
2002 from 33% in 2001. The improvement in gross profit margins was primarily due
to increases to the reserve for inventory obsolescence of $780,000 in 2001 and a
greater percentage of higher margin proprietary products being sold in 2002.

      In 2002, selling, general and administrative expenses, which consist
primarily of sales commissions, salaries and other costs necessary to support
the Company's infrastructure, decreased 34% to $996,000 in 2002 from $1,499,000
in 2001. The decline in these expenses was primarily due to cost cutting actions
taken by the Company in response to the cancellation of the GSI agreement. The
Company continues to strive to reduce fixed costs whenever possible.

      Depreciation and amortization expense decreased 50% to $1,000,000 for 2002
from $1,993,000 for 2001. The decline in depreciation and amortization expense
was due to the decrease in our licensed technology asset base.

      Interest expense was $1,634,000 for the year ended December 31, 2002 and
$1,517,000 for the year ended December 31, 2001. 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.

      An other than temporary impairment charge of $451,000 was taken in 2002 on
the investment in Ana-Tech as Ana-Tech filed for 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 MedSystems,
Inc.'s 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 MedSystems, Inc. and GSI in April 1999, the Company made
the decision to discontinue distributing Origin MedSystems, Inc.'s products and
begin distributing GSI products. Subsequent to that decision, U.S. Surgical
purchased the Origin MedSystems, Inc. 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 U.S. 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 contingent upon the outcome of the lawsuit in
favor of the Company. 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. As described below under
"Liquidity and Capital


                                       24
<PAGE>


Resources," in September 2002, we entered into an agreement with U.S. Surgical
that could ultimately settle all claims and counter claims between the parties.

      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 cancellation of the 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 under 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. 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 WCS agreement. In the fourth quarter of 2001, the net book
value of goodwill was written off as the fair value was determined to be $0
since there was no measurement method available as a result of the write-down in
technology rights to the Dexterity products. An 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 ownership 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.

LIQUIDITY AND CAPITAL RESOURCES

      On February 17, 2003, we announced the execution of a letter of intent
with Davol, whereby Davol has agreed to purchase substantially all assets of the
Company relating to the Protractor line in consideration for cash of $7 million.
Any transaction with Davol will be subject to numerous conditions to closing,
including approval of the stockholders and creditors of the Company, completed
due diligence by Davol to its satisfaction, approval of the Board of Directors
of Davol, execution and delivery of a definitive purchase and sale agreement
satisfactory to the Company and Davol, termination of the distribution rights
relating to the Protractor line and the restructure of certain intellectual
property rights relating to the Protractor line and other conditions.

      On September 11, 2002, the Company entered into an agreement with U.S.
Surgical, which could ultimately settle all claims and counter claims between
the two parties. The pertinent terms of the settlement agreement are as follows:


                                       25
<PAGE>


      1. The Company represents and warrants it is in the process of negotiating
the sale of the Dexterity Protractor product line.

      2. Within seven (7) days of the closing of the sale, the Company will pay
U.S. Surgical $800,000 in full settlement of the $2,500,000 trade accounts
payable to U.S. Surgical currently recorded on the Company's books and records.
The $800,000 payment is due on or before April 20, 2003, and, in the event such
payment is not made by the deadline, U.S. Surgical would be entitled to enforce
its judgement against us. We intend to request an extension of the payment
deadline; however, there can be no assurance that U.S. Surgical will grant us an
extension. A cost of litigation settlement of $287,000 was recorded in September
2002.

      3. Should the sale of the Protractor(R)line not take place, U.S. Surgical
may enforce a Stipulated Judgment for $2,500,000 in favor of U.S. Surgical as
filed by both parties on September 30, 2002.

      4. However, should the sale close, U.S. Surgical has executed a
satisfaction of judgment, which will be filed on the ninety-first day after
payment of $800,000 upon closing.

      If and when the sale of the Protractor line closes, the Company expects to
owe approximately $325,000 to $700,000 in additional legal and closing costs.

      Although the Company is pursuing the sale of the Protractor line (which
accounted for 67% of net sales in 2002 and 50% of net sales in 2001), two
significant approvals must be obtained prior to the sale being consummated: (1)
the sale will require shareholder approval through the formal proxy process and
a special shareholders meeting and (2) two secured creditors, who were owed
amounts of $2,632,563 and $645,995 as of December 31, 2002, must agree to both
the sale and an agreement on settlement of the Company's debt. Accordingly,
because of the significance of the above conditions, the Protractor line has not
been classified as available for sale at December 31, 2002.

      On February 25, 2003, Surgical Visions I, Inc. and various individuals,
including K.C. Fadem, a former director of the Company, filed a lawsuit against
the Company, Teleflex, Incorporated and certain of the Company's 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 plaintiffs are seeking unspecified compensatory damages. The Company
believes this lawsuit is without merit and intends to vigorously defend its
position.

      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 WCS and requested the Company to recompute such royalties and tender payment
for any short-fall. Accordingly, as a compromise, a contingent note payable was
issued in May of 2002 by the Company to Mr. Rambo in the amount of $116,421.
This note is payable only upon the occurrence of any one of certain events,
including sale of the Company and sale of any of the Company's major product
lines, including the Protractor line. Also, in May 2002, the Company entered
into a new manufacturing agreement with MCT.

      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. Quarterly dividends for four quarters are in arrears in
the amount of $32,000. Furthermore,


                                       26
<PAGE>


the Company does not currently believe it will have the funds to pay future
dividends as they become due. 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. Since two or more
quarterly dividends payable on the Series C preferred stock are in arrears, the
holders of the Series C preferred stock, by a majority vote, are 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.

      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, 2002, the outstanding balance due on such
line of credit was $645,995 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 lender 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 lender. 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 4.5% 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. Quarterly dividends for four quarters are in arrears in the amount of
$82,000. Furthermore, the Company does not currently believe it will have the
funds to pay future dividends as they become due. 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.
Certain holders of the Series B preferred stock contend that the issuance of
shares by the Company in settlement of the Andrieni lawsuit in 2001 requires a
downward adjustment to the conversion price of the Series B preferred stock. The
Company disputes the claim of such holders of Series B preferred stock and
believes the conversion price should remain at $1.54. However, there can be no
assurance that such holders of Series B preferred stock will not prevail in
their claim for a downward adjustment to the conversion price, in which case the
Company would be required to issue a substantially greater number of shares of
common stock upon conversion of the Series B preferred stock than would be
issuable at a $1.54 conversion price. Any issuance of common stock upon the
conversion of preferred stock will substantially dilute the voting rights and
other interests of stockholders of the Company. 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


                                       27
<PAGE>


stock. Since two or more quarterly dividends payable on the series B preferred
stock are in arrears, the holders of Series B preferred stock, by a majority
vote, are 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. Quarterly dividends for four quarters
are in arrears in the amount of $81,600. Furthermore, the Company does not
currently believe it will have the funds to pay future dividends as they become
due. 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. Certain holders of the Series A preferred stock contend
that the issuance of shares by the Company in settlement of the Andrieni lawsuit
in 2001 requires a downward adjustment to the conversion price of the Series A
preferred stock. The Company disputes the claim of such holders of Series A
preferred stock and believes the conversion price should remain at $1.54.
However, there can be no assurance that such holders of Series A preferred stock
will not prevail in their claim for a downward adjustment to the conversion
price, in which case the Company would be required to issue a substantially
greater number of shares of common stock upon conversion of the Series A
preferred stock than would be issuable at a $1.54 conversion price. Any issuance
of common stock upon the conversion of preferred stock will substantially dilute
the voting rights and other interests of stockholders of the Company. 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.
Since two or more quarterly dividends payable on the Series A preferred stock
are in arrears, the holders of Series A preferred stock, by a majority vote, are
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. The delisting of the Company's
common stock in October 2000 also created an event of default. Under these
events of default, the holders have demanded 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, 2002. The Company
currently does not have, nor does it believe it could obtain, sufficient
resources to fund such amount.


