##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


Commission file number: 0-28288





Cardiogenesis Corporation


(formerly known as Eclipse Surgical Technologies, Inc.)
(Exact name of Registrant as specified in its charter)


|                         |  |                                            
|------------------------ |  | -------------------------------------------
|California               |  | 77-0223740                                 
|(State of incorporation) |  | (I.R.S. Employer
    Identification Number)

26632 Towne Center Drive, Suite 320


Foothill Ranch, California 92610


(Address of principal executive offices)


(714) 649-5000


(Registrants telephone number, including area code)





Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, no par value


(Title of Class)







þ o




o þ




o þ


















---










INDEX TO FORM 10-K


|              |  |                                                                                                                       |    |      |    | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                       |    | Page |   
|              |  |                                                                                                                       |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                                              |    |      | 1  | 
|Item 2.       |  | Properties                                                                                                            |    |      | 24 | 
|Item 3.       |  | Legal Proceedings                                                                                                     |    |      | 25 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                               |    |      | 25 | 
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Shareholder Matters, and Issuer Purchases of Equity
    Securities |    |      | 25 | 
|Item 6.       |  | Selected Consolidated Financial Data                                                                                  |    |      | 26 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                             |    |      | 27 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                        |    |      | 35 | 
|Item 8.       |  | Consolidated Financial Statements and
    Supplementary Data                                                          |    |      | 36 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                              |    |      | 37 | 
|Item 9A.      |  | Controls and Procedures                                                                                               |    |      | 37 | 
|Item 9B.      |  | Other Information                                                                                                     |    |      | 37 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                |    |      | 38 | 
|Item 11.      |  | Executive Compensation                                                                                                |    |      | 38 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Shareholder Matters                    |    |      | 38 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                    |    |      | 38 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                                |    |      | 38 | 
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedule                                                                         |    |      | 39 | 
|Signatures    |  |                                                                                                                       | 42 |     
|EXHIBIT 10.6 
|EXHIBIT 10.11
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 





---



##### Table of Contents






PART I







|        |          
|------- | ---------
|Item 1. | Business.

This Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The statements
contained herein that are not purely historical are
forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Exchange Act, including without limitation statements
regarding our expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in
this document or incorporated by reference herein are based on
information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors,
including those set forth in Item 7 and elsewhere.


General










1



---



##### Table of Contents





Background














2



---



##### Table of Contents





The TMR and PMC Procedures






Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Add Innovative New Technology to our Market Basket. Our
    focus is to add innovative new tools to help address advanced
    cardiovascular disease, and related co-morbidities of patients
    being referred today to cardiovascular surgery. We are committed
    to growing the TMR business with the Advanced TMR Plus platform
    which includes two new minimally invasive handpieces for
    thoracoscopic and robotic assisted TMR. These new products were
    developed with key clinical champions to expand the TMR market.
    We are also committed to identifying potential new products in
    the cardiovascular arena.                                                                                   
|
| |  | Expand Market for our Products. We are seeking to expand
    market awareness of our products among opinion leaders in the
    cardiovascular field, the referring physician community and the
    targeted patient population. We also currently intend to expand
    our marketing efforts in Europe and to the rest of the world
    through the establishment and expansion of direct international
    sales and support organizations and third party distributors and
    agents. In addition, we have developed a comprehensive training
    program to assist physicians in acquiring the expertise
    necessary to utilize our TMR and PMC products and procedures.                                                
|
| |  | Demonstrate Clinical Utility of PMC. We are seeking to
    demonstrate the clinical safety and effectiveness of PMC. We
    have completed a pivotal clinical trial regarding PMC, and the
    study results were submitted to the FDA in a PMA application in
    December 1999, along with subsequent supplements. As discussed
    below under the caption Regulatory Status, the FDA
    Advisory Panel recommended against approval of PMC for public
    sale and use in the United States and further informed us that
    they believe the data submitted in August 2003 in connection
    with the interactive review process is still not adequate to
    support approval by the FDA of our PMC system. In August

3



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 2004, we met with the FDA and agreed on the steps needed to
    design and initiate a new clinical trial to confirm the safety
    and efficacy of PMC. In January 2005, we again met with the
    agency and agreed on major trial parameters. We are working
    closely with the FDA in finalizing the clinical trial protocol
    to be formally agreed upon. Once the agreement is achieved and
    the related costs are clearly understood, we expect to move
    forward, either on our own or with a corporate partner in the
    interventional cardiology arena. We cannot assure you, however,
    that we will receive a favorable determination from the FDA.
|
| |  | Leverage Proprietary Technology. We believe that our
    significant expertise in laser and catheter-based systems for
    cardiovascular disease and the proprietary technologies we have
    developed are important factors in our efforts to demonstrate
    the safety and effectiveness of our TMR and PMC procedures. We
    are seeking to develop additional proprietary technologies for
    TMR, PMC and related procedures. We have and maintain multiple
    U.S. and foreign patents and have multiple U.S. and foreign
    patent applications pending relating to various aspects of TMR,
    PMC and other cardiovascular related devices and therapies.  

Products and Technology




| |           
| | ----------
| | TMR System





TMR 2000 laser system.


SolarGen 2100s laser system.


SoloGrip III.






| |           
| | ----------
| | PMC System



4



---



##### Table of Contents



PMC Laser.


Axcis Catheter System.




| |                  
| | -----------------
| | celleratOR System



Regulatory Status


United States.






European Union.


5



---



##### Table of Contents



Sales and Marketing












Research and Development






Manufacturing






6



---



##### Table of Contents



Competition




2








Government Regulation






7



---



##### Table of Contents









8



---



##### Table of Contents









Intellectual Property Matters








9



---



##### Table of Contents







Third Party Reimbursement










10



---



##### Table of Contents







Product Liability and Insurance




Employees






|                      |  |     |    |  |          |                                                                                               
|--------------------- |  | --- | -- |  | -------- | ----------------------------------------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|Michael J. Quinn      |  |     | 61 |  |          | President, Chief Executive Officer, and Chairman of the Board
    and Director                
|Christine G. Ocampo   |  |     | 32 |  |          | Vice President, Chief Financial Officer, Chief Accounting
    Officer, Treasurer and Secretary
|Joseph R. Kletzel, II |  |     | 55 |  |          | Senior Vice President, General Manager of Pacific Division                                    
|Richard P. Lanigan    |  |     | 46 |  |          | Senior Vice President of Marketing                                                            
|Henry R. Rossell, Jr. |  |     | 49 |  |          | Senior Vice President, General Manager of Atlantic Business Unit                              
|Gerard A. Arthur      |  |     | 46 |  |          | Vice President, General Manager of Worldwide Services Division                                
|Janet M. Fauls        |  |     | 42 |  |          | Vice President, Regulatory, Quality and Clinical Affairs Division                             
|Lee S. Langford       |  |     | 31 |  |          | Vice President, General Manager of Central Division                                           

Michael J. Quinn


11



---



##### Table of Contents





Christine G. Ocampo


Joseph R. Kletzel, II


Richard P. Lanigan


Henry R. Rossell, Jr.


Gerard A. Arthur


Janet M. Fauls


12



---



##### Table of Contents





Lee S. Langford


Risk Factors






| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to maintain current operations is dependent
    upon sustaining profitable operations or obtaining financing in
    the future.









| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | if commercial adoption of our TMR laser systems by healthcare
    providers in the United States declines;  
|
| |  | until such time, if ever, as we obtain FDA and other regulatory
    approvals for our PMC laser systems; and
|
| |  | for an uncertain period of time after such approvals are
    obtained.                                      



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to successfully market our products if
    third party reimbursement for the procedures performed with our
    products is not available for our health care provider
    customers.



13



---



##### Table of Contents















| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | We may fail to obtain required regulatory approvals in the
    United States to market our PMC laser system.





14



---



##### Table of Contents









| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | We may incur impairment charges on long-lived assets if
    future events indicate asset values my not be
    recoverable.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may fail to obtain required regulatory approvals in the
    United States to market our new minimally invasive and
    robotically assisted handpieces.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | In the future, the FDA could restrict the current uses of
    our TMR product and thereby restrict our ability to generate
    revenues.





| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | We must comply with FDA manufacturing standards or face
    fines or other penalties including suspension of
    production.





| |   |                                         
| | - | ----------------------------------------
| |  | fines, injunctions, and civil penalties;
|
| |  | recalls or seizures of products;        

15



---



##### Table of Contents





| |   |                                                
| | - | -----------------------------------------------
| |  | total or partial suspensions of production; and
|
| |  | criminal prosecutions.                         





| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | We may fail to comply with international regulatory
    requirements and could be subject to regulatory delays, fines or
    other penalties.





| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | delays in receipt of, or failure to receive, foreign regulatory
    approvals or clearances;
|
| |  | the loss of previously obtained approvals or clearances; or                                 
|
| |  | the failure to comply with existing or future regulatory
    requirements.                  







| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to meet future product demand on a
    timely basis and may be subject to delays and interruptions to
    product shipments because we depend on single source third party
    suppliers and manufacturers.







| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if materials and products obtained from outside suppliers and
    manufacturers will always be available in adequate quantities to
    meet our future needs; or

16



---



##### Table of Contents





| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether replacement suppliers and/or manufacturers can be
    qualified on a timely basis if our current suppliers and/or
    manufacturers are unable to meet our needs for any reason.

Expansion of our business
may put added pressure on our management and operational
infrastructure affecting our ability to meet any increased
demand for our products and possibly having an adverse effect on
our operating results.






| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the dependence on the growth of the market for our TMR and PMC
    systems;                                                                                      
|
| |  | our ability to successfully and rapidly expand sales to
    potential customers in response to potentially increasing
    clinical adoption of the TMR procedure;
|
| |  | the costs associated with such growth, which are difficult to
    quantify, but could be significant;                                                            
|
| |  | domestic and international regulatory developments;                                                                                                              
|
| |  | rapid technological change;                                                                                                                                      
|
| |  | the highly competitive nature of the medical devices
    industry; and                                                                                           
|
| |  | the risk of entering emerging markets in which we have limited
    or no direct experience.                                                                      





| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results are expected to fluctuate and
    quarter-to-quarter comparisons of our results may not indicate
    future performance.





| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Our common stock is listed on the OTC Bulletin Board
    which may have an unfavorable impact on our stock price and
    liquidity.



17



---



##### Table of Contents





| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The trading prices of many high technology companies, and
    in particular medical device companies, have been volatile which
    may result in large fluctuations in the price of our common
    stock.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The price of our common stock may fluctuate significantly,
    which may result in losses for investors.





| |   |                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in our quarterly operating
    results;                                                                                            
|
| |  | the timing and amount of conversions and subsequent sales of
    common stock issuable upon conversion of outstanding convertible
    promissory notes and warrants;
|
| |  | announcements of technological innovations or new products or
    services by us or our competitors;                                                                
|
| |  | announcements relating to strategic relationships or
    acquisitions;                                                                                              
|
| |  | additions or terminations of coverage of our common stock by
    securities analysts;                                                                               
|
| |  | statements by securities analysts regarding us or our industry;                                                                                                     
|
| |  | conditions or trends in the medical device industry; and                                                                                                            
|
| |  | changes in the economic performance and/or market valuations of
    other medical device companies.                                                                 





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We face competition from products of our competitors which
    could limit market acceptance of our products and render our
    products obsolete.

2






| |   |                                                    
| | - | ---------------------------------------------------
| |  | are more effective than our products;              
|
| |  | are more effectively marketed than our products; or
|
| |  | may render our products or technology obsolete.    

18



---



##### Table of Contents







| |   |                                                             
| | - | ------------------------------------------------------------
| |  | develop products;                                           
|
| |  | complete clinical testing and regulatory approval processes;
|
| |  | obtain third party reimbursement acceptance; and            
|
| |  | supply adequate quantities of the product to the market.    



