<PAGE>
 
 ------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 ------------------------------------------------------------------------------


                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND 
                              EXCHANGE ACT OF 1934
                  For quarterly period ended January 31, 1998
                                       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 0-13907

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

                               BIO-VASCULAR, INC.
             (Exact name of Registrant as specified in its charter)

                        State of Incorporation: Minnesota
                 I.R.S. Employer Identification No.: 41-1526554

               Principal Executive Offices: 2575 University Avenue
                            St. Paul, Minnesota 55114
                        Telephone Number: (612) 603-3700

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



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  [X]  No [_]

On February 28, 1998, there were 9,355,972 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
<PAGE>
 
ITEM 1.   FINANCIAL STATEMENTS

BIO-VASCULAR, INC.
CONDENSED BALANCE SHEETS
AS OF JANUARY 31, 1998 AND OCTOBER 31, 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   January 31,     October 31,
                                                                      1998            1997
                                                                  ------------    ------------
                                                                  (Unaudited)
<S>                                                               <C>             <C>
ASSETS
Current assets:
Cash and cash equivalents .....................................   $  1,560,184    $  6,766,687
Marketable securities, short-term .............................     10,159,651       7,229,934
Accounts receivable, net ......................................      1,792,001       1,846,519
Inventories ...................................................      1,686,142       1,619,395
Deferred income taxes .........................................        177,254         144,549
Other .........................................................        711,872         480,955
                                                                  ------------    ------------
   Total current assets .......................................     16,087,104      18,088,039

Equipment and leasehold improvements, net .....................      1,725,529       1,670,446
Intangible assets, net ........................................        950,760       1,003,251
Marketable securities, long-term ..............................      4,754,521       3,989,896
Deferred income taxes .........................................        484,676         382,819
                                                                  ------------    ------------
   Total Assets ...............................................   $ 24,002,590    $ 25,134,451
                                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
Accounts payable ..............................................   $    641,001    $    616,941
Accrued expenses ..............................................        505,329         565,275
                                                                  ------------    ------------
   Total current liabilities ..................................      1,146,330       1,182,216
                                                                  ------------    ------------

Shareholders' Equity:
Preferred stock: authorized 5,000,000 shares of $.01 par value;
  none issued or outstanding at January 31, 1998 and
  October 31, 1997 ............................................           --              --
Common stock: authorized 20,000,000 shares of $.01 par value;
  issued and outstanding, 9,361,937 at January 31, 1998 and
  9,563,609 at October 31, 1997 ...............................         93,619          95,636
Additional paid-in capital ....................................     28,865,376      29,664,715
Unearned compensation .........................................       (538,059)       (447,254)
Unrealized marketable securities holding gain .................          2,389           1,288
Accumulated deficit ...........................................     (5,567,065)     (5,362,150)
                                                                  ------------    ------------
   Total shareholders' equity .................................     22,856,260      23,952,235
                                                                  ------------    ------------
   Total Liabilities and Shareholders' Equity .................   $ 24,002,590    $ 25,134,451
                                                                  ============    ============
</TABLE>


The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       2
<PAGE>
 
BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                      January 31,
                                                                      (unaudited)
                                                                   1998          1997
                                                               -----------    -----------
<S>                                                            <C>            <C>
Net revenue ................................................   $ 2,462,554    $ 2,325,442
Cost of revenue ............................................     1,038,220      1,004,040
                                                               -----------    -----------
Gross margin ...............................................     1,424,334      1,321,402

Operating expenses:
Selling, general, and administrative .......................     1,512,768      1,176,180
Research and development ...................................       464,867        213,684
                                                               -----------    -----------

Operating loss .............................................      (553,301)       (68,462)
Other income, net ..........................................       245,820        282,020
                                                               -----------    -----------

Income (loss) from continuing operations before income taxes      (307,481)       213,558

Provision for (benefit from) income taxes ..................      (102,566)        89,000
                                                               -----------    -----------

Income (loss) from continuing operations ...................      (204,915)       124,558

Loss from operations of discontinued business, net of income
   tax benefit .............................................          --             --
                                                               -----------    -----------

Net income (loss) ..........................................   $  (204,915)   $   124,558
                                                               ===========    ===========

Basic and diluted earnings per share:
Continuing operations ......................................   $      (.02)   $       .01
Discontinued operations ....................................           --            --
                                                               -----------    -----------
Net income (loss) ..........................................   $      (.02)   $       .01
                                                               ===========    ===========
</TABLE>

The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       3
<PAGE>
 
BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
--------------------------------------------------------------------------------


                                                          Three Months Ended
                                                             January 31,
                                                             (unaudited)
                                                         1998           1997
                                                     -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING           
   ACTIVITIES .....................................  $  (412,764)   $   228,317
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:              
Purchase of equipment and improvements ............     (151,958)      (238,478)
Purchase of  intangibles ..........................      (12,823)       (29,235)
Investments in marketable securities ..............   (5,687,293)          --   
Maturities of marketable securities ...............    2,000,000           --   
Discontinued operations, net ......................         --       (1,845,788)
                                                     -----------    -----------
                                                   
Net cash used in investing activities .............   (3,852,074)    (2,113,501)
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds related to stock options, employee        
  stock purchase plan                              
  and restricted stock ............................       20,872        115,575
Purchase of common stock ..........................     (962,537)          --   
                                                     -----------    -----------
                                                   
