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                      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, 2000
                        Commission file number: 0-28288

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

                      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)

                                1049 Kiel Court
                          Sunnyvale, California 94089
                   (Address of principal executive officers)

                                (408) 548-2100
             (Registrant's telephone number, including area code)

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

        Title of Each Class               Name of Exchange on Which Registered
----------------------------------       -------------------------------------
       Common Stock, no par value                Nasdaq National Market

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant  was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405  of  Regulation  S-K  is not contained herein, and will not be contained, to
the  best  of  the  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  herein  by  reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]

     The  aggregate  market  value of the voting stock held by non-affiliates of
the  Registrant  was  approximately $23,923,872 as of March 30, 2001, based upon
the  closing  sale  price  reported for that date on the Nasdaq National Market.
Shares  of Common Stock held by each officer and director and by each person who
owns  5% or more of the outstanding Common Stock have been excluded because such
persons  may  be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for any other purpose.

     Indicate  the  number of shares outstanding of each of the issuer's classes
of common stock outstanding as of the last practicable date.

                               31,696,061 shares
                             As of March 30, 2001

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<PAGE>

                              INDEX TO FORM 10-K



<TABLE>
<CAPTION>
                                                                                           Page
                                                                                          -----
<S>                                                                                       <C>
                                            PART I

Item 1.  Business .....................................................................     1
Item 2.  Description of Property ......................................................    12
Item 3.  Legal Proceedings ............................................................    12
Item 4.  Submission of Matters to a Vote of Security Holders ..........................    12

                                            PART II

Item 5.  Market for Registrant's Shares and Related Shareholder Matters ...............    13
Item 6.  Selected Consolidated Financial Data .........................................    13
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of
         Operations ...................................................................    15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...................    30
Item 8.  Consolidated Financial Statements and Supplementary Schedules ................    31
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosure ...................................................................    31

                                           PART III

Item 10. Directors and Executive Officers of the Registrant ...........................    32
Item 11. Executive Compensation .......................................................    32
Item 12. Security Ownership of Certain Beneficial Owners and Management ...............    32
Item 13. Certain Relationships and Related Transactions ...............................    32

                                            PART IV

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ...............    32
Signatures ............................................................................    34
</TABLE>

<PAGE>

                                    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

     Eclipse  Surgical  Technologies,  Inc., incorporated in California in 1989,
designs,  develops,  manufactures  and distributes laser-based surgical products
and   disposable   fiber-optic   accessories   for  the  treatment  of  advanced
cardiovascular  disease  through  transmyocardial  revascularization ("TMR") and
percutaneous  transluminal  myocardial  revascularization ("PTMR"). TMR and PTMR
are  recent laser-based heart treatments in which channels are made in the heart
muscle.  It  is  believed  these  procedures  encourage new vessel formation, or
angiogenesis.  TMR is performed by a cardiac surgeon through a small incision in
the  chest  under  general  anesthesia. PTMR is performed by a cardiologist in a
catheter  based procedure which utilizes local anesthesia. Clinical studies have
demonstrated  a  significant  reduction  in  angina  and  increase  in  exercise
duration  in  patients  treated with TMR or PTMR plus medications, when compared
with patients who received medications alone.

     We  received  CE  Mark approval for our TMR system in May 1997 and our PTMR
systems  in  April  1998.  On February 11, 1999, we received final approval from
the  FDA  for  our  TMR  products  for  treatment of stable patients with angina
(Canadian   Cardiovascular   Society   Class  4)  refractory  to  other  medical
treatments   and   secondary   to   objectively   demonstrated  coronary  artery
atherosclerosis  and  with  a  region of the myocardium with reversible ischemia
not  amenable  to direct coronary revascularization. Effective July 1, 1999, the
Health  Care  Financial  Administration  began  to provide Medicare coverage for
TMR.   Hospitals   and   physicians   are   now  eligible  to  receive  Medicare
reimbursement for TMR equipment and procedures.

     We  have  completed  pivotal  clinical  trials  involving  PTMR,  and study
results  were  submitted  to  the  FDA  in  a Pre Market Approval application in
December  of  1999  along  with subsequent amendments. We are currently in final
negotiations  with  the FDA in the PTMR market approval process. There can be no
assurance,  however, that we will receive a favorable decision from that agency.


     On  March  17,  1999,  we  merged with CardioGenesis Corporation. Under the
terms  of  the  combination,  each  share  of  CardioGenesis  common  stock  was
converted  into 0.8 of a share of our common stock, and CardioGenesis has become
a  wholly  owned  subsidiary  of  ours.  As  a  result  of  the transaction, our
outstanding   shares   increased   by  approximately  9.9  million  shares.  The
transaction  was structured to qualify as a tax-free reorganization and has been
accounted   for  as  a  pooling  of  interests.  Accordingly,  the  accompanying
financial  statements  have  been restated as if the combined entity existed for
the 1998 period prior to the merger.


Background

     Cardiovascular  disease is the leading cause of death and disability in the
U.S.  according  to  the  American Heart Association. Coronary artery disease is
the  principal  form  of  cardiovascular  disease  and  is  characterized  by  a
progressive  narrowing of the coronary arteries which supply blood to the heart.
This  narrowing  process is usually due to atherosclerosis, which is the buildup
of  fatty  deposits,  or  plaque,  on the inner lining of the arteries. Coronary
artery  disease  reduces  the  available supply of oxygenated blood to the heart
muscle,  potentially  resulting in severe chest pain known as angina, as well as
damage  to the heart. Typically, the condition worsens over time and often leads
to heart attack and/or death.


                                       1
<PAGE>

     Based  on  standards  promulgated by the Canadian Heart Association, angina
is  typically  classified  into  four  classes,  ranging  from Class 1, in which
angina  pain  results  only  from  strenuous exertion, to the most severe class,
Class  4,  in  which  the  patient  is  unable  to conduct any physical activity
without  angina  and  angina  may  be  present  even at rest. The American Heart
Association  estimates  that  more  than six million Americans experience angina
symptoms.

     The  primary  therapeutic  options for treatment of coronary artery disease
are  drug  therapy,  balloon angioplasty also known as percutaneous transluminal
coronary  angioplasty or ("PTCA"), other interventional techniques which augment
or  replace  PTCA  such  as stent placement and atherectomy, and coronary artery
bypass  grafting  or  ("CABG").  The objective of each of these approaches is to
increase blood flow through the coronary arteries to the heart.

     Drug  therapy  may  be  effective for mild cases of coronary artery disease
and  angina  either  through  medical effects on the arteries that improve blood
flow  without  reducing  the  plaque  or  by decreasing the rate of formation of
additional  plaque  (e.g.,  by reducing blood levels of cholesterol). Because of
the  progressive  nature  of  the  disease,  however,  many patients with angina
ultimately undergo either PTCA or CABG.

     PTCA  is  a less-invasive alternative to CABG introduced in the early 1980s
in  which  a  balloon-tipped catheter is inserted into an artery, typically near
the  groin,  and  guided  to the areas of blockage in the coronary arteries. The
balloon  is  then inflated and deflated at each blockage site, thereby rupturing
the  blockage  and  stretching  the  vessel.  Although  the procedure is usually
successful  in  widening the blocked channel, the artery often re-narrows within
six  months of the procedure, a process called "restenosis," often necessitating
a  repeat  procedure.  A  variety of techniques for use in conjunction with PTCA
have  been  developed  in  an  attempt  to  reduce  the frequency of restenosis,
including  stent  placement  and  atherectomy.  Stents  are  small  metal frames
delivered  to  the  area  of  blockage  using a balloon catheter and deployed or
expanded  within  the coronary artery. The stent is a permanent implant intended
to  keep  the channel open. Atherectomy is a means of using mechanical, laser or
other techniques at the tip of a catheter to cut or grind away plaque.

     CABG  is  an  open  chest procedure developed in the 1960s in which conduit
vessels  are  taken  from  elsewhere  in  the  body  and  grafted to the blocked
coronary  arteries  so  that  blood  can  bypass  the  blockage.  CABG typically
requires  the  use  of  a heart-lung bypass machine to render the heart inactive
(to  allow  the  surgeon  to operate on a still, relatively bloodless heart) and
involves  prolonged  hospitalization  and patient recovery periods. Accordingly,
it  is  generally  reserved  for  patients  with severe cases of coronary artery
disease  or those who have previously failed to receive adequate relief of their
symptoms  from PTCA or related techniques. Most bypass grafts fail within one to
fifteen  years  following  the  procedure.  Repeating the surgery ("re-do bypass
surgery")  is  possible,  but  is made more difficult because of scar tissue and
adhesions  that typically form as a result of the first operation. Moreover, for
many  patients  CABG is inadvisable for various reasons, such as the severity of
the  patient's  overall  condition, the extent of coronary artery disease or the
small size of the blocked arteries.

     When  these  treatment  options  are exhausted, the patient is left with no
viable  surgical  or  interventional  alternative  other than, in limited cases,
heart  transplantation.  Without  a  viable surgical alternative, the patient is
generally   managed   with   drug  therapy,  often  with  significant  lifestyle
limitations.  TMR, which bears the CE Marking and has received FDA approval, and
PTMR,  which  bears  the CE Marking and is currently under review at the FDA for
approval  in  the U.S., offer potential relief to a large population of patients
with severe cardiovascular disease.


The TMR and PTMR Procedure

     TMR,   or   transmyocardial  revascularization,  is  a  surgical  procedure
performed  on  the beating or non-beating heart, in which a laser device is used
to  create  pathways through the myocardium directly into the heart chamber. The
pathways  are  intended  to supply blood to ischemic, or oxygen-deprived regions
of  the  myocardium and reduce angina in the patient. TMR can be performed using
open  chest  surgery  or  minimally  invasive  surgery  through a small incision
between  the  ribs.  TMR  offers  end-stage cardiac patients who have regions of
ischemia not amenable to PTCA or CABG a means to alleviate their


                                       2
<PAGE>

symptoms  and  improve  their quality of life. We have received FDA approval for
U.S.  commercial  distribution  of  our TMR laser system for treatment of stable
patients  with  angina  (Canadian  Cardiovascular Society Class 4) refractory to
medical  treatment  and  secondary  to  objectively demonstrated coronary artery
atherosclerosis  and  with  a  region of the myocardium with reversible ischemia
not amenable to direct coronary revascularization.

     PTMR,  or  percutaneous  transluminal  myocardial  revascularization, is an
interventional  procedure  performed  by  a cardiologist. PTMR is based upon the
same  principles as TMR, but the procedure is much less invasive. The patient is
under  local  anesthesia  and  is  treated  through  a  catheter inserted in the
femoral  artery at the top of the leg. A laser transmitting catheter is threaded
up  into  the  heart chamber, where channels are created in the inner portion of
the  myocardium  (i.e.  heart muscle). We have completed pivotal clinical trials
involving  PTMR,  and  study  results  were submitted to the FDA in a Pre Market
Approval application in December of 1999 along with subsequent amendments.


Business Strategy

     Our  objective  is to become a recognized leader in the field of myocardial
revascularization,  with  TMR  and PTMR established as well-known and acceptable
therapies. Our strategies to achieve this goal are as follows:

       * 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.  In  connection  with  the  FDA  approved  TMR  product,  we have
   prioritized  our  initial  efforts  in the U.S. on the top 600 hospitals that
   perform  the  greatest  number  of  cardiovascular procedures. To support the
   TMR  launch,  we  are  expanding  the  domestic  sales  force  to  thirty-one
   territory  managers  in four sales areas. We also sell our products in Europe
   and  to  the  rest  of  the  world  through  our  direct  international sales
   organization  along  with  several  distributors  and agents. In addition, we
   have  developed  a  comprehensive  training  program  to assist physicians in
   acquiring  the  expertise  necessary  to utilize our TMR or PTMR products and
   procedures.

       * Demonstrate  Clinical  Utility  of  PTMR. We are seeking to demonstrate
   the  clinical  safety  and effectiveness of PTMR. We have completed a pivotal
   clinical  trial  regarding  PTMR, and the study results were submitted to the
   FDA  in  a  Pre Market Approval Supplemental application in December of 1999.
   We  are  currently  in  final  negotiations  with the FDA in the PMA process.
   There  can  be  no  assurance,  however,  that  we  will  receive a favorable
   decision from the agency.

       * 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 PTMR
   procedures.  We  are  seeking  to develop additional proprietary technologies
   for  TMR,  PTMR  and  related procedures. We have 91 foreign and U.S. patents
   or   allowed   patent   applications  and  51  U.S.  and  27  foreign  patent
   applications  pending  relating  to  various  aspects  of TMR, PTMR and other
   cardiovascular therapies.


Products and Technology


     Eclipse TMR System

     The  Eclipse  TMR  system consists of our TMR 2000 laser console and a line
of  fiber-optic,  laser-based  surgical  tools.  Each  surgical tool utilizes an
optical  fiber  assembly to deliver laser energy from the source laser base unit
to  the  distal tip of the surgical handpiece or PTMR catheter. The compact base
unit  occupies  a  small  amount  of  operating  room floor space, operates on a
standard  208  or  220-volt power supply, and is light enough to move within the
operating  room  or  among  operating rooms in order to use operating room space
efficiently.  Moreover,  the  flexible  fiberoptic  assembly used to deliver the
laser  energy  to the patient enables ready access to the patient and to various
sites within the heart.

     Our  TMR  system  and  related  surgical procedures are designed to be used
without   the   requirement  of  the  external  systems  utilized  with  certain
competitive TMR systems. For example, our TMR 2000


                                       3
<PAGE>

system  does  not  require electrocardiogram synchronization, which monitors the
electrical  output  of  the  heart  and  times  the use of the laser to minimize
electrical  disruption  of the heart, or transesophageal echocardiography, which
tests  each  application of the laser to the myocardium during the TMR procedure
to  determine  if  the  pathway  has  penetrated through the myocardium into the
heart chamber.

     Eclipse  Holmium  Laser. Our TMR 2000 laser base unit generates laser light
of  a  2-micron  wavelength by photoelectric excitation of a solid state holmium
crystal.  The  holmium  laser,  because  it  uses  a  solid state crystal as its
source, is compact, reliable and requires minimal maintenance.

     SoloGrip. The  single use SoloGrip handpiece system contains multiple, fine
fiber-optic  strands  in  a  one  millimeter diameter bundle. The flexible fiber
optic  delivery system combined with the ergonomic handpiece provides access for
treating all regions of the left ventricle.

     The  SoloGrip  and  SlimFlex PTMR fiber-optic delivery systems each have an
easy  to  install  connector  which  screws  into  the laser base unit, and each
device is pre-calibrated in the factory so it requires no special preparation.

     Eclipse PTMR System

     The  Eclipse  PTMR System is currently sold only outside the United States.
The PTMR System consists of the PTMR Laser and ECG Monitor.

     Eclipse  PTMR Laser. The holmium laser base unit generates laser light of a
2.1  micron  wavelength  in  the  mid-infrared  spectrum. It provides a reliable
source for laser energy with low maintenance.

     The  Axcis  Catheter  system. The Axcis catheter system is an over-the-wire
system  that  consists  of  two  components,  the Axcis laser catheter and Axcis
aligning  catheter.  The Axcis catheter system is designed to provide controlled
navigation  and  access  to  target  regions  of the left ventricle. The coaxial
Axcis  laser  catheter  has an independent, extendible lens with radiopaque lens
markers  which  show the location and orientation of the tip for optimal contact
with  the  ventricle  wall.  The Axcis laser catheter also has nitinol petals at
the  laser-lens  tip  which are designed for safe penetration of the endocardium
and to provide depth control.

     SlimFlex  Catheter  System. The  SlimFlex  PTMR system is an over-the-wire,
steerable,  single  use catheter system that features torque control, deflection
capability,  infusion  port  and radio-opaque markers for enhanced visualization
and  depth control. After insertion into an artery of the leg, the PTMR catheter
is  advanced  over  the  aortic arch, across the aortic valve and into the heart
chamber.   Visualization  is  achieved  using  standard  fluoroscopic  or  x-ray
techniques common to all hospitals doing cardiac catheterization.


Regulatory Status

     On  February  11,  1999, we received final approval from the FDA for use of
our  TMR  2000  laser  console  and  SoloGrip  handpiece for treatment of stable
patients  with  angina  (Canadian  Cardiovascular Society Class 4) refractory to
other  medical  treatments  and  secondary  to objectively demonstrated coronary
artery  atherosclerosis  and  with  a  region  of the myocardium with reversible
ischemia not amenable to direct coronary revascularization.

     In  February  1996,  we  obtained  FDA  clearance to undertake Phase I of a
clinical  study  of  TMR intended to assess the safety and effectiveness of "TMR
Used  in  Conjunction with CABG" as compared with CABG alone. In September 1996,
the  FDA  provided  us with clearance to begin Phase II of this study, which was
subsequently  completed.  In July 1999, we submitted a PMA supplement to the FDA
for  an  expanded  indication  to  our  approved  TMR labeling to include TMR in
conjunction  with  CABG.  In  January  2000, we received a response from the FDA
requesting  that  we  either  provide  more  information  or modify our labeling
request.  Since  TMR  and  CABG  are  each  presently utilized to treat separate
regions  of  the  heart,  we concluded that our present FDA approved labeling is
adequate,  and  that  the  physician can best decide how to use the laser system
within  the  approved  labeling.  As a result, in March 2000, we decided that we
will  not  pursue  any wording changes to our already approved TMR labeling, and
have withdrawn our submission to the FDA for TMR in conjunction with CABG.


                                       4
<PAGE>

     We  submitted  a  PMA supplement for our PTMR system to the FDA in December
1999.  The  PTMR study compares PTMR to conventional medical therapy in patients
with  no option for other treatment. We are currently in final negotiations with
the  FDA  in  the  PMA process. There can be no assurance, however, that we will
receive a favorable decision from the agency.

     We  have  decided  not  to  pursue  any  additional  claims  for adjunctive
procedures.  Therefore,  all  studies  involving adjunctive procedures have been
halted and terminated.

     In  addition,  we  have  obtained  approval  to  affix  the  CE  Marking to
substantially  all  of our products, which enables us to commercially distribute
our TMR and PTMR products throughout the European Community.


Sales and Marketing

     We  have  received  FDA  approval  for  our  surgical TMR laser system. The
Health  Care  Finance  Administration has also announced its coverage policy for
the  TMR  with  FDA  approved  systems. We are promoting market awareness of our
approved  surgical  products  among  opinion leaders in the cardiovascular field
and  are  recruiting  physicians  and hospitals. To drive the clinical awareness
and  acceptance  of the surgical product platform, we are expanding the domestic
sales force to thirty-one territory managers in four sales regions.

     In  the  United  States,  we currently offer a laser base unit at a current
end  user  list price of $320,000 per unit, and the disposable TMR handpiece (at
least  one  of  which  must be used with each TMR procedure) at an end user unit
list  price  of  $2,745.  In  order  to  accelerate  market  adoption of the TMR
procedure,  we  intend to continue selling lasers to hospitals outright, loaning
lasers  to  hospitals  in return for the hospital purchasing a minimum number of
handpieces  at  a  premium  over  the list price, and to begin renting lasers to
hospitals.

     Internationally,  we  sell  our products through a direct sales and support
organization of four people and distributors and agents.

     We  have  developed,  in conjunction with several major hospitals using our
TMR  or  PTMR products, a training program to assist physicians in acquiring the
expertise  necessary  to  utilize  our  products  and  procedures.  This program
includes   a  comprehensive  one-day  course  including  didactic  training  and
hands-on  performance  of  TMR  or PTMR in vivo. To date over 750 cardiothoracic
surgeons have been trained on the Eclipse TMR system.

     We  exhibit our products at major cardiovascular meetings. Investigators of
our  products  have  made presentations at meetings around the world, describing
their  results.  Abstracts  and  articles  have  been published in peer-reviewed
publications  and  industry  journals  to  present  the  results of our clinical
trials.


Research and Development

     We  believe  that streamlining our research and product effort is essential
to  our ability to stimulate growth and maintain our market leadership position.
Our  ongoing  research  and  product  development  efforts  are  focused  on the
development  of  new  and enhanced lasers and fiber-optic handpieces for TMR and
PTMR applications.

     In  the  fourth  quarter  of  2000,  we increased our ownership interest in
privately-held  Microheart  Holdings,  Inc.  to  32.1  percent.  Microheart is a
research   and   development   company   working   on  developing  a  number  of
full-featured  clinical  devices  for  diagnostic  assessment  and site-specific
delivery  of  biopharmaceuticals  and other therapeutic agents applicable to the
cardiovascular and other markets.

     We  believe  our  future  success will depend, in part, upon the success of
our  research  and  development programs. There can be no assurance that we will
realize  financial  benefit  from these efforts or that products or technologies
developed  by  others  will  not render our products or technologies obsolete or
non-competitive.


Manufacturing

     We  manufacture  and  assemble  our  products from purchased components and
subassemblies at our facility in Sunnyvale, California.


                                       5
<PAGE>

     The  core  components  of  our  laser  units and fiber-optic handpieces are
generally  acquired  from  multiple sources. We currently purchase certain laser
and  fiber-optic  components  and subassemblies from single sources. Although we
have   identified  alternative  vendors,  the  qualification  of  additional  or
replacement  vendors  for  certain  components or services is a lengthy process.
Any  significant supply interruption would have a material adverse effect on our
ability  to manufacture our products and, therefore, would harm our business. We
intend  to  continue  to  qualify  multiple  sources  for  components  that  are
presently  single  sourced  and also to maintain an inventory of these items for
use in the event of supply interruptions.