                                       28
<PAGE>


      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 2,632,563 shares of
common stock; however, since the conversion price is subject to downward
adjustment 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 $.02 as a result of the shares
of common stock issued by the Company in settlement of the Andrieni lawsuit
settled in 2001. 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 fifty 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. 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 has demanded immediate repayment of the entire amount. 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, 2002, operating activities provided cash
of $101,000.

      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 payments on debt obligations and preferred stock
dividends.

      At December 31, 2002, the Company had current assets of $653,000 and
current liabilities of $13,415,000 resulting in a working capital deficit of
$12,762,000. This compares to a working capital deficit of $9,994,000 at
December 31, 2001. The increase in working capital deficit is primarily due to
the operating losses incurred during 2002.

      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. IF THE RESTRUCTURING IS NOT SUCCESSFUL WE WOULD LIKELY BE
REQUIRED TO SEEK PROTECTION UNDER THE UNITED STATES BANKRUPTCY LAWS.

ITEM 7. FINANCIAL STATEMENTS

      The financial statements and supplementary data described in Item 13(a)
herein are attached hereto beginning on page F-1.

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


                                       29
<PAGE>


      As previously reported, on April 25, 2002 the Board of Directors, upon
recommendation of its Audit Committee, dismissed Ernst & Young LLP as the
Company's independent accountants and appointed the firm of Akin, Doherty, Klein
& Feuge, a professional corporation, to serve as independent public accountants
of the Company for the fiscal year ending December 31, 2002.


                                       30
<PAGE>


                                    PART III

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

EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

      The executive officers and directors of the Company as of March 15, 2003
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             60          President, Chief Executive Officer and           1998
                                             Director of Dexterity Surgical, Inc.

Randall K. Boatright             54          Executive Vice President, Chief                  1992
                                             Financial Officer, Secretary and
                                             Director of Dexterity Surgical, Inc.

Jeffrey H. Berg                  60          President of Health Care Insights,                N/A
                                             Edison, NJ and Director of Dexterity
                                             Surgical, Inc.
Christopher K. Black             46          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.

BUSINESS EXPERIENCE

      RICHARD A. WOODFIELD has served as President and CEO of the Company since
May 1998. Prior to joining the Company, he was managing partner and active in
several ventures: Consultative Partnership, Finishing Equipment Company of
California, and Keystone Group. Mr. Woodfield was formerly President of TFX
Medical, a division of Teleflex Incorporated. He has served on a variety of for
profit and non-profit Boards of Directors: The Crouse Group; Delaware Valley
Industrial Council; Teleflex Incorporated; Tabor Children Services; and Package
Machinery Company. Mr. Woodfield earned a BSME from the University of Missouri
at Rolla.

      RANDALL K. BOATRIGHT has served as a director of the Company since
February 1997. Mr. Boatright has also served as Vice President, Chief Financial
Officer and Secretary of the Company since 1992 and in 1998 was named an
Executive Vice President. From 1985 to 1992, Mr. Boatright served as Executive
Vice President, Chief Financial Officer and Director of Abraxas Petroleum
Corporation. Prior to that, Mr. Boatright practiced accounting with the firm of
Coopers and Lybrand LLP. Mr. Boatright is a certified public accountant in Texas
and Virginia.

      JEFFREY H. BERG, PH.D. has served as a director of the Company since March
1995, and has served as the President of Health Care Insights, a consulting firm
specializing in health care companies, since January 1993. During 1992, Mr. Berg
was a financial analyst covering the health care industry for The Chicago Corp,
an investment bank. During 1990 and 1991, Mr. Berg was a financial analyst
covering the health care industry for William K. Woodruff & Co., a Dallas-based
investment bank. From 1987 to January 1990, he was the Vice President of
Research specializing in the health care industry for J. C. Bradford & Co. Mr.
Berg is currently a director of Bio-Imaging Technologies, Allou Healthcare and
L.O.M. Medical International.

      CHRISTOPHER K. BLACK is currently Chief Executive Officer of Sovereign
Capital Group. He served as President of Dexterity Incorporated from January
1997 until its acquisition by the Company in March of 1999.


                                       31
<PAGE>


Beginning in July 1996, Mr. Black served as Vice President of TFX Equities, Inc.
From 1993 to 1996, Mr. Black served as a Vice President of TFX Medical, a
division of Teleflex Incorporated.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Exchange Act requires that the Company's directors,
executive officers and persons who own more than 10 percent of a registered
class of the Company's equity securities file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Directors, executive officers and
greater than 10 percent stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.

      To the Company's knowledge, based solely on a review of the copies of the
Section 16(a) reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ended December 31, 2002,
all Section 16(a) reports applicable to its directors, executive officers and
greater than 10 percent beneficial owners were filed on a timely basis.

ITEM 10. EXECUTIVE COMPENSATION

      The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 2000, 2001 and 2002 by the Company's Chief Executive Officer
and the Company's other most highly compensated executive officer who received
in excess of $100,000 in salary and bonus from the Company during 2002.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                      LONG-TERM
                                                                                    COMPENSATION
                                          ANNUAL COMPENSATION                          AWARDS
                                ----------------------------------------------      ------------
                                                                                     SECURITIES
                               FISCAL                             OTHER ANNUAL       UNDERLYING        ALL OTHER
NAME AND PRINCIPAL POSITION     YEAR      SALARY        BONUS     COMPENSATION       OPTIONS (#)     COMPENSATION(1)
---------------------------    ------    --------       -----     ------------      ------------     ---------------
<S>                            <C>       <C>            <C>       <C>               <C>               <C>
Richard A. Woodfield......      2002     $102,000        $0           $0                 0               $230
   President and                2001     $175,000        $0           $0              75,000             $180
   Chief Executive              2000     $175,000        $0           $0                 0               $453
   Officer

Randall K. Boatright......      2002     $166,769        $0           $0                 0               $132
   Executive Vice               2001     $165,692        $0           $0              75,000             $180
   President, Chief             2000     $167,717        $0           $0                 0               $453
   Financial Officer and
   Secretary
</TABLE>

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

(1) Represents life insurance premiums paid by the Company.

                       STOCK OPTION GRANTS IN FISCAL 2002

      The Company did not grant any options to executive officers during fiscal
2002.

  AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END OPTION VALUES

      The following table provides information related to options exercised by
the named executive officers of the Company during fiscal 2002 and the number
and value of options held at fiscal year end.


                                       32
<PAGE>


<TABLE>
<CAPTION>
                                                                  NUMBER OF SECURITIES        VALUE OF UNEXERCISED IN-
                                                                 UNDERLYING UNEXERCISED         THE-MONEY OPTIONS AT
                                                                  OPTIONS AT FY-END (#)             FY-END($)(1)
                                                                --------------------------    ---------------------------
                          SHARES ACQUIRED
                            UPON OPTION          VALUE
        NAME               EXERCISE (#)       REALIZED($)      EXERCISABLE   UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
--------------------      --------------      -----------      -----------   -------------    -----------   -------------
<S>                       <C>                 <C>              <C>           <C>              <C>           <C>
Richard A. Woodfield           0                  $0              500,000         25,000           $0             $0

Randall K. Boatright           0                  $0              286,650         18,750           $0             $0
</TABLE>
-------------

(1) Closing sales price of our common stock at December 31, 2002 was $0.002.

COMPENSATION OF DIRECTORS

      During 2002, each non-employee member of the Board of Directors received a
stipend of $10,000. The members of the Board of Directors are also reimbursed
for their travel expenses to and from the meetings. The Board of Directors
adopted a Non-Employee Director Stock Option Plan (the "NEDSOP") in 1998,
pursuant to which non-employee directors may be granted stock options to
purchase Common Stock. The amount and exercise price of options granted under
the NEDSOP are determined by a committee appointed by the Board of Directors to
administer the NEDSOP.

EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS

      The Company and Richard A. Woodfield are parties to an employment
agreement whereby Richard A. Woodfield receives approximately $175,000 per annum
as well as a bonus based upon the achievement of goals agreed upon by the
parties, the performance of the Company's stock price and the earnings of the
Company. The agreement with Richard A. Woodfield expires May 10, 2004, subject
to automatic renewals for 1-year terms unless either party notifies the other of
its intention not to renew. As an inducement to enter into such agreement, the
Company granted Mr. Woodfield non-qualified stock options for up to 350,000
shares of Common Stock, which vest over time. On March 27, 2003, the board of
directors approved an amendment to Mr. Woodfield's employment agreement. The
amendment provides, in part, that in the event Mr. Woodfield is terminated
following either (i) a change of control of the Company or (ii) the sale of all
or substantially all of the assets of the Company, Mr. Woodfield shall receive,
at his discretion, either (a) his annual base salary for up to 2 years after the
termination of the Agreement or (b) a lump sum payment equal to the amount of
his base salary for up to 2 years after the termination of the Agreement.

      The Company and Randall K. Boatright are parties to an employment
agreement whereby Randall K. Boatright currently receives $160,000 per annum as
well as an annual discretionary bonus. The agreement with Randall K. Boatright
expires May 10, 2004, subject to automatic renewals for 1-year terms unless
either party notifies the other of its intention not to renew. As an inducement
to enter into such agreement, the Company granted Mr. Boatright non-qualified
stock options for up to 50,000 shares of Common Stock, which vest over time. Mr.
Boatright's employment agreement provides, in part, that if he is terminated
without cause, he is entitled to receive his base salary for up to 2 years
following the termination of the employment agreement. The employment agreement
also provides, in part, that in the event Mr. Boatright is terminated following
either (i) a change of control of the Company or (ii) the sale of all or
substantially all of the assets of the Company, Mr. Boatright shall receive, at
his discretion, either (a) his annual base salary for up to 2 years after the
termination of the Agreement or (b) a lump sum payment equal to the amount of
his base salary for up to 2 years after the termination of the Agreement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                            OWNERSHIP OF COMMON STOCK

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT


                                       33
<PAGE>


      The following table sets forth as of March 1, 2003, certain information
with respect to the Company's Common Stock beneficially owned by each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, each of its directors, each executive officer named
in the Summary Compensation Table (the "named executive officers") and by all
its directors and executive officers as a group. Such persons have sole voting
power and sole dispositive power with respect to all shares set forth in the
table unless otherwise specified in the footnotes to the table.

<TABLE>
<CAPTION>
                                                                AMOUNT AND NATURE OF
                                                                     BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                             OWNERSHIP(1)          PERCENT(2)
---------------------------------------                         --------------------      ----------
<S>                                                             <C>                       <C>
TFX Equities, Inc. (3) ...................................           3,455,281(4)            25.85%

Renaissance Capital Growth & Income Fund III, Inc.(5) ....           2,222,308(6)            15.76%

Renaissance U.S. Growth & Income Trust, PLC(5) ...........           2,217,308(6)            15.73%

Christopher K. Black......................................             900,752(7)             7.21%

Richard A. Woodfield......................................             549,220(8)             4.35%

Randall K. Boatright......................................             293,050(9)             2.36%

Jeffrey H. Berg, Ph.D.....................................              47,500(10)            *

All executive officers and directors as a group
(four persons, which are the executive officers and
directors listed above)...................................           1,790,522(11)           12.87%
</TABLE>

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

* Represents less than 1% of the issued and outstanding shares of Common Stock.

(1)   Except as otherwise noted, the street address of the named beneficial
      owner is 12961 Park Central, Suite 1300, San Antonio, Texas 78216.
      Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock which
      are purchasable under options, warrants and convertible securities that
      are currently exercisable or that will be come exercisable no later than
      60 days after March 14, 2003, are deemed outstanding for the person
      holding such options, warrants or convertible securities but are not
      deemed outstanding for computing the percentage of any other persons.

(2)   Percentage is based on a total of 12,121,492 shares of Common Stock issued
      and outstanding on March 14, 2003.

(3)   The address for such stockholder is 630 W. Germantown Pike, Suite 450,
      Plymouth Meeting, Pennsylvania 19462.

(4)   Includes 942,820 shares of Common Stock issuable upon exercise of warrants
      and 300,000 shares of Common Stock issuable upon conversion of Preferred
      Stock.

(5)   The address for such stockholder is 8080 N. Central Expressway, Suite 210,
      Dallas, Texas 75206. Beneficial ownership is based solely on Schedule 13G
      reports filed with the Securities and Exchange Commission.

(6)   Includes 1,316,282 shares of Common Stock issuable upon conversion of
      convertible debentures, 649,350 shares of Common Stock issuable upon
      conversion of Preferred Stock and 12,500 shares of Common Stock issuable
      upon exercise of a warrant.

(7)   Includes 260,533 shares of Common Stock issuable upon exercise of warrants
      and 18,000 shares of Common Stock issuable upon exercise of an option.
      Also includes 100,000 shares of Common Stock issuable upon conversion of
      Preferred Stock to a company, which Mr. Black serves as chief executive
      officer.

(8)   Includes 500,000 shares of Common Stock issuable upon exercise of options
      and 29,220 shares of Common Stock issuable upon conversion of Preferred
      Stock.

(9)   Includes 292,900 shares of Common Stock issuable upon exercise of options.

(10)  Represents shares, which Dr. Berg has the right to acquire upon the
      exercise of stock options.

(11)  Includes 858,400 shares of Common Stock issuable upon the exercise of
      options held by executive officers or directors, 260,533 shares of Common
      Stock issuable upon the exercise of warrants beneficially owned by
      executive officers or directors and 129,220 shares of Common Stock
      issuable upon conversion of Preferred Stock held by executive officers or
      directors.


                                       34
<PAGE>


                          OWNERSHIP OF PREFERRED STOCK

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

      The following table sets forth as of March 1, 2003, certain information
with respect to the Company's Preferred Stock beneficially owned by each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Preferred Stock, each of its directors, the named executive
officers and by all its directors and executive officers as a group. Such
persons have sole voting power and sole dispositive power with respect to all
shares set forth in the table unless otherwise specified in the footnotes to the
table.

<TABLE>
<CAPTION>
                                                              AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                       BENEFICIAL OWNERSHIP      PERCENT(2)
---------------------------------------                       --------------------      ---------
<S>                                                           <C>                       <C>
Renaissance Capital Growth & Income                                  1,000               40.90%
 Fund III, Inc.(3).....................................

Renaissance U.S. Growth & Income                                     1,000               40.90%
 Trust, PLC.(3) .......................................

TFX Equities, Inc. (4) .................................               300               12.27%

Christopher K. Black....................................               100(5)             4.09%

Richard A. Woodfield....................................                45                1.84%

Randall K. Boatright....................................                 0                0%

Jeffrey H. Berg, Ph.D...................................                 0                0%

All executive officers and directors as a group
(four persons, which are the executive officers and
directors listed above).................................               145(5)             5.93%
</TABLE>

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

*     Represents less than 1% of the issued and outstanding shares of Preferred
      Stock.

(1)   Except as otherwise noted, the street address of the named beneficial
      owner is 12961 Park Central, Suite 1300, San Antonio, Texas 78216.

(2)   Percentage is based on a total of 2,445 shares of Preferred Stock issued
      and outstanding on March 31, 2002.

(3)   The address for such stockholder is 8080 N. Central Expressway, Suite 210,
      Dallas, Texas 75206.

(4)   The address for such stockholder is 630 W. Germantown Pike, Suite 450,
      Plymouth Meeting, Pennsylvania 19462.

(5)   Includes shares held by Cuda Products Company, of which Mr. Black is the
      chief executive officer.


                                       35
<PAGE>


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

      The following table provides information as of December 31, 2002 about the
securities authorized for issuance under the Company's equity compensation
plans, consisting of the 1989 Stock Option Plan, the 1995 Non-Employee Director
Stock Option Plan and the 2000 Employee Stock Compensation Plan.