Net cash provided by (used in) financing activities     (941,665)       115,575
                                                     -----------    -----------
                                                   
                                                   
NET DECREASE IN CASH AND CASH EQUIVALENTS .........   (5,206,503)    (1,769,609)
                                                     -----------    -----------
                                                   
CASH AND CASH EQUIVALENTS AT BEGINNING OF          
   PERIOD .........................................    6,766,687      5,736,650
                                                     -----------    -----------
                                                   
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........  $ 1,560,184    $ 3,967,041
                                                     ===========    ===========


The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       4
<PAGE>
 
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(1)  BASIS OF PRESENTATION:

The accompanying unaudited financial statements of Bio-Vascular, Inc.
("Bio-Vascular" or "the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary, including
items of a normal recurring nature, for a fair presentation have been included.
Operating results for the three months ended January 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report to Shareholders and in
the Form 10-K for the year ended October 31, 1997.


(2)  SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:

                                          January 31,     October 31,
                                             1998             1997
                                          -----------    -----------
Inventories:
Raw materials and supplies ............   $   644,524    $   580,354
Work-in-process .......................       346,213        405,736
Finished goods ........................     1,073,976      1,006,305
Less reserve for inventory obsolescence      (378,570)      (373,000)
                                          -----------    -----------
                                          $ 1,686,142    $ 1,619,395
                                          ===========    ===========

Condensed Statements of Cash Flows:

In August 1997, the Company's Board of Directors adopted a stock repurchase plan
(the "Plan") and authorized the purchase of up to 500,000 shares of its common
stock. During the first quarter of 1998, the Company repurchased 245,100 shares
of its common stock bringing the total common stock repurchased to 282,000
shares since the inception of the Plan.

In conjunction with the May 1997 spin-off of Vital Images, net cash used by
Discontinued Operations during the first quarter of 1997 represents cash
contributed by the Company to Vital Images in accordance with the Distribution
Agreement and related transaction costs.

                                       5
<PAGE>
 
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------

(3) EARNINGS PER SHARE:

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE, during the quarter ended January 31, 1998. As required by
this Statement, earnings per share of prior periods are presented in accordance
with the provisions of SFAS No. 128. There are no significant reconciling items
between net income (loss) as presented in the statement of operations and net
income (loss) available to common stockholders used in the calculation of
earnings per share. The following table sets forth the computation of basic and
diluted earnings per share:


                                                     Three Months Ended
                                                         January 31,
                                                         (Unaudited)
                                                      1998           1997
                                                  -----------    -----------
Numerator:
Net income (loss) .............................   $  (204,915)   $   124,558
                                                  ===========    ===========
Denominator:
Denominator for basic earnings per share-
   weighted-average shares ....................     9,401,963      9,487,299
                                                  -----------    -----------
Effect of dilutive securities:
Shares associated with deferred compensation ..          --           45,569
Shares associated with option plans ...........          --          296,273
                                                  -----------    -----------
Dilutive potential common shares ..............          --          341,842
                                                  -----------    -----------
Denominator for diluted earnings per share-
   adjusted weighted-average shares and assumed
   conversions ................................     9,401,963      9,829,141
                                                  ===========    ===========
Basic and diluted earnings per share:
Continuing operations .........................   $      (.02)   $       .01
Discontinued operations .......................          --             --
                                                  -----------    -----------
Net income (loss) .............................   $      (.02)   $       .01
                                                  ===========    ===========


Options to purchase 1,200,427 and 465,757 shares of common stock were
outstanding during the first quarter of fiscal 1998 and 1997, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be anti-dilutive. Had the Company not
incurred a loss during the first quarter of 1998 the denominator in the
computation of diluted earnings per share would have additionally been increased
by 154,786 potentially dilutive common shares related to deferred compensation
and option plans.

                                       6
<PAGE>
 
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------

(4) MAJOR CUSTOMERS AND SALES BY GEOGRAPHIC AREA:

International net revenues amounted to 20% and 21% of total net revenues for the
three month periods ended January 31, 1998 and 1997, respectively. Substantially
all of the Company's international revenues are negotiated, invoiced and paid in
U.S. dollars. The following tables summarize significant customers and
international revenues by geographic area:

                                                        PERCENTAGE   PERCENTAGE
                                      SIGNIFICANT           OF       OF ACCOUNTS
                                       CUSTOMER         GROSS SALES  RECEIVABLE
                                      -----------       -----------  -----------
Period ended January 31, 1998 ......Futuretech               19%        15%
                                    Life Systems             13%        10%
                                    Cardio Medical           14%        12%
                                    Pacific West Medical      9%        13%
                                                                       
Period ended January 31, 1997 ......Futuretech               19%        16%
                                    Life Systems             15%        13%
                                    Cardio Medical           12%        13%
                                    Pacific West Medical      7%        12%
                                                                    

                                                         Three Months Ended
                                                             January 31,
                                                        1998              1997
                                                      --------          --------
Europe and Middle East .....................          $331,063          $331,671
Asia and Pacific Region ....................           109,154           143,190

                                       7
<PAGE>
 
       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

OVERVIEW

Net revenue for the quarter was up 6% over the same quarter in 1997 due to
continued revenue growth from the Company's core TISSUE-GUARD(TM) product line.
This was the second consecutive quarter in which net revenues were higher than
in the comparabLE quarter since the government's January 1996 non-coverage
decision on lung volume reduction surgery ("LVRS"). Revenues from the
TISSUE-GUARD product line, excluding PERI-STRIPS(R), were up 22% over the first
quarter of 1997. Most of this increase came froM DURA-GUARD(R), the product used
to repair openings in the covering of the brain and spinal cord, which gained
34% and now represents over one-half of the TISSUE-GUARD product line net
revenues, exclusive of PERI-STRIPS. VASCU-GUARD(R) also had revenue increases of
52% over the respective prior year quarter.

