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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K/A

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2000

OR

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

Commission File Number 0-22233

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ENDOCARDIAL SOLUTIONS, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization)

41-1724963(I.R.S. Employer Identification No.)1350 Energy Lane, Suite 110,
St. Paul, MN(Address of principal executive offices)

55108(Zip Code)


(651) 523-6900(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights

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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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The
aggregate market value of common stock, par value $.01 per share, held by non-affiliates of the registrant as of March 26, 2001 was approximately $46,279,253
(based on the last sale price of such stock as quoted on the Nasdaq National Market ($3.13) on such date).

As
of March 26, 2001, the number of shares outstanding of the registrant's common stock, par value $.01 per share, was 14,809,361.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for its 2001 Annual Meeting of Stockholders to be held on May 15, 2001 are incorporated by reference into
Part III of this Annual Report on Form 10-K (the "Form 10-K Report").

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PART I

ITEM 1. BUSINESS

The Company

Endocardial Solutions, Inc. ("ESI" or the "Company") designs, develops, and manufactures a minimally invasive diagnostic system that diagnoses, within
the span of a few heartbeats, potentially fatal abnormal heart rhythms known as arrhythmias. Arrhythmias are caused by irregular electrical activity in the heart that disrupts the heart's normal
pumping action. Arrhythmias characterized by an abnormally fast heart rate are known as tachycardias, which can appear in various forms. Ventricular tachycardia ("VT") occurs in the lower two chambers
of the heart and frequently lead to serious complications, including sudden cardiac death. Supraventricular tachycardia ("SVT"), including atrial tachycardia, atrial fibrillation and flutter,
originates in the upper two chambers of the heart and often result in chest pain, fatigue and dizziness and, while generally not life-threatening, are a leading cause of stroke in the
United States.

To
date, electrophysiologists have generally been unable to adequately diagnose complex arrhythmias due to the limited capabilities of current technology. The Company believes that
its proprietary EnSite® catheter and EnSite 3000® clinical workstation (together, the "EnSite System") is a powerful new diagnostic tool that enables electrophysiologists to
rapidly and precisely locate the multiple, unpredictable points of origin of complex arrhythmias and improve the selection of patient treatment options. The EnSite System applies proprietary
mathematical algorithms to compute more than 3,000 points of electrical activity within a heart chamber, producing a high resolution, real-time, three-dimensional color display of the
electrical activity in the heart chamber. The "virtual electrogram" function of the EnSite System allows electrophysiologists to instantly view the electrical activity at any of the more than 3,000
points. The EnSite System is also capable of tracking and displaying the location and movements of auxiliary catheters introduced into the chamber.

In
1998, ESI received the necessary approval to market the EnSite System in the European Community for use in the right atrium and left ventricle of the heart. Distribution of the
EnSite System in Europe
began in the second quarter of 1998. In 1999, ESI received clearance from the U.S. Food and Drug Administration (the "FDA") to market the EnSite System in the U.S. for diagnosis of complex arrhythmias
in the right atrium of the heart, and the Company continues to work with the FDA for the purpose of extending their marketing approval to the other chambers of the heart. In 2000, ESI received general
approval to market the EnSite System for cardiac mapping in Australia, Korea, Thailand, Taiwan, Malaysia and Hong Kong.

The
Company's strategy is to establish the EnSite System as the leading diagnostic tool for diagnosing arrhythmias in the more than 1,200 electrophysiology laboratories worldwide. The
EnSite System represents a new technology for mapping arrhythmias. The Company believes that the patient population that suffers from complex arrhythmias that are difficult to map using currently
available technology presents a significant market opportunity for the Company's EnSite System. The key elements of the Company's strategy are as follows:



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The
Company intends to continue to focus on the ability of its technology to provide improved speed, increased accuracy and cost-effectiveness in mapping other
arrhythmias. This improved mapping power should benefit electrophysiologists in performing diagnostic procedures and prescribing treatments for an expanded patient population. In January 1998,
the Company signed a license agreement with Medtronic, Inc. which gives the Company co-exclusive use of 3D intracardiac location technology for its EnSite System. Integration of the
technology with the EnSite System is still under review, but the Company believes it will improve intracardiac catheter positioning while significantly reducing the use of harmful radiation.