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Third party intellectual property rights may limit the
    development and protection of our intellectual property, which
    could adversely affect our competitive position.





| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | obtain patent protection for our products and processes;                               
|
| |  | preserve our trade secrets and proprietary technology; and                             
|
| |  | operate without infringing upon the patents or proprietary
    rights of third parties.







| |                                                                                
| | -------------------------------------------------------------------------------
| | Costly litigation may be necessary to protect intellectual
    property rights.







| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | enforce our issued patents;                                                              
|
| |  | protect our trade secrets or know-how; or                                                
|
| |  | determine the enforceability, scope and validity of the
    proprietary rights of others.





| |   |                                                        
| | - | -------------------------------------------------------
| |  | subject us to significant liabilities to third parties;
|
| |  | require us to seek licenses from third parties;        

19



---



##### Table of Contents





| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | prevent us from selling our products in certain markets or at
    all; or
|
| |  | require us to modify our products.                                       









| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | We rely on patent and trade secret laws, which are complex
    and may be difficult to enforce.







| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | have not developed or will not develop similar products;       
|
| |  | will not duplicate our products; or                            
|
| |  | will not design around any patents issued to or licensed by us.





| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | others did not first file applications for inventions covered by
    our pending patent applications; or
|
| |  | we will not infringe any patents that may issue to others on
    such applications                      



| |                                                                                               
| | ----------------------------------------------------------------------------------------------
| | We may suffer losses from product liability claims if our
    products cause harm to patients.





20



---



##### Table of Contents





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Our insurance may be insufficient to cover product
    liability claims against us.









| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | We depend heavily on key personnel and turnover of key
    employees and senior management could harm our business.





| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | We sell our products internationally which subjects us to
    specific risks of transacting business in foreign
    countries.





| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | foreign currency fluctuations;                                    
|
| |  | economic or political instability;                                
|
| |  | foreign tax laws;                                                 
|
| |  | shipping delays;                                                  
|
| |  | various tariffs and trade regulations;                            
|
| |  | restrictions and foreign medical regulations;                     
|
| |  | customs duties, export quotas or other trade
    restrictions; and
|
| |  | difficulty in protecting intellectual property rights.            



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | If an Event of Default Occurs Under the Convertible
    Note Issued to Laurus, It Could Seriously Harm Our
    Operations.





| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | A failure to pay interest and principal payments when due;                                                                 
|
| |  | a breach by us of any material covenant or term or condition of
    the note or any agreement made in connection therewith;

21



---



##### Table of Contents





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a breach by us of any material representation or warranty made
    in the note or in any agreement made in connection therewith;                               
|
| |  | if we make an assignment for the benefit of our creditors, or a
    receiver or trustee is appointed for us;                                                   
|
| |  | any form of bankruptcy or insolvency proceeding is instituted by
    or against us and is not dismissed within 60 days;                                        
|
| |  | any money judgment entered or filed against us for more than
    $50,000 and remains unresolved for 30 days;                                                   
|
| |  | our failure to timely deliver shares of common stock when due
    upon conversions of the note;                                                                
|
| |  | our common stock is suspended for 5 consecutive days or
    5 days during any 10 consecutive days from a principal
    market;                                 
|
| |  | we experience an event of default under any other debt
    obligations; and                                                                                    
|
| |  | we experience a loss, damage or encumbrance upon collateral
    securing the Laurus debt which is valued at more than $100,000
    and is not timely mitigated.





| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | We may incur significant non-operating, non-cash charges
    resulting from changes in the fair value of warrants and
    derivatives.







| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The restrictions on our activities contained in the Laurus
    financing documents could negatively impact our ability to
    obtain financing from other sources.



22



---



##### Table of Contents





| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Low market prices for our common stock would result in
    greater dilution to our shareholders, and could negatively
    impact our ability to convert the Laurus debt into equity





| |                                                                  
| | -----------------------------------------------------------------
| | Future sales of our common stock could lower our stock
    price.







| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions of our certificate of incorporation as well as
    our rights agreement could discourage potential acquisition
    proposals and could deter or prevent a change of control.



23



---



##### Table of Contents







| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Changes in, or interpretations of, accounting rules and
    regulations could result in unfavorable accounting
    charges.





| |                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Recent rulemaking by the Financial Accounting Standards
    Board will require us to expense equity compensation given to
    our employees and could significantly harm our operating results
    and may reduce our ability to effectively utilize equity
    compensation to attract and retain employees.





| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | While we believe that we currently have adequate internal
    controls over financial reporting, we are exposed to risks from
    recent legislation requiring companies to evaluate those
    internal controls.








|        |            
|------- | -----------
|Item 2. | Properties.



24



---



##### Table of Contents








|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings.








|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.






PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities.



|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|2003           |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|First Quarter  |  | $    | 0.66 |  |     | $ | 0.22 | 
|Second Quarter |  | $    | 0.85 |  |     | $ | 0.24 | 
|Third Quarter  |  | $    | 1.49 |  |     | $ | 0.72 | 
|Fourth Quarter |  | $    | 1.92 |  |     | $ | 0.70 | 

|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|2004           |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|First Quarter  |  | $    | 1.40 |  |     | $ | 0.59 | 
|Second Quarter |  | $    | 0.87 |  |     | $ | 0.44 | 
|Third Quarter  |  | $    | 0.75 |  |     | $ | 0.47 | 
|Fourth Quarter |  | $    | 0.70 |  |     | $ | 0.35 | 









25



---



##### Table of Contents





Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                             |  |                      |           |  |                           |                      |                         |                               |  |  |           | 
|------------------------------------------------------------ |  | -------------------- | --------- |  | ------------------------- | -------------------- | ----------------------- | ----------------------------- |  |  | --------- | 
|                                                             |  |                      |           |  |                           | Number of Securities |                        
|                                                             |  | Number of Securities |           |  |                           |                      | Remaining Available for |                              
|                                                             |  | to be Issued upon    |           |  | Weighted-Average Exercise |                      |                         | Future Issuance under Equity  | 
|                                                             |  | Exercise of          |           |  | Price of Outstanding      |                      |                         | Compensation Plans            | 
|                                                             |  | Outstanding Options, |           |  | Options, Warrants and     |                      |                         | (Excluding Securities Related | 
|                                                             |  | Warrants and Rights  |           |  | Rights                    |                      |                         | in Column (a))                | 
|Plan Category                                                |  | (a)                  |           |  | (b)                       |                      |                         | (c)                           | 
|                                                             |  |                      |           |  |                           |                      |                         |                               | 
|Equity compensations plans approved by security holders(1)   |  |                      | 4,177,000 |  |                           | $                    | 1.28                    |                               |  |  | 2,996,000 | 
|Employee stock purchase plan approved by security holders(2) |  |                      |          |  |                           |                      |                        |                               |  |  |          | 
|Equity compensations plans not approved by security holders  |  |                      |          |  |                           |                      |                        |                               |  |  |          | 
|                                                             |  |                      |           |  |                           |                      |                         |                               | 
|Total                                                        |  |                      | 4,177,000 |  |                           | $                    | 1.28                    |                               |  |  | 2,996,000 | 
|                                                             |  |                      |           |  |                           |                      |                         |                               | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of the Cardiogenesis Corporation Stock Option Plan and
    the Cardiogenesis Director Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | The Cardiogenesis Corporation 1996 Stock Purchase Plan enables
    employees to purchase our common stock at an 85% percent
    discount to market value at the beginning or end of each
    offering period. As such, the number of shares that may be
    issued during a given period and the purchase price of such
    shares cannot be determined in advance. However, as of
    December 31, 2004, an aggregate of 138,001 shares
    remain available for issuance under the 1996 Stock Purchase
    Plan. See Note 9 to our Consolidated Financial Statements.






|        |                                      
|------- | -------------------------------------
|Item 6. | Selected Consolidated Financial Data.





26



---



##### Table of Contents



Selected Consolidated Financial Data


|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|------------------------------------------------ |  | ---------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                 |  | Years Ended December 31,                 |         
|                                                 |  |                                          |         
|                                                 |  | 2004                                     |          |   | 2003 |   |          | 2002 |  |   | 2001     |   |  | 2000 |         
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|                                                 |  | (In thousands, except per share amounts) |         
|Consolidated Statement of Operations Data:       |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net revenues                                     |  | $                                        | 15,454   |   |      | $ | 13,518   |      |  | $ | 13,048   |   |  | $    | 14,153   |   |  | $ | 22,210   |  
|Cost of revenues                                 |  |                                          | 2,193    |   |      |   | 2,295    |      |  |   | 2,935    |   |  |      | 5,777    |   |  |   | 10,055   |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Gross profit                                     |  |                                          | 13,261   |   |      |   | 11,223   |      |  |   | 10,113   |   |  |      | 8,376    |   |  |   | 12,155   |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Operating expenses:                              |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Research and development                         |  |                                          | 1,442    |   |      |   | 1,944    |      |  |   | 657      |   |  |      | 1,863    |   |  |   | 5,065    |  
|Sales, general and administrative                |  |                                          | 11,322   |   |      |   | 9,590    |      |  |   | 12,297   |   |  |      | 15,119   |   |  |   | 22,009   |  
|Restructuring and merger-related costs           |  |                                          |         |   |      |   |         |      |  |   |         |   |  |      |          |   |  |   | 1,033    |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Total operating expenses                         |  |                                          | 12,764   |   |      |   | 11,534   |      |  |   | 12,954   |   |  |      | 18,015   |   |  |   | 27,074   |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Operating income (loss)                          |  |                                          | 497      |   |      |   | (311     | )    |  |   | (2,841   | ) |  |      | (9,639   | ) |  |   | (14,919  | )
|Interest and other (expense) income, net         |  |                                          | (1,816   | ) |      |   | (37      | )    |  |   | 2,311    |   |  |      | (608     | ) |  |   | 310      |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Net loss                                         |  | $                                        | (1,319   | ) |      | $ | (348     | )    |  | $ | (530     | ) |  | $    | (10,247  | ) |  | $ | (14,609  | )
|Net loss per share  basic and diluted           |  | $                                        | (0.03    | ) |      | $ | (0.01    | )    |  | $ | (0.01    | ) |  | $    | (0.31    | ) |  | $ | (0.48    | )
|Shares used in per share calculation             |  |                                          | 41,152   |   |      |   | 37,303   |      |  |   | 36,911   |   |  |      | 33,311   |   |  |   | 30,166   |  
|                                                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |         
|Consolidated Balance Sheet Data:                 |  |                                          |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash, cash equivalents and marketable securities |  | $                                        | 4,740    |   |      | $ | 1,013    |      |  | $ | 1,490    |   |  | $    | 2,629    |   |  | $ | 3,357    |  
|Working capital                                  |  |                                          | 6,994    |   |      |   | 2,001    |      |  |   | 1,614    |   |  |      | 1,048    |   |  |   | 4,662    |  
|Total assets                                     |  |                                          | 15,683   |   |      |   | 6,460    |      |  |   | 7,755    |   |  |      | 11,309   |   |  |   | 16,965   |  
|Long-term debt, less current portion             |  |                                          | 7,329    |   |      |   | 6        |      |  |   | 1        |   |  |      | 32       |   |  |   | 405      |  
|Accumulated deficit                              |  |                                          | (166,277 | ) |      |   | (164,958 | )    |  |   | (164,610 | ) |  |      | (164,080 | ) |  |   | (153,833 | )
|Total shareholders equity                       |  |                                          | 4,735    |   |      |   | 3,820    |      |  |   | 3,711    |   |  |      | 3,582    |   |  |   | 7,974    |  






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.

This Managements Discussion and Analysis of Financial
Condition and Results of Operations contains descriptions of our
expectations regarding future trends affecting our business.
These forward-looking statements and other forward-looking
statements made elsewhere in this document are made in reliance
upon the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Please read the section below
titled Factors Affecting Future Results to review
conditions which we believe could cause actual results to differ
materially from those contemplated by the forward-looking
statements. Forward-looking statements are identified by words
such as believes, anticipates,
expects, intends, plans,
will, may and similar expressions. In
addition, any statements that refer to our plans, expectations,
strategies or other characterizations of future events or
circumstances are forward-looking statements. Our business may
have changed since the date hereof and we undertake no
obligation to update these forward looking statements.


The following discussion should be read in conjunction with
financial statements and notes thereto included in this Annual
Report on Form 10-K.