Aggregate revenues from PERI-STRIPS and PERI-STRIPS DRY(TM) were up $17,000, or
2%, from the first quarter of 1997. This improvement primarily from domestic
revenues occurred absent any revenues from surgical centers participating in the
National Emphysema Treatment Trial ("NETT") which as of the date of this report
is still in the early stages of patient enrollment with only one surgery having
been performed. The Company had expected surgeries would commence under the
study at the earliest in January 1998.

In February 1998, the Japanese Ministry of Health and Welfare approved the
Company's application for National Health Insurance reimbursement of PERI-STRIPS
when used to buttress the surgical staple line in LVRS. This is an important
market for the Company and one that it has worked with the Japanese government
for more than a year to open. The Company believes the Japanese market is
important to its international growth strategy. The Company expects to see
increased PERI-STRIPS revenue from Japan starting in the second quarter.

The Company has experienced excellent acceptance of its PERI-STRIPS DRY product,
introduced last July, with over one-half of this quarter's combined PERI-STRIPS
sales coming from the PERI-STRIPS DRY product. The Company believes that
PERI-STRIPS DRY, an advanced version of PERI-STRIPS, provides significant
advantages for thorascopic surgical procedures over the original PERI-STRIPS
"sleeve" design. Extraction of the sutured sleeve backing, that was part of the
original design, was found to be cumbersome during a thorascopic procedure.
PERI-STRIPS DRY eliminates the need to extract the sutured sleeve backing. A
specially formulated PSD GEL(TM) adheres the PERI-STRIPS DRY strip to the
surgical stapler. In the U.S., PERI-STRIPS DRY is expected to ultimately replace
the original PERI-STRIPS sleeve configuration for thorascopic procedures.

OCU-GUARD(TM), the newest member of the TISSUE-GUARD product line was cleared to
market by the U.S. Food and Drug Administration (the "FDA") in December 1997.
The Company also received the European Medical Directive "CE" mark authority
with respect to OCU-GUARD. Devices with the CE mark may be marketed freely
throughout the 15-country European Union and the European Free Trade
Association. The Company generated its first sales from OCU-GUARD in February
1998. OCU-GUARD is made from the Company's SUPPLE PERI-GUARD(R) tissue and is
intended to be used by ophthalmic surgeons to wrap ophthalmic orbital implants
following enucleation surgery. Wrapping the orbital implant decreases the
likelihood of exposure of the orbital implant and allows for attachment of eye
muscles to the implant, providing the implant with tracking capabilities. The
majority of the estimated 12,000 to 15,000 procedures performed annually in the
United States require the use of a wrapping material. Currently, the most
commonly used wrapping material is cadaver sclera. OCU-GUARD represents another
successful step in the Company's strategy to identify markets for its tissue and
develop a product that meets surgeons' needs.

The Company also expects to receive marketing clearance from the FDA for its CV
PERI-Guard(TM) product by the end of the second quarter. CV PERI-GUARD is made
from the Company's PERI-GUARD(R) tissue and will be part of

                                       8
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
--------------------------------------------------------------------------------

the TISSUE-GUARD product line. CV PERI-GUARD is expected to have indications for
use as an adult intra-cardiac patch for use in procedures such as septal defect
repair, valve repair and aneurysm repair.

RESULTS OF CONTINUING OPERATIONS

           COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 1998 WITH
                     THE THREE MONTHS ENDED JANUARY 31, 1997

Net revenue was $2,463,000 for the 1998 quarter up from $2,325,000 for the 1997
quarter, primarily as a result of the increase in revenue from TISSUE-GUARD
sales, excluding PERI-STRIPS and PERI-STRIPS DRY. Revenue from sales of
TISSUE-GUARD products, DURA-GUARD, VASCU-GUARD, SUPPLE PERI-GUARD and
PERI-GUARD, increased $179,000, or 22%, to $980,000 from $801,000. Aggregate
revenue from PERI-STRIPS and PERI-STRIPS DRY increased $17,000, or 2%, to
$779,000 in the 1998 quarter from $762,000 in the 1997 quarter. BIOGRAFT(R)
revenue decreased by $28,000, or 14%, comparing the 1998 and 1997 quarters,
continuing a trend representative of the late stage of this product's life
cycle. Revenue from sales of surgical productivity tools (FLO-RESTER(R) and the
BIO-VASCULAR PROBE(R)) decreased $31,000, or 6%, to $527,000 from $558,000. The
Company believes that the decrease in surgical productivity tool revenues is not
considered indicative of a sales trend, but rather reflects the uneven sales
pattern of these products.