Competition

     We  expect  that  the  market  for  TMR and PTMR, which is currently in the
early  stages of development, will be intensely competitive. Competitors include
PLC  Systems,  Inc.  ("PLC"), Johnson & Johnson, and Boston Scientific which are
either  selling  FDA-approved  TMR  products  in  the  U.S.  and abroad, or PTMR
products  for  investigational  use  in  the U.S. and commercially abroad. Other
competitors  may  also  enter the market, including large companies in the laser
and  cardiac  surgery  markets.  Many  of  these  companies  have  or  may  have
significantly  greater  financial, research and development, marketing and other
resources than we do.

     PLC  is  a  publicly  traded  corporation  which  uses  a  CO2 laser and an
articulated  mechanical  arm  in  its  TMR  products.  PLC obtained a Pre Market
Approval  for  TMR  in 1998. PLC has received the CE Marking, which allows sales
of  its  products  commercially  in  all  European Union countries. PLC has been
issued  patents  for its apparatus and methods for TMR. PLC recently announced a
co-marketing  agreement  with  Edwards  Life Sciences to distribute their lasers
and  disposables.  This  action  will  add  another  18  direct  domestic  sales
representatives involved in promoting the PLC technology.

     Johnson  &  Johnson is a publicly traded company which uses a holmium laser
and  fiber-optics  in  its  DMR  (direct myocardial revascularization) products.
Johnson  & Johnson has acquired a ventricular mapping company to further its DMR
product  line  and  has  begun  U.S.  trials  under  an IDE. Based upon recently
presented  trial  results,  the  status  of  the  regulatory  submission for the
Johnson & Johnson DMR system is unclear at this time.

     Boston  Scientific  is  a  publicly traded company which has acquired radio
frequency  technology  to  begin  a  percutaneous  feasibility trial in the U.S.
under a preliminary IDE.

     We  believe  that  the  factors  which  will  be critical to market success
include:  the timing of receipt of requisite regulatory approvals, effectiveness
and  ease  of use of the TMR products and applications, breadth of product line,
system  reliability,  brand  name  recognition and effectiveness of distribution
channels and cost of capital equipment and disposable devices.

     TMR  and  PTMR  also  compete  with  other  methods  for  the  treatment of
cardiovascular  disease,  including  drug  therapy, PTCA and CABG. Even with the
FDA  approval  of  our  TMR  system  in  patients  for whom other cardiovascular
treatments  are  not likely to provide relief, and when used in conjunction with
other  treatments,  we  can not assure you that our TMR or PTMR products will be
accepted.   Moreover,   technological   advances   in   other   therapies   for
cardiovascular  disease such as pharmaceuticals or future innovations in cardiac
surgery  techniques  could  make such other therapies more effective or lower in
cost  than  our  TMR  procedure and could render our technology obsolete. We can
not  assure  you  that  physicians  will  use  our  TMR  procedure to replace or
supplement   established   treatments,   or  that  our  TMR  procedure  will  be
competitive  with  current  or  future technologies. Such competition could harm
our business.

     Our  TMR  laser  system  and  any  other product developed by us that gains
regulatory  approval  will  face  competition  for  market acceptance and market
share.  An  important  factor  in  such  competition may be the timing of market
introduction  of  competitive  products. Accordingly, the relative pace at which
we   can   develop  products,  complete  clinical  testing,  achieve  regulatory
approval,  gain reimbursement acceptance and supply commercial quantities of the
product  to  the market are expected to be important competitive factors. In the
event  a  competitor is able to obtain a PMA for its products prior to our doing
so,  we  may  not be able to compete successfully. We may not be able to compete
successfully  against  current  and  future  competitors even if we obtain a PMA
prior to our competitors.

                                       6
<PAGE>

Government Regulation

     Laser-based  surgical  products  and disposable fiber-optic accessories for
the  treatment  of  advanced  cardiovascular  disease through TMR are considered
medical  devices,  and  as such are subject to regulation in the U.S. by the FDA
and  comparable  international  regulatory  agencies.  Our  devices  require the
rigorous  PMA  process  for  approval to market the product in the U.S. and must
bear the CE Marketing for commercial distribution in the European Community.

     To  obtain a Pre Market Approval ("PMA") for a medical device, we must file
a  PMA  application  that includes clinical data and the results of pre-clinical
and  other  testing  sufficient  to show that there is a reasonable assurance of
safety  and  effectiveness  of  the  product  for  its  intended use. To begin a
clinical  study,  an  Investigational  Device Exemption ("IDE") must be obtained
and  the  study  must  be  conducted  in accordance with FDA regulations. An IDE
application  must  contain preclinical test data demonstrating the safety of the
product  for  human  investigational use, information on manufacturing processes
and  procedures,  and  proposed  clinical  protocols.  If the FDA clears the IDE
application,  human  clinical  trials may begin. The results obtained from these
trials  are  accumulated  and,  if  satisfactory,  are  submitted  to the FDA in
support  of  a PMA application. Prior to U.S. commercial distribution, premarket
approval  is  required  from  the  FDA.  In  addition to the results of clinical
trials,  the  PMA  application  must  include  other information relevant to the
safety  and  effectiveness  of  the  device, a description of the facilities and
controls  used  in  the  manufacturing  of the device, and proposed labeling. By
law,  the  FDA  has  180  days  to  review  a PMA application. While the FDA has
responded  to  PMA  applications  within  the  allotted time frame, reviews more
often  occur  over  a  significantly  longer period and may include requests for
additional   information  or  extensive  additional  trials.  There  can  be  no
assurance  that  we  will not be required to conduct additional trials which may
result  in  substantial  costs and delays, nor can there be any assurance that a
PMA  will  be  obtained  for  each  product  in  a  timely manner, if at all. In
addition,  changes in existing regulations or the adoption of new regulations or
policies   could   prevent   or  delay  regulatory  approval  of  our  products.
Furthermore,  even if a PMA is granted, subsequent modifications of the approved
device  or  the  manufacturing  process  may  require  a supplemental PMA or the
submission  of  a  new  PMA  which could require substantial additional clinical
efficacy  data  and  FDA  review.  After  the  FDA accepts a PMA application for
filing,  and after FDA review of the application, a public meeting is frequently
held  before  an  FDA advisory panel in which the PMA is reviewed and discussed.
The  panel  then  issues a favorable or unfavorable recommendation to the FDA or
recommends  approval  with  conditions.  Although  the  FDA  is not bound by the
panel's  recommendations,  it  tends  to  give  such recommendations significant
weight.  In February 1999, we received a PMA for our TMR laser system for use in
certain indications.

     Products  manufactured  or  distributed  by  us  pursuant  to a PMA will be
subject  to  pervasive  and  continuing  regulation by the FDA, including, among
other  things, postmarket surveillance and adverse event reporting requirements.
Failure  to  comply with applicable regulatory requirements can result in, among
other  things,  warning  letters,  fines,  suspensions  or  delays of approvals,
seizures   or   recalls   of   products,   operating  restrictions  or  criminal
prosecutions.   The   Federal  Food,  Drug  and  Cosmetic  Act  requires  us  to
manufacture  our  products  in  registered establishments and in accordance with
Good  Manufacturing  Practices  ("GMP") regulations and to list our devices with
the  FDA.  Furthermore,  as  a  condition  to  receipt of a PMA, our facilities,
procedures  and  practices  will  be  subject  to  additional  pre-approval  GMP
inspections  and  thereafter  to  ongoing,  periodic GMP inspections by the FDA.
These  GMP  regulations impose certain procedural and documentation requirements
upon  us  with  respect  to  manufacturing  and  quality  assurance  activities.
Labeling  and promotional activities are subject to scrutiny by the FDA. Current
FDA  enforcement  policy prohibits the marketing of approved medical devices for
unapproved  uses. Changes in existing regulatory requirements or adoption of new
requirements  could  harm  our business. We may be required to incur significant
costs  to  comply  with laws and regulations in the future and current or future
laws and regulations may harm our business.

     We  are  also  regulated  by the FDA under the Radiation Control for Health
and  Safety  Act,  which  requires  laser  products  to  comply with performance
standards,  including  design  and  operation requirements, and manufacturers to
certify  in  product labeling and in reports to the FDA that our products comply
with  all  such standards. The law also requires laser manufacturers to file new
product  and  annual reports, maintain manufacturing, testing and sales records,
and report product defects. Various warning

                                       7
<PAGE>

labels  must  be  affixed and certain protective devices installed, depending on
the  class of the product. In addition, we are subject to California regulations
governing  the  manufacture  of  medical  devices, including an annual licensing
requirement.  Our facilities are subject to ongoing, periodic inspections by the
FDA and California regulatory authorities.

     Sales,  manufacturing  and  further development of our TMR and PTMR systems
also  may  be  subject  to  additional  federal regulations pertaining to export
controls  and environmental and worker protection, as well as to state and local
health,  safety  and  other  regulations  that  vary  by  locality and which may
require  obtaining  additional  permits.  We can not predict the impact of these
regulations on our business.

     Sales  of  medical  devices  outside  of  the  U.S.  are subject to foreign
regulatory  requirements  that vary widely by country. In addition, the FDA must
approve  the  export  of  devices  to  certain countries. To market in Europe, a
manufacturer  must  obtain the certifications necessary to affix to its products
the  CE  Marking.  The  CE  Marking  is  an international symbol of adherence to
quality  assurance  standards  and  compliance  with applicable European medical
device  directives.  In  order  to  obtain  and  to  maintain  a  CE  Marking, a
manufacturer  must  be  in  compliance  with  appropriate ISO 9001 standards and
obtain  certification  of its quality assurance systems by a recognized European
Union  notified  body.  However,  certain  individual  countries  within  Europe
require  further  approval  by  their  national  regulatory  agencies.  We  have
achieved  International  Standards Organization and European Union certification
for  our  manufacturing  facility.  In  addition,  we  have  completed  CE  mark
registration  for  all  of our products in accordance with the implementation of
various  medical  device  directives  in the European Union. Failure to maintain
the  right  to  affix the CE Marking or other requisite approvals could prohibit
us  from  selling  our TMR products in member countries of the European Union or
elsewhere.


Intellectual Property Matters

     Our  success  will  depend,  in  part,  on  our  ability  to  obtain patent
protection  for  our  products,  preserve our trade secrets, and operate without
infringing  the  proprietary  rights of others. Our policy is to seek to protect
our  proprietary  position  by,  among  other  methods,  filing U.S. and foreign
patent  applications related to our technology, inventions and improvements that
are  important  to  the development of our business. We have 91 U.S. and foreign
patents   or  allowed  patent  applications  and  78  U.S.  and  foreign  patent
applications  pending  relating  to  various  aspects  of  TMR,  PTMR  and other
cardiovascular  therapies.  On  December  5,  2000 we were granted United States
Patent   No.   6,156,031   entitled   "Transmyocardial  Revascularization  Using
Radiofrequency  Energy".  Our  patents or patent applications may be challenged,
invalidated  or circumvented in the future or the rights granted may not provide
a  competitive  advantage.  We  intend  to  vigorously  protect  and  defend our
intellectual  property.  We do not know if patent protection will continue to be
available  for  surgical  methods  in  the  future.  Costly  and  time-consuming
litigation  brought by us may be necessary to enforce our patents and to protect
our  trade  secrets  and know-how, or to determine the enforceability, scope and
validity of the proprietary rights of others.

     We  also  rely  upon  trade  secrets,  technical  know-how  and  continuing
technological  innovation  to  develop and maintain our competitive position. We
typically   require   our   employees,   consultants  and  advisors  to  execute
confidentiality  and  assignment  of  inventions  agreements  in connection with
their   employment,   consulting,  or  advisory  relationships  with  us.  These
agreements  may be breached or we may not have adequate remedies for any breach.
Furthermore,  our competitors may independently develop substantially equivalent
proprietary   information  and  techniques  or  otherwise  gain  access  to  our
proprietary  technology,  or  we  may  not  be  able to meaningfully protect our
rights in unpatented proprietary technology.

     The  medical  device  industry  in  general,  and the industry segment that
includes  products  for  the  treatment of cardiovascular disease in particular,
have  been  characterized  by  substantial  competition and litigation regarding
patent  and  other intellectual property rights. In this regard, our competitors
have  been issued a number of patents related to TMR and PTMR. In September 1995
we  received  from  a  competitor  a  notice  of  potential  infringement of the
competitor's  patent  regarding  a  method  for TMR utilizing synchronization of
laser  pulses  to the electrical signals from the heart. We concluded, following
discussion  with  our patent counsel, that we did not utilize the process and/or
apparatus which is the subject of the

                                       8
<PAGE>

patent  at  issue.  We  responded  to  the  competitor  to  such effect and have
received  no  further  correspondence on this matter. There can be no assurance,
however,  that  further  claims  or  proceedings  will  not  be  initiated  by a
competitor,  or  that  claims by other parties will not arise in the future. Any
such  claims  in  the future, with or without merit, could be time-consuming and
expensive  to  respond  to  and  could divert the attention of our technical and
management  personnel. We may be involved in litigation to defend against claims
of  our  infringement,  to enforce our patents, or to protect our trade secrets.
If  any  relevant  claims  of  third  party  patents  are  upheld  as  valid and
enforceable  in  any  litigation  or  administrative  proceeding,  we  could  be
prevented  from  practicing  the  subject  matter claimed in such patents, or we
could  be required to obtain licenses from the patent owners of each such patent
or to redesign our products or processes to avoid infringement.

     Until  recently, patent applications in the U.S. were maintained in secrecy
until   patents   issue,  and  patent  applications  in  foreign  countries  are
maintained  in  secrecy for a period after filing. Most of our U.S. applications
are  maintained  in  secrecy unless they have issued. Publication of discoveries
in  the  scientific  or patent literature tends to lag behind actual discoveries
and  the  filing  of related patent applications. Accordingly, we can not assure
you  our  current  and  potential  competitors  and other third parties have not
filed  or  in the future will not file applications for, or have not received or
in  the future will not receive, patents or obtain additional proprietary rights
that  will prevent, limit or interfere with our ability to make, use or sell our
products  either in the U.S. or internationally. In the event we were to require
licenses  to patents issued to third parties, such licenses may not be available
or,  if  available, may not be available on terms acceptable to us. In addition,
we  may  not  be successful in any attempt to redesign our products or processes
to  avoid  infringement  or  that  any  such redesign could be accomplished in a
cost-effective  manner.  Accordingly,  an adverse determination in a judicial or
administrative  proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would harm our business.

     Unrelated  to  the  products  used  in  our TMR procedure, we have received
notices  from three holders of patents requesting we become a licensee. Although
we  believe  that either these patents are subject to challenge as being invalid
or  are not infringed by our products, we may not prevail in any such action. In
one  case,  we  have  entered into a non-exclusive license to a patent involving
arthroscopy  use. In a second case, we buy components only from licensees of the
patent  holder, which we believe obviates the need for a separate license. If we
determine  that  it  is  necessary  to  obtain  a  license  to  any  patents  or
intellectual  property,  any  such  license  may  not be available on acceptable
terms  or  at  all,  or  we  may  not  be  able  to  develop or otherwise obtain
alternative  technology.  Failure  to obtain necessary licenses could prevent us
from manufacturing and selling our products, which would harm our business.


Third Party Reimbursement

     We  expect  that  sales  volumes  and  prices  of  our products will depend
significantly  on  the  availability  of  reimbursement  for surgical procedures
using  our  products  from  third  party  payors  such as governmental programs,
private  insurance  and  private  health  plans.  Reimbursement is a significant
factor  considered by hospitals in determining whether to acquire new equipment.
Reimbursement  rates  from  third party payors vary depending on the third party
payor,  the procedure performed and other factors. Moreover, third party payors,
including  government programs, private insurance and private health plans, have
in  recent  years been instituting increasing cost containment measures designed
to  limit  payments  made  to  healthcare  providers  by,  among other measures,
reducing   reimbursement   rates,   limiting   services   covered,   negotiating
prospective   or   discounted  contract  pricing  and  carefully  reviewing  and
increasingly challenging the prices charged for medical products and services.

     Medicare  reimburses  hospitals  on a prospectively determined fixed amount
for  the  costs  associated  with  an  in-patient  hospitalization  based on the
patient's  discharge  diagnosis,  and  reimburses  physicians on a prospectively
determined  fixed  amount  based  on  the procedure performed, regardless of the
actual  costs  incurred  by the hospital or physician in furnishing the care and
unrelated  to  the  specific  devices used in that procedure. Medicare and other
third  party  payors are increasingly scrutinizing whether to cover new products
and  the  level  of  reimbursement  for  covered products. In addition, Medicare
traditionally  has  considered items or services involving devices that have not
been approved or cleared for marketing by

                                       9
<PAGE>

the  FDA  to  be  precluded  from  Medicare  coverage.  In  July 1999 HCFA began
coverage of FDA approved TMR systems for any manufacturer's TMR procedures.

     We  have  limited  experience  to  date  with  the acceptability of our TMR
procedures  for  reimbursement  by  private  insurance and private health plans.
Private  insurance  and  private  health plans may not approve reimbursement for
TMR  or  PTMR.  The lack of private insurance and health plans reimbursement may
harm our business.

     In  foreign  markets,  reimbursement is obtained from a variety of sources,
including  governmental  authorities,  private  health insurance plans and labor
unions.  In  most  foreign  countries,  there are also private insurance systems
that  may offer payments for alternative therapies. Although not as prevalent as
in  the  U.S., health maintenance organizations are emerging in certain European
countries.  We  may  need  to seek international reimbursement approvals, and we
may  not  be  able  to  attain  these  approvals  in a timely manner, if at all.
Failure  to receive foreign reimbursement approvals could make market acceptance
of  our  products in the foreign markets in which such approvals are sought more
difficult.

     We  believe  that  reimbursement in the future will be subject to increased
restrictions  such  as  those  described  above, both in the U.S. and in foreign
markets.  We  also  believe  that  the  escalating  cost of medical products and
services  has  led  to  and  will continue to lead to increased pressures on the
health  care industry, both foreign and domestic, to reduce the cost of products
and  services,  including  products offered by us. Third party reimbursement and
coverage  may  not  be available or adequate in U.S. or foreign markets, current
levels  of  reimbursement  may be decreased in the future or future legislation,
regulation,  or  reimbursement  policies  of  third  party payors may reduce the
demand  for  our  products  or  our ability to sell our products on a profitable
basis.  Fundamental  reforms  in  the healthcare industry in the U.S. and Europe
that  could  affect the availability of third party reimbursement continue to be
proposed,  and  we  cannot predict the timing or effect of any such proposal. If
third  party  payor  coverage or reimbursement is unavailable or inadequate, our
business may suffer.


Product Liability and Insurance

     We  maintain  insurance  against  product liability claims in the amount of
$10  million per occurrence and $10 million in the aggregate. We may not be able
to  obtain  additional coverage or continue coverage in the amount desired or on
terms  acceptable  to  us, and such coverage may not be adequate for liabilities
actually  incurred.  Any  uninsured  or underinsured claim brought against us or
any  claim  or  product  recall that results in a significant cost to or adverse
publicity against us could harm our business.


Employees

     As  of December 31, 2000 we had 123 employees, including 16 in research and
development,  49  in  manufacturing,  38  in  sales  and  marketing  and  20  in
administration.  Other  than confidentiality agreements with all employees, as a
general  policy  matter,  we do not enter into employment agreements with any of
our  employees. In connection with the recent hirings of Michael J. Quinn as our
Chief   Executive  Officer  and  Darrell  Eckstein  as  our  Vice  President  of
Operations,  we  did,  however,  provide  both  officers  with letter employment
agreements.  None  of  our  employees  is  covered  by  a  collective bargaining
agreement and we have not experienced any work stoppages to date.


                                       10
<PAGE>

<TABLE>
   Our executive officers as of March 28, 2001 are as follows:
<CAPTION>
Name                       Age                          Position
------------------------- -----   ----------------------------------------------------
<S>                       <C>     <C>
   Michael J. Quinn        56     Chief Executive Officer, President, Chairman of the
                                  Board and Director
   Darrell F. Eckstein     43     Vice President of Operations
   Ian A. Johnston         46     Vice President of Finance and Treasurer
   Thomas L. Kinder        38     Vice President of Worldwide Sales and Service
   Richard P. Lanigan      42     Vice President of Government Affairs and
                                  Business Development
   Christopher M. Owens    32     Vice President of Marketing
   Ilene L. Janofsky       46     Chief Legal Counsel
</TABLE>

     Michael  J.  Quinn has served as our Chief Executive Officer, President and
Chairman  of  the  Board  since  October 2000. From 1978 to 1988, Mr. Quinn held
senior  operating  management  positions  at  the level of Vice President, Chief
Operating  Officer  and  President  at  major healthcare organizations including
American  Hospital  Supply  Corporation,  Picker  International, Cardinal Health
Group,  Bergen Brunswig and Fisher Scientific. Most recently Mr. Quinn served as
President  and  Chief Executive Officer of Premier Laser Systems, a manufacturer
of  surgical  and dental products. Prior to that position he served as President
of  Imagyn  Medical  Technologies, a manufacturer of minimally invasive surgical
specialty products.

     Darrell  F.  Eckstein  has served as our Vice President of Operations since
December  2000.  From  1996  to  2000  he  served  as Vice President and General
Manager  of  the  Surgical  Products  Division of Imagyn Medical Technologies, a
manufacturer  of  minimally  invasive  surgical specialty products. From 1995 to
1996,  Mr.  Eckstein  was Vice President of Finance, Chief Financial Officer and
an  Executive  Committee  member  of  Richard-Allen  Medical  Industries Inc., a
medical  devices  company. From 1991 to 1995, Mr. Eckstein was Vice President of
Finance,  Chief  Financial Officer and an Executive Committee member of National
Emergency  Services Inc., a health care services company that provides physician
contract  management, medical billing and insurance services. Prior to 1991, Mr.
Eckstein  worked  for  Deloitte  and  Touche,  most  recently  as a Senior Audit
Manager,  for 11 years. He received his Bachelor of Science degree in Accounting
from Indiana University.