<TABLE>
<CAPTION>
                                                                                    NUMBER OF SECURITIES
                                                                                   REMAINING AVAILABLE FOR
                             NUMBER OF SECURITIES TO       WEIGHTED-AVERAGE          FUTURE ISSUANCE UNDER
                             BE ISSUED UPON EXERCISE       EXERCISE PRICE OF       EQUITY PARTICIPATION PLANS
                             OF OUTSTANDING OPTIONS,      OUTSTANDING OPTIONS,       (EXCLUDING SECURITIES
                               WARRANTS AND RIGHTS        WARRANTS AND RIGHTS       REFLECTED IN COLUMN (A))
   PLAN CATEGORY                      (A)                        (B)                         (C)
   -------------             -----------------------      -------------------      --------------------------
<S>                          <C>                          <C>                      <C>
Equity compensation plans
 approved by security
 holders                              648,650                    $1.61                     3,005,800

Equity participation
 plans not approved by
 security holders(1)                  450,000                    $1.78                        N/A

          Total                     1,098,650                                              3,005,800
                                    =========                                              =========
</TABLE>

      (1) Includes options granted to Richard Woodfield on December 15, 1998 to
purchase 350,000 shares of common stock for $2.00 per share and options granted
to Frederick Feiler on January 16, 2000 to purchase 100,000 shares of common
stock for $1.00 per share. These options expire ten years from the date of
grant.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      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.

      On September 29, 2000, we signed an exclusive agreement, effective July 1,
2000, 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 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. In
June 2001, the Company and WCS amended the agreement which adjusted


                                       36
<PAGE>


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. The WCS agreement may be renewed
for one year periods upon such terms as the parties may mutually agree.

         ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) 1.   CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                         ------
         <S>                                                                                              <C>
         Reports of Independent Auditors.............................................................     F-1

         Consolidated Balance Sheets at December 31, 2002 and 2001...................................     F-3

         Consolidated Statements of Operations for the Years Ended
         December 31, 2002 and 2001..................................................................     F-5

         Consolidated Statements of Stockholders' Equity for the Years Ended
         December 31, 2002 and 2001..................................................................     F-6

         Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001........     F-7

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

2. EXHIBIT INDEX

EXHIBIT
NUMBER                        IDENTIFICATION OF EXHIBIT
-------                       -------------------------

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 herein by reference 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).


                                       37
<PAGE>


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    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).

10.7    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).

10.8    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).

10.9    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).

10.10   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).

10.11   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).

10.12   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).

10.13   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).

10.14   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).

10.15   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).

10.16   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).


                                       38
<PAGE>


10.17   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).

10.18   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).

10.19   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.)

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

10.21   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).

10.22   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).

10.23   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).

10.24   Manufacture and Supply Agreement dated May 1, 2002, among Dexterity
        Surgical, Inc., Medical Creative Technologies, Inc. and Robert D. Rambo
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Quarterly Report on Form 10-QSB filed August 12, 2002).

10.25*  Second Amendment to Amended Employment Agreement between the Company and
        Richard Woodfield dated effective January 30, 2003.

22      Subsidiaries
<TABLE>
<CAPTION>
                                                            Name Under Which
         Name                    State of Incorporation      Doing Business
         ----                    ----------------------   ---------------------
         <S>                     <C>                      <C>
         ValQuest Medical, Inc.         Nevada            ValQuest Medical, Inc.
</TABLE>

23.1*   Consent of Ernst & Young LLP

23.2*   Consent of Akin, Doherty, Klein & Feuge, a professional corporation

99.1*   Certification of the Company's Chief Executive Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002.

99.2*   Certification of the Company's Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002.

* Filed herewith

(B) REPORTS ON FORM 8-K


                                       39
<PAGE>


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

ITEM 14. CONTROLS AND PROCEDURES

      The Company's management, including the principal executive officer and
principal financial officer, conducted an evaluation of the Company's disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended, within 90
days of the filing date of this report. Based on their evaluation, the Company's
principal executive officer and principal accounting officer concluded that the
Company's disclosure controls and procedures are effective.

      There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in paragraph above.


                                       40
<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.

March 28, 2003                       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          March 28, 2003
------------------------------------     and Director (Principal Executive
Richard A. Woodfield                     Officer)


/s/ Randall K. Boatright                 Executive Vice President, Chief             March 28, 2003
------------------------------------     Financial Officer and Director
Randall K. Boatright                     (Principal Financial and Accounting
                                         Officer)


/s/ Jeffrey H. Berg, Ph.D.               Director                                    March 28, 2003
------------------------------------
Jeffrey H. Berg, Ph.D.

/s/ Christopher K. Black                 Director                                    March 28, 2003
------------------------------------
Christopher K. Black
</TABLE>


                                       41
<PAGE>


                                 CERTIFICATIONS

      I, Richard A. Woodfield, certify that:

      1. I have reviewed this annual report on Form 10-KSB of Dexterity
Surgical, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

      Date: March 28, 2003

                                /s/ Richard A. Woodfield
                                -----------------------------------
                                Richard A. Woodfield
                                President, Chief Executive Officer and Director
                                (Principal Executive Officer)


                                       42
<PAGE>

      I, Randall K. Boatright, certify that:

      1. I have reviewed this annual report on Form 10-KSB of Dexterity
Surgical, Inc.;

      2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

      Date: March 28, 2003

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


                                       43
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors
Dexterity Surgical, Inc. and Subsidiary
San Antonio, Texas

We have audited the accompanying consolidated balance sheet of Dexterity
Surgical, Inc. and Subsidiary (collectively referred to as "Dexterity" or "the
Company") as of December 31, 2002 and the related consolidated statements of
operations, stockholders' deficit and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence which
supports 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 audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dexterity Surgical,
Inc. as of December 31, 2002, and the results of its operations and its cash
flows for the year then ended in conformity with U.S. generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that Dexterity
Surgical, Inc. will continue as a going concern. As more fully described in Note
A, the Company has incurred recurring net losses and has an accumulated deficit.
In addition, substantially all of the Company's debt is in default. 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 A. 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.



/s/ Akin, Doherty, Klein & Feuge, P.C.

Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
February 8, 2003, except for Note B,
 to which the date is February 17, 2003
 and Note E (d) to which the date is February 25, 2003




                                      F-1

<PAGE>

                         Report of Independent Auditors

Board of Directors and Stockholders
Dexterity Surgical, Inc.

We have audited the consolidated balance sheet of Dexterity Surgical, Inc. (the
Company), formerly LifeQuest Medical, Inc. (a Delaware Corporation), and
subsidiaries as of December 31, 2001, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our
opinion.

In our opinion, the 2001 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dexterity
Surgical, Inc. at December 31, 2001 and the consolidated results of its
operations and its cash flows for the year then ended, 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
A, 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 A. 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.


                                                   /s/ Ernst & Young LLP


San Antonio, Texas
March 1, 2002


                                       F-2


<PAGE>


DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001


<Table>
<Caption>
                                                                        2002             2001
                                                                    -----------      -----------
<S>                                                                 <C>              <C>
ASSETS

Current Assets:
   Cash and cash equivalents                                        $   159,836      $    59,008
   Accounts receivable, net of an allowance for
     doubtful accounts of $22,790 and $28,119                           310,221          217,629
   Accounts receivable, related parties                                   4,924           14,308
   Inventories, net                                                      79,015          127,904
   Prepaid and other assets                                              98,850           98,048
                                                                    -----------      -----------
       Total current assets                                             652,846          516,897

Property and Equipment:
   Furniture and fixtures                                               144,916          144,916
   Computers and equipment                                              445,658          445,658
   Machinery and equipment                                              644,596          644,596
   Leasehold improvements                                               145,301          145,301
                                                                    -----------      -----------
       Total property and equipment                                   1,380,471        1,380,471
   Less accumulated depreciation                                     (1,238,373)      (1,055,933)
                                                                    -----------      -----------
       Net property and equipment                                       142,098          324,538

Other Assets:
   Licensed technology rights and other intangible assets, less
     accumulated amortization of $838,630 and $20,675                 2,411,636        3,239,720
   Deferred finance charges                                              65,832          140,662
   Investments                                                               --          450,934
                                                                    -----------      -----------
       Total other assets                                             2,477,468        3,831,316
                                                                    -----------      -----------
TOTAL ASSETS                                                        $ 3,272,412      $ 4,672,751
                                                                    ===========      ===========
</Table>











SEE NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.