Overview




27



---



##### Table of Contents











Results of Operations




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003



| |             
| | ------------
| | Net Revenues





28



---



##### Table of Contents









| |             
| | ------------
| | Gross Profit





| |                         
| | ------------------------
| | Research and Development







| |                                  
| | ---------------------------------
| | Sales, General and Administrative





| |                               
| | ------------------------------
| | Non-Operating Expense (Income)



29



---



##### Table of Contents





|                                                                                         |  |                          |       |        |      |   |    |   |  |   |       |   |  |  |     |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ------ | ---- | - | -- | - |  | - | ----- | - |  |  | --- | -
|                                                                                         |  | 2004                     |       |        | 2003 |   |    |   |  |  
|                                                                                         |  |                          |       |        |      |   |    |   |  |  
|                                                                                         |  | Years Ended December 31, |      
|                                                                                         |  |                          |      
|                                                                                         |  |                          |       | Change |     
|                                                                                         |  |                          |       |        |     
|                                                                                         |  | ) In thousands           |      
|                                                                                         |  | ($                       |      
|Interest expense  Secured Convertible Term Note                                         |  | $                        | 77    |        |      | $ |   |   |  | $ | 77    |   |  |  | 100 | %
|Interest expense  other                                                                 |  |                          | 58    |        |      |   | 44 |   |  |   | 14    |   |  |  | 32  | %
|Non-cash interest expense  Change in derivative
    value                               |  |                          | 1,263 |        |      |   |   |   |  |   | 1,263 |   |  |  | 100 | %
|Non-cash interest expense  Accretion of discount
    on Note                            |  |                          | 141   |        |      |   |   |   |  |   | 141   |   |  |  | 100 | %
|Non-cash interest expense  Amortization of debt
    issuance costs relating to the Note |  |                          | 35    |        |      |   |   |   |  |   | 35    |   |  |  | 100 | %
|Other non-cash expense- Change in fair value of warrants                                 |  |                          | 290   |        |      |   |   |   |  |   | 290   |   |  |  | 100 | %
|Interest income                                                                          |  |                          | (48   | )      |      |   | (7 | ) |  |   | (41   | ) |  |  | 586 | %
|                                                                                         |  |                          |       |        |      |   |    |   |  |   |       |  
|Total interest expense, net                                                              |  | $                        | 1,816 |        |      | $ | 37 |   |  | $ | 1,779 |   |  |  |     |  
|                                                                                         |  |                          |       |        |      |   |    |   |  |   |       |  



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002



| |             
| | ------------
| | Net Revenues









| |             
| | ------------
| | Gross Profit



30



---



##### Table of Contents







| |                         
| | ------------------------
| | Research and Development





| |                                  
| | ---------------------------------
| | Sales, General and Administrative





| |                                         
| | ----------------------------------------
| | Interest and Other Income (Expense), Net









Liquidity and Capital Resources






31



---



##### Table of Contents













32



---



##### Table of Contents













|                                                      |       |                        |       |           |        |   |     |       |  |     |       |       |           |         |   |   |  |   |   |  | 
|----------------------------------------------------- | ----- | ---------------------- | ----- | --------- | ------ | - | --- | ----- |  | --- | ----- | ----- | --------- | ------- | - | - |  | - | - |  | 
|                                                      |       | Payments Due by Period
|                                                      |       |                       
|                                                      |       |                        |       | Less than |        |   | 1-3 |       |  | 3-5 |       |       | More than
|Contractual Obligations                               |       | Total                  |       |           | 1 Year |   |     | Years |  |     | Years |       |           | 5 Years
|                                                      |       |                        |       |           |        |   |     |       |  |     |       |       |           |        
|                                                      |       | (In thousands)        
|Secured Convertible Term Note, net of restricted cash |       | $                      | 3,000 |           |        | $ | 800 |       |  | $   | 2,200 |       |           |         |  |   |  |   |  | 
|Secured Convertible Term Note Interest(1)             |       | $                      | 203   |           |        | $ | 54  |       |  | $   | 149   |       |           |         |  |   |  |   |  | 
|Capital Lease Obligations                             |       | $                      | 23    |           |        | $ | 5   |       |  | $   | 12    |       |           | $       | 6 |   |  |   |  | 
|Operating Leases                                      |       | $                      | 686   |           |        | $ | 366 |       |  | $   | 320   |       |           | $       |  |   |  | $ |  | 
|                                                      |       |                        |       |           |        |   |     |       |  |     |       |       |           |         |  
|                                                      | Total |                        | $     | 3,912     |        |   | $   | 1,225 |  |     | $     | 2,681 |           |         | $ | 6 |  |   | $ |  | 
|                                                      |       |                        |       |           |        |   |     |       |  |     |       |       |           |         |  






|    |                                       
|--- | --------------------------------------
|(1) | Assumes 6.75% effective interest rate.

Critical Accounting Policies and Estimates






33



---



##### Table of Contents







| |                     
| | --------------------
| | Revenue Recognition:











| |                     
| | --------------------
| | Accounts Receivable:





| |             
| | ------------
| | Inventories:





| |                                
| | -------------------------------
| | Valuation of Long-lived Assets:



34



---



##### Table of Contents





| |              
| | -------------
| | Income Taxes:






Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk.




| |                         
| | ------------------------
| | Quantitative Disclosures









|                                                   |  |              |       |   |      |   |       |      |  |   |       |   |  |      |     |                  |  |   |   |  |  |   |       |  
|-------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | --- | ---------------- |  | - | - |  |  | - | ----- | -
|                                                   |  | 2005         |       |   | 2006 |   |       | 2007 |  |   | 2008  |   |  | 2009 |     | Total Fair Value | 
|                                                   |  |              |       |   |      |   |       |      |  |   |       |   |  |      |     |                  | 
|                                                   |  | In Thousands |      
|Assets                                             |  |              |       |   |      |   |       |      |  |   |       |   |  |      |     |                  |  |   |   |  |  |   |       |  
|Cash, cash equivalents                             |  | $            | 4,740 |   |      | $ |      |      |  | $ |      |   |  | $    |    |                  |  | $ |  |  |  | $ | 4,740 |  
|Weighted average interest rate                     |  |              | 1.1   | % |      |   |      |      |  |   |      |   |  |      |    |                  |  |   |  |  |  |   | 1.1   | %
|Liabilities                                        |  |              |       |   |      |   |       |      |  |   |       |   |  |      |     |                  |  |   |   |  |  |   |       |  
|Fixed rate debt lease obligation                   |  | $            | 5     |   |      | $ | 6     |      |  | $ | 6     |   |  | $    | 6   |                  |  | $ |  |  |  | $ | 23    |  
|Weighted average interest rate                     |  |              | 6.8   | % |      |   | 6.8   | %    |  |   | 6.8   | % |  |      | 6.8 | %                |  |   |  |  |  |   | 6.8   | %
|Variable rate note payable, net of restricted cash |  | $            | 800   |   |      | $ | 1,200 |      |  | $ | 1,000 |   |  | $    |    |                  |  | $ |  |  |  | $ | 3,000 |  
|Weighted average effective interest rate(1)        |  |              | 25    | % |      |   | 25    | %    |  |   | 25    | % |  |      |    |                  |  |   |  |  |  |   | 25    | %






|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes interest expense at 6.75%, accretion of the debt
    discount, and amortization of debt issuance costs relating to
    the Secured Convertible Term Note.

35



---



##### Table of Contents





| |                        
| | -----------------------
| | Qualitative Disclosures

Interest Rate Risk.







|        |                                                              
|------- | -------------------------------------------------------------
|Item 8. | Consolidated Financial Statements and Supplementary
    Data.

Quarterly Results of Operations




|                                               |  |                                       |        |  |         |   |        |          |  |   |         |   |  |          |        |   |         |   |        |          |  |   |         |   |  |   |        |   |  |   |        | 
|---------------------------------------------- |  | ------------------------------------- | ------ |  | ------- | - | ------ | -------- |  | - | ------- | - |  | -------- | ------ | - | ------- | - | ------ | -------- |  | - | ------- | - |  | - | ------ | - |  | - | ------ | 
|                                               |  | Three Months Ended                    |       
|                                               |  |                                       |       
|                                               |  | 2004                                  |        |  | 2003    |  
|                                               |  |                                       |        |  |         |  
|                                               |  | March 31                              |        |  | June 30 |   |        | Sept. 30 |  |   | Dec. 31 |   |  | March 31 |        |   | June 30 |   |        | Sept. 30 |  |   | Dec. 31 |  
|                                               |  |                                       |        |  |         |   |        |          |  |   |         |   |  |          |        |   |         |   |        |          |  |   |         |  
|                                               |  | (In thousands, except per share data) |       
|Net revenues                                   |  | $                                     | 4,041  |  |         | $ | 3,376  |          |  | $ | 2,837   |   |  | $        | 5,200  |   |         | $ | 3,422  |          |  | $ | 3,090   |   |  | $ | 3,594  |   |  | $ | 3,412  | 
|Gross profit                                   |  |                                       | 3,488  |  |         |   | 2,858  |          |  |   | 2,338   |   |  |          | 4,577  |   |         |   | 2,800  |          |  |   | 2,588   |   |  |   | 2,973  |   |  |   | 2,862  | 
|Operating income (loss)                        |  |                                       | 269    |  |         |   | (244   | )        |  |   | (928    | ) |  |          | 1,400  |   |         |   | 119    |          |  |   | (879    | ) |  |   | (121   | ) |  |   | 570    | 
|Net income/ (loss)                             |  |                                       | 267    |  |         |   | (264   | )        |  |   | (924    | ) |  |          | (398   | ) |         |   | 121    |          |  |   | (878    | ) |  |   | (129   | ) |  |   | 538    | 
|Net income/ (loss):                            |  |                                       |        |  |         |   |        |          |  |   |         |   |  |          |        |   |         |   |        |          |  |   |         |   |  |   |        |   |  |   |        | 
|Basic and diluted                              |  |                                       | 0.01   |  |         |   | (0.01  | )        |  |   | (0.02   | ) |  |          | (.01   | ) |         |   | 0.00   |          |  |   | (0.02   | ) |  |   | 0.00   |   |  |   | 0.01   | 
|Weighted average shares outstanding   Basic   |  |                                       | 40,490 |  |         |   | 41,279 |          |  |   | 41,338  |   |  |          | 41,446 |   |         |   | 37,121 |          |  |   | 37,136  |   |  |   | 37,351 |   |  |   | 37,597 | 
|Weighted average shares outstanding   Diluted |  |                                       | 41,204 |  |         |   | 41,279 |          |  |   | 41,338  |   |  |          | 41,446 |   |         |   | 37,145 |          |  |   | 37,136  |   |  |   | 37,351 |   |  |   | 38,446 | 



Recently Issued Accounting Standards




Inventory Costs  An Amendment of ARB
No. 43, Chapter 4


36



---



##### Table of Contents





Share-Based Payment







|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures










|         |                  
|-------- | -----------------
|Item 9B. | Other Information



37



---



##### Table of Contents






PART III







|         |                                                    
|-------- | ---------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant.






Item 11.     Executive
Compensation.









Item 12.     Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters.







Item 13.     Certain
Relationships and Related Transactions.







Item 14.     Principal
Accountant Fees and Services.




38



---



##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedule.