     Ian  A. Johnston has been our Vice President of Finance since July 2000 and
Corporate  Controller  since March 1999. From 1998 to 1999 Mr. Johnston was also
Controller  of  CardioGenesis Corporation. From 1989 to 1998 Mr. Johnston served
in  a  variety  of  financial positions (most recently as Controller) at Toshiba
America  MRI,  Inc.,  a  medical imaging company. From 1985 to 1989 Mr. Johnston
was  an  auditor  with  Arthur  Andersen  &  Co.  Mr.  Johnston has a Masters in
Business  Administration and a Bachelor of Arts in Economics from the University
of  California  Berkeley  and is a member of the American Institute of Certified
Public Accountants.

     Thomas  L.  Kinder  has  served  as our Vice President of Sales since March
2001  and  as  General Manager, West Area since November 2000. Prior to Eclipse,
Mr.  Kinder  held senior sales positions at the level of Vice President, General
Manager  and  National  Sales  Director  at  healthcare companies including Karl
Storz  Endoscopy,  and  Imagyn  Medical  Technologies  and  Microsurge, Inc. Mr.
Kinder  began  his  medical  device  sales  career  with  United States Surgical
Corporation.

     Richard  P.  Lanigan  has been our Vice President of Government Affairs and
Business  Development  since  March  2001, Vice President of Sales and Marketing
since  March  2000  and Director of Marketing since 1997. From 1992 to 1997, Mr.
Lanigan  served  in  various  positions,  most  recently  Marketing  Manager, at
Stryker  Endoscopy.  From  1987 to 1992, Mr. Lanigan served in Manufacturing and
Operations  management  at  Raychem Corporation. From 1981 to 1987, he served in
the  U.S.  Navy  where  he  completed  six years of service as Lieutenant in the
Supply  Corps.  Mr.  Lanigan  has a Bachelors of Arts in Finance from Notre Dame
and  a  Masters  degree  in  Systems  Management from the University of Southern
California.

                                       11
<PAGE>

     Christopher  M.  Owens has been our Vice President of Marketing since March
2001.  Prior  to  Eclipse,  Mr.  Owens  was Director of Marketing for the global
Lamellar  Surgery  business  of  Bausch  &  Lomb.  The Lamellar Surgery business
provides  surgical products for vision correction procedures. From 1997 to 2000,
Mr.  Owens  served  in  a  variety  of  sales  related  positions (most recently
National  Sales Manager) at Imagyn Medical Technologies, Inc., a manufacturer of
minimally  invasive  surgical  specialty  products. From 1996 to 1997, Mr. Owens
was  Marketing  Product  Manager  for  Stackhouse, Inc From 1990 to 1996 he also
served  as a Product Development Engineer at Baxter Healthcare Corp. He has both
a  Bachelors  and  Masters degree in Plastics Engineering from the University of
Massachusetts  and  a  Masters in Business Administration from the University of
Phoenix.

     Ilene  L.  Janofsky  has  served  as  our Chief Legal Counsel since January
2001.  From  1999  to  2000  Ms. Janofsky served as Patent Manager, Intellectual
Property  Counsel and from June 1998 to March 1999 she served as Patent Counsel.
From  1993  to 1998 Ms. Janofsky worked as an independent patent law consultant.
From  1990  to  1993  Ms.  Janofsky  was  employed as a Patent Attorney with the
Liposome  Company.  She  has  also worked as a Patent Attorney on an independent
basis  from  1988  to  1989 and with the New York city law firm of Ladas & Parry
from  1987 to 1988. Ms. Janofsky is admitted to practice law in New York (1986),
New  Jersey  (1986)  and  before  the  United States Patent and Trademark Office
(1983).  She  passed  the  California  Bar  exam  in  July  2000 and is awaiting
admission.  Ms.  Janofsky received her Bachelor of Science in Clinical Nutrition
from  the  University  of  Florida,  Gainesville in 1976 and her Juris Doctorate
from St. John's University Law School in 1985.


Item 2. Description of Property.

     Our  facilities  are  comprised  of 45,960 square feet under three separate
leases.  The manufacturing facility contains a Class 10,000 clean room for laser
handpiece  and  catheter  fabrication.  The leases expire from July 2002 through
September  2002.  Our  headquarters  is  located  in  Sunnyvale,  California. We
believe  our facilities are adequate to meet our foreseeable requirements. There
can  be  no assurance that additional facilities will be available to us, if and
when needed, thereafter.


Item 3. Legal Proceedings.

     There  are  no  pending  legal  proceedings  against us other than ordinary
litigation  incidental to our business, the outcome of which, individually or in
the  aggregate,  is  not  expected  to  have  a  material  adverse effect on our
business or financial condition.


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

     None.

                                       12
<PAGE>

                                    PART II


Item 5. Market for Registrants Shares and Related Shareholder Matters.

     (a)  Our  common  stock has been traded on the Nasdaq National Market under
the  symbol,  ESTI, since May 31, 1996. For the periods indicated, the following
table  presents  the  range  of high and low sale prices for the common stock as
reported by the Nasdaq National Market.

     2000                        High           Low
     ----                        ----           ---
     First Quarter ...........   $  11.50       $ 6.75
     Second Quarter ..........   $   7.69       $ 2.88
     Third Quarter ...........   $   4.69       $ 3.31
     Fourth Quarter ..........   $   4.06       $ 0.50

     1999                        High           Low
     ----                        ----           ---
     First Quarter ...........   $  14.25       $ 7.25
     Second Quarter ..........   $  12.38       $ 7.69
     Third Quarter ...........   $  18.69       $ 9.75
     Fourth Quarter ..........   $  15.94       $ 5.00

     As  of  December  31,  2000  shares  of  our  common stock were held by 190
shareholders of record.

     We  have  never  paid  a  cash  dividend  on  our  common  stock and do not
anticipate  paying any cash dividends in the foreseeable future, as we intend to
retain  our  earnings,  if  any,  to  generate  increased growth and for general
corporate purposes.


Item 6. Selected Consolidated Financial Data.

     The  following  selected  consolidated  statement  of  operations  data for
fiscal  years  ended 2000, 1999 and 1998 and the consolidated balance sheet data
for  2000  and  1999  set  forth  below  are  derived  from the our consolidated
financial  statements  and  are  qualified  by  reference  to  our  consolidated
financial statements included herein.

                                       13
<PAGE>

     The  selected  consolidated  statement  of  operations data for fiscal year
ended  1997  and 1996 and the consolidated balance sheet data for 1998, 1997 and
1996  have  been  derived  from  our  audited  financial statements not included
herein.  These  historical results are not necessarily indicative of the results
of  operations  to be expected for any future period. As a result of our pooling
of  interest  with  CardioGenesis, all prior period data has been restated as if
the combined entity existed for all periods presented.

<TABLE>

                     Selected Consolidated Financial Data
                   (in thousands, except per share amounts)

<CAPTION>
                                                                      Year Ended December 31,
                                             -------------------------------------------------------------------------
                                                 2000          1999(1)         1998            1997           1996
                                             ------------   ------------   ------------   -------------   ------------
<S>                                          <C>            <C>            <C>            <C>             <C>
Statement of Operations Data:
Net revenues ...............................  $   22,210     $   25,324     $   15,080      $  13,058      $  13,718
Cost of revenues ...........................      10,055         13,246          7,868          7,295          6,424
                                              ----------     ----------     ----------      ---------      ---------
   Gross profit ............................      12,155         12,078          7,212          5,763          7,294
                                              ----------     ----------     ----------      ---------      ---------
Operating expenses:
 Research and development ..................       5,065         11,353         29,861         26,217         13,323
 Sales and marketing .......................      15,349         16,553         17,663         11,542          5,949
 General and administrative ................       6,660          8,028         10,821          9,462          4,820
 Merger-related costs ......................          --          5,214             --             --             --
                                              ----------     ----------     ----------      ---------      ---------
    Total operating expenses ...............      27,074         41,148         58,345         47,221         24,092
                                              ----------     ----------     ----------      ---------      ---------
   Operating loss ..........................     (14,919)       (29,070)       (51,133)       (41,458)       (16,798)
Interest and other income (expense),
 net .......................................         310            737          3,366          5,240          3,842
                                              ----------     ----------     ----------      ---------      ---------
   Net loss. ...............................  $  (14,609)    $  (28,333)    $  (47,767)     $ (36,218)     $ (12,956)
                                              ==========     ==========     ==========      =========      =========
   Net loss per share -- basic and
    diluted ................................  $    (0.48)    $    (0.99)    $    (1.77)     $   (1.39)     $   (0.65)
                                              ==========     ==========     ==========      =========      =========
   Shares used in per share
    calculation ............................      30,166         28,629         27,000         26,027         20,019
                                              ==========     ==========     ==========      =========      =========
Balance Sheet Data:
Cash, cash equivalents and marketable
 securities ................................  $    3,357     $   13,313     $   27,941      $  75,729      $ 110,271
Working capital ............................       4,662         10,031         22,243         68,999        105,185
Total assets ...............................      16,965         34,019         52,978         91,714        123,003
Long-term debt, less current portion .......         405            815            114             10             20
Accumulated deficit ........................    (153,833)      (139,224)      (110,891)       (63,124)       (26,906)
Total shareholders' equity .................       7,974         18,573         37,276         82,374        117,061
<FN>

(1) Cost  of revenues includes $2.5 million of inventory write-offs and upgrades
    associated with the March 1999 merger.
</FN>
</TABLE>


                                       14
<PAGE>

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

     Eclipse  Surgical  Technologies,  Inc., incorporated in California in 1989,
designs,  develops,  manufactures  and distributes laser-based surgical products
and   disposable   fiber-optic   accessories   for  the  treatment  of  advanced
cardiovascular  disease  through  transmyocardial  revascularization ("TMR") and
percutaneous transluminal myocardial revascularization ("PTMR").

     On  February  11, 1999, we received final approval from the FDA for our TMR
products  for certain indications, and we are now able to sell those products in
the  U.S.  on  a commercial basis. We have also received the European Conforming
Mark  ("CE  Mark") allowing the commercial sale of our TMR laser systems and our
PTMR  catheter  system to customers in the European Community. Effective July 1,
1999,  Health  Care  Financial  Administration began providing Medicare coverage
for  TMR.  Hospitals  and  physicians  are  now  eligible  to  receive  Medicare
reimbursement for TMR equipment and procedures.

     We  have  completed  pivotal  clinical  trials  involving  PTMR,  and study
results  were submitted to the FDA in a Pre Market Approval (PMA) application in
December  of  1999  along  with subsequent amendments. We are currently in final
negotiations  with  the FDA in the PTMR market approval process. There can be no
assurance, however, that we will receive a favorable decision from the agency.

     As  of December 31, 2000, we had an accumulated deficit of $153,833,000. We
expect  to  continue to incur operating losses related to the expansion of sales
and  marketing  activities.  The  timing  and  amounts  of our expenditures will
depend  upon  a number of factors, including the efforts required to develop our
sales  and  marketing  organization, the timing of market acceptance, if any, of
our products and the status and timing of regulatory approvals.


Results of Operations


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

 Net Revenues

     Net  revenues of $22,210,000 for the year ended December 31, 2000 decreased
$3,114,000  or  12%  when  compared  to net revenues of $25,324,000 for the year
ended  December  31, 1999. The decrease in revenue was mainly due to a reduction
in  sales  of laser systems resulting from a change, made at the end of 1999, to
a  new  sales  model  which  emphasizes  laser  system placements to develop the
disposable  handpiece  market  more  rapidly.  The  reduction  in laser sales is
partially  offset  by  an  increase in disposable handpiece sales generated from
the  new  sales  model.  International sales accounted for approximately 10% and
14%   of   total  sales  for  the  years  ended  December  31,  2000  and  1999,
respectively.  We  define  international  sales  as  sales  to customers located
outside of the United States. (See "-- Risk Factors.")


                                       15
<PAGE>

 Gross Profit

     Gross profit  increased to  $12,155,000 or 55% of net revenues for the year
ended  December 31, 2000 as compared to  $12,078,000  or 48% of net revenues for
the year ended December 31, 1999. The increase in gross margin in absolute terms
and as a  percentage  of sales  resulted  from the fact that in 1999 the Company
wrote-off $2,523,000 of inventory in connenction with the merger, offset in part
by the overall increase in fixed manufacturing costs.

 Research and Development

     Research  and  development  expenditures of $5,065,000 decreased $6,288,000
or  55%  for  the  year ended December 31, 2000 when compared to $11,353,000 for
the  year  ended  December 31, 1999. The decrease in these expenses reflects the
decrease  in  activity  associated  with  clinical  trials,  engineering project
expenses  and  lower  employee  expenses.  We  expect  research  and development
expenses  to  continue  to  decline  in  the  upcoming  year  with  a continuing
reduction in clinical and product development activities.

 Sales and Marketing

     Sales  and Marketing expenditures of $15,349,000 decreased $1,204,000 or 7%
for  the  year ended December 31, 2000 when compared to $16,553,000 for the year
ended  December  31, 1999. The decrease in absolute dollars is mainly due to the
late  1999  termination  of a distribution agreement with an outside distributor
in  the  United  States.  We  expect  that  spending on sales and marketing will
decrease  in  the  upcoming  year,  despite continued development of the TMR and
PTMR  market,  as  the  Company's  focus  on cost reduction becomes reflected in
lower expenditures for outside services and travel costs.

 General and Administrative

     General  and  administrative  expenses  decreased  by  $1,368,000 or 17% to
$6,660,000  in  2000  from  $8,028,000  in 1999. The decrease is due mainly to a
reduction  of  salary and wage expense associated with the CEO position that was
filled  for  only a portion of 2000, a reduction in bad debt expense and general
cost  savings  resulting  from  the  merger  with CardioGenesis Corporation that
concluded   in  the  quarter  ended  March  31,  1999.  We  expect  general  and
administrative expenses to decline somewhat from prior year levels.

 Merger Related Costs

     There  were  no  merger  related  costs  in 2000 associated with the merger
between  us and CardioGenesis Corporation, while in 1999 there was $5,214,000 in
merger related costs.

 Interest and Other Income (Expense), Net

     Interest  and  other  income  of $400,000 decreased $401,000 or 50% for the
year  ended  December  31,  2000  when  compared  to $801,000 for the year ended
December  31,  1999.  The  decrease  was  due to lower investments in marketable
securities and cash and cash equivalents.

     Interest  expense  of  $32,000  decreased $32,000 or 50% for the year ended
December  31,  2000  when  compared  to  $64,000 for the year ended December 31,
1999. This decrease reflects a lower level of debt outstanding.

     Equity  in  net  loss  of  investee  is  a new non-cash expense in 2000. It
represents  our  share  of  the net loss of Microheart Holdings, Inc., given our
November  15,  2000 exercise of warrants to increase our ownership percentage to
32.1%.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

 Net Revenues

     Net  revenues of $25,324,000 for the year ended December 31, 1999 increased
$10,244,000  or  68%  when  compared to net revenues of $15,080,000 for the year
ended  December  31,  1998.  The increase in revenues was due to higher sales of
laser  systems  and  disposable  products  resulting  from  the  receipt  of FDA
approval  on  our TMR products. Export sales accounted for approximately 14% and
24%   of   total  sales  for  the  years  ended  December  31,  1999  and  1998,
respectively.  The  percentage decrease relative to total sales is mainly due to
higher  domestic  sales from the receipt of FDA approval on our TMR products. We
define  export sales as sales to customers located outside of the United States.
(See "-- Risk Factors.")

                                       16
<PAGE>

 Gross Profit

     Gross profit  increased to  $12,078,000 or 48% of net revenues for the year
ended December 31, 1999 as compared to $7,212,000 or 48% of net revenues for the
year ended  December 31,  1998.  The increase in absolute  terms  resulted  from
greater  sales  volume,  a higher  average  sales price per laser and lower unit
costs due to lower fixed  manufacturing  expenses and higher production  volumes
offset by an inventory  write-off of $2,523,000  in connection  with the merger.
Gross  profit  percentage,  excluding  the  inventory  write-off  related to the
merger, was 58% of net revenues.

 Research and Development

     Research  and development expenditures of $11,353,000 decreased $18,508,000
or  62%  for  the  year ended December 31, 1999 when compared to $29,861,000 for
the  year  ended  December 31, 1998. The decrease in these expenses reflects the
decrease  in  activity  associated with clinical trials, lower employee expenses
and cost savings resulting from the merger with CardioGenesis.

 Sales and Marketing

     Sales  and Marketing expenditures of $16,553,000 decreased $1,110,000 or 6%
for  the  year ended December 31, 1999 when compared to $17,663,000 for the year
ended  December  31,  1998.  The  decrease  in  absolute  dollars is due to cost
efficiencies realized from the merger.

 General and Administrative

     General  and  administrative  expenses  decreased  by  $2,793,000 or 26% to
$8,028,000  in 1999 from $10,821,000 in 1998. The decrease is due to a reduction
in litigation expenses and cost savings resulting from the merger.

 Merger Related Costs

     CardioGenesis  was  a  medical  device  company  like  us, which developed,
manufactured,  and marketed cardiac revascularization products for the treatment
of  advanced cardiovascular disease and severe angina pain through TMR and PTMR.
CardioGenesis  also  manufactured  and  marketed  disposable products to perform
intraoperative  transmyocardial  revascularization,  catheter-based percutaneous
myocardial  revascularization, and thorascopic transmyocardial revascularization
to  treat  patients afflicted with debilitating angina. During the quarter ended
March  31,  1999, we recognized merger-related costs of $6,893,000 for financial
advisory  and  legal  fees,  personnel  severance,  terminated relationships and
other  costs  including  write-offs of fixed assets and inventory. A majority of
the  terminated  employees  were located in California and worked in operations,
sales,   marketing,   quality,   research  and  development  and  administrative
functions. A total of 40 employees were terminated.

     During the remaining three quarters in the year ended December 31, 1999, we
recognized  additional  merger-related costs of $844,000,  bringing the total of
merger related costs to $7,737,000 for the twelve months ended December 31, 1999
of which  $2,523,000 was accounted for in our cost of revenues as a write-off of
inventory.  This increase was mainly due to a change  associated with an upgrade
program to replace customer owned equipment  rendered unusable by the merger. We
do not expect any further  charges for merger related expense and anticipate the
last  merger-related  payment to occur in the second part of 2001. The following
table summarizes the merger-related costs (in thousands).

Description                                                            Amount
-------------------------------------------------------------------  ----------
     Financial advisory and legal fees ............................   $  2,528
     Personnel severance ..........................................      1,190
     Terminated relationships/contracts ...........................        910
     Other costs including fixed asset and inventory write-offs ...      3,109
                                                                      --------
        Subtotal ..................................................      7,737
        Less: Amount included in cost of revenues .................     (2,523)
                                                                      --------
        Total .....................................................   $  5,214
                                                                      ========
                                       17
<PAGE>

 Interest and Other Income (Expense), Net

     Interest  and  other income of $801,000 decreased $2,653,000 or 77% for the
year  ended  December  31,  1999  when compared to $3,454,000 for the year ended
December  31,  1998.  The  decrease  was  due to lower investments in marketable
securities and cash and cash equivalents.

     Interest  expense  of  $64,000  decreased $24,000 or 27% for the year ended
December  31,  1999  when  compared  to  $88,000 for the year ended December 31,
1998. This decrease reflects a lower level of debt outstanding.


Liquidity and Capital Resources

     Cash,  cash  equivalents and short and long-term marketable securities were
$3,357,000  at December 31, 2000 compared to $13,313,000 at December 31, 1999, a
decrease  of  75%.  We  used  $12,281,000  of  cash  for  operating  activities,
including  funding  our  operating  loss and decreases in accrued liabilities in
2000.  Investing  activities,  consisting  primarily  of  purchases  and sale of
marketable  securities and additions to property and equipment, provided cash of
$6,700,000,  $16,100,000  and  $28,400,000  in fiscal years 2000, 1999, and 1998
respectively.  Financing  activities provided cash of $3,400,000, $8,400,000 and
$1,300,000  in  fiscal years 2000, 1999 and 1998 respectively primarily from the
issuance  of common stock pursuant to exercise of stock options and warrants and
the issuance of common stock.

     Since  our  inception, we have satisfied our capital requirements primarily
through  sales  of  our  equity  securities. In addition, our operation has been
funded in part through sales of our products.

     In  September  2000,  we  sold  526,496 shares of our common stock to Acqua
Wellington  at  a negotiated purchase price of $3.7987 per share. We did not pay
any other compensation in conjunction with the sale of our common stock.

                                       18
<PAGE>

     In March 2001, we sold 898,202  shares of common stock to Acqua  Wellington
at a negotiated  purchase  price of $1.1133 per share.  We did not pay any other
compensation  in  conjunction  with  the  sale  of  our  common  stock.  We  are
contractually  prohibited from obtaining any future  financings  under the Acqua
Wellington stock purchase agreement.

     In April 2001, we sold  2,000,000  shares of common stock to a governmental
entity at a  negotiated  purchase  price of $1.00 per share.  We did not pay any
other compensation in conjunction with the sale of our common stock.