                                       F-3
<PAGE>


DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

<Table>
<Caption>
                                                                                2002             2001
                                                                           ------------      ------------
<S>                                                                        <C>               <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
   Accounts payable                                                        $  2,871,271      $  2,563,549
   Accrued liabilities                                                        1,429,428           613,047
   Current portion of long-term obligations, including
     debt and royalty obligations in default                                  9,114,144         7,334,743
                                                                           ------------      ------------
       Total current liabilities                                             13,414,843        10,511,339
Royalty Obligation                                                            2,929,418         4,060,221
Minority Interest                                                                47,248            47,248
Commitments and Contingencies                                                        --                --
Stockholders' Deficit:
   Preferred stock, $.001 par value; 2,000,000 shares authorized;
     2,445 shares issued and outstanding                                              2                 2
   Common stock, $.001 par value; 50,000,000 shares authorized;
     12,121,492 issued and outstanding                                           12,122            12,122
   Additional paid-in capital                                                34,733,804        34,733,804
   Accumulated deficit                                                      (47,865,025)      (44,691,985)
                                                                           ------------      ------------
       Total stockholders' deficit                                          (13,119,097)       (9,946,057)
                                                                           ------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                $  3,272,412      $  4,672,751
                                                                           ============      ============
</Table>












SEE NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       F-4


<PAGE>

DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001

<Table>
<Caption>
                                                                     2002              2001
                                                                 ------------      ------------
<S>                                                              <C>               <C>
NET SALES                                                        $  2,059,861      $  4,166,463
Costs and Expenses:
   Cost of sales                                                      865,854         2,778,547
   Selling, general and administrative                                996,389         1,498,723
   Depreciation and amortization                                    1,000,395         1,993,307
   Cost of litigation settlement                                      286,903                --
   Impairment of intangible assets and goodwill                            --        11,464,743
                                                                 ------------      ------------
                                                                    3,149,541        17,735,320
                                                                 ------------      ------------
Loss from Operations                                               (1,089,680)      (13,568,857)

Other Income (Expense):
   Interest expense                                                (1,633,774)       (1,516,570)
   Investment and other income                                          1,348             4,976
   Loss on investment                                                (450,934)         (751,566)
                                                                 ------------      ------------
                                                                   (2,083,360)       (2,263,160)
                                                                 ------------      ------------
NET LOSS                                                           (3,173,040)      (15,832,017)
Dividend requirement on cumulative
   convertible preferred stock                                       (195,600)         (195,600)
                                                                 ------------      ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS                       $ (3,368,640)     $(16,027,617)
                                                                 ============      ============
EARNINGS (LOSS) PER SHARE:
   Basic and diluted loss per common share                       $       (.28)     $      (1.38)

   Weighted average shares outstanding used in
     computing basic and diluted loss per common share             12,121,492        11,619,853
</Table>







SEE NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       F-5


<PAGE>


DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2001 AND 2002

<Table>
<Caption>
                                                                             Additional
                                          Preferred          Common            Paid-In         Accumulated
                                            Stock             Stock            Capital           Deficit             Total
                                        -------------     -------------     -------------     -------------      -------------
<S>                                     <C>               <C>               <C>               <C>                <C>
BALANCE, DECEMBER 31, 2000              $           2     $      11,522     $  34,704,404     $ (28,664,368)     $   6,051,560
   Issuance of common stock                        --               600            29,400                --             30,000
   Preferred stock dividends                       --                --                --          (195,600)          (195,600)
   Net loss                                        --                --                --       (15,832,017)       (15,832,017)
                                        -------------     -------------     -------------     -------------      -------------
BALANCE, DECEMBER 31, 2001                          2            12,122        34,733,804       (44,691,985)        (9,946,057)

   Net loss                                        --                --                --        (3,173,040)        (3,173,040)
                                        -------------     -------------     -------------     -------------      -------------
BALANCE, DECEMBER 31, 2002              $           2     $      12,122     $  34,733,804     $ (47,865,025)     $ (13,119,097)
                                        =============     =============     =============     =============      =============
</Table>
















SEE NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       F-6


<PAGE>


DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2002

<Table>
<Caption>
                                                                     2002              2001
                                                                 ------------      ------------
<S>                                                              <C>               <C>
OPERATING ACTIVITIES
Net loss                                                         $ (3,173,040)     $(15,832,018)
Adjustments to reconcile net loss to net cash
   provided by operating activities:
     Depreciation                                                     182,440           243,805
     Amortization                                                     817,955         1,749,502
     Accretion of royalty obligation                                  648,598           728,736
     Amortization of deferred finance charges                          74,830            74,832
     Noncash interest expense                                              --            22,500
     Impairment of intangible assets and goodwill                          --        11,464,743
     Loss on investment                                               450,934           751,566
     Changes in operating assets and liabilities:
       Accounts receivable, net                                       (92,592)          512,677
       Accounts receivable,  related parties                            9,384               692
       Inventories                                                     48,889           923,023
       Prepaid and other assets                                          (802)          118,375
       Accounts payable, accrued and other liabilities              1,134,232           (65,628)
                                                                 ------------      ------------
Net cash provided by operating activities                             100,828           692,805

INVESTING ACTIVITIES
   Purchases of property and equipment                                     --           (34,607)
                                                                 ------------      ------------
Net cash (used) in investing activities                                    --           (34,607)

FINANCING ACTIVITIES
   Payments on long-term debt                                              --          (337,437)
   Net payments on line of credit                                          --          (108,238)
   Payments of preferred stock dividends                                   --          (195,600)
                                                                 ------------      ------------
Net cash (used) in financing activities                                    --          (641,275)
                                                                 ------------      ------------
Net change in cash and cash equivalents                               100,828            16,923
Cash and cash equivalents, beginning of year                           59,008            42,085
                                                                 ------------      ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                           $    159,836      $     59,008
                                                                 ============      ============
SUPPLEMENTAL CASH FLOW INFORMATION:

Common stock issued in settlement of litigation                  $         --      $     30,000
Interest, non-cash charge for accretion of discount                   723,428           803,568
Interest paid in cash                                                      --           367,163
Federal income taxes paid in cash                                          --                --
</Table>





SEE NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS.

                                       F-7


<PAGE>


DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND DESCRIPTION OF THE COMPANY AND RISK FACTORS: Dexterity
Surgical, Inc., a Delaware corporation (Dexterity or the Company), 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. The accompanying consolidated
financial statements include the accounts of Dexterity and the Company's 82%
ownership interest in ValQuest Medical, Inc. ValQuest is an inactive company and
had no operations in 2002 and 2001. All significant intercompany accounts and
transactions have been eliminated in consolidation.

GOING CONCERN: At December 31, 2002, the Company had an accumulated deficit of
$13,119,097 million. During the years ended December 31, 2002 and 2001, the
Company incurred net losses of $3,173,040 and $15,832,017 respectively. It is
likely that the Company will continue to incur losses. There can be no assurance
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 cumulative
losses have been funded primarily through its initial public offering of common
stock, private sales of common stock and preferred stock, debt financing, and
the sale of convertible debentures.

Virtually all debts and obligations of the Company are in default. 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 demanded immediate repayment of the entire amount outstanding,
which was $2,632,563 at December 31, 2002. This default, in turn, invoked the
cross-default clause in the Company's line of credit agreement, under which
$645,995 was outstanding at December 31, 2002. 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 to the former
stockholders of Dexterity Incorporated. The Company currently does not have
sufficient resources to fund such amounts. 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. IF THE
RESTRUCTURING IS NOT SUCCESSFUL WE WOULD LIKELY BE REQUIRED TO SEEK PROTECTION
UNDER THE UNITED STATES BANKRUPTCY LAWS.