The gross margin percentage was 58% in the 1998 quarter and 57% in the 1997
quarter. During fiscal 1997, the gross margin percentages declined through the
quarters, primarily due to decreases in the production volume in response to
decreases in demand for PERI-STRIPS as a result of the LVRS non-coverage
decision. It is expected that the gross margin percentage will increase slightly
during the 1998 year from its first quarter level. This forward-looking
statement will be influenced primarily by the accuracy of the Company's current
estimates of product costs, product mix and production volume, and would be
impacted by significant increases or decreases in actual results as compared to
these estimates.

Selling, general and administrative expense increased $337,000, or 29%, to
$1,513,000 from $1,176,000. The general and administrative expense increase
accounted for $237,000, or a 38% increase as compared to first quarter 1997.
This increase is primarily due to increased spending on product development
management and regulatory and clinical affairs. Selling expense increased
$100,000, or 18% primarily due to increased compensation, travel and convention
costs.

Research and development ("R&D") expense increased $251,000, or 118%, to
$465,000 from $214,000 in the 1997 quarter. The Company has several projects
under development. R&D expense is expected to increase as these and other
projects continue to progress. This forward-looking statement will be influenced
primarily by the number of projects, the related R&D personnel requirements, the
development path and success of each project, the expected costs, and the timing
of these costs.

Operations had a loss in the 1998 quarter of $553,000 compared to a loss of
$68,000 in the 1997 quarter. Other income, primarily interest income, was
$246,000 and $282,000 in the 1998 and 1997 quarters, respectively. As a result,
operations had a loss before income taxes in the 1998 quarter of $307,000 as
compared to income before income taxes in the 1997 quarter of $214,000.

The Company recorded a benefit from income taxes of $103,000 for the 1998
quarter as compared to a provision 

                                       9
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
--------------------------------------------------------------------------------

for income taxes of $89,000 in the 1997 quarter. The net loss was $205,000, or
$.02 per share for the 1998 quarter. The 1997 quarter had net income of
$124,000, or $.01 per share.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended January 31, 1998, continuing operations used $413,000
of cash as compared to $228,000 of net cash provided in the same period in 1997.
Cash was used by continuing operations, in the first quarter of fiscal 1998, due
to increases in prepaid expenses, non-trade receivables, inventory and decreases
in accrued expenses. These cash uses were partially offset by non-cash expenses
and decreases in accounts receivable.

The Company invested $152,000 in equipment and leasehold improvements primarily
related to new manufacturing capacity related to PERI-STRIPS DRY. Financing
activities used $942,000 and primarily represents cash used to repurchase shares
of the Company's common stock . The Company announced in August 1997 its
intention to repurchase up to 500,000 shares of its common stock. Such purchases
will continue to be made in the open market from time-to-time as price
opportunities arise.

The Company has cash and investments totaling $16,474,000 at January 31, 1998.
The Company believes its existing cash and investments will be sufficient to
satisfy its cash requirements for the foreseeable future.

NEW ACCOUNTING STANDARDS

In June 1997, SFAS No. 130 (SFAS 130) , COMPREHENSIVE INCOME, was issued by the
Financial Accounting Standards Board. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. Also issued in June
1997 was SFAS No. 131 (SFAS 131), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, which establishes new standards for the way public
business enterprises report information about operating segments. The Company
must adopt SFAS 130 and SFAS 131 in fiscal year 1999. Management is currently
evaluating the effect of these changes on its financial reporting.

CERTAIN IMPORTANT FACTORS

This Form 10-Q contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-Q that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "continue" or comparable terminology are intended forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a variety
of factors, including the availability of third party reimbursement, the extent
to which the Company's products gain market acceptance, litigation regarding
patent and other intellectual property rights, the introduction of competitive
products by others, the progress of product development and clinical studies,
and the receipt and timing of regulatory approvals, among others.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                       10
<PAGE>
 
--------------------------------------------------------------------------------

                           PART II. OTHER INFORMATION

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

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS. The exhibits to this quarterly report on Form 10-Q are listed in
     the exhibit index beginning on page 13.

(b)  FORM 8-K. No reports on Form 8-K were filed by the Company during the
     quarter ended January 31, 1998. 

                                       11
<PAGE>
 
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                                        BIO-VASCULAR, INC.


Dated:   March 12, 1998.                /S/ CONNIE L. MAGNUSON
                                        ----------------------------------
                                        Connie L. Magnuson
                                        Vice - President Finance and Chief 
                                        Financial Officer
                                        (Principal Financial Officer)

                                       12
<PAGE>
 
BIO-VASCULAR, INC.
INDEX TO EXHIBITS
--------------------------------------------------------------------------------

10.1 Form of Change in Control Agreement entered into between the Company and
     each of Mr. Donald E. Gardner, Ms. Connie L. Magnuson and Mr. Thomas J.
     Pepin dated January 12, 1998 and Mr. David Buche dated January 29, 1998.
     (Filed herewith electronically.)