     We have  incurred  significant  losses  for the last  several  years and at
December 31, 2000 have an accumulated deficit of $153,833,000.  The accompanying
financial  statements  have been  prepared  assuming we will continue as a going
concern.  Our ability to continue as a going concern is dependent upon achieving
profitable  operations in the future. Our plans include increasing sales through
increased direct sales and marketing  efforts on existing products and achieving
timely regulatory  approval for certain other products under clinical trials. We
have recognized the need for infusion of cash. In September 2000, March 2001 and
April 2001,  we raised  approximately  $1,873,000,  $1,000,000  and  $1,925,000,
respectively, net of estimated offering costs, from the sale of shares of common
stock. In April 2001, we received a non-binding letter of intent from a business
credit financing  company regarding an asset-based  financing  agreement current
level of which will  provide an estimated  $1,000,000  of  additional  financing
based upon current level of our qualified  domestic  accounts  receivable  which
will serve as  collateral.  We believe  that if revenue  from sales or new funds
from  debt or  equity  instruments  is  insufficient  to  maintain  the  current
expenditure  rate, it will be necessary to  significantly  reduce our operations
until an appropriate solution is implemented.

Quaterly Results of Operations

     The  following table sets forth certain quarterly financial information for
the  periods  indicated.  This  information  has  been  derived  from  unaudited
financial  statements  that, in the opinion of management, have been prepared on
the  same  basis  as  the audited information, and includes all normal recurring
adjustments  necessary  for a fair presentation of such information. The results
of  operations  for any quarter are not necessarily indicative of the results to
be expected for any future periods.

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                             ---------------------------------------------------------------------------------------------------
                                                 2000                                              1999
                             --------------------------------------------- -----------------------------------------------------
                              March 31    June 30    Sept. 30    Dec. 31        March 31        June 30    Sept. 30    Dec. 31
                             ---------- ----------- ---------- ----------- ------------------ ----------- ---------- -----------
<S>                          <C>        <C>         <C>        <C>         <C>                <C>         <C>         <C>
Net revenues ...............  $  5,677   $  6,608    $  5,014   $  4,911      $    4,474       $  7,190    $  6,085    $  7,575
Gross profit ...............     3,346      3,910       2,554      2,345           1,177 (a)      3,695 (b)   2,954 (c)   4,252 (d)
Operating loss .............    (4,546)    (3,398)     (3,800)    (3,175)        (15,474)(a)     (4,339)(b)  (4,982)(c)  (4,275)(d)
Net loss ...................    (4,439)    (3,262)     (3,744)    (3,164)        (15,166)(a)     (4,201)(b)  (4,906)(c)  (4,060)(d)
Net loss per share:
 Basic and diluted .........     (0.15)     (0.11)      (0.13)     (0.10)          (0.55)         (0.15)      (0.17)      (0.14)
 Weighted average shares
  outstanding ..............    29,664     30,064      30,191     30,729          27,576         28,086      28,591      29,425
<FN>
(a)  Gross profit includes cost of revenues of $1,392,000 related to inventory  write-offs in connection with the merger.  Operating
     loss includes  merger-related  costs of  $5,501,000.  Net loss  includes  cost of revenues of  $1,392,000  related to inventory
     write-offs in connection with the merger and merger-related costs of $5,501,000.

(b)  Gross profit includes cost of revenues of $625,000  related to inventory  write-offs in connection  with the merger.  Operating
     loss includes a reversal of a previously  recorded reserve of $541,000.  Net loss includes cost of revenues of $625,000 related
     to inventory write-offs in connection with the merger and a reversal of a previously recorded reserve of $541,000.

(c)  Gross profit includes cost of revenues of $179,000  related to inventory  write-offs in connection  with the merger.  Operating
     loss includes  merger-related costs of $257,000. Net loss includes cost of revenues of $179,000 related to inventory write-offs
     in connection with the merger and merger-related costs of $257,000.

(d)  Gross profit includes cost of revenues of $327,000  related to inventory  write-offs in connection  with the merger.  Operating
     loss includes  a reversal of a previously recorded reserve of $4,000. Net loss includes cost of revenues of $327,000 related to
     inventory write-offs in connection with the merger and a reversal of a previously recorded reserve of $4,000.

</FN>
</TABLE>

Recently Issued Accounting Standards

     In  June  1998,  the  Financial Accounting Standards Board issued SFAS 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities".  SFAS  133
establishes   new   standards   of   accounting  and  reporting  for  derivative
instruments  and  hedging  activities. SFAS 133 requires that all derivatives be
recognized  at  fair  value in the statement of financial position, and that the
corresponding  gains or losses be reported either in the statement of operations
or  as  a  component  of  comprehensive income, depending on the type of hedging
relationship  that  exists.  We  do not currently hold derivative instruments or
engage  in  hedging  activities.  We will adopt SFAS 133 in the first quarter of
2001  and  we  do  not  believe  that  the initial adoption will have a material
impact on the financial statements.


Factors Affecting Future Results

     IN  ADDITION  TO  THE  OTHER  INFORMATION  INCLUDED  IN THIS FORM 10-K, THE
FOLLOWING  RISK  FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING US AND OUR
BUSINESS.

     WE MAY NOT BE ABLE TO SECURE  ADDITIONAL  FINANCING  IN THE FUTURE.  In the
future,  we may require  additional  funds for operating  expenses.  Our capital
requirements  may vary and will depend on both  internal and  external  factors.
Internal  factors  affecting  our  capital  requirements  include our ability to
generate  increased  sales,  profits  and cash  flow from  operations.  External
factors  affecting  our capital  requirements  include the  progress of our PTMR
submission with the FDA, and competing technological and market developments. We
may be required to seek  additional  sources of  financing,  which could include
short-term  debt,  long-term  debt or  equity.  There  is a risk  that we may be
unsuccessful  in obtaining such financing and will not have  sufficient  cash to
fund our operations.  If this occurs,  we may have to  significantly  reduce our
operations until an appropriate solution is implemented.

     WE  MAY FAIL TO OBTAIN REQUIRED REGULATORY APPROVALS TO MARKET OUR PRODUCTS
IN  THE  UNITED  STATES.  Our  business,  financial  condition  and  results  of
operations  could  be  harmed  by  any of the following events, circumstances or
occurrences related to the regulatory process:

     * the failure to obtain regulatory approvals for our PTMR system;

     * significant  limitations in the indicated uses for which our products may
       be marketed;

     * substantial costs incurred in obtaining regulatory approvals.

                                       19
<PAGE>

     In   1997,   we  submitted  a  PMA  application  to  the  FDA  for  certain
applications  of our TMR laser system. On October 27, 1998, an advisory panel of
the  FDA  recommended that the FDA approve our PMA application for the TMR laser
system.  Along  with  our  approval,  the  FDA  panel  requested that we conduct
postmarket  surveillance  in a form to be determined through further discussions
with  the FDA. On February 11, 1999, we received final approval from the FDA for
use  of  our TMR products for treatment of stable patients with angina (Canadian
Cardiovascular  Society  Class  4)  refractory  to  other medical treatments and
secondary  to  objectively demonstrated coronary artery atherosclerosis and with
a  region  of  the  myocardium  with  reversible ischemia not amenable to direct
coronary revascularization.

     In  February  1996,  we  obtained  FDA  clearance to undertake Phase I of a
clinical  study  of  TMR intended to assess the safety and effectiveness of "TMR
Used  in  Conjunction  with CABG" as compared with coronary artery bypass graft,
known  as  CABG, alone. In September 1996, the FDA provided us with clearance to
begin  Phase  II  of this study, which was subsequently completed. In July 1999,
we  submitted a PMA supplement to FDA for an expanded indication to our approved
TMR  labeling  to  include  TMR  in  conjunction  with CABG. In January 2000, we
received  a  response  from  the  FDA  requesting  that  we  either provide more
information  or  modify  our  labeling  request.  Since  TMR  and  CABG are each
presently  utilized  to  treat  separate regions of the heart, we concluded that
our  present  FDA approved labeling is adequate, and that the physician can best
decide  how  to  use the laser system within the approved labeling. As a result,
in  March  2000,  we  decided that we will not pursue any wording changes to our
already  approved  TMR labeling and have withdrawn our submission to the FDA for
TMR  in conjunction with CABG. In December, 1999, we submitted a PMA application
to  the  FDA seeking marketing clearance for PTMR in the United States. To date,
the  FDA  has  not granted approval of this application. The FDA may not approve
this application in a timely manner, if ever.

     THE  MEDICAL COMMUNITY HAS NOT BROADLY ADOPTED OUR PRODUCTS, AND UNLESS OUR
PRODUCTS  ARE  BROADLY  ADOPTED, OUR BUSINESS WILL SUFFER. Our TMR products have
not   yet  achieved  broad  commercial  adoption,  and  our  PTMR  products  are
experimental  and  have  not  yet  achieved  broad  clinical adoption. We cannot
predict  whether or at what rate and how broadly our products will be adopted by
the  medical community. Our business would be harmed if our TMR and PTMR systems
fail to achieve significant market acceptance.

     Positive  endorsements by physicians are essential for clinical adoption of
our  TMR  and  PTMR laser systems. Even if the clinical efficacy of TMR and PTMR
laser  systems  is  established,  physicians  may elect not to recommend TMR and
PTMR  laser systems for any number of reasons. The reasons why TMR or PTMR laser
systems  may effectively treat coronary artery disease are not fully understood.
Although  we  intend  to  use  research,  development  and  clinical  efforts to
understand  better  the  physiological effects of TMR and PTMR treatment, we may
not  achieve such understanding on a timely basis, or at all. TMR and PTMR laser
systems may not be clinically adopted unless we:

     * understand thoroughly the physiological effects of the products;

     * provide  scientific  evidence of long term benefits for treated patients,
       and

     * disseminate such understanding within the medical community.

     Clinical adoption of these products will also depend upon:

     * our  ability  to  facilitate  training  of  cardiothoracic  surgeons  and
       interventional cardiologists in TMR and PTMR therapy;

     * willingness of such  physicians to adopt and recommend such procedures to
       their patients; and

     * raising  the  awareness  of TMR and then PTMR with the  targeted  patient
       population.

     Patient acceptance of the procedure will depend on:

     * physician recommendations;

     * the degree of invasiveness;

     * the effectiveness of the procedure; and

                                       20
<PAGE>

     * the rate and severity of  complications  associated with the procedure as
       compared to other procedures.

     TO  EXPAND  OUR  BUSINESS, WE MUST ESTABLISH EFFECTIVE SALES, MARKETING AND
DISTRIBUTION  SYSTEMS,  AND  WE  HAVE  LIMITED  EXPERIENCE TO DATES ESTABLISHING
THESE  OPERATIONS.  To  expand our business, we must establish effective systems
to  sell,  market  and  distribute  products. To date, we have had limited sales
which  have  consisted  primarily of U.S. sales of our TMR lasers and disposable
handpieces  on  a  commercial  basis  since  February  1999  and PTMR lasers and
disposable catheters for investigational use only.

     In  the  fourth  quarter  of  1999,  we  changed our U.S. sales strategy to
include  both selling lasers to hospitals outright, as well as loaning lasers to
hospitals  in  return for the hospital purchasing a minimum number of handpieces
at  a  premium  over  the  list  price. During the current year, the majority of
lasers  shipped  have been under this loan program. The purpose of this strategy
is  to  focus  our  sales  force  on  increasing  market penetration and selling
disposable  handpieces  used  in connection with our TMR procedure. If the sales
force  is  not  successful in increasing market share and selling our disposable
handpieces our business will suffer.

     With  FDA  approval  of our TMR laser system, we are marketing our products
primarily  through our direct sales force. We have been expanding our operations
by  hiring  additional sales and marketing personnel. This has required and will
continue  to  require substantial management efforts and financial resources. If
we  are  not  able  to  establish effective sales and marketing capabilities our
business will suffer.

     THE  EXPANSION OF OUR BUSINESS MAY PUT ADDED PRESSURE ON OUR MANAGEMENT AND
OPERATIONAL  INFRASTRUCTURE  AND COULD CREATE NUMEROUS RISKS AND CHALLENGES. The
growth  in our business may place a significant strain on our limited personnel,
management  and  other  resources.  The evolving growth of our business involves
numerous risks and challenges, including:

     * the dependence on the growth of the market for our TMR and PTMR systems;

     * 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  future operating results will be significantly affected by our ability
to:

     * successfully and rapidly expand sales to potential customers;

     * implement operating, manufacturing and financial procedures and controls;

     * improve coordination among different operating functions;

     * continue to attract, train and motivate additional qualified personnel in
       all areas; and

     * achieve manufacturing efficiencies as production volume increases.

We  may  not  be  able to manage these activities and implement these strategies
successfully, and any failure to do so could harm our operating results.

     OUR  OPERATING RESULTS WILL FLUCTUATE AND QUARTER TO QUARTER COMPARISONS OF
OUR  RESULTS  MAY  NOT  INDICATE  FUTURE PERFORMANCE. Our operating results have
fluctuated  significantly  from quarter to quarter and are expected to fluctuate
significantly  from  quarter  to  quarter due to a number of events and factors,
including:

     * the level of product demand and the timing of customer orders;

     * changes in strategy;

     * delays associated with the FDA and other regulatory approval processes;

     * personnel changes;

     * the level of international sales;

     * changes in competitive pricing policies;

                                       21
<PAGE>

     * the ability to develop, introduce and market new and enhanced versions of
       products on a timely basis;

     * deferrals in customer orders in anticipation of new or enhanced products;

     * product quality problems; and

     * the enactment of health care reform  legislation and any changes in third
       party reimbursement policies.

     We  believe  that  quarter  to quarter comparisons of our operating results
are  not  a  good  indication  of  our future performance. Our operating results
have,  in  the past, fallen below expectations and it is likely or possible that
our  operating  results for a future quarter will fall below the expectations of
public  market  analysts and investors. When this occurred in the past the price
of  our  common  stock  fell  substantially and if this occurs, the price of our
common stock may fall again, perhaps substantially.

     WE  WILL  BE  ABLE  TO OBTAIN FDA APPROVAL ONLY FOR THOSE PRODUCTS THAT ARE
PROVEN  SAFE  AND EFFECTIVE IN CLINICAL SITES. The FDA has not approved our PTMR
laser  systems  for  any  indication  in  the  United States. We submitted a PMA
Supplement  for  our  Axcis  PTMR  system  to the FDA in December 1999. The PTMR
study  compares  PTMR to conventional medical therapy in patients with no option
for  other  treatment.  The  FDA may not accept the study as safe and effective,
and  PTMR  may  not  be  approved  for  commercial  use  in  the  United States.
Responding  to FDA requests for additional information could require substantial
financial and management resources and take several years.

     In  October 2000, preliminary results from a competitor's clinical trial of
a  catheter-based  device  employing "Direct Myocardial Revascularization" (DMR)
were  presented at a medical conference in Washington D.C. The trial's principal
investigator  concluded that the DMR device did not show significant evidence of
clinical  benefit  with  regard to angina class reduction or exercise tolerance,
and  questioned  the efficacy of other devices and procedures relying on TMR. We
believe  that  the  preliminary  results of the DMR device study should not call
the  results  of our PTMR study into question because the devices and procedures
are   substantially   different.   We  cannot  assure  you,  however,  that  the
preliminary  results  of the DMR device study will not impact our submission for
the Axcis PTMR system to the FDA.

     WE  MAY  NOT  BE  ABLE  TO  SUCCESSFULLY  MARKET OUR PRODUCTS IF WE FAIL TO
OBTAIN  THIRD PARTY REIMBUSEMENT FOR THE PROCEDURES PERFORMED WITH OUR PRODUCTS.
Few  individuals  are able to pay directly for the costs associated with the use
of  our  products.  In  the  United  States,  hospitals,  physicians  and  other
healthcare  providers  that  purchase  medical  devices  generally rely on third
party  payors,  such  as  Medicare,  to reimburse all or part of the cost of the
procedure  in  which  the medical device is being used. A failure by third party
payors  to  provide  adequate reimbursement for the TMR and PTMR procedures that
use our products would harm our business.

     Effective  July  1, 1999 the Health Care Financing Administration commenced
Medicare  coverage  for  TMR  systems  for  any  manufacturer's  TMR procedures.
Hospitals   are   now   eligible  to  receive  Medicare  reimbursement  for  TMR
procedures.   The   Health   Care   Financing  Administration  may  not  approve
reimbursement  for PTMR. If it does not provide reimbursement, our business will
suffer.  We  have  limited  experience to date with the acceptability of our TMR
procedures  for  reimbursement  by  private  insurance and private health plans.
Private  insurance  and  private  health plans may not approve reimbursement for
TMR  or PTMR procedures. If they do not provide reimbursement, our business will
suffer.

     Third  party  payors  may  deny  reimbursement  if  they determine that the
device used in a treatment is:

     * unnecessary;

     * inappropriate;

     * experimental;

     * used for a non-approved indication; or

     * not cost-effective.

     Potential  purchasers  must  determine whether the clinical benefits of our
TMR and PTMR laser systems justify:


                                       22
<PAGE>

     * the  additional  cost or the additional  effort  required to obtain prior
       authorization or coverage; and

     * the uncertainty of actually obtaining such authorization or coverage.

     WE  FACE  INTENSE  COMPETITION  AND  COMPETITIVE  PRODUCTS COULD RENDER OUR
PRODUCTS  OBSOLETE.  The  market  for  TMR  and  PTMR laser systems is intensely
competitive  and is constantly becoming more competitive. If our competitors are
more  effective in developing new products and procedures and marketing existing
and future products, our business will suffer.

     The  market  for  TMR  and  PTMR  laser  systems  is characterized by rapid
technical  innovation.  Accordingly,  our  current  or  future  competitors  may
succeed in developing TMR and PTMR products or procedures that:

     * are more effective than our products;

     * are more effectively marketed than our products; or

     * may render our products or technology obsolete.

     We  currently  compete with PLC Systems, Inc., Johnson & Johnson and Boston
Scientific.  PLC  is currently selling TMR commercially in the United States and
abroad,  while  Johnson  &  Johnson  is  currently  selling  PTMR  products  for
investigational  use.  Boston Scientific has acquired radio frequency technology
to  begin  a  percutaneous  feasibility  trial  in  the  United  States  under a
preliminary  IDE.  PLC  recently announced a co-marketing agreement with Edwards
Life  Sciences  to distribute their lasers and disposables. This action will add
another  18  direct domestic sales representatives involved in promoting the PLC
technology.

     Even  with  the  FDA  approval  for  our  TMR  laser  system,  we will face
competition  for  market  acceptance  and  market  share  for  that product. Our
ability  to compete may depend in significant part on the timing of introduction
of  competitive  products  into  the  market,  and will be affected by the pace,
relative to competitors, at which we are able to:

     * develop products;

     * complete clinical testing and regulatory approval processes;

     * obtain third party reimbursement acceptance; and

     * supply adequate quantities of the product to the market.

     OUR  PRODUCTS  ALSO  COMPETE  WITH  ALTERNATIVE  TREATMENT  METHODS AND OUR
PRODUCTS  MUST  REPLACE THESE METHODS TO BE COMMERCIALLY SUCCESSFUL. Many of the
medical  indications  that  may be treatable with TMR and PTMR laser systems are
currently  being  treated  by drug therapies or surgery and other interventional
therapies, including PTCA and CABG.

     Our  business would be materially harmed if TMR technology fails to replace
or  augment  existing  therapies  or  to  be  more effective, safer or more cost
effective  than  new  therapies.  A  number of the existing therapies are widely
accepted  in  the  medical community, have a long history of use and continue to
be enhanced rapidly.

     Procedures  using  TMR  and  PTMR  technology may not be able to replace or
augment such established treatments.

     Others  are  developing  new  surgical procedures and new drug therapies to
treat  coronary artery disease. These new procedures and drug therapies could be
more effective, safer or more cost effective than TMR and PTMR laser systems.

     The  market  acceptance  and  commercial  success of our TMR and PTMR laser
systems  will depend not only upon their safety and effectiveness, but also upon
the relative safety and effectiveness of alternative treatments.

     OUR  PRODUCTS DEPEND ON TMR TECHNOLOGY THAT IS RAPDILY CHANGING WHICH COULD
REQUIRE  US  TO  INCUR SUBSTANTIAL PRODUCT DEVELOPMENT EXPENDITURE. TMR and PTMR
laser  systems  are  our  only  products. Accordingly, if we fail to develop and
commercialize  successfully  our  TMR  and PTMR laser systems, then our business
would suffer.

                                       23
<PAGE>

     The  medical  device  industry  is  characterized  by rapid and significant
technological  change.  Our  future  success  will  depend  in large part on our
ability  to respond to such changes. In addition, we must expand the indications
and  applications  for  our  products by developing and introducing enhanced and
new   versions  of  our  TMR  and  PTMR  laser  systems.  Product  research  and
development  requires  substantial  expenditures and is inherently risky. We may
not be able to:

     * identify products for which demand exists; or

     * develop  products  that  have  the  characteristics  necessary  to  treat
       particular indications.

     Even  if  we  identify  and  develop  such  products,  we  may  not receive
regulatory approval and may not be commercially successful.

     OVERALL  INCREASES IN MEDICAL COSTS COULD ADVERSELY AFFECT OUR BUSINESS. We
believe  that  the  overall escalating cost of medical products and services has
led,  and  will  continue  to  lead,  to  increased pressures on the health care
industry,  both  foreign  and  domestic,  to  reduce  the  cost  of products and
services,  including  products  offered  by  them. We can not assure you that in
either United States or international markets that:

     * third party reimbursement and coverage will be available or adequate;

     * current reimbursement amounts will not be decreased in the future; or

     * future legislation,  regulation or reimbursement  policies of third party
       payors will not otherwise adversely affect the demand for our products or
       our ability to profitably sell our products.