In
the first quarter of 1999, the Company announced a financing agreement with Medtronic, Inc. Under the agreement, the Company received $7 million from Medtronic Asset
Management. This loan was paid in full in February 2001. In July 1999, the Company received proceeds of $10,000,000 in a private placement of 1,111,111 shares of its common stock to
accredited investors. In June 2000, the Company received proceeds of $12,687,500 in a private placement of 2,030,000 shares of its common stock to accredited investors. In March 2001, the
Company received proceeds of $7,349,000 in a private placement of 2,449,666 shares of its common stock to accredited investors. Proceeds from the sale of these shares are being used for expenses
associated with current operating expenses, U.S. market expansion, clinical trials

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for atrial fibrillation, and software and hardware product development, as well as replenishment of some of the funds used to repay the loan from Medtronic, Inc.

The
Company was incorporated in Minnesota in 1992 and was reincorporated in Delaware in 1995. The Company's common stock began trading on The Nasdaq National Market under the symbol
"ECSI" on March 19, 1997. The Company's offices are located at 1350 Energy Lane, Suite 110, St. Paul, Minnesota 55108, and its telephone number is (651) 523-6900. The address
of the Company's web site is www.endocardial.com.

Background

The heart consists of four chambers: the ventricles, the lower two chambers, and the atria, the upper two chambers. A normal heartbeat is the result of
electrical impulses generated at the sinoatrial node, the heart's natural pacemaker located near the top of the right atrium. These impulses form a wave of electrical activation that travels
down the atria, causing them to contract and fill the ventricles, the heart's primary pumping chambers, with blood. After a brief delay in the atrioventricular node, located between the chambers, the
electrical activation wave enters the ventricles and produces a coordinated contraction of the ventricles that pump blood throughout the body's circulatory system.

When
defects in the heart tissue interfere with the normal formation or conduction of the heart's electrical activity, abnormal heart rhythms, known as cardiac arrhythmias, develop.
Cardiac arrhythmias have numerous causes, including congenital defects, tissue damage due to heart attacks or arteriosclerosis (the deposition of fatty substances in the inner layer of the arteries)
and other diseases, that accelerate, delay or redirect the transmission of electrical activity, thereby disrupting the normal coordinated contractions of the chambers. Arrhythmias characterized by an
abnormally fast heart rate (more than 100 beats per minute) are known as tachycardia.



Characteristics of Ventricular Tachycardias.Ventricular tachycardia, which afflicts approximately one million
Americans, is a potentially life-threatening condition caused either by abnormally rapid impulse formation or by slow ventricular conduction which interferes with the heart's normal
electrical activity and causes abnormally frequent contractions of the ventricles. Rapid ventricular contractions often result in significantly reduced cardiac output due to inefficient blood pumping.
As a result, the body receives an inadequate supply of oxygen, which can cause dizziness, unconsciousness, cardiac arrest and death. VT conditions tend to become more serious over time. Individuals
with VT are at risk of imminent death due to its unpredictable nature.

Many
VT result from heart attacks caused by coronary artery disease. When a heart attack occurs due to a blockage in one or more coronary arteries, a portion of the heart muscle (most
often in the left ventricle) dies. As a result, irregular borders consisting of intermixed healthy and scar tissue are formed and VT typically originate at these sites. As the average age of the U.S.
population increases, it is expected that the number of persons who suffer heart attacks and are at risk of VT will also increase.

VT
is a highly complex and transient form of cardiac arrhythmia, that varies significantly from patient to patient. A small percentage of ventricular tachycardia patients have simple
forms of the disease, which are focused on a single anatomic site within the ventricle. The Company estimates, however, that of the one million patients that suffer from VT, the majority suffer from
complex VTs that (i) have multiple sites of aberrant electrical activity, (ii) prevent sufficient cardiac output, making them dangerous to induce in the patient (which is required for
diagnosis) and (iii) are nonsustained and, consequently, are only detectable for several heartbeats.

Diagnosing Ventricular Tachycardia.Patients suspected of suffering from VT are initially screened by a cardiologist by
means of external cardiac monitoring, typically in the form of an electrocardiogram or

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Holter recording, which captures electrical activity from surface leads placed on the patient's chest for 24 hours. When further testing is warranted, the patient is referred to a cardiac
electrophysiologist for a cardiac electrophysiology ("EP") study.