27.1 Financial Data Schedule for the three month period ended January 31, 1998.
     (Filed herewith electronically.)


                                      13
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{"company-data": {"conformed-name": "BIO VASCULAR INC", "cik": "0000780127", "assigned-sic": "3842", "irs-number": "411526554", "state-of-incorporation": "MN", "fiscal-year-end": "1031"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-13907", "film-number": "98564357"}, "business-address": {"street1": "2575 UNIVERSITY AVENUE", "city": "ST PAUL", "state": "MN", "zip": "55114-1024", "phone": "6126313529"}}
------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 ------------------------------------------------------------------------------

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND 
                              EXCHANGE ACT OF 1934
                  For quarterly period ended January 31, 1998
                                       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 0-13907

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

                               BIO-VASCULAR, INC.
             (Exact name of Registrant as specified in its charter)

                        State of Incorporation: Minnesota
                 I.R.S. Employer Identification No.: 41-1526554

               Principal Executive Offices: 2575 University Avenue
                            St. Paul, Minnesota 55114
                        Telephone Number: (612) 603-3700

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  [X]  No [_]

On February 28, 1998, there were 9,355,972 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
ITEM 1.   FINANCIAL STATEMENTS

BIO-VASCULAR, INC.
CONDENSED BALANCE SHEETS
AS OF JANUARY 31, 1998 AND OCTOBER 31, 1997
--------------------------------------------------------------------------------
January 31,     October 31,
                                                                      1998            1997
                                                                  ------------    ------------
                                                                  (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .....................................   $  1,560,184    $  6,766,687
Marketable securities, short-term .............................     10,159,651       7,229,934
Accounts receivable, net ......................................      1,792,001       1,846,519
Inventories ...................................................      1,686,142       1,619,395
Deferred income taxes .........................................        177,254         144,549
Other .........................................................        711,872         480,955
                                                                  ------------    ------------
   Total current assets .......................................     16,087,104      18,088,039

Equipment and leasehold improvements, net .....................      1,725,529       1,670,446
Intangible assets, net ........................................        950,760       1,003,251
Marketable securities, long-term ..............................      4,754,521       3,989,896
Deferred income taxes .........................................        484,676         382,819
                                                                  ------------    ------------
   Total Assets ...............................................   $ 24,002,590    $ 25,134,451
                                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
Accounts payable ..............................................   $    641,001    $    616,941
Accrued expenses ..............................................        505,329         565,275
                                                                  ------------    ------------
   Total current liabilities ..................................      1,146,330       1,182,216
                                                                  ------------    ------------

Shareholders' Equity:
Preferred stock: authorized 5,000,000 shares of $.01 par value;
  none issued or outstanding at January 31, 1998 and
  October 31, 1997 ............................................           --              --
Common stock: authorized 20,000,000 shares of $.01 par value;
  issued and outstanding, 9,361,937 at January 31, 1998 and
  9,563,609 at October 31, 1997 ...............................         93,619          95,636
Additional paid-in capital ....................................     28,865,376      29,664,715
Unearned compensation .........................................       (538,059)       (447,254)
Unrealized marketable securities holding gain .................          2,389           1,288
Accumulated deficit ...........................................     (5,567,065)     (5,362,150)
                                                                  ------------    ------------
   Total shareholders' equity .................................     22,856,260      23,952,235
                                                                  ------------    ------------
   Total Liabilities and Shareholders' Equity .................   $ 24,002,590    $ 25,134,451
                                                                  ============    ============
The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       2
BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
--------------------------------------------------------------------------------
Three Months Ended
                                                                      January 31,
                                                                      (unaudited)
                                                                   1998          1997
                                                               -----------    -----------
Net revenue ................................................   $ 2,462,554    $ 2,325,442
Cost of revenue ............................................     1,038,220      1,004,040
                                                               -----------    -----------
Gross margin ...............................................     1,424,334      1,321,402

Operating expenses:
Selling, general, and administrative .......................     1,512,768      1,176,180
Research and development ...................................       464,867        213,684
                                                               -----------    -----------

Operating loss .............................................      (553,301)       (68,462)
Other income, net ..........................................       245,820        282,020
                                                               -----------    -----------

Income (loss) from continuing operations before income taxes      (307,481)       213,558

Provision for (benefit from) income taxes ..................      (102,566)        89,000
                                                               -----------    -----------

Income (loss) from continuing operations ...................      (204,915)       124,558

Loss from operations of discontinued business, net of income
   tax benefit .............................................          --             --
                                                               -----------    -----------

Net income (loss) ..........................................   $  (204,915)   $   124,558
                                                               ===========    ===========

Basic and diluted earnings per share:
Continuing operations ......................................   $      (.02)   $       .01
Discontinued operations ....................................           --            --
                                                               -----------    -----------
Net income (loss) ..........................................   $      (.02)   $       .01
                                                               ===========    ===========
The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       3
BIO-VASCULAR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
--------------------------------------------------------------------------------

                                                          Three Months Ended
                                                             January 31,
                                                             (unaudited)
                                                         1998           1997
                                                     -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING           
   ACTIVITIES .....................................  $  (412,764)   $   228,317
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:              
Purchase of equipment and improvements ............     (151,958)      (238,478)
Purchase of  intangibles ..........................      (12,823)       (29,235)
Investments in marketable securities ..............   (5,687,293)          --   
Maturities of marketable securities ...............    2,000,000           --   
Discontinued operations, net ......................         --       (1,845,788)
                                                     -----------    -----------
                                                   