Financial Statements.


|    |  |                                                                                                                           |  |      |    | 
|--- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|    |  |                                                                                                                           |  | Page |   
|    |  |                                                                                                                           |  |      |   
|    |  | Report of Independent Registered Public
    Accounting Firm                                                               |  |      | 43 | 
|    |  | Consolidated Balance Sheets as of
    December 31, 2004 and 2003                                                          |  |      | 44 | 
|    |  | Consolidated Statements of Operations and
    Comprehensive Loss for the years ended December 31, 2004,
    2003 and 2002 |  |      | 45 | 
|    |  | Consolidated Statements of
    Shareholders Equity for the years ended December 31,
    2004, 2003 and 2002              |  |      | 46 | 
|    |  | Consolidated Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002                            |  |      | 47 | 
|    |  | Notes to Consolidated Financial
    Statements                                                                            |  |      | 48 | 
|   
|(2) |  | Financial Statement Schedule                                                                                              |  |      |    | 
|    |  | The following financial statement schedule is filed herewith                                                              |  |      |    | 
|    |  | Schedule II  Valuation and
    Qualifying Accounts                                                                       |  |      | 64 | 
|   
|(3) |  | Exhibits.                                                                                                                 |  |      |    | 
|    |  | The exhibits listed under Item 15(b) are filed or
    incorporated by reference herein                                    |  |      |    | 

Exhibits.




|            |   |         |             |                                                                                                                                                                 
|----------- | - | ------- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   |         | Description
|            |   |         |            
|            | 3 | .1.1(1) |             | Restated Articles of Incorporation, as filed with the California
    Secretary of State on May 1, 1996                                                          
|           
|            | 3 | .1.2(2) |             | Certificate of Amendment of Restated Articles of Incorporation,
    as filed with California Secretary of State on July 18, 2001                                
|           
|            | 3 | .1.3(3) |             | Certificate of Determination of Preferences of Series A
    Preferred Stock, as filed with the California Secretary of State
    on August 23, 2001             
|           
|            | 3 | .1.4(4) |             | Certificate of Amendment of Restated Articles of Incorporation,
    as filed with the California Secretary of State on
    January 23, 2004                     
|           
|            | 3 | .2(5)   |             | Amended and Restated Bylaws                                                                                                                                     
|           
|            | 4 | .1(6)   |             | Form of Common Stock Purchase Warrant issued in connection with
    Facilities Lease for 26632 Towne Center Drive, Suite 320,
    Foothill Ranch, California    
|           
|            | 4 | .2(7)   |             | Third Amendment to Rights Agreement, dated October 26,
    2004, between the Company and Equiserve Trust Company N.A                                            
|           
|            | 4 | .3(8)   |             | Second Amendment to Rights Agreement, dated as of
    January 21, 2004, between Cardiogenesis Corporation and
    EquiServe Trust Company, N.A., as Rights Agent
|           
|            | 4 | .4(9)   |             | First Amendment to Rights Agreement, dated as of
    January 17, 2002, between Cardiogenesis Corporation and
    EquiServe Trust Company, N.A., as Rights Agent 
|           
|            | 4 | .5(10)  |             | Rights Agreement, dated as of August 17, 2001, between
    Cardiogenesis Corporation and EquiServe Trust Company, N.A., as
    Rights Agent                     
|           
|            | 4 | .6(11)  |             | Securities Purchase Agreement, dated as of January 21,
    2004, by and among Cardiogenesis Corporation and each of the
    investors identified therein        
|           
|            | 4 | .7(12)  |             | Registration Rights Agreement, dated as of January 21,
    2004, by and among Cardiogenesis Corporation and the investors
    identified therein                

39



---



##### Table of Contents



|            |    |          |             |                                                                                                                                                                                               
|----------- | -- | -------- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |          | Description
|            |    |          |            
|            | 4  | .8(13)   |             | Form of Common Stock Purchase Warrant, dated January 21,
    2004, having an exercise price of $1.37 per share                                                                                
|           
|            | 4  | .9(14)   |             | Form of Common Stock Purchase Warrant, dated January 21,
    2004, having an exercise price of $1.00 per share                                                                                
|           
|            | 4  | .10(15)  |             | Securities Purchase Agreement, dated October 26, 2004,
    between the Company and Laurus Master Fund, Ltd.                                                                                   
|           
|            | 4  | .11(16)  |             | Secured Convertible Term Note, dated October 26, 2004, in
    favor of Laurus Master Fund, Ltd.                                                                                               
|           
|            | 4  | .12(17)  |             | Registration Rights Agreement, dated October 26, 2004,
    between the Company and Laurus Master Fund, Ltd.                                                                                   
|           
|            | 4  | .13(18)  |             | Common Stock Purchase Warrant, dated October 26, 2004, in
    favor of Laurus Master Fund, Ltd.                                                                                               
|           
|            | 4  | .14(19)  |             | Security Agreement, dated October 26, 2004, in favor of
    Laurus Master Fund, Ltd.                                                                                                          
|           
|            | 10 | .1(20)   |             | Form of Indemnification Agreement by and between the Company and
    each of its officers and directors                                                                                       
|           
|            | 10 | .2(21)  |             | Stock Option Plan, as restated June, 2004                                                                                                                                                     
|           
|            | 10 | .3(22)  |             | Directors Stock Option Plan, as restated June, 2004                                                                                                                                          
|           
|            | 10 | .4(23)  |             | 1996 Employee Stock Purchase Plan, as restated June, 2004                                                                                                                                     
|           
|            | 10 | .5(24)   |             | Facilities Lease for 26632 Towne Center Dr., Suite 320,
    Foothill Ranch, California                                                                                                        
|           
|            | 10 | .6(29)  |             | 401(k) Plan, as restated January 1, 2005                                                                                                                                                      
|           
|            | 10 | .8(25)  |             | 1996 Equity Incentive Plan of the former Cardiogenesis
    Corporation                                                                                                                        
|           
|            | 10 | .10(26) |             | Employment Agreement, dated as of September 27, 2001,
    between the Company and Michael J. Quinn                                                                                            
|           
|            | 10 | .11(27) |             | Amendment No. 1 to Employment Agreement, dated July 3,
    2002, between the Company and Michael J. Quinn                                                                                     
|           
|            | 10 | .11(29) |             | Amendment No. 2 to Employment Agreement, dated May 19,
    2003, between the Company and Michael J. Quinn                                                                                     
|           
|            | 10 | .11(29) |             | Amendment No. 3 to Employment Agreement, dated
    March 16, 2005, between the Company and Michael J. Quinn                                                                                   
|           
|            | 21 | .1(28)   |             | List of Subsidiaries                                                                                                                                                                          
|           
|            | 23 | .1(29)   |             | Consent of PricewaterhouseCoopers LLP                                                                                                                                                         
|           
|            | 31 | .1(29)   |             | Certification of the Chief Executive Officer pursuant to
    Rule 13a-14(a) of Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002  
|           
|            | 31 | .2(29)   |             | Certification of the Chief Financial Officer pursuant to
    Rule 13a-14(a) of Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002  
|           
|            | 32 | .1(29)   |             | Certifications of the Chief Executive Officer and Chief
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002






| |   |                                                      
| | - | -----------------------------------------------------
| |  | Management contract, compensatory plan or arrangement



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to Exhibit 3.1 to the
    Registrants Registration Statement on Form S-1/
    A(File No. 33-03770), filed on May 21, 1996
|   
|(2) | Incorporated by reference to Exhibit 3.2 to the
    Registrants Quarterly Report on Form 10-Q filed on
    August 14, 2001                         
|   
|(3) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Current Report on Form 8-K filed on
    August 14, 2001                            
|   
|(4) | Incorporated by reference to Exhibit 3.1.4 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                           
|   
|(5) | Incorporated by reference to Exhibit 3.1.5 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                           

40



---



##### Table of Contents





|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(6) | Incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q/ A filed on
    August 16, 2001
|   
|(7) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004         
|   
|(8) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004         
|   
|(9) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    January 18, 2002         



|     |                                                                                                                                                                                   
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    August 20, 2001                                                             
|    
|(11) | Incorporated by reference to Exhibit 4.4 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004                                                            
|    
|(12) | Incorporated by reference to Exhibit 4.5 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004                                                            
|    
|(13) | Incorporated by reference to Exhibit 4.6 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004                                                            
|    
|(14) | Incorporated by reference to Exhibit 4.7 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004                                                            
|    
|(15) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                            
|    
|(16) | Incorporated by reference to Exhibit 4.3 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                            
|    
|(17) | Incorporated by reference to Exhibit 4.4 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                            
|    
|(18) | Incorporated by reference to Exhibit 4.5 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                            
|    
|(19) | Incorporated by reference to Exhibit 4.6 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                            
|    
|(20) | Incorporated by reference to the Companys Registration
    Statement on Form S-1 (File No. 333-03770), as
    amended, filed on April 18, 1996                                   
|    
|(21) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                              
|    
|(22) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                              
|    
|(23) | Incorporated by reference to Exhibit 4.3 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                              
|    
|(24) | Incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q/ A filed on
    August 16, 2001                                                   
|    
|(25) | Incorporated by reference to Exhibit 4.1 to the former
    Cardiogenesis Corporations Registration Statement on
    Form S-8 (File No. 333-35095), filed on
    September 8, 1997
|    
|(26) | Incorporated by reference to Exhibit 10.11 to the
    Registrants Annual Report on Form 10-K filed on
    April 16, 2002                                                         
|    
|(27) | Incorporated by reference to Exhibit 10.13 to the
    Registrants Quarterly Report on Form 10-Q filed on
    August 14, 2002                                                     
|    
|(28) | Incorporated by reference to Exhibit 21.1 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                                                          
|    
|(29) | Filed herewith                                                                                                                                                                    

41



---



##### Table of Contents






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.




| |                          
| | -------------------------
| | CARDIOGENESIS CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ MICHAEL J. QUINN

| | 
| | 
| | 



| |                                   
| | ----------------------------------
| | Michael J. Quinn                  
| | President, Chief Executive Officer
| | Chairman of the Board and Director
| | (Principal 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 in the capacities and on the
date indicated.


|                                                           |  |                                                                                                                       |  |                |  | 
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                                  |  | Title                                                                                                                 |  | Date          
|                                                           |  |                                                                                                                       |  |               
|                                                          
|/s/ MICHAEL J. QUINNMichael
    J. Quinn                   |  | President, Chief Executive Officer, Chairman of the Board and
    Director (Principal Executive Officer)              |  | March 31, 2005
|                                                          
|/s/ CHRISTINE G. OCAMPOChristine
    G. Ocampo             |  | Vice President, Chief Financial Officer, Secretary and
    Treasurer
    (Principal Accounting and Financial Officer) |  | March 31, 2005
|                                                          
|/s/ JOSEPH R.
    KLETZEL, IIJoseph
    R. Kletzel, II     |  | Senior Vice President, General Manager of Pacific Division,
    Director                                              |  | March 31, 2005
|                                                          
|/s/ ROBERT L. MORTENSENRobert
    L. Mortensen             |  | Director                                                                                                              |  | March 31, 2005
|                                                          
|/s/ MARVIN J.
    SLEPIAN, M.D.Marvin
    J. Slepian, M.D. |  | Director                                                                                                              |  | March 31, 2005
|                                                          
|/s/ ROBERT C. STRAUSSRobert
    C. Strauss                 |  | Director                                                                                                              |  | March 31, 2005
|                                                          
|/s/ KURT E.
    WEHBERG, M.D.Kurt
    E. Wehberg, M.D.     |  | Director                                                                                                              |  | March 31, 2005