An
EP study evaluates the electrical integrity of the heart by stimulating multiple intra-cardiac sites and recording the electrical response. During an EP study a patient's clinical
tachycardia is induced in a controlled setting in order to diagnose the tachycardia and select an appropriate treatment or combination of treatments. EP studies using currently available technology
are lengthy and tedious procedures, which consist of probing the interior of the left ventricle with single-point contact catheters, causing significant discomfort for the patient. In order to analyze
the information generated by single-point contact catheters for the purpose of prescribing treatment, electrophysiologists review the signals measured by these catheters as multiple rows of waveforms
displayed on a computer screen. Two or more catheters are often used to provide more information to the electrophysiologist and thereby aid in identifying the sites of origin of tachycardia. The
electrophysiologist generally constructs a mental image of the sites of the VT within the heart's chamber by calculating the relative timing of electrical activation among the waveforms displayed on
the computer screen. The electrophysiologist then estimates the site or sites of origin (which correspond to the physical positions of the catheters) through two-dimensional fluoroscopic
(x-ray) projections. As the tachycardia becomes more complex, the electrophysiologist's reconstruction of the heart's electrical activity and location of the sites of origin becomes more
difficult.

The
limited number of patients suffering from simple forms of VT have been effectively diagnosed using existing single-point contact catheter technology with diagnostic procedures
that can be time
consuming, tedious and invasive. However, single-point contact catheters have limited utility in diagnosing complex ventricular tachycardia, including those that are hemo-dynamically
ill-tolerated or short in duration. The limited data produced in point-by-point mapping often does not provide the electrophysiologist with sufficient diagnostic
power for a complete understanding of the ventricular tachycardia. Moreover, when attempted, diagnosing complex ventricular tachycardia with single-point, contact catheters can take from six to twelve
hours and requires significant use of fluoroscopy to guide the catheter, which exposes both the patient and the medical staff to radiation.

In
an effort to address the diagnostic shortcomings of single-point contact catheters, there are currently under development several "basket" contact catheters measuring multiple
points of electrical activity simultaneously. These basket catheters will require contact with the heart's surface for measurement of electrical activity, and the Company believes that these catheters
will suffer from many of the shortcomings of single-point contact catheters.

Treatments Following Diagnosis of Ventricular Tachycardia.The Company's EnSite System is designed for the diagnosis of
tachycardia. The Company does not currently design products for the treatment of this disease. However, the Company believes that the EnSite System will provide electrophysiologists with a diagnostic
tool to improve their ability to select among available tachycardia treatment options.

Once
a patient's VT is diagnosed, the electrophysiologist chooses among the various treatment options available. Noncurative treatments include antiarrhythmic drugs and implantable
defibrillators, both of which attempt to ameliorate the patient's condition and reduce the risks associated with the VT but do not eliminate the cause of the tachycardia. Historically, the only
curative treatment available for VT was open heart surgery, but it has been rarely used due to its high morbidity and mortality. More recently, however, catheter ablation, a potentially curative
treatment currently under development, has been used in a limited number of cases for complex VT. Often electrophysiologists prescribe a combination of drugs, defibrillators and ablation for the
treatment of VT.

Antiarrhythmic
drugs, which are prescribed to chemically suppress the arrhythmic activity, have to date been the most common treatment of VT. Antiarrhythmic drugs are not curative and
can result in considerable side effects limiting the effectiveness of the drugs and the ability of patients to use them over long periods of time.

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Automatic implantable cardioverter defibrillators ("ICDs"), which detect and stop a tachycardia once it has started by pacing or by applying high energy pulses, have also become a
common treatment for VT. The useful life of an ICD is approximately five to seven years, at the end of which time the ICD is generally replaced in another surgical procedure. Many ICD patients also
receive antiarrhythmic drug therapy in an attempt to minimize the frequency of VT episodes.

There
is increasing interest in the United States and Europe in using catheter ablation to treat VT. Catheter ablation is a minimally invasive and potentially curative treatment in
which a high radio frequency current is emitted from a catheter guided to the heart through a vein in the neck or groin to selectively destroy the heart tissue responsible for the abnormal electrical
activity. The use of catheter ablation to date has been limited due to the inability of single-point contact catheters to effectively map complex VT cases. Although catheter ablation is not yet
commonly prescribed to treat VT and the devices have not yet been approved by the FDA for marketing in the United States for treatment of VT, it is the subject of increasing technological research and
development. The Company believes catheter ablation could become a more commonly used treatment for VT with advances in diagnostic technology such as that being developed by the Company.



Approximately three million of the four million people in the United States who suffer from tachycardia have some form of SVT. Supraventricular tachycardia is
an abnormally rapid beating of the atria which may reduce the amount of blood pumped into the ventricles, and, consequently, from the ventricles to the rest of the body. Although SVT can be
debilitating, causing chest palpitations, fatigue and dizziness, it is generally not life-threatening. The principal types of SVT are Wolff-Parkinson-White syndrome ("WPW"),
Atrioventricular Nodal Re-entrant Tachycardia ("AVNRT"), and atrial fibrillation, atrial flutter, and atrial tachycardia.