Net cash used in investing activities .............   (3,852,074)    (2,113,501)
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds related to stock options, employee        
  stock purchase plan                              
  and restricted stock ............................       20,872        115,575
Purchase of common stock ..........................     (962,537)          --   
                                                     -----------    -----------
                                                   
Net cash provided by (used in) financing activities     (941,665)       115,575
                                                     -----------    -----------
                                                   
                                                   
NET DECREASE IN CASH AND CASH EQUIVALENTS .........   (5,206,503)    (1,769,609)
                                                     -----------    -----------
                                                   
CASH AND CASH EQUIVALENTS AT BEGINNING OF          
   PERIOD .........................................    6,766,687      5,736,650
                                                     -----------    -----------
                                                   
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........  $ 1,560,184    $ 3,967,041
                                                     ===========    ===========

The accompanying notes are an integral part of the interim unaudited financial
statements.

                                       4
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

(1)  BASIS OF PRESENTATION:

The accompanying unaudited financial statements of Bio-Vascular, Inc.
("Bio-Vascular" or "the Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary, including
items of a normal recurring nature, for a fair presentation have been included.
Operating results for the three months ended January 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report to Shareholders and in
the Form 10-K for the year ended October 31, 1997.

(2)  SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:

                                          January 31,     October 31,
                                             1998             1997
                                          -----------    -----------
Inventories:
Raw materials and supplies ............   $   644,524    $   580,354
Work-in-process .......................       346,213        405,736
Finished goods ........................     1,073,976      1,006,305
Less reserve for inventory obsolescence      (378,570)      (373,000)
                                          -----------    -----------
                                          $ 1,686,142    $ 1,619,395
                                          ===========    ===========

Condensed Statements of Cash Flows:

In August 1997, the Company's Board of Directors adopted a stock repurchase plan
(the "Plan") and authorized the purchase of up to 500,000 shares of its common
stock. During the first quarter of 1998, the Company repurchased 245,100 shares
of its common stock bringing the total common stock repurchased to 282,000
shares since the inception of the Plan.

In conjunction with the May 1997 spin-off of Vital Images, net cash used by
Discontinued Operations during the first quarter of 1997 represents cash
contributed by the Company to Vital Images in accordance with the Distribution
Agreement and related transaction costs.

                                       5
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------

(3) EARNINGS PER SHARE:

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE, during the quarter ended January 31, 1998. As required by
this Statement, earnings per share of prior periods are presented in accordance
with the provisions of SFAS No. 128. There are no significant reconciling items
between net income (loss) as presented in the statement of operations and net
income (loss) available to common stockholders used in the calculation of
earnings per share. The following table sets forth the computation of basic and
diluted earnings per share:

                                                     Three Months Ended
                                                         January 31,
                                                         (Unaudited)
                                                      1998           1997
                                                  -----------    -----------
Numerator:
Net income (loss) .............................   $  (204,915)   $   124,558
                                                  ===========    ===========
Denominator:
Denominator for basic earnings per share-
   weighted-average shares ....................     9,401,963      9,487,299
                                                  -----------    -----------
Effect of dilutive securities:
Shares associated with deferred compensation ..          --           45,569
Shares associated with option plans ...........          --          296,273
                                                  -----------    -----------
Dilutive potential common shares ..............          --          341,842
                                                  -----------    -----------
Denominator for diluted earnings per share-
   adjusted weighted-average shares and assumed
   conversions ................................     9,401,963      9,829,141
                                                  ===========    ===========
Basic and diluted earnings per share:
Continuing operations .........................   $      (.02)   $       .01
Discontinued operations .......................          --             --
                                                  -----------    -----------
Net income (loss) .............................   $      (.02)   $       .01
                                                  ===========    ===========

Options to purchase 1,200,427 and 465,757 shares of common stock were
outstanding during the first quarter of fiscal 1998 and 1997, respectively, but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be anti-dilutive. Had the Company not
incurred a loss during the first quarter of 1998 the denominator in the
computation of diluted earnings per share would have additionally been increased
by 154,786 potentially dilutive common shares related to deferred compensation
and option plans.

                                       6
BIO-VASCULAR, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
--------------------------------------------------------------------------------

(4) MAJOR CUSTOMERS AND SALES BY GEOGRAPHIC AREA:

International net revenues amounted to 20% and 21% of total net revenues for the
three month periods ended January 31, 1998 and 1997, respectively. Substantially
all of the Company's international revenues are negotiated, invoiced and paid in
U.S. dollars. The following tables summarize significant customers and
international revenues by geographic area:

                                                        PERCENTAGE   PERCENTAGE
                                      SIGNIFICANT           OF       OF ACCOUNTS
                                       CUSTOMER         GROSS SALES  RECEIVABLE
                                      -----------       -----------  -----------
Period ended January 31, 1998 ......Futuretech               19%        15%
                                    Life Systems             13%        10%
                                    Cardio Medical           14%        12%
                                    Pacific West Medical      9%        13%
                                                                       
Period ended January 31, 1997 ......Futuretech               19%        16%
                                    Life Systems             15%        13%
                                    Cardio Medical           12%        13%
                                    Pacific West Medical      7%        12%
                                                                    