     Fundamental  reforms  in  the  healthcare industry in the United States and
Europe  continue  to  be  considered.  We  cannot  predict  whether  or when any
healthcare  reform  proposals  will  be  adopted  and what effect such proposals
might have on our business.

     WE  HAVE  A  HISTORY  OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE. We
have  incurred  significant  losses  since inception. Our revenues and operating
income will be constrained:

     * until such time, if ever, as we obtain broad  commercial  adoption of our
       TMR laser systems by healthcare facilities in the United States;

     * until such time, if ever, as we obtain FDA and other regulatory approvals
       for our PTMR laser systems; and

     * for an uncertain period of time after such approvals are obtained.

     We may not achieve or sustain profitability in the future.

     IF  WE  EXPERIENCE INCREASED DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE TO
EXPAND  OUR  BUSINESS  TO  MEET  SUCH  DEMAND.  We may be required to expand our
business to:

     * respond to increasing clinical adoption of the TMR procedure;

     * develop future products;

     * generally compete successfully;

     * complete the clinical trials that are currently in progress; and

     * prepare additional products for clinical trials.

     Such  expansion could place a significant strain on managerial, operational
and  financial  systems and resources. To accommodate such expansion and compete
effectively,  we  must  improve information systems, procedures and controls and
expand, train, motivate and manage our employees.

     THIRD  PARTIES MAY LIMIT THE DEVELOPMENT AND PROTECTION OF OUR INTELLECTUAL
PROPERTY,  WHICH COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION. Our success is
dependent in large part on our ability to:

     * 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.

                                       24
<PAGE>

     The  medical device industry has been characterized by extensive litigation
regarding  patents  and  other  intellectual  property  rights. Companies in the
medical  device  industry have employed intellectual property litigation to gain
a  competitive  advantage. Certain competitors and potential competitors of ours
have  obtained  United States patents covering technology that could be used for
certain  TMR  and PTMR procedures. We do not know if such competitors, potential
competitors  or  others have filed and hold international patents covering other
TMR   or  PTMR  technology.  In  addition,  international  patents  may  not  be
interpreted the same as any counterpart United States patents.

     In  September  1995,  one  of our competitors sent us a notice of potential
infringement   of   their   patent   regarding   a   method  for  TMR  utilizing
synchronization  of laser pulses to the electrical signals from the heart. After
discussion  with  patent  counsel,  we  concluded  that  we  did not utilize the
process  and/or  apparatus  that  was the subject of the patent at issue, and we
provided  a  response to the competitor to that effect. We have not received any
additional correspondence from this competitor on these matters.

     In  1996,  prior  to  the merger with us, CardioGenesis initiated a suit in
the  United States against PLC seeking a judgment that the PLC patent is invalid
and   unenforceable.   In   1997,  PLC  counterclaimed  in  that  suit  alleging
infringement  by  CardioGenesis  of  the PLC patent. Also in 1997, PLC initiated
suit  in  Germany  against  CardioGenesis and CardioGenesis' former German sales
agent  alleging  infringement  of  a  European counterpart to the PLC patent. In
1997,  CardioGenesis  filed  an  Opposition  in  the European Patent Office to a
European  counterpart  to  the  PLC  patent, seeking to have the European patent
declared invalid.

     On  January  5,  1999,  before  trial  on the United States suit commenced,
CardioGenesis  and  PLC  settled all litigation between them, both in the United
States  and in Germany, with respect to the PLC patent and the European patents.
Under  the Settlement and License Agreement signed by the parties, CardioGenesis
stipulated  to  the  validity of the PLC patents and PLC granted CardioGenesis a
non-exclusive  worldwide license to the PLC patents. CardioGenesis agreed to pay
PLC  a  license  fee,  and  minimum  royalties,  totaling  $2.5  million over an
approximately  forty-month  period,  with a running royalty credited against the
minimums.

     The  Settlement  and  License  Agreement  applies only to those products or
that  technology  covered by the PLC patents, and the agreement does not provide
PLC  any rights to any CardioGenesis intellectual property. The Eclipse TMR 2000
laser system does not use the technology associated with the PLC patents.

     While  we  periodically  review the scope of our patents and other relevant
patents  of  which  we  are  aware, the question of patent infringement involves
complex  legal and factual issues. Any conclusion regarding infringement may not
be consistent with the resolution of any such issues by a court.

     We may not be able to protect our intellectual property because:

     * patents may not be issued;

     * patents may be challenged, invalidated or designed around by competitors;
       or

     * patent  protection may not continue to be available for surgical  methods
       in the future.

     COSTLY  LITIGATION  MAY  BE NECESSARY PROTECT INTELLECTUAL PROPERTY RIGHTS.
We  may  have  to  engage in time consuming and costly litigation to protect our
intellectual  property  rights or to determine the proprietary rights of others.
In  addition, we may become subject to patent infringement claims or litigation,
or  interference  proceedings declared by the United States Patent and Trademark
Office to determine the priority of inventions.

     Defending  and  prosecuting  intellectual  property  suits,  United  States
Patent  and  Trademark  Office  interference  proceedings  and related legal and
administrative  proceedings  are  both  costly  and  time-consuming.  We  may be
required to litigate further to:

     * enforce our issued patents;

     * protect our trade secrets or know-how; or

     * determine  the  enforceability,  scope and  validity  of the  proprietary
       rights of others.

                                       25
<PAGE>

     Any  litigation  or  interference  proceedings  will  result in substantial
expense  and  significant  diversion  of  effort  by  technical  and  management
personnel.  If  the  results  of such litigation or interference proceedings are
adverse to us, then the results may:

     * subject us to significant liabilities to third parties;

     * require us to seek licenses from third parties;

     * prevent us from selling our products in certain markets or at all; or

     * require us to modify our products.

     Although  patent  and  intellectual  property  disputes  regarding  medical
devices  are  often  settled  through  licensing and similar arrangements, costs
associated  with  such arrangements may be substantial and could include ongoing
royalties.  Furthermore,  we may not be able to obtain the necessary licenses on
satisfactory terms, if at all.

     Adverse  determinations  in  a  judicial  or  administrative  proceeding or
failure  to  obtain  necessary  licenses could prevent us from manufacturing and
selling our products. This would harm our business.

     WE  RELY  ON  PATENT  AND  TRADE  SECRET LAWS, WHICH ARE COMPLEX AND MAY BE
DIFFICULT  TO  ENFORCE. The validity and breadth of claims in medical technology
patents  involve  complex  legal  and  factual  questions and, therefore, may be
highly  uncertain. Issued patent or patents based on pending patent applications
or  any future patent application may not exclude competitors or may not provide
a  competitive  advantage  to  us. In addition, patents issued or licensed to us
may  not be held valid if subsequently challenged and others may claim rights in
or ownership of such patents.

     Furthermore, we cannot assure you that our competitors:

     * 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.

     Because  patent  applications  in  the  United States were, until recently,
maintained in secrecy until patents issue, we cannot be certain that:

     * 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.

     The  United  States  patent  laws  exempt  physicians,  other  health  care
professionals,  and  affiliated entities from infringement liability for medical
and  surgical  procedures  performed  on patients. We are not able to predict if
this  amendment  will  materially  affect our ability to protect our proprietary
methods and procedures.

     Competitors    may    independently    develop    proprietary   information
substantially  equivalent  to  our  proprietary  information  and techniques, or
otherwise gain access to our proprietary technology.

     In  addition to our patents, we rely upon trade secrets, technical know-how
and  continuing technological innovation to develop and maintain our competitive
position.  We  may not be able to meaningfully protect our unpatented technology
because:

     * our employees,  consultants and advisors may breach their confidentiality
       and  invention  assignment  agreements  and there may not be an  adequate
       remedy for such breach;

     * our  competitors  may  independently  develop  substantially   equivalent
       proprietary information and techniques; or

     * competitors may otherwise gain access to our proprietary technology.  Our
       inability  to  protect  our   unpatented   intellectual   property  could
       materially harm our business.

     WE  DEPEND  ON  SINGLE  SOURCE  SUPPLIERS  FOR  CERTAIN  KEY COMPONENTS AND
PRODUCTION  WOULD  BE  INTERRUPTED  IF  A  KEY  SUPPLIER  HAD TO BE REPLACED. We
currently  purchase  certain  critical  laser  and  fiber-optic  components from
single  sources.  Although  we  have identified alternative suppliers, a lengthy
process would be

                                       26
<PAGE>

required   to   qualify   them  as  additional  or  replacement  suppliers.  Any
significant  interruption  in  the  supply  of  critical materials or components
could  delay  our  ability  to  manufacture  our  products  and  could  harm our
manufacturing operations, business and results of operations.

     We  anticipate  that  products  will  be  manufactured  based on forecasted
demand  and  will  seek to purchase subassemblies and components in anticipation
of  the  actual  receipt  of  purchase  orders  from  customers.  Lead times for
materials  and  components  vary significantly and depend on factors such as the
business  practices  of  each  specific  supplier  and  the  terms of particular
contracts,  as  well  as  the  overall  market  demand  for  such  materials and
components  at  any  given  time.  If  the  forecasts  are  inaccurate, we could
experience  fluctuations  in inventory levels, resulting in excess inventory, or
shortages  of  critical  components, either of which could cause our business to
suffer.

     Certain   of   our   suppliers   could   have  difficulty  expanding  their
manufacturing  capacity  to  meet our needs if demand for our TMR and PTMR laser
systems  were  to  increase rapidly or significantly. In addition, any defect or
malfunction  in  the  laser  or  other products provided by such suppliers could
cause  a  delay  in regulatory approvals or adversely affect product acceptance.
We can not predict if:

     * materials  obtained from outside  suppliers will continue to be available
       in adequate quantities; or

     * alternative suppliers can be located on a timely basis.

     We  operate  on  a  purchase  order  basis with most of our suppliers. Such
vendors  could  at any time determine to cease the supply and production of such
components.

     WE  HAVE  LIMITED  MANUFACTURING  EXPERIENCE  WHICH  COULD  PREVENT US FROM
SUCCESSFULLY  INCREASING  CAPACITY IN RESPONSE TO MARKET DEMAND. We have limited
experience   in   manufacturing   products.   Manufacturers   often   encounter
difficulties in increasing production, including problems involving:

     * production yields;

     * adequate supplies of components;

     * quality  control  and  assurance  (including  failure to comply with good
       manufacturing practices regulations,  international quality standards and
       other regulatory requirements); and

     * shortages of qualified personnel.

We  also  may  not  be  able  to successfully increase manufacturing capacity or
avoid manufacturing difficulties or product recalls.

     OUR  PRODUCTS  MAY CONTAIN DEFECTS WHICH COULD DELAY REGULATORY APPROVAL OR
MARKET  ACCEPTANCE  OF  OUR  PRODUCTS. We may experience future product defects,
malfunctions,  manufacturing  difficulties  or  recalls related to the lasers or
other  components  used  in  our TMR and PTMR laser systems. Any such occurrence
could  cause  a delay in regulatory approvals or adversely affect the commercial
acceptance of our products and could cause harm to our business.

     WE  MUST  COMPLY  WITH  FDA  MANUFACTURING STANDARDS OR FACE FINES OR OTHER
PENALTIES  INCLUDING  SUSPENSION  OF  PRODUCTION. We are required to demonstrate
compliance  with  the  FDA's current good manufacturing practices regulations if
we  market  devices  in the United States or manufacture finished devices in the
United  States.  The FDA inspects manufacturing facilities on a regular basis to
determine  compliance.  If  we  fail  to  comply  with  applicable  FDA or other
regulatory requirements, we can be subject to:

     * fines, injunctions, and civil penalties;

     * recalls or seizures of products;

     * total or partial suspensions of production; and

     * criminal prosecutions.

     WE  MAY  SUFFER  LOSSES FROM PRODUCT LIABILITY CLAIMS IF OUR PRODUCTS CAUSE
HARM  TO  PATIENTS.  We  are  exposed  to potential product liability claims and
product   recalls.   These  risks  are  inherent  in  the  design,  development,
manufacture  and  marketing  of medical devices. Our products are designed to be
used in


                                       27
<PAGE>

life-threatening  situations  where  there  is  a high risk of serious injury or
death,  and  we  could  be subject to product liability claims if the use of our
TMR  or  PTMR  laser  systems  is  alleged  to  have caused adverse effects on a
patient or such products are believed to be defective.

     Any  regulatory  clearance  for  commercial sale of these products will not
remove  these  risks.  Any  failure  to comply with the FDA's good manufacturing
practices  or other regulations could hurt our ability to defend against product
liability  lawsuits.  Although  we  have  not  experienced any product liability
claims to date, any such claims could cause our business to suffer.

     OUR  INSURANCE  MAY  BE  INSUFFICIENT  TO  COVER  PRODUCT  LIABILITY CLAIMS
AGAINST  US.  Our product liability insurance may not be adequate for any future
product   liability  problems  or  continue  to  be  available  on  commercially
reasonable terms, or at all.

     If  we  were  held liable for a product liability claim or series of claims
in  excess of our insurance coverage, such liability could harm our business and
financial  condition.  We maintain insurance against product liability claims in
the amount of $10 million per occurrence and $10 million in the aggregate.

     We  may  require  increased product liability coverage as sales of approved
products  increase  and  as  additional  products  are  commercialized.  Product
liability  insurance  is  expensive  and  in  the future may not be available on
acceptable terms, if at all.

     WE  DEPEND  HEAVILY  ON  KEY  PERSONNEL. Our future business and results of
operations  depend  in  significant part upon the continued contributions of our
key technical and senior management personnel.

     Our  future  business  and results of operations also depend in significant
part  upon  our  ability  to attract and retain additional qualified management,
manufacturing,  technical,  marketing  and  sales  and support personnel for our
operations.  If  we lose a key employee or if a key employee fails to perform in
his  or  her  current  position,  or  if  we  are not able to attract and retain
skilled employees as needed, our business could suffer.

     WE  MAY FAIL TO COMPLY WITH INTERNATIONAL REGULATORY REQUIREMENTS AND COULD
BE   SUBJECT   TO  REGULATORY  DELAYS,  FINES  OR  OTHER  PENALTIES.  Regulatory
requirements  in  foreign  countries  for international sales of medical devices
often  vary  from  country to country. The impact of the following factors would
harm our business:

     * 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.

     Our  products  will  be  subject  to  other  regulatory requirements in the
European  Union  and  other  countries.  Any enforcement action by international
regulatory  authorities  with respect to past or future regulatory noncompliance
could cause our business to suffer.

     The  time  required to obtain approval for sale in foreign countries may be
longer  or  shorter  than  required  for  FDA approval, and the requirements may
differ.  In  addition,  there  may  be  foreign  regulatory  barriers other than
regulatory  approval.  Except  as stated in the following sentence, the FDA must
approve  exports  of  devices  that  require  a  PMA  but  are  not yet approved
domestically.  An  unapproved  device may be exported without prior FDA approval
to  any  member  country of the European Union and the other "listed" countries,
including  Australia,  Canada, Israel, Japan, New Zealand, Switzerland and South
Africa:

     * if the device is approved for sale by that country; or

     * for investigational use in accordance with the laws of that country.

     We  received  the  CE Mark for our TMR laser system in May 1997 and for our
PTMR laser system in April 1998. In the European Economic Area, we will be:

     * subject to continued supervision;

     * required  to report any  serious  adverse  incidents  to the  appropriate
       authorities; and

                                       28
<PAGE>

     * required to comply with additional national requirements that are outside
       the scope of the Medical Device Directive.

     We became ISO 9001 certified in May 1997. We may not be able to:

     * achieve or maintain the compliance  required for CE marking on all or any
       of our products; and

     * produce our products  profitably  and in a timely manner while  complying
       with  the   requirements  of  the  Medical  Device  Directive  and  other
       regulatory requirements.

     If  we  fail  to  comply  with  applicable regulatory requirements we could
face:

     * fines, injunctions, civil penalties;

     * recalls or seizures of products;

     * total or partial suspensions of production;

     * refusals by foreign governments to permit product sales; and

     * criminal prosecution.

     Furthermore,  if  existing  regulations  are  changed or new regulations or
policies are adopted, we may:

     * not be able to  obtain,  or  affect  the  timing  of,  future  regulatory
       approvals or clearances;

     * not be able to obtain necessary  regulatory  clearances or approvals on a
       timely basis or at all; and

     * be required to incur  significant  costs in obtaining or maintaining such
       foreign regulatory approvals.

     WE  SELL OUR PRODUCTS INTERNATIONALLY WHICH SUBJECTS US TO CERTAIN RISKS OF
TRANSACTING  BUSINESS IN FOREIGN COUNTRIES. Our international revenue is subject
to the following risks:

     * 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.

     Any  of  these  factors  could  have an adverse effect on our international
sales   revenues.  In  future  quarters,  international  sales  could  become  a
significant portion of our revenue.

     WE  MAY  NOT  ACHIEVE WIDE ACCEPTANCE OF OUR PRODUCTS IN FOREIGN MARKETS IF
WE  FAIL  TO  OBTAIN  THIRD PARTY REIMBUSEMENT FOR THE PROCEDURES PERFORMED WITH
OUR  PRODUCTS.  If  we  obtain the necessary foreign regulatory registrations or
approvals,  market  acceptance of our products in international markets would be
dependent,  in  part,  upon  the availability of reimbursement within prevailing
health  care  payment  systems. Reimbursement and health care payment systems in
international   markets   vary  significantly  by  country.  They  include  both
government  sponsored  health  care and private insurance. Although we expect to
seek  international  reimbursement  approvals,  any  such  approvals  may not be
obtained  in  a  timely  manner,  if  at  all.  Failure to receive international
reimbursement  approvals  could  hurt  market  acceptance of TMR products in the
international markets in which such approvals are sought.

     WE  MAY  ENGAGE  IN FUTURE ACQUISITIONS THAT DISTRACT OUR MANAGEMENT, CAUSE
US  TO  INCUR  DEBT,  OR  DILUTE  OUR  SHAREHOLDERS.  We may, from time to time,
acquire  or  invest in other complementary businesses, products or technologies.
While  there  are  currently  no  commitments  with  respect  to  any particular
acquisition  or  investment,  our  management frequently evaluates the strategic
opportunities   available  related  to  complementary  businesses,  products  or
technologies.  The  process  of  integrating an acquired company's business into
our  operations may result in unforeseen operating difficulties and expenditures
and  may  absorb  significant  management  attention  that  would  otherwise  be
available   for   the   ongoing  development  of  our  business.  Moreover,  the
anticipated benefits of any acquisition or investment may not be realized. Any

                                       29
<PAGE>

future  acquisitions  or  investments by us could result in potentially dilutive
issuances   of   equity  securities,  the  incurrence  of  debt  and  contingent
liabilities  and  amortization expenses related to goodwill and other intangible
assets,  any  of which could materially harm our operating results and financial
condition.

     THE  PRICE  OF  OUR  COMMON  STOCK  MAY  FLUCTUATE SIGNIFICANTLY, WHICH MAY
RESULT  IN  LOSSES FOR INVESTORS. The market price for our common stock has been
and  may  continue  to be volatile. For example, during the 52-week period ended
December  31,  2000,  the  closing prices of our common stock as reported on the
NASDAQ  National  Market  ranged  from  a  high of $11.050 to a low of $0.50. We
expect  our  stock  price to be subject to fluctuations as a result of a variety
of factors, including factors beyond our control. These factors include:

     * actual or anticipated variations in our quarterly operating results;

     * announcements of technological innovations or new products or services by
       us or our competitors;

     * announcements relating to strategic relationships or acquisitions;

     * changes in financial estimates 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.

     Because  of  this  volatility,  we may fail to meet the expectations of our
shareholders  or  of  securities  analysts  at  some time in the future, and our
stock price could decline as a result.

     In  addition, the stock market has experienced significant price and volume
fluctuations  that  have  particularly  affected  the  trading  prices of equity
securities  of  many  high  technology  companies. These fluctuations have often
been  unrelated  or  disproportionate  to  the  operating  performance  of these
companies.  Any  negative  change  in  the public's perception of medical device
companies could depress our stock price regardless of our operating results.

     Recently,  when  the  market price of a stock has been volatile, holders of
that  stock have often instituted securities class action litigation against the
company  that  issued  the  stock.  If  any  of  our shareholders brought such a
lawsuit  against us, we could incur substantial costs defending the lawsuit. The
lawsuit could also divert the time and attention of our management.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 QUANTITATIVE DISCLOSURES

     The  Company  is  exposed  to  market  risks  inherent  in  its operations,
primarily  related  to  interest  rate risk and currency risk. These risks arise
from  transactions and operations entered into in the normal course of business.
The  Company  does  not use derivatives to alter the interest characteristics of
its  marketable  securities or its debt instruments. The Company has no holdings
of derivative or commodity instruments.

     INTEREST  RATE  RISK. The Company is subject to interest rate risks on cash
and  cash  equivalents  and  existing  long-term  debts and any future financing
requirements.  The  long-term  debt at December 31, 2000 consists of outstanding
balances on a note payable and lease obligations.