Approximately
one million people in the United States suffer from WPW or AVNRT. The tachycardia associated with WPW and AVNRT are generally easy to diagnose and locate due to their
more simple, single-site nature and predictable location within the atria. WPW and AVNRT have been effectively treated by catheter ablation with available contact catheters.

Approximately
two million people in the United States suffer from atrial fibrillation or atrial flutter. Atrial fibrillation is the most common type of sustained arrhythmia and is
characterized by a disorganized and chaotic conduction of electrical activation, causing the heart's upper chambers to quiversometimes as fast as 600 to 1,000 beats per minute, which
results in ineffective pumping of the atria. Under these conditions, blood tends to pool and clot, increasing the risk of stroke. The American Heart Association estimates that approximately fifteen
percent of all strokes in the United States are caused by atrial fibrillation. The incidence of atrial fibrillation is linked to aging and thus is expected to increase as the average age of the United
States population increases.

Typically,
diagnosis of atrial fibrillation is easily discerned through an electrocardiogram recording. Beyond initial detection, electrophysiologists have had limited success in
mapping atrial fibrillation using current single-point technology due to its highly complex and chaotic nature. The inability to effectively map and understand the origins of atrial fibrillation has
hindered the development of treatments for the disease.

Antiarrhythmic
drugs and anticoagulation therapy are the most commonly prescribed treatments for atrial fibrillation, but they are not curative and have undesirable side effects. The
only known curative treatment for atrial fibrillation is a costly and rarely performed open heart surgical procedure known as the surgical maze procedure. The incisions made in this surgery
electrically isolate the atria into regions that can no longer maintain fibrillation. In addition, an atrial defibrillator is under development for detecting and controlling atrial fibrillation with
low energy shocks.

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Catheters have been approved for ablation treatments in the atria; however, due to the limited understanding of atrial fibrillation, to date they have not proven effective. Catheters
are under development for potentially curative ablation of atrial fibrillation. One type of catheter under development is designed to create linear lesions along the interior wall of the atrium to
electrically isolate regions of the chamber in a manner similar to the surgical maze procedure. Other emerging methods are aimed at more localized ablation treatment based on a hypothesis that atrial
fibrillation is maintained in an electrically localized region of the chamber, requiring detailed mapping.

The
Company believes that the complexity of atrial fibrillation and the search for effective and curative treatments, including catheter ablation, will require a diagnostic mapping
technology that provides much greater resolution and diagnostic capabilities than currently available technology. In January 2001, the Company received FDA approval for the use of the EnSite System in
the left atrium in a multi-center clinical study for diagnosing arrhythmias including atrial fibrillation, which the Company expects to begin in the second quarter of 2001.

The EnSite System

The Company has developed and continues to enhance its proprietary EnSite System to address the need for more rapid, comprehensive and
cost-effective diagnosis of complex forms of arrhythmia. The high resolution, three-dimensional, color display generated by the EnSite System is designed to provide electrophysiologists
greater diagnostic capabilities than single-point contact catheter mapping devices currently available. The EnSite System provides electrophysiologists with a real time, virtual image of the
electrical activity of the heart without contacting the heart's surface. The EnSite System displays more than 3,000 points of electrical activity using the Company's proprietary algorithms. Diagnosis
is enhanced by the "virtual electrogram" function of the EnSite System workstation that allows electrophysiologists to instantaneously view the electrical activity at any of the more than 3,000 points
displayed by selecting a specified point on the workstation's three-dimensional color map of the heart with the workstation's mouse pointer. In addition, the locator function of the EnSite System
workstation also enhances diagnosis and treatment by providing electrophysiologists with real-time feedback as to the precise location of auxiliary and therapy catheters introduced into
the heart.

The
Company's EnSite System consists of the EnSite catheter and clinical workstation that together form an integrated system. The EnSite System is designed to map ventricular and
atrial arrhythmia.



The EnSite catheter is a non-contact, single-use, multi-electrode array, and percutaneous catheter, designed for use with the EnSite
clinical workstation. The EnSite catheter's multi-electrode array senses electrical activity generated from the endocardial wall while positioned in the heart chamber. The array area of the EnSite
catheter is comprised of an inflatable polyurethane balloon within a mechanically expandable multi-electrode array. The multi-electrode array contains a wire braid consisting of 64 braided wires. A
handle and cable connector are located at the proximal end of the catheter to allow the physician to position the distal end of the catheter, deploy the multi-electrode array and make electrical
connection from the array to the patient interface unit of the EnSite System's workstation.