42



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP





43



---



##### Table of Contents



CARDIOGENESIS CORPORATION





CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


|                                                      |                                                  |                                                                                                                                             |       |          |         |  |       |          |         | 
|----------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ----- | -------- | ------- |  | ----- | -------- | ------- | 
|                                                      |                                                  | 2004                                                                                                                                        |       |          | 2003    | 
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | (In thousands)                                                                                                                              |      
|ASSETS                                               
|Current assets:                                       |                                                  |                                                                                                                                             |       |          |         |  |       |         
|                                                      | Cash and cash equivalents                        |                                                                                                                                             | $     | 4,740    |         |  | $     | 1,013    |        
|                                                      | Accounts receivable, net                         |                                                                                                                                             |       | 3,578    |         |  |       | 1,830    |        
|                                                      | Inventories, net                                 |                                                                                                                                             |       | 1,782    |         |  |       | 1,339    |        
|                                                      | Prepaids and other current assets                |                                                                                                                                             |       | 513      |         |  |       | 453      |        
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total current assets                                                                                                                        |       |          | 10,613  |  |       |          | 4,635   | 
|Property and equipment, net                           |                                                  |                                                                                                                                             | 601   |          |         |  | 408   |         
|Restricted cash                                       |                                                  |                                                                                                                                             | 2,884 |          |         |  |       |         
|Other assets                                          |                                                  |                                                                                                                                             | 1,585 |          |         |  | 1,417 |         
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total assets                                                                                                                                |       | $        | 15,683  |  |       | $        | 6,460   | 
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                     
|LIABILITIES AND SHAREHOLDERS EQUITY                 
|Current liabilities:                                  |                                                  |                                                                                                                                             |       |          |         |  |       |         
|                                                      | Accounts payable                                 |                                                                                                                                             | $     | 893      |         |  | $     | 876      |        
|                                                      | Accrued liabilities                              |                                                                                                                                             |       | 1,263    |         |  |       | 1,159    |        
|                                                      | Customer deposits                                |                                                                                                                                             |       |         |         |  |       | 25       |        
|                                                      | Deferred revenue                                 |                                                                                                                                             |       | 658      |         |  |       | 573      |        
|                                                      | Current portion of capital lease obligation      |                                                                                                                                             |       | 5        |         |  |       | 1        |        
|                                                      | Current portion of Secured Convertible Term Note |                                                                                                                                             |       | 800      |         |  |       |         |        
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total current liabilities                                                                                                                   |       |          | 3,619   |  |       |          | 2,634   | 
|Capital lease obligation, less current portion        |                                                  |                                                                                                                                             | 18    |          |         |  | 6     |         
|Other long-term liability                             |                                                  |                                                                                                                                             | 496   |          |         |  |       |         
|Secured Convertible Term Note and related obligations |                                                  |                                                                                                                                             | 6,815 |          |         |  |      |         
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total liabilities                                                                                                                           |       |          | 10,948  |  |       |          | 2,640   | 
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|Commitments and contingencies (Note 8)                |                                                  |                                                                                                                                             |       |          |         |  |       |         
|                                                      | Shareholders equity:                            |                                                                                                                                             |       |          |         |  |       |          |        
|                                                      | Preferred stock:                                 |                                                                                                                                             |       |          |         |  |       |          |        
|                                                      |                                                  | no par value; 5,000 shares authorized; none issued and
    outstanding;                                                                     |       |          |        |  |       |          |        | 
|                                                      | Common stock:                                    |                                                                                                                                             |       |          |         |  |       |          |        
|                                                      |                                                  | no par value; 75,000 shares authorized; 41,500 and
    37,859 shares issued and outstanding at December 31,
    2004 and 2003, respectively |       |          | 171,012 |  |       |          | 168,778 | 
|                                                      | Accumulated deficit                              |                                                                                                                                             |       | (166,277 | )       |  |       | (164,958 | )      
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total shareholders equity                                                                                                                  |       |          | 4,735   |  |       |          | 3,820   | 
|                                                      |                                                  |                                                                                                                                             |       |          |         | 
|                                                      |                                                  | Total liabilities and shareholders equity                                                                                                  |       | $        | 15,683  |  |       | $        | 6,460   | 
|                                                      |                                                  |                                                                                                                                             |       |          |         | 



44



---



##### Table of Contents



CARDIOGENESIS CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS


For the Years Ended December 31, 2004, 2003 and 2002


|                                      |                                         |                                 |                          |        |      |        |        |        |   |        |        |        |    |        |  
|------------------------------------- | --------------------------------------- | ------------------------------- | ------------------------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -- | ------ | -
|                                      |                                         | 2004                            |                          |        | 2003 |        |        | 2002   |  
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         | (In thousands, except per share |                         
|                                      |                                         | amounts)                        |                         
|Net revenues                          |                                         | $                               | 15,454                   |        |      | $      | 13,518 |        |   | $      | 13,048 |       
|Cost of revenues                      |                                         |                                 | 2,193                    |        |      |        | 2,295  |        |   |        | 2,935  |       
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         |                                 | Gross profit             |        |      | 13,261 |        |        |   | 11,223 |        |        |    | 10,113 |  
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|Operating expenses:                   |                                         |                                 |                          |        |      |        |        |        |   |        |        |       
|                                      | Research and development                |                                 |                          | 1,442  |      |        |        | 1,944  |   |        |        | 657    |   
|                                      | Sales, general and administrative       |                                 |                          | 11,322 |      |        |        | 9,590  |   |        |        | 12,297 |   
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         |                                 | Total operating expenses |        |      | 12,764 |        |        |   | 11,534 |        |        |    | 12,954 |  
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         |                                 | Operating income (loss)  |        |      | 497    |        |        |   | (311   | )      |        |    | (2,841 | )
|Interest expense                      |                                         |                                 | (135                     | )      |      |        | (44    | )      |   |        | (13    | )     
|Interest income                       |                                         |                                 | 48                       |        |      |        | 7      |        |   |        | 39     |       
|Non-cash interest expense             |                                         |                                 | (1,439                   | )      |      |        |       |        |   |        |       |       
|Other non-cash expense                |                                         |                                 | (290                     | )      |      |        |       |        |   |        |       |       
|Gain on sale of investee              |                                         |                                 |                         |        |      |        |       |        |   |        | 2,285  |       
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         |                                 | Net loss                 |        |      | (1,319 | )      |        |   | (348   | )      |        |    | (530   | )
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|Other comprehensive loss, net of tax: |                                         |                                 |                          |        |      |        |        |        |   |        |        |       
|                                      | Foreign currency translation adjustment |                                 |                          |       |      |        |        |       |   |        |        | 88     |   
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         | Other comprehensive income      |                          |        |     |        |        |        |  |        |        |        | 88 |       
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      |                                         |                                 | Comprehensive loss       |        | $    | (1,319 | )      |        | $ | (348   | )      |        | $  | (442   | )
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|Net loss per share:                   |                                         |                                 |                          |        |      |        |        |        |   |        |        |       
|                                      | Basic and diluted                       |                                 | $                        | (0.03  | )    |        | $      | (0.01  | ) |        | $      | (0.01  | ) 
|                                      |                                         |                                 |                          |        |      |        |        |        |  
|                                      | Weighted average shares outstanding     |                                 |                          | 41,152 |      |        |        | 37,303 |   |        |        | 36,911 |   
|                                      |                                         |                                 |                          |        |      |        |        |        |  



45



---



##### Table of Contents



CARDIOGENESIS CORPORATION





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


For the Years Ended December 31, 2004, 2003 and 2002


|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |          |      |   |   |        |      |  
|----------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------- | ------ | ----- | ------------- | ----------- | ------- | ----------- |  | - | ------- | -- |  | ----- | -------- | ---- | - | - | ------ | ---- | -
|                                                                                                |                                                                                                 |                |        |       |               | Accumulated |         |             |  |   |        
|                                                                                                |                                                                                                 |                |        | Other |               |             |         |             | 
|                                                                                                |                                                                                                 | Common Stock   |        |       | Comprehensive |             |         |             |  |  
|                                                                                                |                                                                                                 |                |        |       | Income        |             |         | Accumulated |  |   |        
|                                                                                                |                                                                                                 | Shares         |        |       | Amount        |             |         | (Loss)      |  |   | Deficit |    |  | Total |         
|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |         
|                                                                                                |                                                                                                 | (In thousands) |       
|Balances, December 31, 2001                                                                     |                                                                                                 |                | 36,507 |       |               | $           | 167,750 |             |  | $ | (88     | )  |  | $     | (164,080 | )    |   | $ | 3,582  |     
|                                                                                                | Issuance of common stock pursuant to stock purchased under the
    Employee Stock Purchase Plan |                |        | 114   |               |             |         | 85          |  |   |         |   |  |       |          |     |   |   |        | 85   |  
|                                                                                                | Issuance of common stock for cash                                                               |                |        | 500   |               |             |         | 486         |  |   |         |   |  |       |          |     |   |   |        | 486  |  
|                                                                                                | Foreign currency translation adjustment                                                         |                |        |      |               |             |         |            |  |   |         | 88 |  |       |          |     |   |   |        | 88   |  
|                                                                                                | Net loss                                                                                        |                |        |      |               |             |         |            |  |   |         |   |  |       |          | (530 | ) |   |        | (530 | )
|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |         
|Balances, December 31, 2002                                                                     |                                                                                                 |                | 37,121 |       |               |             | 168,321 |             |  |   |        |    |  |       | (164,610 | )    |   |   | 3,711  |     
|                                                                                                | Issuance of common stock pursuant to exercise of options                                        |                |        | 607   |               |             |         | 294         |  |   |         |   |  |       |          |     |   |   |        | 294  |  
|                                                                                                | Issuance of common stock pursuant to stock purchased under the
    Employee Stock Purchase Plan |                |        | 131   |               |             |         | 88          |  |   |         |   |  |       |          |     |   |   |        | 88   |  
|                                                                                                | Issuance of common stock purchase warrants                                                      |                |        |      |               |             |         | 75          |  |   |         |   |  |       |          |     |   |   |        | 75   |  
|                                                                                                | Net loss                                                                                        |                |        |      |               |             |         |            |  |   |         |   |  |       |          | (348 | ) |   |        | (348 | )
|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |         
|Balances, December 31, 2003                                                                     |                                                                                                 |                | 37,859 |       |               |             | 168,778 |             |  |   |        |    |  |       | (164,958 | )    |   |   | 3,820  |     
|Issuance of common stock pursuant to exercise of options                                        |                                                                                                 |                | 317    |       |               |             | 184     |             |  |   |        |    |  |       |         |      |   |   | 184    |     
|Issuance of common stock pursuant to stock purchased under the
    Employee Stock Purchase Plan |                                                                                                 |                | 184    |       |               |             | 87      |             |  |   |        |    |  |       |         |      |   |   | 87     |     
|Issuance of common stock for cash                                                               |                                                                                                 |                | 3,140  |       |               |             | 2,304   |             |  |   |        |    |  |       |         |      |   |   | 2,304  |     
|Reclassification of stock purchase warrants to long-term
    liabilities                        |                                                                                                 |                |       |       |               |             | (341    | )           |  |   |        |    |  |       |         |      |   |   | (341   | )   
|Net loss                                                                                        |                                                                                                 |                |       |       |               |             |        |             |  |   |        |    |  |       | (1,319   | )    |   |   | (1,319 | )   
|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |         
|Balances, December 31, 2004                                                                     |                                                                                                 |                | 41,500 |       |               | $           | 171,012 |             |  | $ |        |    |  | $     | (166,277 | )    |   | $ | 4,735  |     
|                                                                                                |                                                                                                 |                |        |       |               |             |         |             |  |   |         |    |  |       |         



46



---



##### Table of Contents



CARDIOGENESIS CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended December 31, 2004, 2003 and 2002