                                       30
<PAGE>

<TABLE>
     The  following  table  presents  the future principal cash flows or amounts
and  related  weighted average interest rates expected by year for the Company's
existing cash and cash equivalents and long-term debt instruments:

<CAPTION>
                                                                                                    Total Fair
In Thousands                             2001         2002         2003        2004       2005        Value
------------------------------------ -----------   ----------   ----------   --------   --------   -----------
<S>                                  <C>           <C>          <C>          <C>        <C>        <C>
Assets
 Cash, cash equivalents ............   $ 3,357       $  --        $  --       $ --       $ --        $ 3,357
 Weighted average interest rate ....       4.7%         --           --         --         --            4.7%
Liabilities
Fixed Rate Debt
 Note payable ......................   $    86       $  --        $  --       $ --       $ --        $    86
 Weighted average interest rate ....       8.0%         --           --         --         --            8.0%
 Lease obligation ..................   $    32       $   32       $   32      $ --       $ --        $    96
 Weighted average interest rate ....       6.8%         6.8%         6.8%       --         --            6.8%
</TABLE>

 Qualitative Disclosures

     Interest  Rate  Risk. The  Company's  primary  interest rate risk exposures
relate  to  the  impact  of  interest rate movements on the Company's ability to
obtain adequate financing to fund future operations.

     The  Company  manages interest rate risk on its outstanding long-term debts
through  the  use  of  fixed  rate  debt.  Management  evaluates  the  Company's
financial position on an ongoing basis.

     The  Company  does  not  hedge any balance sheet exposures and intercompany
balances  against  future  movements  in  foreign  exchange  rates. The exposure
related  to  currency  rate movements would not have a material impact on future
net income or cash flows.


Item 8. Consolidated Financial Statements and Supplementary Data.

     See  Item  14 below and the Index therein for a listing of the consolidated
financial statements and supplementary data filed as part of this report.


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

     None.

                                       31
<PAGE>

                                   PART III


Item 10. Directors and Executive Officers of the Registrant.

     Certain  information  required  by  Part  III  is  omitted from this Annual
Report  on  Form  10-K  because we will file a definitive proxy statement within
120  days  after  the  end of our fiscal year pursuant to Regulation 14A for our
Annual  Meeting  of  Shareholders, currently scheduled for May 30, 2001, and the
information   included   in  the  proxy  statement  is  incorporated  herein  by
reference.


Item 11. Executive Compensation and Other Matters.

     Certain  of  the  information concerning our executive officers required by
this  Item  is  contained in the section of Part I of this Annual Report on Form
10-K entitled "Item 1. Business -- Employees."

     The  information  concerning  our  directors  and the remaining information
concerning  our  executive  officers  required  by  this item is incorporated by
reference  to  the  information  set  forth  under  the similarly titled caption
contained  in  the  proxy statement to be used by us in connection with our 2001
Annual Meeting of Shareholders.


Item 12. Security Ownership of Certain Beneficial Owners and Management.

     The  information  required by this item is incorporated by reference to the
information  set forth under the similarly titled caption contained in the proxy
statement  to  be  used  by  us  in  connection  with our 2001 Annual Meeting of
Shareholders.


Item 13. Certain Relationships and Related Transactions.

     The  information  required by this item is incorporated by reference to the
information  set forth under the similarly titled caption contained in the proxy
statement  to  be  used  by  us  in  connection  with our 2001 Annual Meeting of
Shareholders.


                                    PART IV


Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.

(a)(1) Financial  Statements.  The financial  statements required to be filed by
       Item 8 herewith are as follows:




<TABLE>
<CAPTION>
                                                                                          Page
                                                                                         -----
<S>                                                                                      <C>
   Report of Independent Accountants .................................................    35
   Consolidated Balance Sheets as of December 31, 2000 and 1999 ......................    36
   Consolidated Statements of Operations and Comprehensive Loss for the years ended
    December 31, 2000, 1999 and 1998 .................................................    37
   Consolidated Statements of Shareholders' Equity for the years ended
    December 31, 2000, 1999 and 1998 .................................................    38
   Consolidated Statements of Cash Flows for the years ended December 31, 2000,
    1999 and 1998 ....................................................................    39
   Notes to Consolidated Financial Statements ........................................    40


(2)  Financial Statement Schedule.

     The following financial statement schedule is filed herewith.

   Schedule II -- Valuation and Qualifying Accounts ..................................    52
</TABLE>

(3)  Exhibits.

     The exhibits listed under Item 14(c) are filed or incorporated by reference
herein.


                                       32

<PAGE>

(b) Reports on Form 8-K.

     We  filed  no  reports  on  Form  8-K  during  the three month period ended
December 31, 2000.

(c) Exhibits.

     The exhibits below are filed or incorporated herein by reference.

<TABLE>
<CAPTION>
   Exhibit
    Number                                         Description
------------- ------------------------------------------------------------------------------------
<S>           <C>
  2.1 (2)     Agreement and Plan of Reorganization among the Company, CardioGenesis Corporation
              and RW Acquisition Corporation dated October 21, 1998.
   3.1 (2)    Certificate of Amendment and Restated Articles of Incorporation of Registrant.
   3.2 (2)    Amended and Restated Bylaws of Registrant.
  10.1 (2)    Form of Director and Officer Indemnification Agreement.
  10.2 (2)    Stock Option Plan.
  10.3 (2)    Director Stock Option Plan.
  10.4 (2)    1996 Employee Stock Purchase Plan.
  10.5 (2)    Facilities Lease for 1049 Kiel Court, Sunnyvale, California.
  10.6 (2)    Facilities Lease for 1139 Karlstad Drive, Sunnyvale, California.
  10.7 (2)    401(k) Plan.
  10.8 (3)    CardioGenesis 1993 Equity Incentive Plan
  10.9 (3)    CardioGenesis 1996 Directors Stock Option Plan
  10.10(3)    CardioGenesis 1996 Employee Stock Purchase Plan
  10.11(4)    CardioGenesis 1996 Equity Incentive Plan
  10.12       Letter employment agreement dated October 16, 2000 between the Company and Michael
              J. Quinn, Chief Executive Officer.
  10.13       Letter employment agreement dated December 19, 2000 between the company and Darrell
              F. Eckstein, Vice President of Operations.
  21.1        List of Subsidiaries
  23.1        Consent of PricewaterhouseCoopers LLP
  24.1        Power of Attorney (see page 34)
<FN>
------------
(1) Incorporated   herein   by   reference   to  Appendix  1  to  the  Company's
    Registration  Statement  on  S-4  filed  with  the  Securities  and Exchange
    Commission on February 9, 1999 (File No. 333-72063).
(2) Incorporated  herein  by reference from the Company's Registration Statement
    on Form S-1 (File No. 333-03770), as amended, filed on April 18, 1996.
(3) Incorporated  herein  by  reference  from  CardioGenesis  Corporation's Form
    SB-2, (File No. 333-3752-LA), declared effective on May 21, 1996.
(4) Incorporated  herein by reference from CardioGenesis Corporation's Form S-8,
    (File No. 333-35095, dated September 8, 1997).
</FN>
</TABLE>
                                       33

<PAGE>

                                  SIGNATURES

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



                                        ECLIPSE SURGICAL TECHNOLOGIES, INC.
                                        Registrant


    Date: April 17, 2001                    By: /s/ Michael J. Quinn
                                           ------------------------------------
                                                    Michael J. Quinn
                                           Chief Executive Officer, President,
                                           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.

     KNOW  ALL  PERSONS  BY  THESE  PRESENTS,  that  each person whose signature
appears  below  constitutes and appoints jointly and severally, Michael J. Quinn
and/or  Ian  A.  Johnston and each one of them, his attorneys-in-fact, each with
the  power  of  substitution, for him in any and all capacities, to sign any and
all  amendments  to  this  Annual Report on Form 10-K and to file the same, with
exhibits   thereto  and  other  documents  in  connection  therewith,  with  the
Securities  and  Exchange  Commission,  hereby ratifying and confirming all that
each  of  said  attorneys-in-fact,  or  his substitute or substitutes, may do or
cause to be done by virtue hereof.




<TABLE>
<CAPTION>
           Signature                                Title                           Date
-------------------------------   -----------------------------------------   ---------------
<S>                               <C>                                         <C>
/s/    MICHAEL J. QUINN              Chief Executive Officer, President,       April 17, 2001
---------------------------          Chairman of the Board and Director
      Michael J. Quinn                 (Principal Executive Officer)

/s/    IAN A. JOHNSTON             Vice President of Finance and Treasurer     April 17, 2001
---------------------------               (Principal Accounting and
      Ian A. Johnston                         Financial Officer)

/s/    ALAN L. KAGANOV, SC.D.                     Director                     April 17, 2001
---------------------------
      Alan L. Kaganov, Sc.D.

/s/    JACK M. GILL                               Director                     April 17, 2001
---------------------------
      Jack M. Gill

/s/    ROBERT L. MORTENSEN                        Director                     April 17, 2001
---------------------------
      Robert L. Mortensen

/s/    ROBERT C. STRAUSS                          Director                     April 17, 2001
---------------------------
      Robert C. Strauss

</TABLE>


                                       34
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders of
Eclipse Surgical Technologies, Inc.


     In  our  opinion, the consolidated financial statements listed in the index
appearing  under  Item  14(a)(1)  on  page  32  present  fairly, in all material
respects,  the financial position of Eclipse Surgical Technologies, Inc. and its
subsidiaries  (the  "Company")  at  December 31, 2000 and December 31, 1999, and
the  results  of  their  operations  and  their cash flows for each of the three
years  in  the  period  ended  December  31,  2000 in conformity with accounting
principles  generally  accepted in the United States of America. In addition, in
our  opinion,  the  financial  statement  schedule listed in the index appearing
under  Item  14(a)(2)  on page 32 presents fairly, in all material respects, the
information  set  forth  therein  when  read  in  conjunction  with  the related
consolidated  financial statements. These financial statements and the financial
statement  schedule  are  the  responsiblility  of the Company's management; our
responsibility  is  to  express  an  opinion  on  these financial statements and
financial  statement  schedule  based  on our audits. We conducted our audits of
these  statements  in  accordance  with auditing standards generally accepted in
the  United  States of America, which require that we plan and perform the audit
to  obtain  reasonable assurance about whether the financial statements are free
of  material  misstatements.  An  audit  includes  examining,  on  a test basis,
evidence  supporting  the  amounts  and disclosures in the financial statements,
assessing  the  accounting  principles  used  and  significant estimates made by
management,  and  evaluating  the  overall  financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.




PricewaterhouseCoopers LLP
San Jose, California
January 26, 2001, except Note 18
as to which the date is April 16, 2001

                                       35

<PAGE>

<TABLE>
                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS
                          December 31, 2000 and 1999
                                 (in thousands)

                                    ASSETS
<CAPTION>
                                                                                  2000           1999
                                                                              ------------   ------------
<S>                                                                           <C>            <C>
Current assets:
 Cash and cash equivalents ................................................    $    3,357     $    5,566
 Marketable securities ....................................................           --           3,227
 Accounts receivable, net of allowance for doubtful accounts of $353 and
   $1,079 at December 31, 2000 and 1999, respectively .....................         3,654          8,119
 Inventories, net of reserve of $3,102 and $2,705 at December 31, 2000
   and 1999, respectively .................................................         5,400          6,983
 Prepaids and other current assets ........................................           837            767
                                                                               ----------     ----------
   Total current assets ...................................................        13,248         24,662
Property and equipment, net ...............................................         1,048          1,220
Long-term marketable securities ...........................................           --           4,520
Accounts receivable over one year, net of allowance for doubtful accounts
 of $443 and $797, at December 31, 2000 and 1999, respectively.............           119          1,125
Other assets ..............................................................         2,550          2,492
                                                                               ----------     ----------
   Total assets ...........................................................    $   16,965     $   34,019
                                                                               ==========     ==========
                                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable .........................................................    $      689     $    1,819
 Accrued liabilities ......................................................         5,789          9,557
 Customer deposits ........................................................           186            145
 Deferred revenue .........................................................         1,310          1,720
 Note payable .............................................................            86            --
 Current portion of capital lease obligation ..............................            26             26
 Current portion of long-term liabilities .................................           500          1,364
                                                                               ----------     ----------
   Total current liabilities ..............................................         8,586         14,631
Capital lease obligation, less current portion ............................            66             90
Long-term liabilities, less current portion ...............................           339            725
                                                                               ----------     ----------
   Total liabilities ......................................................         8,991         15,446
                                                                               ----------     ----------
Commitments and contingencies (Note 11)
Shareholders' equity:
 Preferred stock: no par value; 6,600 shares authorized; none issued and
   outstanding; ...........................................................           --             --
 Common stock: no par value; 82,000 shares authorized; 30,836 and 29,437
   shares issued and outstanding at December 31, 2000 and 1999,
   respectively ...........................................................       161,938        158,338
 Deferred compensation ....................................................           (66)          (466)
 Accumulated other comprehensive loss .....................................           (65)           (75)
 Accumulated deficit ......................................................      (153,833)      (139,224)
                                                                               ----------     ----------
   Total shareholders' equity .............................................         7,974         18,573
                                                                               ----------     ----------
   Total liabilities and shareholders' equity .............................    $   16,965     $   34,019
                                                                               ==========     ==========
<FN>

The  accompanying  notes  are  an  integral part of these consolidated financial
                                   statements
</FN>
</TABLE>


                                       36
<PAGE>

<TABLE>
                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
             For the Years Ended December 31, 2000, 1999 and 1998
                   (in thousands, except per share amounts)


<CAPTION>
                                                                      2000              1999             1998
                                                                 --------------   ----------------   ----------
<S>                                                              <C>              <C>                <C>
Net revenues ...................................................   $   22,210        $  25,324         $ 15,080
Cost of revenues ...............................................       10,055           13,246            7,868
                                                                   ----------        ---------         --------
      Gross profit .............................................       12,155           12,078            7,212
                                                                   ----------        ---------         --------
Operating expenses:
 Research and development ......................................        5,065           11,353           29,861
 Sales and marketing ...........................................       15,349           16,553           17,663
 General and administrative ....................................        6,660            8,028           10,821
 Merger-related costs ..........................................          --             5,214              --
                                                                   ----------        ---------         --------
      Total operating expenses .................................       27,074           41,148           58,345
                                                                   ----------        ---------         --------
      Operating loss ...........................................      (14,919)         (29,070)         (51,133)
Interest expense ...............................................          (32)             (64)             (88)
Interest and other income ......................................          400              801            3,454
Equity in net loss of investee .................................          (58)             --               --
                                                                   ----------        ---------         --------
      Net loss .................................................      (14,609)         (28,333)         (47,767)
Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on securities:
   Unrealized holding gains (losses) arising during period .....           44             (145)              38
   Less: reclassification adjustment for gains included in net
    income .....................................................          --                (5)             (50)
    Foreign currency translation adjustment ....................          (34)              26                3
                                                                   ----------        -----------       --------
    Other comprehensive income (loss) ..........................           10             (124)              (9)
                                                                   ----------        -----------       --------
      Comprehensive loss .......................................   $  (14,599)       $ (28,457)        $(47,776)
                                                                   ==========        ===========       ========
Net loss per share:
 Basic and diluted .............................................   $    (0.48)       $   (0.99)        $  (1.77)
                                                                   ==========        ===========       ========
 Weighted average shares outstanding ...........................       30,166           28,629           27,000
                                                                   ==========        ===========       ========
<FN>

The  accompanying  notes  are  an  integral part of these consolidated financial
                                   statements
</FN>
</TABLE>


                                       37
<PAGE>

<TABLE>
                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
             For the Years Ended December 31, 2000, 1999 and 1998
                                 (in thousands)

<CAPTION>
                                                        Common Stock
                                                   -----------------------    Deferred
                                                    Shares(#)     Amount    Compensation
                                                   ----------- ----------- --------------
<S>                                                <C>         <C>         <C>
Balances, December 31, 1997 ......................    26,511    $146,288       $ (848)
 Issuance of common stock pursuant to
   exercise of options ...........................       650       1,496          --
 Issuance of common stock pursuant to
   exercise of warrants ..........................       305         725          --
 Deferred stock compensation .....................       --          438         (438)
 Amortization of deferred compensation ...........       --          --           457
 Net change in unrealized gain on marketable
   securities ....................................       --          --           --
 Foreign currency translation adjustment .........       --          --           --
 Net loss ........................................       --          --           --
                                                      ------    --------       ------
Balances, December 31, 1998 ......................    27,466     148,947         (829)
 Issuance of common stock pursuant to
   exercise of options ...........................     1,522       7,747          --
 Issuance of common stock pursuant to
   exercise of warrants ..........................       449         833          --
 Deferred stock compensation .....................       --          811         (811)
 Amortization of deferred compensation ...........       --          --         1,174
 Net change in unrealized gain on marketable
   securities ....................................       --          --           --
 Foreign currency translation adjustment .........       --          --           --
 Net loss ........................................       --          --           --
                                                      ------    --------       ------
Balances, December 31, 1999 ......................    29,437     158,338         (466)
 Issuance of common stock pursuant to
   exercise of options ...........................       640       1,064          --
 Issuance of common stock pursuant to stock
   purchase under the Employee Stock
   Purchase Plan .................................       204         388          --
 Issuance of common stock in a private
   replacement ...................................       526       1,873          --
 Issuance of common stock in lieu of payment
   for services ..................................        29          44          --
 Deferred stock compensation .....................       --          231         (231)
 Amortization of deferred compensation ...........       --          --           631
 Net change in unrealized gain on marketable
   securities ....................................       --          --           --
 Foreign currency translation adjustment .........       --          --           --
 Net loss ........................................       --          --           --
                                                      ------    --------       ------
Balances, December 31, 2000 ......................    30,836    $161,938       $  (66)
                                                      ======    ========       ======
</TABLE>


<TABLE>
<CAPTION>
                                                     Accumulated
                                                        Other
                                                    Comprehensive
                                                       Income       Accumulated
                                                       (Loss)         Deficit        Total
                                                   -------------- -------------- ------------
<S>                                                <C>            <C>            <C>
Balances, December 31, 1997 ......................     $   58       $  (63,124)   $   82,374
 Issuance of common stock pursuant to
   exercise of options ...........................        --               --          1,496
 Issuance of common stock pursuant to
   exercise of warrants ..........................        --               --            725
 Deferred stock compensation .....................        --               --            --
 Amortization of deferred compensation ...........        --               --            457
 Net change in unrealized gain on marketable
   securities ....................................        (12)             --            (12)
 Foreign currency translation adjustment .........          3              --              3
 Net loss ........................................        --           (47,767)      (47,767)
                                                       ------       ----------    ----------
Balances, December 31, 1998 ......................         49         (110,891)       37,276
 Issuance of common stock pursuant to
   exercise of options ...........................        --               --          7,747
 Issuance of common stock pursuant to
   exercise of warrants ..........................        --               --            833
 Deferred stock compensation .....................        --               --            --
 Amortization of deferred compensation ...........        --               --          1,174
 Net change in unrealized gain on marketable
   securities ....................................       (150)             --           (150)
 Foreign currency translation adjustment .........         26              --             26
 Net loss ........................................        --           (28,333)      (28,333)
                                                       ------       ----------    ----------
Balances, December 31, 1999 ......................        (75)        (139,224)       18,573
 Issuance of common stock pursuant to
   exercise of options ...........................        --               --          1,064
 Issuance of common stock pursuant to stock
   purchase under the Employee Stock
   Purchase Plan .................................        --               --            388
 Issuance of common stock in a private
   replacement ...................................        --               --          1,873
 Issuance of common stock in lieu of payment
   for services ..................................        --               --             44
 Deferred stock compensation .....................        --               --            --
 Amortization of deferred compensation ...........        --               --            631
 Net change in unrealized gain on marketable
   securities ....................................         44              --             44
 Foreign currency translation adjustment .........        (34)             --            (34)
 Net loss ........................................        --           (14,609)      (14,609)
                                                       ------       ----------    ----------
Balances, December 31, 2000 ......................     $  (65)      $ (153,833)   $    7,974
                                                       ======       ==========    ==========
<FN>

The  accompanying  notes  are  an  integral part of these consolidated financial
                                   statements

</FN>
</TABLE>

                                       38
<PAGE>
<TABLE>
                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the Years Ended December 31, 2000, 1999 and 1998
                                (in thousands)