The
EnSite catheter is inserted percutaneously over a standard guidewire into a selected chamber of the heart. When positioned, the wire braid is mechanically expanded and the balloon
residing under the wire braid in the array area of the catheter is inflated with a radiopaque solution to form an ellipsoidal, multi-electrode array. When deployed, the array is small enough to permit
the normal functioning of the heart. In addition to the EnSite catheter, a standard single-point diagnostic catheter is inserted in a chamber of the heart in order to facilitate establishing the
chamber's spatial boundaries. The multi-electrode braid array collects data used to compute more than 3,000 points of the heart chamber's electrical activity in the span of a few heartbeats by
gathering a large amount of the electrical conduction

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information from the entire chamber and transmitting this information through the wire braid back down the catheter shaft to the EnSite System's clinical workstation.



The EnSite System's clinical workstation consists of the Company's proprietary patient interface unit and a Silicon Graphics-based workstation and other
third-party peripherals, such as a color monitor, a printer and an optical disk drive. The patient interface unit is designed to amplify and digitize the electrical information transmitted by the
EnSite catheter. The patient interface unit also accepts information generated by other auxiliary sensors, including as many as 32 standard contact catheter electrodes, which allows the
electrophysiologist to monitor clinical events or capture additional data for simultaneous display on the workstation. The workstation is programmed with software containing the Company's proprietary
algorithms, which process the electrical information transmitted by the EnSite
catheter and reconstruct the heart's geometric layout and the distribution of electrical activity. The heart and the electrical activity are displayed on the workstation as high resolution,
three-dimensional isopotential or isochronal color maps. The maps can be viewed as a snapshot in time or as an animated playback at adjustable rates of speed. The maps can also be viewed from any
perspective in space and may be zoomed in and out to facilitate rapid diagnosis and treatment of the tachycardia, including identifying the optimal site or sites for ablation.

The
electrical activity displayed on the workstation's three-dimensional map can also be displayed as time-waveforms, called "Virtual Electrograms," at multiple selected
sites on the endocardium. Virtual Electrograms are produced by the Company's software contained in the workstation. The electrophysiologist can instantaneously select any of the more than 3,000 sites
and waveforms to be displayed by pointing and clicking with the workstation's mouse pointer at the desired location on the map of the heart. The Virtual Electrogram function provides the equivalent of
positioning a standard contact catheter at the same site on the endocardiumbut without the need for actual physical contact.

The
EnSite System's workstation also generates the EnGuide locator signal that can be emitted from selected electrodes on standard EP catheters introduced into the heart
along with the EnSite catheter. The EnGuide locator signal provides electrophysiologists with an interactive method for locating and positioning auxiliary or therapy catheters. The locator function is
designed to allow electrophysiologists to diagnose and treat complex tachycardia with significantly less use of fluoroscopy than is currently required when using presently available single-point
contact catheters. The EnGuide locator signal is detected and displayed on the workstation's three-dimensional map to provide real-time feedback to the electrophysiologist as to the
precise location of the catheter and to assist in guiding the catheter (or catheters) to a specific site on the endocardium.

The
EnSite System is designed to function as a complete, integrated electrophysiology laboratory system to provide a wide range of accurate and versatile diagnostic tools in one
product. In addition to displaying high resolution, graphical, three-dimensional maps, the EnSite System provides multi-channel recording from standard EP electrode catheters and standard waveform
displays. In the second quarter of 2000, the Company released Clarity, an upgraded version of the Company's software product for use in the EnSite System that offers a more simplified
user interface and increased automation of arrhythmia analysis. The Clarity software is designed to simplify use of the EnSite System and reduce training time for hospital staff. The Company intends
to develop and market periodic software upgrades and new applications for use with the EnSite System.

Research and Development

To date, the Company's primary activity has been research, development and testing of the EnSite catheter and the clinical workstation. Virtually all of the
Company's research and development activity is performed internally by the Company's team of scientists, engineers and technicians, in consultation with the Company's outside consultants. The
Company's research and development team is divided among five

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groups: software engineering, applied research, hardware engineering, verification and validation, and catheter engineering. In addition, various members of the research and development team support
the design and development of the manufacturing processes used in fabricating the Company's products.

Among
its research and development goals, the Company is now pursuing the optimization of the EnSite System functionality for future software releases, incorporating location
technology for use in conventional EP studies and developing new catheter technologies for reduced size and cost. The Company expects that its future research and development objectives will include
developing new mapping and catheter configurations and software upgrades to enhance the capabilities and ease-of-use of the EnSite System as well as supporting the Company's
manufacturing personnel in refining manufacturing processes, improvements and scale-up in connection with the commercialization of the EnSite System. The Company incurred research and
development expenses of approximately $10.7 million, $5.1 million and $4.4 million for the fiscal years ended December 31, 1998, 1999 and 2000, respectively. The Company
anticipates that it will continue to make significant investments in research and development.