During 2002, the Company continued to reduce its cost of manufacturing and
selling, general and administrative expenses. However, it has not been
successful in restructuring its debt obligations. Based on current projections
for 2003, management believes the Company's operating results for 2003 will not
generate sufficient working capital to fund operations.

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 its suppliers to provide products in the quantities
the Company requires.

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.



                                       F-8

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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.

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. Returns were not
significant in 2002 or 2001.

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

ACCOUNTS RECEIVABLE: Accounts receivable are reported at outstanding principal
net of an allowance for doubtful accounts. The Company normally does not charge
interest on accounts receivable. The allowance for doubtful accounts is
generally determined based on an account-by-account review. Accounts are charged
off when collection efforts have failed and the account is deemed uncollectible.

INVENTORIES: Furnished goods inventory is stated at the lower of cost
(determined on an average-cost basis which approximates the first-in, first-out
method) or market.

RESEARCH AND DEVELOPMENT: Research and Development costs are expensed as
incurred. No such costs were incurred in 2002 or 2001.

PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation
is provided utilizing the straight-line method over the estimated useful lives
of the respective assets (generally 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: The carrying value of licensed technology rights 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 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 Closure Systems agreement. The Company's analysis of
the discounted cash flows based on the minimum purchase guarantees supports this
balance. The remaining licensed technology rights are being amortized over a 4
year period based upon an estimate of the cash flows to which the rights apply.
It is reasonably possible that such amortization period could change in
subsequent years.

ADVERTISING: The Company expenses advertising costs as incurred. The Company did
not incur any advertising costs in 2002 or 2001.

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 $10,000 in 2002 and $43,000 in 2001.



                                       F-9

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

SEGMENT DISCLOSURE: The Company currently manages its medical devices business
as one operating segment.

STOCK-BASED COMPENSATION: At December 31, 2002, the Company has a stock-based
employee compensation plan which is described more fully in the Stock Option and
Warranty footnote. The Company accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee compensation
cost related to stock options is reflected in net income as all options granted
under the plan had an exercise price equal to, or greater than, the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation for the year
ended December 31:

<Table>
<Caption>
                                                                 2002               2001
                                                            -------------      -------------
<S>                                                         <C>                <C>
Net income (loss) as reported                               $  (3,368,640)     $ (16,027,617)
Deduct: Total stock-based compensation
  expense determined under the fair value based
  method for all awards, net of related tax effects               (98,000)          (221,104)
                                                            -------------      -------------
Pro forma earnings (loss)                                   $  (3,466,640)     $ (16,248,721)
                                                            =============      =============
Earnings (loss per common share:
  Basic, as reported                                        $        (.28)     $       (1.38)
  Basic, pro forma                                          $        (.29)     $       (1.40)
  Diluted, as reported                                      $        (.28)     $       (1.38)
  Diluted, pro forma                                        $        (.29)     $       (1.40)
</Table>


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, 2002 and 2001, diluted EPS equals
basic EPS, as potentially dilutive common stock equivalents are antidilutive in
loss periods. The average market price per share of the Company's common stock
for the years ended December 31, 2002 was .01 and $.13 in 2001.

USE OF ESTIMATES: The preparation of financial statements in conformity with
U.S. generally accepted accounting principles 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.








                                      F-10


<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS: In April, 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145 - "Revision of FASB Statements No. 4,
44 and 64, and Amendment of FASB Statement No. 13 and Technical Corrections".
This Statement changes the presentation and reporting of extinguishments of debt
on the Statement of Operations. The adoption of SFAS No. 145 by the Company
could impact the presentation of any debt extinguished by the Company (as an
extraordinary item or from continuing operations). However, it should have no
impact on the calculation of any gain or loss resulting from an extinguishment.

In December, 2002, FASB issued SFAS No. 148 - "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123". This Statement provides guidance and transition rules for those companies
electing to change the method of accounting for stock-based compensation.
However, the statement does not require a change in accounting, and Dexterity
has elected to continue reporting stock-based compensation following SFAS No.
123 and Accounting Principles Board Opinion No. 25. SFAS No. 148 also requires
certain enhanced disclosures regarding stock-based compensation, and such
disclosures have been included in the footnotes to the financial statements.

RECLASSIFICATIONS: Certain 2001 balances have been reclassified to conform to
their 2002 presentation.

CONCENTRATION OF RISK:

Credit Risk: The Company's accounts receivable are due from trade customers',
including 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 possible credit
losses, and such losses have not exceeded management's expectations.

Customers: On September 29, 2000, the Company signed an exclusive agreement,
effective July 1, 2000, under which Weck Closure Systems (WCS) agreed to
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 division of Teleflex, Inc.) is required to purchase certain minimum
quantities.

Effective July 1, 2001, the Company and WCS amended the 2000 agreement which
adjusted various aspects of the contract to more accurately reflect current
existing market conditions. WCS continued its exclusive right to distribute the
Dexterity Protractor; however, WCS also agreed to distribute the Dexterity
Pneumo Sleeve on a nonexclusive basis and 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 67% and 77% of the Company's net sales
for the years ended December 31, 2002 and 2001, respectively. Receivables from
WCS and affiliates represented 83% and 79% of net accounts receivable at
December 31, 2002 and 2001, respectively.

Suppliers: The manufacturer and supplier of the Pneumo Sleeve and Protractor
accounts for 54% and 81% of purchases for the years ended December 31, 2002 and
2001, respectively.

Products: The Pneumo Sleeve and Protractor products account for 67% and 77% of
net sales for the years ended December 31, 2002 and 2001, respectively.




                                      F-11


<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE B - SUBSEQUENT EVENT

On February 17, 2003, the Company announced it signed a letter of intent to sell
for $7,000,000 to Davol, Inc. (Davol) its major proprietary medical device known
as its Protractor line. Consummation of the sale is contingent upon the Company
obtaining approval of the stockholders and creditors of Dexterity, completion of
due diligence by Davol to its satisfaction, approval of the Board of Directors
of Davol, execution and delivery of a definitive purchase and sale agreement
satisfactory to Dexterity and Davol, termination of the distribution rights
relating to the Protractor line, restructure of certain intellectual property
rights relating to the Protractor line, and other conditions.

The inventory and licensed technology rights related to the Protractor line have
not been reclassified to Assets to be Disposed of due to the number of
contingencies related to ultimate consummation of the sale.


NOTE C - INVESTMENTS

In June 1998, the Company issued 370,000 shares of common stock at a per-share
price of $3.25 with and 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 accounted 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
of 2001. This impairment was determined by the latest expected sales price of
ownership interests by Ana-Tech for cash to third parties. The balance of the
investment ($451,000) was written off as an impairment charge in the third
quarter 2002 due to Ana-Tech filing for protection under the United States
bankruptcy laws.


NOTE D - FEDERAL INCOME TAXES

As of December 31, 2002, the Company had net operating loss (NOL) carryforwards
of approximately $23,500,000 for federal income tax purposes that are available
to reduce future taxable income and will expire from 2006 through 2022 if not
utilized. The tax effects of significant temporary differences representing
income tax assets are as follows at December 31:

<Table>
<Caption>
                                                                2002               2001
                                                            ------------      ------------
<S>                                                         <C>               <C>
Tax deferred loss carryforwards                             $  8,250,000      $  7,190,000
Research and development credit carryforwards                    561,000           561,000
Accruals                                                         530,000           530,000
Other items                                                      699,000           952,000
                                                            ------------      ------------
Total deferred tax asset                                      10,040,000         9,233,000
Less valuation reserve                                       (10,040,000)       (9,233,000)
                                                            ------------      ------------
Net deferred tax asset                                      $         --      $         --
                                                            ============      ============
</Table>


As there is no assurance of future income, a 100% valuation reserve in 2002 and
2001 has been established against the Company's net deferred tax assets. The
Company will continue to evaluate the necessity for such valuation reserves in
the future.

The Company's ability to use its NOL carryforwards to offset future 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 limitations and may become further limited by
future ownership changes.