<CAPTION>
                                                                                            2000
                                                                                       --------------
<S>                                                                                    <C>
Cash flows from operating activities:
 Net loss ............................................................................   $  (14,609)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation and amortization .......................................................          933
 Loss/(gain) from investment in MicroHeart Holdings, Inc .............................           58
 Provision for doubtful accounts .....................................................          620
 Inventory reserves ..................................................................        1,788
 Amortization of deferred compensation ...............................................          631
 Amortization of license fees ........................................................          194
 Loss on disposal of property and equipment ..........................................          --
 Issuance of stock to private company in lieu of payment for services ................           44
 Changes in operating assets and liabilities:
  Accounts receivable -- short term ..................................................        3,756
  Inventories ........................................................................         (694)
  Prepaids and other current assets ..................................................          (70)
  Other assets .......................................................................          --
  Accounts receivable -- long term ...................................................        1,096
  Accounts payable ...................................................................       (1,130)
  Accrued liabilities ................................................................       (3,768)
  Current portion of long term liabilities ...........................................         (375)
  Long term liabilities ..............................................................         (386)
  Customer deposits ..................................................................           41
  Deferred revenue ...................................................................         (410)
                                                                                         ----------
   Net cash used in operating activities .............................................      (12,281)
                                                                                         ----------
Cash flows from investing activities:
 Purchase of marketable securities ...................................................       (3,317)
 Maturities of marketable securities .................................................       11,108
 Acquisition of property and equipment ...............................................         (762)
 Exercise of warrants in Microheart Holdings, Inc. ...................................         (310)
                                                                                         ----------
   Net cash provided by investing activities .........................................        6,719
                                                                                         ----------
Cash flows from financing activities:
 Net proceeds from issuance of common stock from exercise of options and warrants.....        1,452
 Net proceeds from sale of common stock ..............................................        1,873
 Proceeds from short term borrowings .................................................           86
 Repayment of note payable ...........................................................          --
 Repayments of capital lease obligations .............................................          (24)
                                                                                         ----------
   Net cash provided by financing activities .........................................        3,387
   Effects of exchange rate changes on cash and cash equivalents .....................          (34)
                                                                                         ----------
   Net increase (decrease) in cash and cash equivalents ..............................       (2,209)
Cash and cash equivalents at beginning of year .......................................        5,566
                                                                                         ----------
Cash and cash equivalents at end of year .............................................   $    3,357
                                                                                         ==========
Supplemental schedule of cash flow information:
 Interest paid .......................................................................   $       32
                                                                                         ==========
 Taxes paid ..........................................................................   $      153
                                                                                         ==========
Supplemental schedule of noncash investing and financing activities:
 Change in unrealized gain (loss) on marketable securities ...........................   $       44
                                                                                         ==========
 Investment in MicroHeart Holdings, Inc ..............................................   $      --
                                                                                         ==========
 Deferred compensation ...............................................................   $      231
                                                                                         ==========
 Acquisition of equipment under capital leases .......................................   $      --
                                                                                         ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                            1999           1998
                                                                                       -------------- --------------
<S>                                                                                    <C>            <C>
Cash flows from operating activities:
 Net loss ............................................................................   $  (28,333)    $  (47,767)
Adjustments to reconcile net loss to net cash used in operating activities:
 Depreciation and amortization .......................................................        1,453            908
 Loss/(gain) from investment in MicroHeart Holdings, Inc .............................          --            (400)
 Provision for doubtful accounts .....................................................        1,377          1,017
 Inventory reserves ..................................................................        1,782             68
 Amortization of deferred compensation ...............................................        1,174            457
 Amortization of license fees ........................................................          195            --
 Loss on disposal of property and equipment ..........................................          317            --
 Issuance of stock to private company in lieu of payment for services ................          --             --
 Changes in operating assets and liabilities:
  Accounts receivable -- short term ..................................................          551         (4,548)
  Inventories ........................................................................          799         (4,167)
  Prepaids and other current assets ..................................................        1,195           (229)
  Other assets .......................................................................           24            --
  Accounts receivable -- long term ...................................................           51         (1,963)
  Accounts payable ...................................................................          230           (601)
  Accrued liabilities ................................................................       (1,907)         5,595
  Current portion of long term liabilities ...........................................          --             --
  Long term liabilities ..............................................................         (687)           --
  Customer deposits ..................................................................         (111)           185
  Deferred revenue ...................................................................         (425)         1,995
                                                                                         ----------     ----------
   Net cash used in operating activities .............................................      (22,315)       (49,450)
                                                                                         ----------     ----------
Cash flows from investing activities:
 Purchase of marketable securities ...................................................      (44,702)       (45,067)
 Maturities of marketable securities .................................................       61,473         73,646
 Acquisition of property and equipment ...............................................         (637)          (173)
 Exercise of warrants in Microheart Holdings, Inc. ...................................          --             --
                                                                                         ----------     ----------
   Net cash provided by investing activities .........................................       16,134         28,406
                                                                                         ----------     ----------
Cash flows from financing activities:
 Net proceeds from issuance of common stock from exercise of options and warrants.....        8,580          2,221
 Net proceeds from sale of common stock ..............................................          --             --
 Proceeds from short term borrowings .................................................          --              71
 Repayment of note payable ...........................................................         (111)        (1,000)
 Repayments of capital lease obligations .............................................          (21)           (22)
                                                                                         ----------     ----------
   Net cash provided by financing activities .........................................        8,448          1,270
   Effects of exchange rate changes on cash and cash equivalents .....................           26              3
                                                                                         ----------     ----------
   Net increase (decrease) in cash and cash equivalents ..............................        2,293        (19,771)
Cash and cash equivalents at beginning of year .......................................        3,273         23,044
                                                                                         ----------     ----------
Cash and cash equivalents at end of year .............................................   $    5,566     $    3,273
                                                                                         ==========     ==========
Supplemental schedule of cash flow information:
 Interest paid .......................................................................   $       64     $       87
                                                                                         ==========     ==========
 Taxes paid ..........................................................................   $      112     $      --
                                                                                         ==========     ==========
Supplemental schedule of noncash investing and financing activities:
 Change in unrealized gain (loss) on marketable securities ...........................   $     (150)    $      (12)
                                                                                         ==========     ==========
 Investment in MicroHeart Holdings, Inc ..............................................   $      --      $      400
                                                                                         ==========     ==========
 Deferred compensation ...............................................................   $      811     $      438
                                                                                         ==========     ==========
 Acquisition of equipment under capital leases .......................................   $      --      $      138
                                                                                         ==========     ==========
<FN>
The  accompanying  notes  are  an  integral part of these consolidated financial
                                   statements
</FN>
</TABLE>

                                       39

<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Nature of Operations:

     Eclipse  Surgical  Technologies,  Inc.  ("Eclipse"  or  the  "Company") was
founded  in  1989  to  develop,  manufacture  and  market  surgical  lasers  and
accessories  for  the  treatment of disease. Currently, Eclipse's emphasis is on
the   development   and   manufacture   of  products  used  for  transmyocardial
revascularization    ("TMR")    and    percutaneous    transluminal   myocardial
revascularization   ("PTMR"),   which  are  cardiovascular  procedures.  Eclipse
markets  its  products  for sale primarily in the U.S., Europe and Asia. Eclipse
operates in a single segment.

     These  financial  statements  contemplate the realization of assets and the
satisfaction  of  liabilities  in the normal  course of  business.  Eclipse  has
sustained  significant losses for the last several years and expects to continue
to incur losses through at least 2001.  Management  believes its cash balance as
of December 31, 2001 will not be sufficient  to meet the  Company's  capital and
operating  requirements for the next 12 months.  Eclipse will require additional
funding and may sell  additional  shares of its common stock or preferred  stock
through private  placement of further public offerings or debt financings.  (see
Note 18).

     Eclipse  may  require  additional  financing in the future. There can be no
assurance  that  Eclipse  will  be  able  to  obtain  additional  debt or equity
financing,  if  and  when  needed,  on  terms  acceptable  to  the  Company. Any
additional  equity  or  debt  financing  may  involve  substantial  dilution  to
Eclipse's  stockholder,  restrictive  covenants  or  high  interest  costs.  The
failure  to  raise  needed  funds  on  sufficiently favorable terms could have a
material  adverse  effect on Eclipse's business, operating results and financial
condition.

     Eclipse's  long  term  liquidity  also depends upon its ability to increase
revenues  from  the  sale of its products and achieve profitability. The failure
to  achieve  these  goals  could have a material adverse effect on the business,
operating results and financial condition.


2. Summary of Significant Accounting Policies:

 Basis of Presentation:

     On  March  17,  1999,  Eclipse  completed  the acquisition of CardioGenesis
Corporation   (CardioGenesis)   pursuant   to   the   Agreement   and   Plan  of
Reorganization  (the  "merger')  dated  as  of  October 21, 1998. The merger was
accounted  for  using the pooling of interests method of accounting for business
combinations.  Accordingly, Eclipse's financial statements have been restated to
include  the  accounts  of  CardioGenesis  for  the  years  1998  and  1999. The
accompanying  consolidated  financial statements include the accounts of Eclipse
(and  CardioGenesis)  and  its  then  wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.

 Use of Estimates:

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

 Reclassification:

     The Company has reclassified  $2,523,000 of inventory write-offs associated
with the merger from merger-related costs to cost of revenues for the year ended
December 31, 1999.  The  reclassification  was made to ensure that the Company's
merger  costs  are in  compliance  with the  appropriate  accounting  rules  and
interpretations.

 Cash and Cash Equivalents:

     All  highly liquid instruments purchased with an original maturity of three
months or less are considered cash equivalents.


                                       40
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Marketable Securities:

     Marketable  securities are classified as available-for-sale and are carried
at   fair  value.  Marketable  securities  classified  as  current  assets  have
scheduled  maturities  of  less  than  one  year,  while  marketable  securities
classified  as  noncurrent  assets  have  scheduled  maturities of more than one
year.  Unrealized  holding  gains  or  losses on such securities are included in
accumulated  comprehensive income/(loss) in shareholders' equity. Realized gains
and  losses  on  sales  of  all  such  securities  are  reported in earnings and
computed using the specific identification cost method.

 Inventories:

     Inventories  are  stated  at  the lower of cost (principally standard cost,
which  approximates actual cost on a first-in, first-out basis) or market value.


 Patent Expenses:

     Patent  and  patent  related  expenditures  are  expensed  as  general  and
administrative expenses as incurred.

 Property and Equipment:

     Property   and   equipment   are  stated  at  cost  and  depreciated  on  a
straight-line  basis  over  their  estimated useful lives of two to seven years.
Assets  acquired  under  capital  leases are amortized over the shorter of their
estimated  useful  lives  or  the  term of the related lease (generally three to
five   years).   Amortization   of   leasehold  improvements  is  based  on  the
straight-line  method over the shorter of the estimated useful life or the lease
term.

 Long-Lived Assets:

     Eclipse   evaluates   the   recoverability  of  its  long-lived  assets  in
accordance   with   Statement   of   Financial  Accounting  Standards  No.  121,
"Accounting  for  the  Impairment of Long-Lived Assets and for Long-Lived Assets
to  be  Disposed  Of"  ("SFAS  121").  SFAS  121  requires  recognition  of  the
impairment  of  long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.

 Fair Value of Financial Instruments:

     The   carrying  amounts  of  certain  of  Eclipse's  financial  instruments
including  cash  and  cash  equivalents,  accounts receivable, accounts payable,
accrued  liabilities  and  customer deposits approximate fair value due to their
short maturities.

 Certain Risks and Concentrations:

     Eclipse  sells  its  products  primarily  to hospitals and other healthcare
providers  in  North  America,  Europe and Asia. Eclipse performs ongoing credit
evaluations  of  its  customers  and  generally  does  not  require  collateral.
Although  Eclipse  maintains  allowances  for  potential  credit  losses that it
believes  to  be  adequate,  a  payment  default  on  a  significant  sale could
materially  and  adversely affect its operating results and financial condition.
At  years  ending  December 31, 2000, December 31, 1999 and December 31, 1998 no
customer  individually accounted for 10% or more of accounts receivable, nor did
any  customer individually account for 10% or more of net revenues for the years
ended December 31, 2000, December 31, 1999 or December 31, 1998.

     Eclipse   purchases   certain   laser   and   fiber-optic   components  and
subassemblies  from  single sources. Although Eclipse has identified alternative
vendors,  the  qualification  of  additional  or replacement vendors for certain
components   or   services   is   a  lengthy  process.  Any  significant  supply
interruption  could  affect  Eclipse's  ability  to manufacture its products and
would, therefore, adversely affect operating results.


                                       41
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Revenue Recognition:

     Eclipse  has  adopted  the  provisions of Staff Accounting Bulletin ("SAB")
No.  101  "Revenue  Recognition  in  Financial Statements" and believes that its
current and historical revenue recognition is in compliance with the SAB.

     Eclipse  recognizes  revenue  on product  sales upon  receipt of a purchase
order, subsequent shipment of the product and the price is fixed or determinable
and collection of sales proceeds is reasonably  assured.  Where purchase  orders
allow  customers  an  acceptance  period  or  other  contingencies,  revenue  is
recognized upon the earlier of acceptance or removal of the contingency.

     Eclipse  frequently  loans  lasers to  hospitals in return for the hospital
purchasing a minimum number of handpieces at a premium over the list price.  The
placed  lasers are  depreciated  to costs of  revenues  over a useful life of 24
months.  The revenue on the handpieces is recognized  upon shipment at an amount
equal to the list price. The premium over the list price is recognized  ratable,
generally over several months.

     Revenues  from  service  contracts,  rentals,  and  per  procedure fees are
recognized upon performance or over the terms of the contract as appropriate.

 Research and Development:

     Research and development expenses are charged to operations as incurred.

 Warranties:

     Eclipse's  laser  products  are  generally  warranted for one year. Eclipse
provides  for  estimated  future  costs  of  repair,  replacement,  or  customer
accommodations which are reflected in the accompanying financial statements.

 Advertising:

     Eclipse   expenses  all  advertising  as  incurred.  Eclipse's  advertising
expenses   were  $128,000,  $75,000,  and  $18,000  for  2000,  1999  and  1998,
respectively.

 Income Taxes:

     Eclipse  accounts  for  income taxes using the liability method under which
deferred  tax  assets  or  liabilities  are calculated at the balance sheet date
using  current  tax  laws  and  rates  in  effect  for  the  year  in  which the
differences  are  expected  to  affect  taxable income. Valuation allowances are
established,  when  necessary,  to  reduce  deferred  tax  assets to the amounts
expected to be realized.

 Foreign Currency Translation:

     Eclipse's   international   subsidiary  uses  its  local  currency  as  its
functional  currency. Assets and liabilities are translated at exchange rates in
effect  at  the  balance  sheet  date and income and expense accounts at average
exchange  rates  during the year. Resulting translation adjustments are recorded
in   accumulated   other  comprehensive  income/loss  in  shareholders'  equity.
Transaction  gains and losses are included in the results of operations and have
not been significant for all periods presented.

 Stock-Based Compensation:

     Eclipse  accounts  for  its  stock-based  compensation  in  accordance with
Accounting  Principles  Board  Opinion  No.  25, "Accounting for Stock Issued to
Employees"  ("APB  25").  Eclipse  has  elected  to  adopt  the  disclosure only
provisions  of  Statement of Financial Accounting Standards No. 123, "Accounting
for   Stock-Based   Compensation"   ("SFAS   123"),  which  requires  pro  forma
disclosures  in  the  financial  statements  as if the measurement provisions of
SFAS 123 had been adopted.

     Eclipse   accounts  for  equity  instruments  issued  to  non-employees  in
accordance  with the provisions of SFAS 123 and Emerging Issues Task Force Issue
No.  96-18  "Accounting  for  Equity  Instruments  that are issued to other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."


                                       42
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Net Loss Per Share:

     Basic  earnings  per  share  ("EPS")  is  computed by dividing the net loss
available  to  common  shareholders  by  the  weighted  average number of common
shares  outstanding for the period. Diluted EPS is computed giving effect to all
dilutive  potential  common  shares  that  were  outstanding  during the period.
Dilutive  potential  common  shares  consist of incremental shares issuable upon
the  conversion of convertible preferred stock (using the "if converted" method)
and  the  exercise  of  stock  options  and warrants (using the "treasury stock"
method).

<TABLE>
     A  reconciliation of the numerator and denominator of basic and diluted EPS
is as follows (in thousands, except per share amounts):

<CAPTION>
                                                                   Year Ended December 31,
                                                       ------------------------------------------------
                                                            2000             1999             1998
                                                       --------------   --------------   --------------
<S>                                                    <C>              <C>              <C>
     Numerator -- Basic and Diluted EPS
       Net Loss ....................................     $  (14,609)      $  (28,333)      $  (47,767)
                                                         ==========       ==========       ==========
     Denominator -- Basic and Diluted EPS
       Weighted average shares outstanding .........         30,166           28,629           27,000
                                                         ==========       ==========       ==========
     Basic and diluted EPS .........................     $    (0.48)      $    (0.99)      $    (1.77)
                                                         ==========       ==========       ==========
</TABLE>

     Options  to  purchase  4,277,021, 4,381,335, and 4,533,000 shares of common
stock  were  outstanding  at December 31, 2000, 1999 and 1998, respectively. The
range  of  exercise  prices  for  these  options  were  $0.03-$15.9375 for 2000,
$0.03-$16.09  for  1999 and $0.03-$18.125 for 1998. No warrants were outstanding
at  December  31,  2000  and 1999. Warrants to purchase 466,123 shares of common
stock  were  outstanding  as of December 31, 1998. Both the options and warrants
were  not  included  in  the  calculation of diluted EPS because their inclusion
would have been anti-dilutive.

 Recent Accounting Pronouncements:

     In  June  1998,  the  Financial Accounting Standards Board issued SFAS 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities".  SFAS  133
establishes   new   standards   of   accounting  and  reporting  for  derivative
instruments  and  hedging  activities. SFAS 133 requires that all derivatives be
recognized  at  fair  value in the statement of financial position, and that the
corresponding  gains or losses be reported either in the statement of operations
or  as  a  component  of  comprehensive income, depending on the type of hedging
relationship   that   exists.   Eclipse   does  not  currently  hold  derivative
instruments  or engage in hedging activities. Eclipse will adopt SFAS 133 in the
first  quarter  of 2001 and does not believe that the initial adoption will have
a material impact on the Company's financial statements.

3. Business Combination

     On  March 17, 1999, Eclipse and CardioGenesis Corporation ("CardioGenesis")
announced  the  completion of their business combination. Under the terms of the
combination,  each share of CardioGenesis Common Stock was converted into 0.8 of
a   share   of  Eclipse  Common  Stock,  and  Eclipse  assumed  all  outstanding
CardioGenesis  stock  options. CardioGenesis became a wholly-owned subsidiary of
Eclipse  and  its  shares  are  no  longer  publicly  traded. As a result of the
transaction,  Eclipse  increased  its  outstanding  shares  by approximately 9.9
million  shares.  The  transaction  was  structured  to  qualify  as  a tax-free
reorganization  and  was  accounted for as a pooling of interests, consequently,
all  prior  period  figures have been restated as if the combined entity existed
for  all periods presented. There were no inter-company transactions between the
companies  prior  to  the  date  of  the  business  combination. The fiscal year
remained  the  same  and thus, there were no changes in retained earnings due to
the  business combination. Further, there were no required adjustments needed to
conform to the accounting policies between the two companies.

     CardioGenesis  was  a  medical device company like Eclipse which developed,
manufactured,  and marketed cardiac revascularization products for the treatment
of advanced cardiovascular disease and

                                       43
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

severe  angina  pain  through  TMR and PTMR. CardioGenesis also manufactured and
marketed   disposable   products   to   perform  intraoperative  transmyocardial
revascularization    ("ITMR"),    catheter-based    percutaneous    myocardial
revascularization  ("PMR"),  and  thorascopic  transmyocardial revascularization
("TTMR")  to  treat  patients  afflicted  with  debilitating  angina. During the
quarter  ended  March  31,  1999,  Eclipse  recognized  merger-related  costs of
$6,893,000   for   financial  advisory  and  legal  fees,  personnel  severance,
terminated  relationships  and  other costs including write-offs of fixed assets
and   inventory.  A  majority  of  the  terminated  employees  were  located  in
California  and  worked  in  operations, sales, marketing, quality, research and
development   and  administrative  functions.  A  total  of  40  employees  were
terminated.
     During  the  remaining quarters ended December 31, 1999, Eclipse recognized
additional  merger-related  costs  of  $844,000,  bringing  the  total of merger
related  costs  to  $7,737,000  for the twelve months ended December 31, 1999 of
which  $2,523,000  was  accounted  for in our cost of revenues as a write-off of
inventory.  This  increase was mainly due to a charge associated with an upgrade
program  to  replace  customer  owned equipment rendered unusable by the merger.
Eclipse did not incur any charges for merger related expense in 2000.

     The following table summarizes the merger-related costs (in thousands).

<TABLE>
<CAPTION>
Description                                                                    Amount
--------------------------------------------------------------------------   ----------
<S>                                                                          <C>
     Financial advisory and legal fees ...................................    $  2,528
     Personnel severance .................................................       1,190
     Terminated relationships/contracts ..................................         910
     Other costs including fixed asset and inventory write-offs ..........       3,109
                                                                              --------
        Subtotal .........................................................    $  7,737
        Less: Amount included in cost of revenues ........................      (2,523)
                                                                              --------
        Total ............................................................    $  5,214
                                                                              ========


     The  following  table  summarizes  the  Company's  merger  related  reserve
balances (in thousands):

     Merger-related costs ................................................    $  7,737
        Non-cash charges .................................................      (2,060)
        Cash payments ....................................................      (5,407)
                                                                              --------
     Merger reserve balance at December 31, 2000 .........................    $    270

                                                                              ========
</TABLE>
 The merger reserve balance is included in accrued liabilities.

<TABLE>

     The  following  table  summarizes the combined operating results of Eclipse
and  CardioGenesis as if the merger had occurred at the beginning of the periods
presented:

<CAPTION>
                                                                       For the Years Ended
                                                                          December 31,
                                                                 -------------------------------
                                                                      1998             1997
                                                                 --------------   --------------
<S>                                                              <C>              <C>
     Revenue:
       Eclipse previously reported ...........................     $   12,002       $    5,499
       CardioGenesis .........................................     $    3,078       $    7,559
       Restated Revenue ......................................     $   15,080       $   13,058
     Net loss:
       Eclipse previously reported ...........................     $  (20,354)      $  (18,247)
       CardioGenesis .........................................     $  (27,413)      $  (17,971)
       Restated net loss .....................................     $  (47,767)      $  (36,218)
     Basic and diluted net loss per share:
       Eclipse previously reported ...........................     $    (1.18)      $    (1.11)
       Cardio Genesis ........................................     $    (2.80)      $    (1.49)
       Restated basic and diluted net loss per share .........     $    (1.77)      $    (1.39)
</TABLE>

                                       44
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The  earnings  per  common share are based on the sum of historical average
common  shares  outstanding,  as reported by Eclipse, and the historical average
common shares outstanding for CardioGenesis (adjusted for the exchange ratio).