Manufacturing

The Company manufactures its EnSite catheters in its 3,200 square foot clean-room facility at its headquarters in St. Paul, Minnesota. The Company
also performs final assembly and system level testing of all hardware and software components for the EnSite System clinical workstation at this facility.

The
manufacturing process for the EnSite catheter involves a number of steps and component parts. The Company assembles and tests each catheter individually prior to packaging and
sterilization, which it conducts in accordance with the requirements of the FDA. The Company has designed its manufacturing processes to utilize automation to the extent appropriate in order to
increase production volume and reduce costs.

The
manufacturing of the EnSite System clinical workstation, including the patient interface unit, involves the assembly, integration and testing of components purchased from third
parties. The Company purchases the basic computer workstation from Silicon Graphics, and ESI software engineers program the workstation with its proprietary software, including advanced mathematical
algorithms.

The
Company purchases the raw materials and various component parts for the EnSite System from a number of suppliers. The Company has adopted rigorous quality control measures to
ensure that the component parts it purchases meet its specifications and standards. Certain of the components are purchased from sole source suppliers, including the computer workstation. There are
relatively few alternative sources of supply for these components, and it may be difficult for the Company to locate additional suppliers for these components.

The
Company has implemented a manufacturing quality program designed to meet all domestic and international standards for manufacturing medical devices. The Company is required to
meet the requirements of the FDA's good manufacturing practices ("GMP") in order to distribute its products in the United States, and the requirements for ISO 9001 and CE Mark certification in
order to continue to distribute products in Europe. During the third quarter 1999, the Company passed a FDA inspection of the facility and the manufacturing processes. The Company received
ISO 9001 certification for its catheter and quality system in August 1997, and ISO 9002 certification for the clinical work station and a CE Mark for each of the EnSite catheter
and the EnSite 3000 clinical workstation in the first quarter of 1998. ISO 9001 certification for our workstation was subsequently received in November 1998. As part of the regulatory
requirements, the Company's facilities and manufacturing processes will be subject to inspection and audit. If the Company fails to satisfy the GMP requirements, it may be required to alter its
manufacturing processes. Moreover, any such failure could have a material adverse effect on the Company's ability to market its products, which could adversely affect its business and results of
operations. The Company's suppliers will also be required to satisfy GMP standards.

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Sales and Marketing

The Company has employed a direct sales force in the United States and uses distributors for certain international markets. In September 1997 the
Company signed a seven-year distribution agreement (the "Distribution Agreement") with Medtronic, Inc. Under the terms of the Distribution Agreement, as subsequently amended,
Medtronic has been granted exclusive distribution rights for the Company's products in Europe and has been granted certain rights for distribution in other regions outside North America. The Company
intends to have additional distributors in various markets throughout the world. The Company retains all distribution rights in the United States.

In
the first quarter of 1998, the Company received a CE Mark for each of the EnSite catheter and the EnSite 3000 clinical workstation, allowing the Company to begin marketing its
products in the European Community for right atrial and left ventricular use. Distribution by Medtronic in Europe of the EnSite System and EnSite catheter began in the second quarter of 1998. In the
second quarter 1999, the Company received FDA approval to market the EnSite catheter and EnSite System for right atrial use in the United States.

In
2000, the Company received general approval to market the EnSite System for cardiac mapping in the following countries: Australia, Korea, Thailand and Taiwan. The Company also
began marketing the EnSite System in Malaysia and Hong Kong.

The
Company believes that prominent electrophysiology labs are generally more likely to keep abreast of and utilize new technologies such as the EnSite System for diagnosing and
treating tachycardia. After the Company establishes a presence in major medical centers housing such electrophysiology labs, it then intends to broaden its sales and marketing efforts to include the
growing number of smaller, community-based electrophysiology labs. As part of its strategy to gain the awareness of and acceptance by electrophysiology laboratories, the Company has focused on and
intends to continue to focus on developing peer reviewed journal articles authored by leading experts in electrophysiology, sponsoring publication of papers based on research covering the performance
and benefits of the EnSite System and conducting informational seminars. In addition, as part of its marketing program the Company holds technical seminars and training sessions to educate physicians
and its direct sales force and distributors in the use of the Company's products.