                                                         Three Months Ended
                                                             January 31,
                                                        1998              1997
                                                      --------          --------
Europe and Middle East .....................          $331,063          $331,671
Asia and Pacific Region ....................           109,154           143,190

                                       7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

OVERVIEW

Net revenue for the quarter was up 6% over the same quarter in 1997 due to
continued revenue growth from the Company's core TISSUE-GUARD(TM) product line.
This was the second consecutive quarter in which net revenues were higher than
in the comparabLE quarter since the government's January 1996 non-coverage
decision on lung volume reduction surgery ("LVRS"). Revenues from the
TISSUE-GUARD product line, excluding PERI-STRIPS(R), were up 22% over the first
quarter of 1997. Most of this increase came froM DURA-GUARD(R), the product used
to repair openings in the covering of the brain and spinal cord, which gained
34% and now represents over one-half of the TISSUE-GUARD product line net
revenues, exclusive of PERI-STRIPS. VASCU-GUARD(R) also had revenue increases of
52% over the respective prior year quarter.

Aggregate revenues from PERI-STRIPS and PERI-STRIPS DRY(TM) were up $17,000, or
2%, from the first quarter of 1997. This improvement primarily from domestic
revenues occurred absent any revenues from surgical centers participating in the
National Emphysema Treatment Trial ("NETT") which as of the date of this report
is still in the early stages of patient enrollment with only one surgery having
been performed. The Company had expected surgeries would commence under the
study at the earliest in January 1998.

In February 1998, the Japanese Ministry of Health and Welfare approved the
Company's application for National Health Insurance reimbursement of PERI-STRIPS
when used to buttress the surgical staple line in LVRS. This is an important
market for the Company and one that it has worked with the Japanese government
for more than a year to open. The Company believes the Japanese market is
important to its international growth strategy. The Company expects to see
increased PERI-STRIPS revenue from Japan starting in the second quarter.

The Company has experienced excellent acceptance of its PERI-STRIPS DRY product,
introduced last July, with over one-half of this quarter's combined PERI-STRIPS
sales coming from the PERI-STRIPS DRY product. The Company believes that
PERI-STRIPS DRY, an advanced version of PERI-STRIPS, provides significant
advantages for thorascopic surgical procedures over the original PERI-STRIPS
"sleeve" design. Extraction of the sutured sleeve backing, that was part of the
original design, was found to be cumbersome during a thorascopic procedure.
PERI-STRIPS DRY eliminates the need to extract the sutured sleeve backing. A
specially formulated PSD GEL(TM) adheres the PERI-STRIPS DRY strip to the
surgical stapler. In the U.S., PERI-STRIPS DRY is expected to ultimately replace
the original PERI-STRIPS sleeve configuration for thorascopic procedures.

OCU-GUARD(TM), the newest member of the TISSUE-GUARD product line was cleared to
market by the U.S. Food and Drug Administration (the "FDA") in December 1997.
The Company also received the European Medical Directive "CE" mark authority
with respect to OCU-GUARD. Devices with the CE mark may be marketed freely
throughout the 15-country European Union and the European Free Trade
Association. The Company generated its first sales from OCU-GUARD in February
1998. OCU-GUARD is made from the Company's SUPPLE PERI-GUARD(R) tissue and is
intended to be used by ophthalmic surgeons to wrap ophthalmic orbital implants
following enucleation surgery. Wrapping the orbital implant decreases the
likelihood of exposure of the orbital implant and allows for attachment of eye
muscles to the implant, providing the implant with tracking capabilities. The
majority of the estimated 12,000 to 15,000 procedures performed annually in the
United States require the use of a wrapping material. Currently, the most
commonly used wrapping material is cadaver sclera. OCU-GUARD represents another
successful step in the Company's strategy to identify markets for its tissue and
develop a product that meets surgeons' needs.

The Company also expects to receive marketing clearance from the FDA for its CV
PERI-Guard(TM) product by the end of the second quarter. CV PERI-GUARD is made
from the Company's PERI-GUARD(R) tissue and will be part of

                                       8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
--------------------------------------------------------------------------------

the TISSUE-GUARD product line. CV PERI-GUARD is expected to have indications for
use as an adult intra-cardiac patch for use in procedures such as septal defect
repair, valve repair and aneurysm repair.

RESULTS OF CONTINUING OPERATIONS

           COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 1998 WITH
                     THE THREE MONTHS ENDED JANUARY 31, 1997

Net revenue was $2,463,000 for the 1998 quarter up from $2,325,000 for the 1997
quarter, primarily as a result of the increase in revenue from TISSUE-GUARD
sales, excluding PERI-STRIPS and PERI-STRIPS DRY. Revenue from sales of
TISSUE-GUARD products, DURA-GUARD, VASCU-GUARD, SUPPLE PERI-GUARD and
PERI-GUARD, increased $179,000, or 22%, to $980,000 from $801,000. Aggregate
revenue from PERI-STRIPS and PERI-STRIPS DRY increased $17,000, or 2%, to
$779,000 in the 1998 quarter from $762,000 in the 1997 quarter. BIOGRAFT(R)
revenue decreased by $28,000, or 14%, comparing the 1998 and 1997 quarters,
continuing a trend representative of the late stage of this product's life
cycle. Revenue from sales of surgical productivity tools (FLO-RESTER(R) and the
BIO-VASCULAR PROBE(R)) decreased $31,000, or 6%, to $527,000 from $558,000. The
Company believes that the decrease in surgical productivity tool revenues is not
considered indicative of a sales trend, but rather reflects the uneven sales
pattern of these products.