                                      F-12

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE E - LEASE OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES

OPERATING LEASES: The Company leases its administrative and warehouse office
space under a month-to-month lease. Rent expense totaled approximately $52,000
in 2002 and $67,000 in 2001, which is net of sublease income of approximately
$70,000 in 2002 and $147,000 in 2001.

EMPLOYMENT AGREEMENTS: The Company has several employment agreements that
provide for compensation for future service of $260,000 in 2003 and $98,000 in
2003. Certain of the Company's employees have an opportunity to earn bonuses
based upon the achievement of specified performance criteria, sale of a major
product line, or change in control of the Company.

OTHER AGREEMENTS AND CONTINGENCIES:

     a)   On September 11, 2002, the Company entered into an agreement with
          United States Surgical Corporation (U.S. Surgical), a division of Tyco
          Healthcare Group LP, which could ultimately settle all claims and
          counter claims between the two parties. The pertinent terms of the
          settlement agreement are as follows:

               1.   The Company represents and warrants it is in the process of
                    negotiating the sale of the Dexterity(R) Protractor(R)
                    product line.

               2.   Within seven (7) days of the closing of the sale, the
                    Company will pay U.S. Surgical $800,000 in full settlement
                    of the $2,500,000 trade accounts payable to U.S. Surgical
                    currently recorded on the Company's books and records. Cost
                    of litigation settlement of $287,000 was recorded in
                    September 2002.

               3.   Should the sale of the Protractor(R) line not take place,
                    U.S. Surgical may enforce a Stipulated Judgment for
                    $2,500,000 in favor of U.S. Surgical as filed by both
                    parties on September 30, 2002.

               4.   However, should the sale close, U.S. Surgical has executed a
                    satisfaction of judgment which will be filed on the
                    ninety-first day after payment of $800,000 upon closing.

          If and when the sale of the Protractor(R) line closes, the Company
          expects to owe approximately $325,000 to $700,000 in additional fees.

          Although the Company is pursuing the sale of the Protractor(R) line
          (which accounted for 67% of net sales in 2002 and 50% of net sales in
          2001), two significant approvals must be obtained prior to the sale
          being consummated: 1) the sale will require shareholder approval
          through the formal proxy process and a special shareholders meeting
          and 2) two secured creditors, who are owed amounts of $2,632,563 and
          $645,995 at December 31, 2002, must agree to both the sale and an
          agreement on settlement of the Company's debt. Accordingly, because of
          the significance of the above conditions, the Protractor(R) line has
          not been classified as available for sale at December 31, 2002.

     b)   By letter dated February 7, 2002, Robert Rambo, President of MCT,
          claimed 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.
          Accordingly, as a compromise, a contingent note payable was issued in
          May of 2002 by the Company to Mr. Rambo in the amount of $116,421.
          This note is payable only upon the occurrence of any one of certain
          events, including sale of the Company and sale of any of the Company's
          major product lines, which includes the Protractor(R) line. Also, in
          May 2002, the Company entered into a new manufacturing agreement with
          MCT.

                                      F-13


<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE E - LEASE OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES - CONTINUED

     c)   The Debenture Holders and certain holders of the Company's preferred
          stock Series A and Series B have disputed the price for conversion to
          common shares. See Preferred Stock footnote.

     d)   On February 25, 2003, Surgical Visions I, Inc. and various
          individuals, including K.C. Fadem, a former director of the Company,
          filed a lawsuit against the Company, Teleflex, Incorporated and
          certain of the Company's 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
          plaintiffs are seeking unspecified compensatory damages. The Company
          believes this lawsuit is without merit and intends to vigorously
          defend it's position.

     e)   The Company is also a party to claims and legal proceedings arising in
          the ordinary course of business. The Company believes it is unlikely
          the outcome of any of these other claims or proceedings will have a
          material adverse effect on the its financial statements. However,
          there can be no assurance that the resolution of any particular claim
          or proceeding would not have an adverse effect on the Company's
          financial position or results of operations.


NOTE F - DEBT AND OTHER LONG-TERM OBLIGATIONS

All of the Company's debt and other long-term obligations are in default.
Amounts outstanding are as follows at December 31:

<Table>
<Caption>
                                                                 2002            2001
                                                            ------------     ------------
<S>                                                         <C>              <C>
(1) Dexterity notes                                         $  1,000,000     $  1,000,000
(2) Line of credit                                               645,995          645,995
(3) Royalty obligation                                         7,765,004        7,116,406
(4) Convertible Debentures                                     2,632,563        2,632,563
                                                            ------------     ------------
Total long-term debt and other obligations                    12,043,562       11,394,964
Less current portion                                           9,114,144        7,334,743
                                                            ------------     ------------
Long-term portion of debt and other obligations             $  2,929,418     $  4,060,221
                                                            ============     ============
</Table>

(1) Unsecured notes payable related to Dexterity acquisition, bearing interest
at 12%, interest due quarterly, matured in October 2001. The Company is in
default with respect to 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. The Company is in default with respect to this obligation. In
May 2001, Teleflex, Inc., a major stockholder in the Company, purchased this
instrument from the previous lender. The outstanding balance accrues interest at
prime plus 1.5%, plus an additional 3% due to the Company's default on the line
of credit. There are no additional funds available under the current borrowing
base. The Company does not have sufficient resources to satisfy this obligation
in the event of demand for payment.


                                      F-14


<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE F - DEBT AND OTHER LONG-TERM OBLIGATIONS - CONTINUED

(3) Royalty obligation related to Dexterity acquisition, subject to annual
minimum payments over a period of seven years commencing in 1999 and discounted
at 12%. The Company is in default with respect to this obligation. 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 royalty obligation
specifies that a penalty of 12% shall be applied to any royalty amounts not paid
when due. Penalties of $284,242 and $37,289 are included in interest expense and
accrued liabilities at December 31, 2002 and December 31, 2001, respectively.

(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 Company is in default
with respect to this obligation. As such, the entire balance due of $2,632,563
has been classified as a current liability at December 31, 2002. The debentures
are secured by substantially all of the assets of the Company and require
monthly payments of interest.

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 at a 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
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.

MATURITIES: Maturities of debt and other long-term obligations will result in
the following principal payments:

<Table>
<Caption>
                                                                      Other Debt
                                                                         and
                                                       Royalty        Long-Term
       Year Ended December 31                        Obligation       Obligations          Total
       ----------------------                      ------------      ------------     ------------
<S>                                                <C>               <C>              <C>
             2002 (delinquent)                     $  3,056,185      $  4,278,558     $  7,334,743
             2003                                     1,779,401                --        1,779,401
             2004                                     1,779,401                --        1,779,401
             2005                                     1,779,401                --        1,779,401
             2006                                       444,850                --          444,850
                                                   ------------      ------------     ------------
Gross obligations                                     8,839,238         4,278,558       13,117,796
Less amount representing interest                    (1,074,234)               --       (1,074,234)
                                                   ------------      ------------     ------------
Net obligations                                    $  7,765,004      $  4,278,558     $ 12,043,562
                                                   ============      ============     ============
</Table>


Interest expense was incurred as follows during the years ended December 31:

<Table>
<Caption>
                                                  2002             2001
                                             ------------     ------------
<S>                                          <C>              <C>
Dexterity notes                              $    120,000     $    120,000
Line of credit                                     60,000           74,803
Royalty obligation                                895,550          728,736
Convertible Debentures                            480,193          506,064
Deferred finance and other charges                 78,031           86,967
                                             ------------     ------------
Total                                        $  1,633,774     $  1,516,570
                                             ============     ============
</Table>


                                      F-15

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE G - PREFERRED STOCK

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. Quarterly dividends for four quarters are in arrears in
the aggregate amount of $32,000. 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. The affirmative vote of 66 2/3% 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. Since two or
more quarterly dividends payable on the Series C preferred stock are in arrears,
the holders of the Series C preferred stock, by a majority vote, are 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 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. Quarterly dividends for four quarters are in arrears in the aggregate
amount of $82,000. 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. Certain holders of the Series B
preferred stock contend that the issuance of shares by the Company in settlement
of the Andrieni lawsuit in 2001 requires a downward adjustment to the conversion
price of the Series B preferred stock. The Company disputes the claim of such
holders of Series B preferred stock and believes the conversion price should
remain at $1.54. However, there can be no assurance that such holders of Series
B preferred stock will not prevail in their claim for a downward adjustment to
the conversion price, in which case the Company would be required to issue a
greater number of shares of common stock upon conversion of the Series B
preferred stock than would be issuable at a $1.54 conversion price. Any issuance
of common stock upon the conversion of preferred stock will substantially dilute
the voting rights and other interests of stockholders of the Company. 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. The affirmative
vote of 66 2/3% 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. Since two or more quarterly dividends payable on the series B
preferred stock are in arrears, the holders of Series B preferred stock, by a
majority vote, are entitled to designate two additional directors to serve on
the Company's Board of Directors.