Patents and Proprietary Rights

The Company's success will depend in part on its ability to obtain patent protection for its products and processes, to preserve its trade secrets and to
operate without infringing or violating the proprietary rights of third parties. The Company actively pursues patent protection in the United States and foreign jurisdictions for each of the areas of
invention embodied in the EnSite System, and will actively pursue patent protection for proprietary aspects of its technology in the future. Currently, the Company has fifteen (15) U.S. patent
applications pending by which it is seeking to obtain protection for certain enhancements currently embodied in the EnSite System, relating to the catheter, catheter localization techniques and user
interface elements. Additionally, one U.S. patent application has been allowed, with issuance expected with the year. The Company also has four issued U.S. patents, which relate to the technology
underlying the EnSite System and development-stage versions of the system. One of these patents covers the catheter of the EnSite System and its development-stage versions. The remaining three patents
are directed to measurement methodologies used in the development-stage versions of the EnSite System. The Company has also filed and has pending several foreign patent applications directed to
various aspects of the technology underlying the EnSite System.

In
January 1998, the Company signed a license agreement with Medtronic, Inc. which gives the Company co-exclusive use of 3D intracardiac location technology
for its EnSite System. The license, as currently in use by the Company, is not royalty-bearing. A required royalty equal to 2% of net sales of licensed products only occurs if the Company is acquired
by one of the competitors of Medtronic named in

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the license agreement. ESI's right to use the technology for intracardiac mapping applications in the treatment of arrhythmias is co-exclusive with Medtronic and its affiliates, and the
license lasts until the patents on the technology expire beginning in 2015 unless extended. Integration of the technology with the EnSite System is still under review but the Company believes it will
improve intracardiac catheter positioning while significantly reducing the use of harmful radiation.

The
Company, like other firms that engage in the development and marketing of medical devices, must address issues and risks relating to patents and trade secrets. The coverage sought
in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently there can be no assurance that any of the Company's pending or future U.S. or foreign
patent applications will result in issued patents, that the scope of any patent protection will exclude competitors or provide competitive advantages to the Company, that any of the Company's current
or future U.S. or foreign patents will not be challenged, circumvented by competitors or others or that such patents will be found to be valid or sufficiently broad to protect the Company's
technology. Since patent applications are secret until patents are issued in the United States or corresponding applications are published in other countries, and since publication of discoveries in
the scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications,
or that it was the first to file patent applications for such inventions. In addition, there can be no assurance that competitors, many of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products either in the
United States or in international markets. Further, the laws of certain foreign countries may not protect the Company's intellectual property rights to the same extent as do the laws of the United
States.

In
addition to patents, the Company relies on trade secrets and proprietary knowledge, which it seeks to protect, in part, through appropriate confidentiality and proprietary
information agreements. In particular, the Company relies upon such means to protect the proprietary software used in the EnSite System. The confidentiality and proprietary information agreements
generally provide that all confidential information developed or made known to individuals by the Company during the course of the relationship with the Company is to be kept confidential and not
disclosed to third parties, except in specific circumstances. The agreements also generally provide that all inventions conceived by the individual in the course of rendering services to the Company
shall be the exclusive property of the Company. There can be no assurance that proprietary information or confidentiality agreements with employees, consultants and others will not be breached, that
the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to or independently developed by competitors.

There
has been substantial litigation regarding patent and other intellectual property rights in the medical device industry and companies in the medical device industry have employed
intellectual property litigation to gain a competitive advantage. There can be no assurance that the Company will not become subject to patent infringement claims or litigation in a court of law, or
interference proceedings declared by the United States Patent and Trademark Office ("USPTO") to determine the priority of inventions or an opposition to a patent grant in a foreign jurisdiction. The
defense and prosecution of intellectual property suits, USPTO interference or opposition proceedings and related legal and administrative proceedings are both costly and time-consuming and
could result in substantial uncertainty to the Company. Litigation or regulatory proceedings, which could result in substantial cost and uncertainty to the Company, may also be necessary to enforce
patent or other intellectual property rights of the Company or to determine the scope and validity of other parties' proprietary rights. Any litigation, opposition or interference proceedings will
result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. There can be no assurance that the Company will have the financial
resources to defend its patents from infringement or claims of invalidity. An adverse determination in any litigation could subject the Company to significant liabilities to third parties, require the
Company to seek licenses from or pay royalties to third parties or prevent the Company from manufacturing, selling or using its

10

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proposed products, any of which could have a material adverse effect on the Company's business and prospects. The Company is not currently a party to any patent or other litigation.