     The  following  table  summarizes  the  fiscal  year  1999 revenues and net
income of Eclipse and CardioGenesis through 3/31/99:



                               Quarter Ended
                               March 31, 1999
                              ---------------
CardioGenesis:
  Revenues ................      $     675
  Net Income ..............      $  (8,317)

Eclipse:
  Revenues ................      $   3,799
  Net Income ..............      $  (6,849)

4. Investment in Unconsolidated Affiliate, at Equity:

     At December 31, 2000,  Eclipse had a 32.1% ownership interest in Microheart
Holdings,  Inc.,  "Microheart",  which is accounted for under the equity method.
The  investment in Microheart is recorded at cost and adjusted for the Company's
share of the income/(loss) of the investment.  As of December 31, 2000,  Eclipse
recorded  net loss of $58,000,  which  represents  Eclipse's  equity in the loss
incurred by  Microheart  subsequent to obtaining  the equity  interest.  Eclipse
recorded no income or loss related to Microheart under the equity method in 1999
or 1998.


5. Marketable Securities:

     At December 31, 2000,  Eclipse held no marketable  securities.  At December
31, 1999, marketable securities had a cost basis of approximately $7,649,000 and
a fair value of $7,747,000.


6. Inventories:

     Inventories consist of the following (in thousands):

                                       December 31,
                                 -----------------------
                                    2000         1999
                                 ----------   ----------
     Raw materials ...........    $ 2,045      $ 3,074
     Work in process .........        715          624
     Finished goods ..........      2,640        3,285
                                  -------      -------
                                  $ 5,400      $ 6,983
                                  =======      =======

7. Property and Equipment:

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                -----------------------
                                                                   2000         1999
                                                                ----------   ----------
<S>                                                             <C>          <C>
     Computers and equipment ................................    $  2,508     $  2,262
     Manufacturing and demonstration equipment ..............       2,216        2,119
     Assets in progress .....................................         183            6
     Leasehold improvements .................................         198          242
                                                                 --------     --------
                                                                    5,105        4,627
                                                                 --------     --------
     Less accumulated depreciation and amortization .........      (4,057)      (3,407)
                                                                 --------     --------
                                                                 $  1,048     $  1,220
                                                                 ========     ========
</TABLE>

                                       45
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Eclipse  leases  certain  equipment  under a capital lease which expires in
December  2003.  Accordingly,  capitalized costs of $138,000, net of accumulated
amortization  of  $57,000,  are  included in computers and equipment at December
31, 2000.


8. Accrued Liabilities:

     Accrued liabilities consists of the following (in thousands):


<TABLE>
<CAPTION>
                                                                    December 31,
                                                               ----------------------
                                                                  2000        1999
                                                               ---------   ----------
<S>                                                            <C>         <C>
     Accrued research support ..............................    $2,356      $ 2,918
     Accrued accounts payable and related expenses .........     1,256          354
     Accrued merger expenses ...............................       270          514
     Accrued withholdings on exercised options .............        74        2,031
     Accrued salaries and related expenses .................       472        1,206
     Accrued commissions ...................................       235          468
     Accrued consulting fees and related expenses ..........        43           40
     Accrued warranty ......................................       158          225
     Accrued legal expense .................................        30          262
     Accrued other .........................................       895        1,539
                                                                ------      -------
                                                                $5,789      $ 9,557
                                                                ======      =======
</TABLE>

9. Note Payable:

     In  May  2000, Eclipse financed insurance premiums for Directors & Officers
insurance  with  a $319,000 note payable to a finance company at 8.0% per annum,
with  an  outstanding  balance  of $86,000 at December 31, 2000. At December 31,
1999, there were no outstanding note payable balances.


10. Long-term liabilities:

     On  January  5,  1999,  prior  to  the  merger  with Eclipse, CardioGenesis
entered  into  a Settlement and License Agreement with PLC Medical Systems, Inc.
(PLC)  which  grants  CardioGenesis a non-exclusive worldwide license to certain
PLC  patents.  In  return,  CardioGenesis  agreed  to  pay PLC a license fee and
minimum  royalties  totaling  $2.5  million  over  an  approximately forty-month
period.  The  present  value of these payments of $2.3 million has been recorded
as  a  prepaid license fee in other assets, and is being amortized over the life
of  the underlying patents. The liability for outstanding payments due to PLC is
reflected  in  the  current  and long term portions of long-term liabilities and
payable as follows (in thousands):


     Year Ending December 31,
     2001 ...........................................   $500
     2002 ...........................................    375
                                                        ----
                                                         875
     Less: Amount representing interest .............    (36)
     Present value of long-term liabilities .........    839
     Less: Current portion ..........................   (500)
                                                        ----
     Long-term portion ..............................   $339
                                                        ====

                                       46

<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Commitments and Contingencies:

     Eclipse  has entered into three operating leases for office facilities with
terms  extending  through September 2002. The minimum future rental payments are
as follows (in thousands):


     Year Ending December 31,
     2001 ...................    $   991
     2002 ...................        715
                                 -------
                                 $ 1,706
                                 =======

     Rent  expense  was  approximately  $950,000, $1,089,000and $883,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

     At  December 31, 2000 the Company held a capital lease which bears interest
at  6.8%  and expires in December 2003. Future minimum lease payments under this
capital lease are as follows (in thousands):


     Year Ending December 31,
     2001 ...................................................     $ 32
     2002 ...................................................       32
     2003 ...................................................       32
                                                                  -----
     Total minimum lease payments ...........................       96
     Less: Amount representing interest .....................       (4)
                                                                  -------
     Present value of capital lease obligations .............       92
     Less: Current portion. .................................      (26)
                                                                  ------
     Long-term portion of capital lease obligations .........     $ 66
                                                                  ======

     Eclipse   is  engaged  in  certain  legal  and  administrative  proceedings
incidental  to  its  normal  business  activities.  While  it is not possible to
determine  the  ultimate  outcome  of  these  actions  at  this time, management
believes  that  any liabilities resulting from such proceedings, or claims which
are  pending  or known to be threatened, will not have a material adverse effect
on the Company's financial position, cash flows or results of operations.


12. Shareholders' Equity:

 Warrants:

     At  December 31, 2000, there were no warrants outstanding. During the years
ended  December  31,  2000,  1999  and 1998, none, 448,799, and 304,715 warrants
were   exercised,  respectively,  generating  proceeds  of  approximately  none,
$833,000,and $725,000 respectively.

 Options Granted to Consultants:

     At  December  31,  2000,  options  for  consultants  to purchase a total of
371,000  shares  of  common stock at exercise prices ranging from $4.00 to $8.75
per  share  were outstanding. The exercisability and termination of this plan is
the  same  as  Eclipse's Stock Option Plan which is described below. At December
31,  2000, Eclipse had reserved 371,000 shares of common stock for issuance upon
exercise  of  these  options.  Eclipse  recorded  deferred stock compensation of
$231,000  in  2000  related  to these options. These options are included in the
Stock Option Plan disclosures below.

 Stock Option Plan:

     Eclipse  maintains a Stock Option Plan, which includes the Employee Program
under  which  incentive and nonstatutory options may be granted to employees and
the  Consultants  Program,  under  which  nonstatutory options may be granted to
consultants of the Company. As of December 31, 2000, Eclipse


                                       47
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

had  reserved  a  total  of  5,100,000 shares of common stock for issuance under
this  plan.  Under the plan, options may be granted at not less than fair market
value  (110%  of  fair market value for options granted to 10% shareholders), as
determined  by  the  Board of Directors. Options generally vest over a period of
three  years  and  expire  ten  years from date of grant (five years for options
granted  to  10%  shareholders). No shares of common stock issued under the plan
are subject to repurchase.


 Directors' Stock Option Plan:

     Eclipse  maintains  a  Directors'  Stock Option Plan which provides for the
grant  of nonstatutory options to directors who are not officers or employees of
the  Company.  As  of  December 31, 2000, Eclipse had reserved 325,000 shares of
common  stock for issuance under this plan. Under this plan, options are granted
at  the  trading  price  of  the  common  stock  at  the  date of grant. Options
generally  vest  over twelve to thirty-six months and expire ten years from date
of  grant.  No  shares  of  common  stock  issued  under the plan are subject to
repurchase.


 Employee Stock Purchase Plan:

     Eclipse  maintains  an  Employee  Stock  Purchase Plan, under which 578,400
shares  of  common  stock  have  been reserved for issuance. Eclipse adopted the
Employee  Stock  Purchase  Plan in April 1996. The purpose of the Employee Stock
Purchase  Plan  is  to  provide  eligible  employees  of Eclipse with a means of
acquiring   common   stock  of  Eclipse  through  payroll  deductions.  Eligible
employees  are  permitted  to  purchase  common  stock at 85% of the fair market
value  through  payroll  deductions of up to 15% of an employee's compensations,
subject  to  certain  limitations.  During  fiscal  years  2000,  1999 and 1998,
approximately  172,000,  81,000,  99,000 shares, respectively, were sold through
the ESPP.


 Stock-Based Compensation:

<TABLE>
     The  Company  has  adopted  the  disclosure  only  provisions  of SFAS 123.
Eclipse,  however,  continues  to  apply  APB  25 and related interpretations in
accounting  for  its plans. Had compensation cost for the Stock Option Plan, the
Director's  Stock  Option  Plan  and  the  Employee  Stock  Purchase  Plan  been
determined  based  on the fair value of the options at the grant date for awards
in  2000,  1999  and  1998 consistent with the provisions of SFAS 123, Eclipse's
net  loss  and  net loss per share would have increased to the pro forma amounts
indicated below (in thousands, except per share amounts):

<CAPTION>
                                                                                  December 31,
                                                                  ---------------------------------------------
                                                                       2000            1999            1998
                                                                  -------------   -------------   -------------
<S>                                                               <C>             <C>             <C>
     Net loss as reported .....................................     $ (14,609)     $  (28,333)      $ (47,767)
     Pro forma net loss .......................................     $ (17,993)     $  (32,362)      $ (51,213)
     Basic and diluted net loss per share as reported .........     $   (0.48)     $    (0.99)      $   (1.77)
     Pro forma basic and diluted net loss per share ...........     $   (0.60)     $    (1.13)      $   (1.90)
</TABLE>

<TABLE>
     The  above  pro-forma disclosures are not necessarily representative of the
effects  on  reported  net income for future years. The aggregate fair value and
weighted  average  fair  value  per  share of options granted in the years ended
December  31,  2000,  1999  and  1998  were $2.5 million, $7.9 million, and $6.5
million,  and  $1.44,  $5.25,  and  $5.46,  respectively. The fair value of each
option  grant  is  estimated on the date of grant using the Black-Scholes option
pricing  model  with  the  following  weighted-average assumptions for grants in
2000, 1999 and 1998:

<CAPTION>
                                                    December 31,
                                       ---------------------------------------
                                           2000          1999          1998
                                       -----------   -----------   -----------
<S>                                    <C>           <C>           <C>
     Expected life of option ......... 7 years       7 years       7 years
     Risk-free interest rate ......... 5.85%         5.00%         4.86%
     Expected dividends ..............  --            --            --
     Expected volatility .............  165%          100%           97%
</TABLE>

                                       48
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The  aggregate  fair  value  and  weighted  average fair value per share of
purchase  rights  under  the  ESPP  in  fiscal  years  2000,  1999  and 1998 was
$167,000,  $157,000 and $210,000, and $3.01, $3.42, and $3.90, respectively. The
fair  value  for  the  purchase rights under the Employee Stock Purchase Plan is
estimated  using  the  Black-Scholes  Option  Pricing  Model, with the following
assumptions for the rights granted in 2000, 1999 and 1998:


                                                      December 31,
                                       -----------------------------------------
                                           2000           1999           1998
                                       ------------   ------------   -----------
     Expected life ................... .5 years       .5 years       .5 years
     Risk-free interest rate .........   5.85%          5.00%          4.62%
     Expected dividends ..............    --             --             --
     Expected volatility .............    100%           100%            95%

<TABLE>
     Option  activity under the Stock Option Plan and the Directors Stock Option
Plan is as follows (in thousands, except per share amounts):

<CAPTION>
                                                                                Outstanding Options
                                                                        -----------------------------------
                                                    Shares Available         Number        Weighted Average
                                                        for Grant        of Shares (#)     Price per Share
                                                   ------------------   ---------------   -----------------
<S>                                                <C>                  <C>               <C>
     Balance, January 1, 1998 ....................        1,792               4,576           $   4.37
       Additional shares reserved ................          320                 --                 --
       Options granted ...........................       (1,243)              1,243               6.89
       Options canceled ..........................          702                (612)              8.20
       Options exercised .........................          --                 (650)              1.37
                                                         ------               -----
     Balance, December 31, 1998 ..................        1,571               4,557               4.86
       Additional shares reserved ................        1,225                 --                 --
       Options granted ...........................       (1,494)              1,494               7.75
       Options canceled ..........................          222                (222)              8.11
       Options exercised .........................          --               (1,447)              5.11
                                                         ------              ------
     Balance, December 31, 1999 ..................        1,524               4,382               5.35
       CardioGenesis Stock Plan reserves .........         (539)                --                 --
       Options granted ...........................       (1,554)              1,554               1.17
       Options canceled ..........................        1,019              (1,019)              7.36
       Options exercised .........................          --                 (640)              1.66
                                                         ------              ------
     Balance, December 31, 2000 ..................          450               4,277           $   4.99
                                                         ======              ======
</TABLE>


                                       49
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

<TABLE>
     The  following  table  summarizes  information  about  the  Company's stock
options  outstanding  and  exercisable  under  the  Stock  Option  Plan  and the
Director's Stock Option Plan at December 31, 2000:

<CAPTION>
                                      Options Outstanding                               Options Exercisable
                  -----------------------------------------------------------   ------------------------------------
                                       Weighted Average
                                           Remaining
                        Number         Contractual Life     Weighted Average         Number         Weighted Average
 Exercise Prices   Outstanding (#)        (in Years)         Exercise Price      Exercisable(#)      Exercise Price
----------------- -----------------   ------------------   ------------------   ----------------   -----------------
                    (in thousands)                                               (in thousands)
<S>               <C>                 <C>                  <C>                  <C>                <C>
$0.15-$ 0.30               88                 3.62              $   0.22                 88            $   0.22
$1.38-$ 1.44              583                 6.98                  0.92                202                0.46
$1.67-$ 1.67              530                 4.87                  1.67                530                1.67
$1.69-$ 2.29              824                 7.50                  1.99                121                1.99
$3.36-$ 5.88              348                 8.22                  3.80                203                3.90
$6.06-$ 6.94              967                 7.93                  6.48                635                6.51
$7.00-$ 8.74              550                 7.51                  8.33                371                8.28
$9.06-$15.94              389                 6.52                 10.17                326               10.02
                          ---                                                           ---
                        4,277                 6.98              $   4.99              2,477            $   5.25
                        =====
</TABLE>

13. Employee Retirement Plan:

     Eclipse  maintains  a  401(k)  plan  for  its  employees.  The  plan allows
eligible  employees  to  defer  up  to  15% of their earnings, not to exceed the
statutory  amount  per year on a pretax basis through contributions to the plan.
The  plan  provides for employer contributions at the discretion of the Board of
Directors, however, no such contributions were made in 2000, 1999 or 1998.


14. Segment Disclosures

     International  sales  accounted  for approximately 10%, 14%, and 24% of net
sales for the years ended December 31, 2000, 1999 and 1998, respectively.


15. Interest and Other Income:

     Interest and other income consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                                      -------------------------------
                                                        2000       1999        1998
                                                      --------   --------   ---------
<S>                                                   <C>        <C>        <C>
     Interest and other income ......................  $ 400      $ 796      $ 3,004
     Gain on investment in MicroHeart Holdings, Inc.     --         --           400
     Gain on sale of marketable securities ..........    --           5           50
                                                       -----      -----      -------
                                                       $ 400      $ 801      $ 3,454
                                                       =====      =====      =======
</TABLE>

                                       50
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Income Taxes:
     Significant  components of Eclipse's deferred tax assets are as follows (in
thousands):

                                                             December 31
                                                      -------------------------
                                                          2000          1999
                                                      -----------   -----------
     Net operating losses ..........................   $  50,734     $  43,914
     Research and development and other credits ....       3,697         4,284
     Capitalized research and development ..........         806         1,858
     Reserves ......................................       2,038         2,705
     Accrued liabilities ...........................       1,118         2,116
     Depreciation ..................................         259           402
     Other .........................................         763         1,018
                                                       ---------     ---------
     Net deferred tax asset ........................      59,415        56,297
     Less valuation allowance ......................     (59,415)      (56,297)
                                                       ---------     ---------
     Net deferred tax assets .......................   $     --      $     --
                                                       =========     =========

     The  Company  has  established  a  valuation allowance to the extent of its
deferred  tax  asset  since  it is not certain that a benefit can be realized in
the future due to the Company's recurring operating losses.

     As  of  December  31, 2000, the Company had federal and state net operating
loss  carryforwards of approximately $137 million and $62 million, respectively,
to  offset future taxable income. In addition, the Company had federal and state
credit  carryforwards  of  approximately  $2,501,000 and $1,195,000 available to
offset  future  tax liabilities. The Company's net operating loss carryforwards,
as  well as credit carryforwards, will expire at various dates beginning in 2001
through 2020, if not utilized.

     The  Internal  Revenue  Code  limits  the use of net operating loss and tax
credit  carryforwards  in  certain  situations  where changes occur in the stock
ownership  of  a  company. The Company believes that the sale of common stock in
its  initial  public  offering  and  the  merger  with CardioGenesis resulted in
changes  in ownership which could restrict the utilization of the carryforwards.



17. Related Party Transactions:

     The Company paid $0, $3,875 and $445,000 for consulting fees and product to
certain  stockholders  during the years ended December 31, 2000,  1999 and 1998,
respectively.


18. Subsequent Events:

     In March 2001,  the Company  sold  898,202  shares of common stock to Acqua
Wellington  North  American  Equities  Fund,  Ltd.  ("Acqua  Wellington")  at  a
negotiated  purchase  price of $1.1133 per share  pursuant  to the common  stock
purchased  agreement  between  Eclipse  Surgical  Technologies,  Inc.  and Acqua
Wellington dated August 17, 2000. The Company did not pay any other compensation
in conjunction with the sale of our common stock.

     In April  2001,  the Company  sold  2,000,000  shares of common  stock to a
governmental  entity at a  negotiated  purchase  price of $1.00 per  share.  The
Company did not pay any other  compensation in conjunction  with the sale of our
common stock.  These securities  carry  registration  rights.  If a registration
statement is not declared  effective by the SEC on or before July 12, 2001,  the
Company will be required to pay liquidated damages in the amount of 0.25% of the
total  purchase  price of the shares for each week after July 12,  2001 that the
registration statement is not declared effective. The purchaser also has certain
anti-dilution  rights that are effective  for 90 days  following the purchase of
the  stock.  As a  condition  of the sale,  the  Company  amended  its bylaws to
preclude, absent shareholder approval, the granting of any stock options with an
exercise price which is below the fair market value of the  underlying  stock on
the date of grant,  the  repricing  of any stock  options,  the  issuance of any
security convertible, exercisable or exchangeable into shares of common stock of
the Company  having a conversion,  exercise or exchange price per share which is
subject to downward  adjustment based on the market price of the common stock at
the time of conversion, exercise or exchange of such security into the Company's
common stock, or enter into any equity line or similar  agreement or arrangement
or any  agreement  to sell  common  stock at a price fixed after the date of the
agreement.

     In April 2001, the Company  received a non-binding  letter of intent from a
business credit financing company regarding an asset-based  financing  agreement
which will provide an estimated  $1,000,000 of additional  financing  based upon
our current levels of qualified domestic accounts receivable which will serve as
collateral.


                                       51
<PAGE>

                      ECLIPSE SURGICAL TECHNOLOGIES, INC.


               SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                (in thousands)

<TABLE>
<CAPTION>
                                             Balance at                                           Balance
                                              Beginning                                           at End
                                              of Period     Additions (1)     Deductions (2)     of Period
                                            ------------   ---------------   ----------------   ----------
<S>                                         <C>            <C>               <C>                <C>
Allowance for doubtful accounts:
Year ended December 31, 1998
 Allowance for doubtful accounts. .........   $  1,727         $  1,017           $    75        $  2,669
Year ended December 31, 1999
 Allowance for doubtful accounts ..........   $  2,669         $  1,377           $ 2,170        $  1,876
Year ended December 31, 2000
 Allowance for doubtful accounts ..........   $  1,876         $    620           $ 1,700        $    796

Inventory reserve:
Year ended December 31, 1998
 Inventory reserve ........................   $    432         $     68           $    97        $    403
Year ended December 31, 1999
 Inventory reserve ........................   $    403         $  1,782           $   187        $  1,998
Year ended December 31, 2000
 Inventory reserve ........................   $  1,998         $  1,788           $ 1,606        $  2,180

Warranty reserve: .........................
Year ended December 31, 1998
 Warrany reserve ..........................   $     78         $    100           $    --        $    178
Year ended December 31, 1999
 Warranty reserve .........................   $    178         $    114           $    67        $    225
Year ended December 31, 2000
 Warranty reserve .........................   $    225         $     95           $   162        $    158

Valuation allowance: .....................
Year ended December 31, 1998
 Valuation allowance ......................   $ 27,391         $ 19,342           $    --        $ 46,733
Year ended December 31, 1999
 Valuation allowance ......................   $ 46,733         $  9,564           $    --        $ 56,297
Year ended December 31, 2000
 Valuation allowance ......................   $ 56,297         $  3,118           $    --        $ 59,415
<FN>

------------
(1) Charged to costs and expenses.
(2) Amounts written off against the reserve.
</FN>
</TABLE>

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