The gross margin percentage was 58% in the 1998 quarter and 57% in the 1997
quarter. During fiscal 1997, the gross margin percentages declined through the
quarters, primarily due to decreases in the production volume in response to
decreases in demand for PERI-STRIPS as a result of the LVRS non-coverage
decision. It is expected that the gross margin percentage will increase slightly
during the 1998 year from its first quarter level. This forward-looking
statement will be influenced primarily by the accuracy of the Company's current
estimates of product costs, product mix and production volume, and would be
impacted by significant increases or decreases in actual results as compared to
these estimates.

Selling, general and administrative expense increased $337,000, or 29%, to
$1,513,000 from $1,176,000. The general and administrative expense increase
accounted for $237,000, or a 38% increase as compared to first quarter 1997.
This increase is primarily due to increased spending on product development
management and regulatory and clinical affairs. Selling expense increased
$100,000, or 18% primarily due to increased compensation, travel and convention
costs.

Research and development ("R&D") expense increased $251,000, or 118%, to
$465,000 from $214,000 in the 1997 quarter. The Company has several projects
under development. R&D expense is expected to increase as these and other
projects continue to progress. This forward-looking statement will be influenced
primarily by the number of projects, the related R&D personnel requirements, the
development path and success of each project, the expected costs, and the timing
of these costs.

Operations had a loss in the 1998 quarter of $553,000 compared to a loss of
$68,000 in the 1997 quarter. Other income, primarily interest income, was
$246,000 and $282,000 in the 1998 and 1997 quarters, respectively. As a result,
operations had a loss before income taxes in the 1998 quarter of $307,000 as
compared to income before income taxes in the 1997 quarter of $214,000.

The Company recorded a benefit from income taxes of $103,000 for the 1998
quarter as compared to a provision 

                                       9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
--------------------------------------------------------------------------------

for income taxes of $89,000 in the 1997 quarter. The net loss was $205,000, or
$.02 per share for the 1998 quarter. The 1997 quarter had net income of
$124,000, or $.01 per share.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended January 31, 1998, continuing operations used $413,000
of cash as compared to $228,000 of net cash provided in the same period in 1997.
Cash was used by continuing operations, in the first quarter of fiscal 1998, due
to increases in prepaid expenses, non-trade receivables, inventory and decreases
in accrued expenses. These cash uses were partially offset by non-cash expenses
and decreases in accounts receivable.

The Company invested $152,000 in equipment and leasehold improvements primarily
related to new manufacturing capacity related to PERI-STRIPS DRY. Financing
activities used $942,000 and primarily represents cash used to repurchase shares
of the Company's common stock . The Company announced in August 1997 its
intention to repurchase up to 500,000 shares of its common stock. Such purchases
will continue to be made in the open market from time-to-time as price
opportunities arise.

The Company has cash and investments totaling $16,474,000 at January 31, 1998.
The Company believes its existing cash and investments will be sufficient to
satisfy its cash requirements for the foreseeable future.

NEW ACCOUNTING STANDARDS

In June 1997, SFAS No. 130 (SFAS 130) , COMPREHENSIVE INCOME, was issued by the
Financial Accounting Standards Board. SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. Also issued in June
1997 was SFAS No. 131 (SFAS 131), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, which establishes new standards for the way public
business enterprises report information about operating segments. The Company
must adopt SFAS 130 and SFAS 131 in fiscal year 1999. Management is currently
evaluating the effect of these changes on its financial reporting.

CERTAIN IMPORTANT FACTORS

This Form 10-Q contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-Q that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "continue" or comparable terminology are intended forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a variety
of factors, including the availability of third party reimbursement, the extent
to which the Company's products gain market acceptance, litigation regarding
patent and other intellectual property rights, the introduction of competitive
products by others, the progress of product development and clinical studies,
and the receipt and timing of regulatory approvals, among others.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                       10
--------------------------------------------------------------------------------

                           PART II. OTHER INFORMATION

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

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  CHANGES IN SECURITIES

None.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS. The exhibits to this quarterly report on Form 10-Q are listed in
     the exhibit index beginning on page 13.

(b)  FORM 8-K. No reports on Form 8-K were filed by the Company during the
     quarter ended January 31, 1998. 

                                       11
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                        BIO-VASCULAR, INC.

Dated:   March 12, 1998.                /S/ CONNIE L. MAGNUSON
                                        ----------------------------------
                                        Connie L. Magnuson
                                        Vice - President Finance and Chief 
                                        Financial Officer
                                        (Principal Financial Officer)

                                       12
BIO-VASCULAR, INC.
INDEX TO EXHIBITS
--------------------------------------------------------------------------------

10.1 Form of Change in Control Agreement entered into between the Company and
     each of Mr. Donald E. Gardner, Ms. Connie L. Magnuson and Mr. Thomas J.
     Pepin dated January 12, 1998 and Mr. David Buche dated January 29, 1998.
     (Filed herewith electronically.)

27.1 Financial Data Schedule for the three month period ended January 31, 1998.
     (Filed herewith electronically.)

                                      13