|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |       |        |        |        |  
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------- | ----------------------------------------------------- | ----- | ------ | ----- | ---- | ---- | ---- | ----- | ----- | ------ | ------ | ------ | -
|                                                                                |                                                                                                                                             | 2004                                           |                                          |                                                       | 2003  |        |       | 2002 |     
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                |                                                                                                                                             | (In thousands)                                 |                                         
|Cash flows from operating activities:                                           |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                | Net loss                                                                                                                                    |                                                | $                                        | (1,319                                                | )     |        | $     | (348 | )    |      | $     | (530  | )     
|Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                |                                                                                                                                             | Derivative and warrant fair value adjustments  |                                          |                                                       | 1,553 |        |       |      |     |      |       |       |       |       
|                                                                                |                                                                                                                                             | Accretion related to discount on notes payable |                                          |                                                       | 141   |        |       |      |     |      |       |       |       |       
|                                                                                |                                                                                                                                             | Depreciation and amortization                  |                                          |                                                       | 228   |        |       |      | 261  |      |       |       | 308    |       
|                                                                                |                                                                                                                                             | Gain from sale of equity investee              |                                          |                                                       |      |        |       |      |     |      |       |       | (2,285 | )     
|                                                                                |                                                                                                                                             | Provision for doubtful accounts                |                                          |                                                       | 19    |        |       |      | 26   |      |       |       | 335    |       
|                                                                                |                                                                                                                                             | Inventory reserves                             |                                          |                                                       | 32    |        |       |      | 198  |      |       |       | 854    |       
|                                                                                |                                                                                                                                             | Interest expense accrued on note payable       |                                          |                                                       | 77    |        |       |      |     |      |       |       |       |       
|                                                                                |                                                                                                                                             | Amortization of other assets                   |                                          |                                                       | 195   |        |       |      | 195  |      |       |       | 194    |       
|                                                                                |                                                                                                                                             | Amortization of debt issuance costs            |                                          |                                                       | 66    |        |       |      | 44   |      |       |       |       |       
|                                                                                |                                                                                                                                             | Loss on disposal of property and equipment     |                                          |                                                       |      |        |       |      |     |      |       |       | 28     |       
|                                                                                |                                                                                                                                             | Reduction of clinical trial accrual            |                                          |                                                       | (152  | )      |       |      | (601 | )    |       |       | (1,282 | )     
|                                                                                |                                                                                                                                             | Changes in operating assets and liabilities:   |                                          |                                                       |       |        |       |      |      |      |       |       |        |       
|                                                                                |                                                                                                                                             |                                                | Accounts receivable                      |                                                       |       | (1,767 | )     |      |      | 105  |       |       |        | 34     |       
|                                                                                |                                                                                                                                             |                                                | Inventories                              |                                                       |       | (475   | )     |      |      | 95   |       |       |        | 729    |       
|                                                                                |                                                                                                                                             |                                                | Prepaids and other current assets        |                                                       |       | 259    |       |      |      | 202  |       |       |        | 619    |       
|                                                                                |                                                                                                                                             |                                                | Other assets                             |                                                       |       | (157   | )     |      |      | (103 | )     |       |        |       |       
|                                                                                |                                                                                                                                             |                                                | Accounts payable                         |                                                       |       | 17     |       |      |      | (365 | )     |       |        | (307   | )     
|                                                                                |                                                                                                                                             |                                                | Accrued liabilities                      |                                                       |       | 256    |       |      |      | (316 | )     |       |        | (1,084 | )     
|                                                                                |                                                                                                                                             |                                                | Current portion of long term liabilities |                                                       |       |       |       |      |      |     |       |       |        | (495   | )     
|                                                                                |                                                                                                                                             |                                                | Customer deposits                        |                                                       |       | (25    | )     |      |      | (25  | )     |       |        | (4     | )     
|                                                                                |                                                                                                                                             |                                                | Deferred revenue                         |                                                       |       | 85     |       |      |      | (48  | )     |       |        | (310   | )     
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                |                                                                                                                                             |                                                |                                          | Net cash used in operating activities                 |       |        | (967  | )    |      |      | (680  | )     |        |        | (3,196 | )
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|Cash flows from investing activities:                                           |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                | Proceeds from sale of equity in investee                                                                                                    |                                                |                                          |                                                      |       |        |       |     |      |      |       | 2,285 |       
|                                                                                | Acquisition of property and equipment                                                                                                       |                                                |                                          | (401                                                  | )     |        |       | (80  | )    |      |       | (62   | )     
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                |                                                                                                                                             |                                                |                                          | Net cash (used in) provided by investing activities   |       |        | (401  | )    |      |      | (80   | )     |        |        | 2,223  |  
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|Cash flows from financing activities:                                           |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                | Net proceeds from issuance of common stock from exercise of
    options and from stock purchased under the Employee Stock
    Purchase Plan |                                                |                                          | 271                                                   |       |        |       | 307  |      |      |       | 85    |       
|                                                                                | Net proceeds from sale of common stock to private entities                                                                                  |                                                |                                          | 2,304                                                 |       |        |       |     |      |      |       | 486   |       
|                                                                                | Payments on short term borrowings                                                                                                           |                                                |                                          | (351                                                  | )     |        |       |     |      |      |       | (794  | )     
|                                                                                | Net proceeds from issuance of long-term debt                                                                                                |                                                |                                          | 2,875                                                 |       |        |       |     |      |      |       |      |       
|                                                                                | Repayments of capital lease obligations                                                                                                     |                                                |                                          | (4                                                    | )     |        |       | (24  | )    |      |       | (31   | )     
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                |                                                                                                                                             |                                                |                                          | Net cash provided by (used in) financing activities   |       |        | 5,095 |      |      |      | 283   |       |        |        | (254   | )
|                                                                                |                                                                                                                                             |                                                |                                          | Effect of exchange rates on cash and cash equivalents |       |        |      |      |      |      |      |       |        |        | 88     |  
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                |                                                                                                                                             |                                                |                                          | Net increase (decrease) in cash and cash equivalents  |       |        | 3,727 |      |      |      | (477  | )     |        |        | (1,139 | )
|Cash and cash equivalents at beginning of year                                  |                                                                                                                                             |                                                | 1,013                                    |                                                       |       |        | 1,490 |      |      |      | 2,629 |      
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|Cash and cash equivalents at end of year                                        |                                                                                                                                             | $                                              | 4,740                                    |                                                       |       | $      | 1,013 |      |      | $    | 1,490 |      
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|Supplemental schedule of cash flow information:                                 |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                | Interest paid                                                                                                                               |                                                | $                                        | 10                                                    |       |        | $     | 19   |      |      | $     | 13    |       
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                | Taxes paid                                                                                                                                  |                                                | $                                        | 41                                                    |       |        | $     | 23   |      |      | $     | 60    |       
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|Supplemental schedule of noncash investing and financing
    activities:        |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |      |      |       |      
|                                                                                | Issuance of common stock purchase warrants                                                                                                  |                                                | $                                        |                                                      |       |        | $     | 75   |      |      | $     |      |       
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     
|                                                                                | Legally restricted proceeds from issuance of long-term debt                                                                                 |                                                | $                                        | 2,877                                                 |       |        | $     |     |      |      | $     |      |       
|                                                                                |                                                                                                                                             |                                                |                                          |                                                       |       |        |       |      |     



47



---



##### Table of Contents



CARDIOGENESIS CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.                Nature
of Operations:










2.     Summary of Significant
Accounting Policies:




| |                  
| | -----------------
| | Use of Estimates:





| |                           
| | --------------------------
| | Cash and Cash Equivalents:





| |                      
| | ---------------------
| | Accounts Receivables:



48



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |  |            |       |  |               |   |     |                |            |   |        |  |  |   |     | 
|-------------------------------- |  | ---------- | ----- |  | ------------- | - | --- | -------------- | ---------- | - | ------ |  |  | - | --- | 
|                                 |  | Balance at |       |  |               |   |     |                | Balance at |  
|                                 |  | Beginning  |       |  |               |   |     |                | End of     |  
|                                 |  | of Period  |       |  | Additions (1) |   |     | Deductions (2) |            |   | Period | 
|                                 |  |            |       |  |               |   |     |                |            |   |        | 
|Allowance for doubtful accounts: |  |            |       |  |               |   |     |                |            |   |        |  |  |   |     | 
|Year ended December 31, 2002     |  |            |       |  |               |   |     |                |            |   |        |  |  |   |     | 
|Allowance for doubtful accounts  |  | $          | 1,354 |  |               | $ | 335 |                |            | $ | 1,240  |  |  | $ | 449 | 
|Year ended December 31, 2003     |  |            |       |  |               |   |     |                |            |   |        |  |  |   |     | 
|Allowance for doubtful accounts  |  | $          | 449   |  |               | $ | 26  |                |            | $ | 449    |  |  | $ | 26  | 
|Year ended December 31, 2004     |  |            |       |  |               |   |     |                |            |   |        |  |  |   |     | 
|Allowance for doubtful accounts  |  | $          | 26    |  |               | $ | 19  |                |            | $ | 34     |  |  | $ | 11  | 






|    |                                         
|--- | ----------------------------------------
|(1) | Charged to costs and expenses.          
|   
|(2) | Amounts written off against the reserve.



| |             
| | ------------
| | Inventories:





| |                 
| | ----------------
| | Patent Expenses:





| |                 
| | ----------------
| | Restricted Cash:





| |                        
| | -----------------------
| | Property and Equipment:





| |                                                                    
| | -------------------------------------------------------------------
| | Accounting for the Impairment or Disposal of Long-Lived
    Assets:



49



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                           
| | ------------------------------------------
| | Fair Value of Other Financial Instruments:





| |                                 
| | --------------------------------
| | Derivative financial instruments





| |                     
| | --------------------
| | Revenue Recognition:









50



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                          
| | -----------------------------------------
| | Shipping and Handling Costs and Revenues:





| |                          
| | -------------------------
| | Research and Development:





| |            
| | -----------
| | Warranties:





| |             
| | ------------
| | Advertising:

Cardiogenesis expenses all advertising as incurred.




| |              
| | -------------
| | Income Taxes:





| |                              
| | -----------------------------
| | Foreign Currency Translation:





| |                          
| | -------------------------
| | Stock-Based Compensation:





51



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share amounts):


|                                                              |  |                         |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                              |  | Year Ended December 31, |       
|                                                              |  |                         |       
|                                                              |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                              |  |                         |        |   |      |   |        |      | 
|Net loss as reported                                          |  | $                       | (1,319 | ) |      | $ | (348   | )    |  | $ | (530   | )
|Stock-based employee compensation, net of related tax effects |  | $                       | (482   | ) |      | $ | (1,135 | )    |  | $ | (1,404 | )
|                                                              |  |                         |        |   |      |   |        |      | 
|Pro forma net loss                                            |  | $                       | (1,801 | ) |      | $ | (1,483 | )    |  | $ | (1,934 | )
|                                                              |  |                         |        |   |      |   |        |      | 
|Basic and diluted net loss per share as reported              |  | $                       | (0.03  | ) |      | $ | (0.01  | )    |  | $ | (0.01  | )
|Pro forma basic and diluted net loss per share                |  | $                       | (0.04  | ) |      | $ | (0.04  | )    |  | $ | (0.05  | )
|Weighted average basic and diluted shares outstanding         |  |                         | 41,152 |   |      |   | 37,303 |      |  |   | 36,911 |  



|                        |  |              |         |   |      |  |         |      |  |  |         |  
|----------------------- |  | ------------ | ------- | - | ---- |  | ------- | ---- |  |  | ------- | -
|                        |  | December 31, |        
|                        |  |              |        
|                        |  | 2004         |         |   | 2003 |  |         | 2002 | 
|                        |  |              |         |   |      |  |         |      | 
|Expected life of option |  |              | 7 years |   |      |  | 7 years |      |  |  | 7 years |  
|Risk-free interest rate |  |              | 3.7     | % |      |  | 3.68    | %    |  |  | 4.04    | %
|Expected dividends      |  |              |        |   |      |  |        |      |  |  |        |  
|Expected volatility     |  |              | 79      | % |      |  | 151     | %    |  |  | 75      | %



|                        |  |              |           |   |      |  |           |      |  |  |           |  
|----------------------- |  | ------------ | --------- | - | ---- |  | --------- | ---- |  |  | --------- | -
|                        |  | December 31, |          
|                        |  |              |          
|                        |  | 2004         |           |   | 2003 |  |           | 2002 | 
|                        |  |              |           |   |      |  |           |      | 
|Expected life           |  |              | 0.5 years |   |      |  | 0.5 years |      |  |  | 0.5 years |  
|Risk-free interest rate |  |              | 3.7       | % |      |  | 3.68      | %    |  |  | 4.04      | %
|Expected dividends      |  |              |          |   |      |  |          |      |  |  |          |  
|Expected volatility     |  |              | 79        | % |      |  | 151       | %    |  |  | 75        | %



52



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                    
| | -------------------
| | Net Loss Per Share:







| |                                      
| | -------------------------------------
| | Recently Issued Accounting Standards:



Inventory Costs  An Amendment of ARB
No. 43, Chapter 4


Share-Based Payment


53



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |             
|-- | ------------
|3. | Inventories:

(in thousands)


|                |  |              |       |   |      |   |       |  
|--------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                |  | December 31, |      
|                |  |              |      
|                |  | 2004         |       |   | 2003 |  
|                |  |              |       |   |      |  
|Raw materials   |  | $            | 1,085 |   |      | $ | 1,042 |  
|Work in process |  |              | 210   |   |      |   | 159   |  
|Finished goods  |  |              | 889   |   |      |   | 511   |  
|                |  |              |       |   |      |  
|                |  |              | 2,184 |   |      |   | 1,712 |  
|Less reserves   |  |              | (402  | ) |      |   | (373  | )
|                |  |              |       |   |      |  
|                |  | $            | 1,782 |   |      | $ | 1,339 |  
|                |  |              |       |   |      |  



|   |                        
|-- | -----------------------
|4. | Property and Equipment:

(in
thousands):


|                                               |  |              |        |   |      |   |        |  
|---------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                               |  | December 31, |       
|                                               |  |              |       
|                                               |  | 2004         |        |   | 2003 |  
|                                               |  |              |        |   |      |  
|Computers and equipment                        |  | $            | 3,031  |   |      | $ | 2,732  |  
|Manufacturing and demonstration equipment      |  |              | 2,240  |   |      |   | 2,181  |  
|Leasehold improvements                         |  |              | 193    |   |      |   | 193    |  
|                                               |  |              |        |   |      |  
|                                               |  |              | 5,464  |   |      |   | 5,106  |  
|Less accumulated depreciation and amortization |  |              | (4,863 | ) |      |   | (4,698 | )
|                                               |  |              |        |   |      |  
|                                               |  | $            | 601    |   |      | $ | 408    |  
|                                               |  |              |        |   |      |  



54



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |              
|-- | -------------
|5. | Other Assets:

(in thousands):


|                           |  |              |       |  |      |   |       | 
|-------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                           |  | December 31, |      
|                           |  |              |      
|                           |  | 2004         |       |  | 2003 |  
|                           |  |              |       |  |      |  
|Debt issuance costs        |  | $            | 381   |  |      | $ |      | 
|Licensing fee for PMC, net |  |              | 1,119 |  |      |   | 1,314 | 
|Rental security deposit    |  |              | 85    |  |      |   | 103   | 
|                           |  |              |       |  |      |  
|                           |  | $            | 1,585 |  |      | $ | 1,417 | 
|                           |  |              |       |  |      |  









|   |                     
|-- | --------------------
|6. | Accrued Liabilities:

(in
thousands):


|                                              |  |              |       |  |      |   |       | 
|--------------------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                              |  | December 31, |      
|                                              |  |              |      
|                                              |  | 2004         |       |  | 2003 |  
|                                              |  |              |       |  |      |  
|Accrued research support                      |  | $            |      |  |      | $ | 152   | 
|Accrued accounts payable and related expenses |  |              | 200   |  |      |   | 327   | 
|Accrued vacation                              |  |              | 206   |  |      |   | 203   | 
|Accrued commissions                           |  |              | 602   |  |      |   | 234   | 
|Accrued other                                 |  |              | 255   |  |      |   | 243   | 
|                                              |  |              |       |  |      |  
|                                              |  | $            | 1,263 |  |      | $ | 1,159 | 
|                                              |  |              |       |  |      |  



|   |                       
|-- | ----------------------
|7. | Long-term Liabilities:



55



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Note is convertible at the holders option at any time
    at the fixed conversion price of $.50 per share. This conversion
    feature has been identified as an embedded derivative and has
    been bifurcated and recorded on the Companys balance sheet
    at its fair value;                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Beginning May 2005, the Company is required to make monthly
    principal payments of $100,000 per month. The monthly payment as
    well as related accrued interest must be converted to common
    stock at the fixed conversion price of $.50 if the fair value of
    the Companys common stock is greater than $0.55 per share
    for the 5 days preceding the payment due date. This
    conversion feature has been identified as an embedded derivative
    and has been bifurcated and recorded on the Companys
    balance sheet at its fair value;                                                                                         
|
| |  | Restricted cash must be converted at a fixed conversion price of
    $.50 per share if the fair value of the Companys common
    stock is greater than 125%, 150% or 175% (each threshold must
    meet higher trading volume limits) of the initial fixed
    conversion price of $.50 per share. This conversion feature has
    been identified as an embedded derivative and has been
    bifurcated and recorded on the Companys balance sheet at
    its fair value;                                                                                                                                                                              
|
| |  | Annual interest on the Note is equal to the prime
    rate published in The Wall Street Journal from time to
    time, plus two percent (2.0%), provided that such annual rate of
    interest may not be less than six and one-half percent (6.5%).
    For every 25% increase in the Companys common stock fair
    value above $.50 per share, the interest rate will be reduced by
    2%. The interest rate may never be reduced below 0%. Interest on
    the Note is payable monthly in arrears on the first day of each
    month during the term of the Note, beginning November 2004. The
    potential interest rate reduction due to future

56



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | possible increases in the Companys stock price has been
    identified as an embedded derivative and has been bifurcated and
    recorded on the Companys balance sheet at its fair value;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Note agreement includes a liquidated damages provision based
    on any failure to meet registration requirements for shares
    issuable under the conversion of the note or exercise of the
    warrants by February 2005. This liquidated damages feature
    represents an embedded derivative. However, based on the de
    minimus value associated with this feature, no value has been
    assigned at issuance and at December 31, 2004;                                                                                                                                                                                                                            
|
| |  | The Note agreement contains certain events of default including
    delinquency, bankruptcy, change in control and stop trade or
    trade suspension. In the event of default, Laurus has the right
    to call the debt at a 30% premium, increase the note rate to the
    stated rate, increase the note rate by an additional 12%,
    foreclose on the collateral, and/or seek other remedies.
    Laurus right to increase the interest rate on the debt in
    the event of default represents an embedded derivative. However,
    based on the de minimus value associated with this feature, no
    value has been assigned at issuance and at December 31,
    2004.







|      |  |   |           | 
|----- |  | - | --------- | 
|2005  |  | $ | 800,000   | 
|2006  |  |   | 1,200,000 | 
|2007  |  |   | 1,000,000 | 
|      |  |   |          
|Total |  | $ | 3,000,000 | 
|      |  |   |          



57



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                               
|-- | ------------------------------
|8. | Commitments and Contingencies:

(in thousands):


|                         |  |   |     | 
|------------------------ |  | - | --- | 
|Year Ending December 31, |  |  
|                         |  |  
|2005                     |  | $ | 350 | 
|2006                     |  |   | 306 | 
|                         |  |   |    
|                         |  | $ | 656 | 
|                         |  |   |    







|   |                      
|-- | ---------------------
|9. | Shareholders Equity:



| |                           
| | --------------------------
| | Issuances of Common Stock:



58



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |          
| | ---------
| | Warrants:













| |                                
| | -------------------------------
| | Options Granted to Consultants:





| |                         
| | ------------------------
| | Shareholder Rights Plan:



59



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | Stock Option Plan:





| |                              
| | -----------------------------
| | Directors Stock Option Plan:





| |                              
| | -----------------------------
| | Employee Stock Purchase Plan:



60



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per
share amounts):


|                           |                            |           |       |                     |           |          |         |           |   |   |      |      | 
|-------------------------- | -------------------------- | --------- | ----- | ------------------- | --------- | -------- | ------- | --------- | - | - | ---- | ---- | 
|                           |                            |           |       | Outstanding Options |          
|                           |                            |           |       |                     |          
|                           |                            |           |       |                     |           | Weighted |        
|                           |                            | Shares    |       |                     |           |          | Average |          
|                           |                            | Available |       |                     | Number    |          |         | Price per |  
|                           |                            | for Grant |       |                     | of Shares |          |         | Share     |  
|                           |                            |           |       |                     |           |          |         |           |  
|Balance, December 31, 2001 |                            |           | 510   |                     |           |          | 2,787   |           |   | $ | 2.42 |     
|                           | Additional shares reserved |           |       | 1,500               |           |          |         |          |   |   |      |     | 
|                           | Options granted            |           |       | (1,105              | )         |          |         | 1,105     |   |   | $    | 0.82 | 
|                           | Options forfeited          |           |       | 415                 |           |          |         | (415      | ) |   | $    | 3.86 | 
|                           |                            |           |       |                     |           |          |         |           |  
|Balance, December 31, 2002 |                            |           | 1,320 |                     |           |          | 3,477   |           |   | $ | 1.74 |     
|                           | Additional shares reserved |           |       | 1,500               |           |          |         |          |   |   |      |     | 
|                           | Options granted            |           |       | (2,034              | )         |          |         | 2,034     |   |   | $    | 0.52 | 
|                           | Options forfeited          |           |       | 834                 |           |          |         | (834      | ) |   | $    | 1.46 | 
|                           | Options exercised          |           |       |                    |           |          |         | (607      | ) |   | $    | 0.48 | 
|                           |                            |           |       |                     |           |          |         |           |  
|Balance, December 31, 2003 |                            |           | 1,620 |                     |           |          | 4,070   |           |   | $ | 1.37 |     
|                           | Additional shares reserved |           |       | 1,800               |           |          |         |          |   |   |      |     | 
|                           | Options granted            |           |       | (941                | )         |          |         | 941       |   |   | $    | .87  | 
|                           | Options forfeited          |           |       | 487                 |           |          |         | (487      | ) |   | $    | 1.72 | 
|                           | Options expired            |           |       | 30                  |           |          |         | (30       | ) |   | $    | 1.44 | 
|                           | Options exercised          |           |       |                    |           |          |         | (317      | ) |   | $    | .58  | 
|                           |                            |           |       |                     |           |          |         |           |  
|Balance, December 31, 2004 |                            |           | 2,996 |                     |           |          | 4,177   |           |   | $ | 1.28 |     
|                           |                            |           |       |                     |           |          |         |           |  



|                |  |                     |       |           |                     |  |          |          |                |   |             |          |  |          |       |  |  |   |      | 
|--------------- |  | ------------------- | ----- | --------- | ------------------- |  | -------- | -------- | -------------- | - | ----------- | -------- |  | -------- | ----- |  |  | - | ---- | 
|                |  | Options Outstanding |       |           | Options Exercisable | 
|                |  |                     |       |           |                     | 
|                |  |                     |       | Weighted  |                     |  |          |          |               
|                |  |                     |       | Average   |                     |  | Weighted |          |                |   |             | Weighted | 
|                |  |                     |       | Remaining |                     |  | Average  |          |                |   |             | Average  | 
|                |  | Number              |       |           | Contractual Life    |  |          | Exercise |                |   | Number      |          |  | Exercise |      
|Exercise Prices |  | Outstanding         |       |           | (In Years)          |  |          | Price    |                |   | Exercisable |          |  | Price    |      
|                |  |                     |       |           |                     |  |          |          |                |   |             |          |  |          |      
|                |  | (In thousands)      |       |           |                     |  |          |          | (In thousands) |   |             |         
|$0.32 - $ 0.37  |  |                     | 694   |           |                     |  | 8.72     |          |                | $ | 0.35        |          |  |          | 684   |  |  | $ | 0.35 | 
|$0.43 - $ 0.54  |  |                     | 55    |           |                     |  | 9.75     |          |                | $ | 0.49        |          |  |          | 16    |  |  | $ | 0.51 | 
|$0.56 - $ 0.83  |  |                     | 993   |           |                     |  | 8.48     |          |                | $ | 0.73        |          |  |          | 583   |  |  | $ | 0.73 | 
|$0.84 - $ 0.91  |  |                     | 307   |           |                     |  | 7.67     |          |                | $ | 0.87        |          |  |          | 303   |  |  | $ | 0.87 | 
|$1.01 - $ 1.16  |  |                     | 771   |           |                     |  | 8.28     |          |                | $ | 1.10        |          |  |          | 480   |  |  | $ | 1.10 | 
|$1.17 - $ 1.40  |  |                     | 376   |           |                     |  | 7.98     |          |                | $ | 1.30        |          |  |          | 360   |  |  | $ | 1.30 | 
|$1.67 - $ 1.75  |  |                     | 714   |           |                     |  | 4.17     |          |                | $ | 1.70        |          |  |          | 714   |  |  | $ | 1.70 | 
|$2.57 - $ 6.06  |  |                     | 147   |           |                     |  | 5.74     |          |                | $ | 3.88        |          |  |          | 147   |  |  | $ | 3.88 | 
|$6.38 - $12.69  |  |                     | 120   |           |                     |  | 3.42     |          |                | $ | 8.81        |          |  |          | 120   |  |  | $ | 8.81 | 
|                |  |                     |       |           |                     |  |          |          |                |   |             |          |  |          |      
|                |  |                     | 4,177 |           |                     |  | 7.54     |          |                | $ | 1.28        |          |  |          | 3,407 |  |  | $ | 1.38 | 
|                |  |                     |       |           |                     |  |          |          |                |   |             |          |  |          |      



61



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|10. | Employee Retirement Plan:





|    |                    
|--- | -------------------
|11. | Segment Disclosures





|    |              
|--- | -------------
|12. | Income Taxes:

(in thousands):


|                           |  |             |         |   |      |   |         |  
|-------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                           |  | December 31 |        
|                           |  |             |        
|                           |  | 2004        |         |   | 2003 |  
|                           |  |             |         |   |      |  
|Net operating losses       |  | $           | 53,751  |   |      | $ | 54,420  |  
|Credits                    |  |             | 3,627   |   |      |   | 3,750   |  
|Research and development   |  |             | 748     |   |      |   | 525     |  
|Reserves                   |  |             | 355     |   |      |   | 321     |  
|Accrued liabilities        |  |             | 1,099   |   |      |   | 511     |  
|Depreciation/ Amortization |  |             | 195     |   |      |   | 109     |  
|                           |  |             |         |   |      |  
|Net deferred tax asset     |  |             | 59,775  |   |      |   | 59,636  |  
|Less valuation allowance   |  |             | (59,775 | ) |      |   | (59,636 | )
|                           |  |             |         |   |      |  
|Net deferred tax assets    |  | $           |        |   |      | $ |        |  
|                           |  |             |         |   |      |  









62



---



##### Table of Contents



CARDIOGENESIS CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|13. | Risks and Concentrations:









|    |                  
|--- | -----------------
|14. | Subsequent Event:



63



---



##### Table of Contents



CARDIOGENESIS CORPORATION





SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                                    |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|--------------------------------------------------- |  | -------------- | ------ |  | ------------ | - | --- | ------------- | ---------- | - | ------ |  |  | - | ------ | 
|                                                    |  | Balance at     |        |  |              |   |     |               | Balance at |  
|                                                    |  | Beginning      |        |  |              |   |     |               | End of     |  
|                                                    |  | of Period      |        |  | Additions(1) |   |     | Deductions(2) |            |   | Period | 
|                                                    |  |                |        |  |              |   |     |               |            |   |        | 
|                                                    |  | (In thousands) |       
|Inventory reserve:                                  |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Year ended December 31, 2002                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Inventory reserve                                   |  | $              | 1,246  |  |              | $ | 854 |               |            | $ | 1,739  |  |  | $ | 361    | 
|Year ended December 31, 2003                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Inventory reserve                                   |  | $              | 361    |  |              | $ | 198 |               |            | $ | 186    |  |  | $ | 373    | 
|Year ended December 31, 2004                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Inventory reserve                                   |  | $              | 373    |  |              | $ | 32  |               |            | $ | 3      |  |  | $ | 402    | 
|Valuation allowance relating to deferred tax asset: |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Year ended December 31, 2002                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Valuation allowance                                 |  | $              | 63,931 |  |              | $ |    |               |            | $ | 1,471  |  |  | $ | 62,460 | 
|Year ended December 31, 2003                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Valuation allowance                                 |  | $              | 62,460 |  |              | $ |    |               |            | $ | 2,824  |  |  | $ | 59,636 | 
|Year ended December 31, 2004                        |  |                |        |  |              |   |     |               |            |   |        |  |  |   |        | 
|Valuation allowance                                 |  | $              | 59,636 |  |              | $ | 139 |               |            |   |        |  |  | $ | 59,775 | 






|    |                                         
|--- | ----------------------------------------
|(1) | Charged to costs and expenses.          
|   
|(2) | Amounts written off against the reserve.



64



---



##### Table of Contents



EXHIBIT INDEX


|            |    |             |  |                                                                                                                                                                 
|----------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .1.1(1)     |  | Restated Articles of Incorporation, as filed with the California
    Secretary of State on May 1, 1996                                                          
|            | 3  | .1.2(2)     |  | Certificate of Amendment of Restated Articles of Incorporation,
    as filed with California Secretary of State on July 18, 2001                                
|           
|            | 3  | .1.3(3)     |  | Certificate of Determination of Preferences of Series A
    Preferred Stock, as filed with the California Secretary of State
    on August 23, 2001             
|           
|            | 3  | .1.4(4)     |  | Certificate of Amendment of Restated Articles of Incorporation,
    as filed with the California Secretary of State on
    January 23, 2004                     
|           
|            | 3  | .2(5)       |  | Amended and Restated Bylaws                                                                                                                                     
|           
|            | 4  | .1(6)       |  | Form of Common Stock Purchase Warrant issued in connection with
    Facilities Lease for 26632 Towne Center Drive, Suite 320,
    Foothill Ranch, California    
|           
|            | 4  | .2(7)       |  | Third Amendment to Rights Agreement, dated October 26,
    2004, between the Company and Equiserve Trust Company N.A                                            
|           
|            | 4  | .3(8)       |  | Second Amendment to Rights Agreement, dated as of
    January 21, 2004, between Cardiogenesis Corporation and
    EquiServe Trust Company, N.A., as Rights Agent
|           
|            | 4  | .4(9)       |  | First Amendment to Rights Agreement, dated as of
    January 17, 2002, between Cardiogenesis Corporation and
    EquiServe Trust Company, N.A., as Rights Agent 
|           
|            | 4  | .5(10)      |  | Rights Agreement, dated as of August 17, 2001, between
    Cardiogenesis Corporation and EquiServe Trust Company, N.A., as
    Rights Agent                     
|           
|            | 4  | .6(11)      |  | Securities Purchase Agreement, dated as of January 21,
    2004, by and among Cardiogenesis Corporation and each of the
    investors identified therein        
|           
|            | 4  | .7(12)      |  | Registration Rights Agreement, dated as of January 21,
    2004, by and among Cardiogenesis Corporation and the investors
    identified therein                
|           
|            | 4  | .8(13)      |  | Form of Common Stock Purchase Warrant, dated January 21,
    2004, having an exercise price of $1.37 per share                                                  
|           
|            | 4  | .9(14)      |  | Form of Common Stock Purchase Warrant, dated January 21,
    2004, having an exercise price of $1.00 per share                                                  
|           
|            | 4  | .10(15)     |  | Securities Purchase Agreement, dated October 26, 2004,
    between the Company and Laurus Master Fund, Ltd.                                                     
|           
|            | 4  | .11(16)     |  | Secured Convertible Term Note, dated October 26, 2004, in
    favor of Laurus Master Fund, Ltd.                                                                 
|           
|            | 4  | .12(17)     |  | Registration Rights Agreement, dated October 26, 2004,
    between the Company and Laurus Master Fund, Ltd.                                                     
|           
|            | 4  | .13(18)     |  | Common Stock Purchase Warrant, dated October 26, 2004, in
    favor of Laurus Master Fund, Ltd.                                                                 
|           
|            | 4  | .14(19)     |  | Security Agreement, dated October 26, 2004, in favor of
    Laurus Master Fund, Ltd.                                                                            
|           
|            | 10 | .1(20)      |  | Form of Indemnification Agreement by and between the Company and
    each of its officers and directors                                                         
|           
|            | 10 | .2(21)     |  | Stock Option Plan, as restated June, 2004                                                                                                                       
|           
|            | 10 | .3(22)     |  | Directors Stock Option Plan, as restated June, 2004                                                                                                            
|           
|            | 10 | .4(23)     |  | 1996 Employee Stock Purchase Plan, as restated June, 2004                                                                                                       
|           
|            | 10 | .5(24)      |  | Facilities Lease for 26632 Towne Center Dr., Suite 320,
    Foothill Ranch, California                                                                          
|           
|            | 10 | .6(29)     |  | 401(k) Plan, as restated January 1, 2005                                                                                                                        
|           
|            | 10 | .8(25)     |  | 1996 Equity Incentive Plan of the former Cardiogenesis
    Corporation                                                                                          
|           
|            | 10 | .10(26)    |  | Employment Agreement, dated as of September 27, 2001,
    between the Company and Michael J. Quinn                                                              
|           
|            | 10 | .11(27)    |  | Amendment No. 1 to Employment Agreement, dated July 3,
    2002, between the Company and Michael J. Quinn                                                       

65



---



##### Table of Contents



|            |    |          |             |                                                                                                                                                                                               
|----------- | -- | -------- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |          | Description
|            |    |          |            
|           
|            | 10 | .11(29) |             | Amendment No. 2 to Employment Agreement, dated May 19,
    2003, between the Company and Michael J. Quinn                                                                                     
|           
|            | 10 | .11(29) |             | Amendment No. 3 to Employment Agreement, dated
    March 16, 2005, between the Company and Michael J. Quinn                                                                                   
|           
|            | 21 | .1(28)   |             | List of Subsidiaries                                                                                                                                                                          
|           
|            | 23 | .1(29)   |             | Consent of PricewaterhouseCoopers LLP                                                                                                                                                         
|           
|            | 31 | .1(29)   |             | Certification of the Chief Executive Officer pursuant to
    Rule 13a-14(a) of Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002  
|           
|            | 31 | .2(29)   |             | Certification of the Chief Financial Officer pursuant to
    Rule 13a-14(a) of Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002  
|            | 32 | .1(29)   |             | Certifications of the Chief Executive Officer and Chief
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002






| |   |                                                      
| | - | -----------------------------------------------------
| |  | Management contract, compensatory plan or arrangement



| |     |                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to Exhibit 3.1 to the
    Registrants Registration Statement on Form S-1/ A
    (File No. 33-03770), filed on May 21, 1996
|
| | (2) | Incorporated by reference to Exhibit 3.2 to the
    Registrants Quarterly Report on Form 10-Q filed on
    August 14, 2001                          
|
| | (3) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Current Report on Form 8-K filed on
    August 14, 2001                             
|
| | (4) | Incorporated by reference to Exhibit 3.1.4 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                            
|
| | (5) | Incorporated by reference to Exhibit 3.1.5 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                            
|
| | (6) | Incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q/ A filed on
    August 16, 2001                      
|
| | (7) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                               
|
| | (8) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004                               
|
| | (9) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    January 18, 2002                               



|     |                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Current Report on Form 8-K filed
    August 20, 2001 
|    
|(11) | Incorporated by reference to Exhibit 4.4 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004
|    
|(12) | Incorporated by reference to Exhibit 4.5 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004
|    
|(13) | Incorporated by reference to Exhibit 4.6 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004
|    
|(14) | Incorporated by reference to Exhibit 4.7 to the
    Registrants Current Report on Form 8-K filed
    January 22, 2004
|    
|(15) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004
|    
|(16) | Incorporated by reference to Exhibit 4.3 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004

66



---



##### Table of Contents





|     |                                                                                                                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(17) | Incorporated by reference to Exhibit 4.4 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                                                                                                                                                                 
|    
|(18) | Incorporated by reference to Exhibit 4.5 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                                                                                                                                                                 
|    
|(19) | Incorporated by reference to Exhibit 4.6 to the
    Registrants Current Report on Form 8-K filed
    October 28, 2004                                                                                                                                                                                                 
|    
|(20) | Incorporated by reference to the Companys Registration
    Statement on Form S-1 (File No. 333-03770), as
    amended, filed on April 18, 1996                                                                                                                                                                        
|    
|(21) | Incorporated by reference to Exhibit 4.1 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                                                                                                                                                                   
|    
|(22) | Incorporated by reference to Exhibit 4.2 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                                                                                                                                                                   
|    
|(23) | Incorporated by reference to Exhibit 4.3 to the
    Registrants Registration Statement on Form S-8 (File
    No. 333-122021) filed January 13, 2005                                                                                                                                                                   
|    
|(24) | Incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q/ A filed on
    August 16, 2001 (25) Incorporated by reference to
    Exhibit 4.1 to the former Cardiogenesis Corporations
    Registration Statement on Form S-8 (File
    No. 333-35095), filed on September 8, 1997
|    
|(26) | Incorporated by reference to Exhibit 10.11 to the
    Registrants Annual Report on Form 10-K filed on
    April 16, 2002                                                                                                                                                                                              
|    
|(27) | Incorporated by reference to Exhibit 10.13 to the
    Registrants Quarterly Report on Form 10-Q filed on
    August 14, 2002                                                                                                                                                                                          
|    
|(28) | Incorporated by reference to Exhibit 21.1 to the
    Registrants Annual Report on Form 10-K filed on
    March 10, 2004                                                                                                                                                                                               
|    
|(29) | Filed herewith                                                                                                                                                                                                                                                                                                         

67