                                      F-16

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE G - PREFERRED STOCK - CONTINUED

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. Quarterly dividends for four quarters
are in arrears in the amount of $81,600. 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. Certain holders of
the Series A preferred stock contend that the issuance of shares by the Company
in settlement of the Andrieni lawsuit in 2001 requires a downward adjustment to
the conversion price of the Series A preferred stock. The Company disputes the
claim of such holders of Series A preferred stock and believes the conversion
price should remain at $1.54. However, there can be no assurance that such
holders of Series A preferred stock will not prevail in their claim for a
downward adjustment to the conversion price, in which case the Company would be
required to issue a greater number of shares of common stock upon conversion of
the Series A preferred stock than would be issuable at a $1.54 conversion price.
Any issuance of common stock upon the conversion of preferred stock will
substantially dilute the voting rights and other interests of stockholders of
the Company. 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.
The affirmative vote of 66 2/3% 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. Since two or more quarterly dividends
payable on the Series A preferred stock are in arrears, the holders of Series A
preferred stock, by a majority vote, are entitled to designate two additional
directors to serve on the Company's Board of Directors


NOTE H - EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of the basic
net loss per share (diluted loss per share equals basic loss per share since the
effects of common stock equivalents are anti-dilutive in loss years):

<Table>
<Caption>
                                                                2002               2001
                                                            ------------      ------------
<S>                                                         <C>               <C>
Numerator:
   Net loss                                                 $ (3,173,040)     $(15,832,017)
   Preferred stock dividends                                    (195,600)         (195,600)
                                                            ------------      ------------
     Net loss applicable to common stockholders             $ (3,368,640)     $(16,027,617)
                                                            ============      ============
Denominator:
   Basic weighted average common shares outstanding           12,121,492        11,619,853
   Effect of dilutive common stock equivalents                        --                --
                                                            ------------      ------------
     Weighted average shares outstanding                      12,121,492        11,619,853
                                                            ============      ============
Loss per common share, basic and diluted                            (.28)     $      (1.38)
                                                            ============      ============
</Table>






                                      F-17

<PAGE>
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE I - 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 338,150 shares of common stock are reserved for future
issuance for options still outstanding at December 31, 2002.

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 10 years from
the date they vest. At December 31, 2002, 65,500 options are outstanding under
the NEDSOP.

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, 2002, 245,000 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. At December 31, 2002, 696,650 shares of common stock
are reserved for future issuance under all plans.

The Company periodically grants options to employees and directors outside of
any plan. However, no such options were granted in 2002 or 2001.

A summary of the status of the Company's stock options at December 31, 2002 and
2001, and changes during the years then ended, is presented in the table below:

<Table>
<Caption>
                                                         2002                         2001
                                              -------------------------      -------------------------
                                                              Weighted                       Weighted
                                                               Average                        Average
                                                              Exercise                       Exercise
                                                              Price Per                      Price Per
                                                Shares          Share          Shares          Share
                                              ---------      ----------      ---------      ----------
<S>                                           <C>            <C>             <C>            <C>
Outstanding, beginning of year                1,423,400      $     1.89      1,620,100      $     1.99
  Granted                                            --              --        379,000            0.15
  Canceled                                           --              --             --              --
  Forfeited                                     (72,800)           1.42       (575,700)           1.08
                                              ---------                      ---------
Outstanding, end of year                      1,350,600      $     1.89      1,423,400      $     1.89
                                              =========      ==========      =========      ==========
Options exercisable, end of year              1,300,600      $     1.92      1,207,775      $     1.90
                                              =========      ==========      =========      ==========
Weighted average fair value
   of options granted                                        $      N/A                     $     0.11
                                                             ==========                     ==========
</Table>


                                      F-18

<PAGE>

DEXTERITY SURGICAL, INC. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001


NOTE I - STOCK OPTIONS AND WARRANTS - CONTINUED

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model for a stock that does not pay dividends with
the following weighted average assumptions used for grants in 2002 and 2001:
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 volatibility of 88%.

The following table summarizes the information about options outstanding at
December 31, 2002:

<Table>
<Caption>
                                                               Weighted Average            Number
                                                                   Remaining           Exercisable at
            Exercise Price             Number                  Contractual Life          December 31
               Per Share            Outstanding                     (years)                 2002
            --------------          -----------                ----------------        --------------
<S>                                 <C>                        <C>                     <C>
              $    .001                 5,285                          .03                   5,285
                   .14                235,000                         8.01                 235,000
                   .33                 16,000                         8.33                  16,000
                   .75                 68,000                         3.38                  68,000
                  1.00                265,000                         6.96                 221,250
                  1.88                 25,000                         6.11                  18,750
                  2.00                350,000                         5.95                 350,000
                  2.25                 25,000                         2.39                  25,000
                  2.50                 17,550                         2.65                  17,550
                  3.00                160,000                         3.97                 160,000
                  3.13                 10,400                         4.07                  10,400
                  3.25                 27,000                         5.11                  27,000
                  4.00                 28,200                         1.79                  28,200
                  4.25                 25,000                         5.18                  25,000
                  4.38                123,333                         4.93                 123,333
                  4.88                  4,500                         4.46                   4,500
                  5.03                 13,332                         4.75                  13,332
                                    ---------                                            ---------
                                    1,398,600                                            1,348,600
                                    =========                                            =========
</Table>

WARRANTS: At December 31, 2002, the Company has 1,547,500 warrants outstanding.
Each warrant, when exercised, is exchangeable for one share of the Company's
common stock.

The following table summarizes the information about warrants outstanding at
December 31, 2002:

<Table>
<Caption>
            Exercise                   Number                     Exercisable at
             Price                  Outstanding                  December 31, 2002     Expiration
            --------                -----------                  -----------------     ----------
<S>                                 <C>                          <C>                   <C>
             $1.00                  1,500,000                         900,000             2009
             $2.00                     22,500                          22,500             2004
             $2.25                     25,000                          25,000             2004
</Table>





                                      F-19

<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 herein by reference 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>
<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    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).

10.7    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).

10.8    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).

10.9    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).

10.10   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).

10.11   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).

10.12   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).

10.13   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).

10.14   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).

10.15   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).

10.16   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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        IDENTIFICATION OF EXHIBIT
-------                       -------------------------
<S>     <C>
10.17   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).

10.18   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).

10.19   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.)

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

10.21   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).

10.22   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).

10.23   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).

10.24   Manufacture and Supply Agreement dated May 1, 2002, among Dexterity
        Surgical, Inc., Medical Creative Technologies, Inc. and Robert D. Rambo
        (incorporated herein by reference to Exhibit 10.1 to the Company's
        Quarterly Report on Form 10-QSB filed August 12, 2002).

10.25*  Second Amendment to Amended Employment Agreement between the Company and
        Richard Woodfield dated effective January 30, 2003.

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

23.1*   Consent of Ernst & Young LLP

23.2*   Consent of Akin, Doherty, Klein & Feuge, a professional corporation

99.1*   Certification of the Company's Chief Executive Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002.

99.2*   Certification of the Company's Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the
        Sarbanes-Oxley Act of 2002.
</TABLE>


* Filed herewith