Competition

The Company believes that its competitive success will depend primarily upon its ability to demonstrate the clinical efficacy of the EnSite System; effectively
create market awareness and acceptance of the system while maintaining its proprietary nature; and manufacture and deliver the system on a timely basis. The tachycardia diagnostic mapping field of the
medical device industry has attracted a high level of interest both from companies with an established presence in the field of electrophysiology and from more recently formed companies. The Company's
competitors include companies that offer standard, single-point contact diagnostic catheters, and companies that offer multi-point, basket contact catheters for diagnosing tachycardia that use
multiple electrodes to provide more data points for the measurement of the heart's electrical activity. The Company is also aware of other medical device companies that are developing alternatives to
single-point contact catheter mapping technology.

The
Company believes that participants in the market for mapping tachycardia compete on the basis of clinical effectiveness, ease of use, cost and on the basis of acceptance by health
care professionals. Competition is also affected by the length of time required for products to be developed and receive regulatory approval. The medical device industry is characterized by rapid and
significant technological change. As a result, the Company's success will depend in part on its ability to respond quickly to medical and technological changes through the development and introduction
of new products.

Many
of the Company's competitors and potential competitors have substantially greater capital resources, research and development staffs and facilities than the Company. In addition,
most of the Company's competitors and potential competitors have substantially greater experience than the Company in researching and developing new products, testing products in clinical trials,
obtaining regulatory approvals and manufacturing and marketing medical devices. There can be no assurance that the Company will succeed in developing and marketing technologies and products that are
clinically more efficacious and cost-effective than the more established diagnostic products or the new approaches and products developed and marketed by its competitors. Moreover, there
can be no assurance that the Company will succeed in developing new technologies and products that are available prior to its competitors' products. The failure by the Company to demonstrate the
efficacy and cost-effective advantages of its products over those of its competitors could have a material adverse effect on the Company's business and results of operations.

Third-Party Reimbursement for the Company's Products

In the United States, health care providers, including hospitals and physicians, that purchase medical products for treatment of their patients generally rely
on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all or a part of the costs and fees associated with the procedures performed using
these products. The Company's success will be dependent upon, among other things, the ability of health care providers to obtain satisfactory reimbursement from third-party payors for medical
procedures in which the Company's products are used. Third-party reimbursement will depend upon decisions by the Health Care Financing Administration for Medicare, as well as by individual health
maintenance organizations and private insurers and other payors. Third-party payors determine whether to reimburse for a particular procedure and, if so, will reimburse health care providers for
medical treatment based on a variety of methods, including a lump sum prospective payment system based on a diagnosis related group or per diem, a blend between the health care provider's reported
costs and a fee schedule, a payment for all or a portion of charges deemed reasonable and customary, or a negotiated per capita fixed payment. Specific to Medicare, the EnSite catheter is currently
reimbursable under both inpatient and outpatient procedure scenarios. For inpatient procedures, the EnSite procedure will most typically be reimbursed under Diagnosis Related Group 112. For
outpatient

11

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procedures the EnSite catheter is eligible for separate reimbursement in addition to the hospital's Ambulatory Payment Classification for cardiac mapping. Third party payors are increasingly
challenging the pricing of medical products and procedures. Even if a procedure is eligible for reimbursement, the level of reimbursement may not be adequate. Additionally, payors may deny
reimbursement if they determine that the device used in the treatment was unnecessary, inappropriate or not cost-effective, experimental or used for a non-approved indication.

The
Company's EnSite catheter is sold at a premium in comparison to existing single point catheters used in current diagnostic or mapping procedures and requires an initial capital
outlay for the companion clinical workstation. In addition to establishing the safety and efficacy of the EnSite System, and assuming no increase in the level of reimbursement for cardiovascular
procedures expected to utilize the Company's products, the Company may be required to economically justify the relative increased cost of utilizing the EnSite System by satisfactorily demonstrating
the enhanced benefits of the EnSite System to health care providers and payors in terms of such factors as enhanced patient procedural efficiencies, reduced radiation exposure and improved patient
outcomes.

Some
medical devices purchased by hospitals are currently reimbursed under Medicare separately from medical procedure payments. Recent federal Medicare legislation has called for
these devices to be reimbursed on a prospective payment system. The prospective payment system was created to minimize the complexity of reimbursing services on a hospital's
cost-to-charge ratio by creating specific codes for outpatient procedures that would be based on pre-existing diagnosis and procedure codes. However, the system was
created based on data collected through December 1996 and does not reflect some of the newer technologies, and the increased costs, for items such as the EnSite catheter. In order to recognize these
new technologies, the Healthcare Financing Administration created a separate coding system to allow for additional, separate reimbursement for these new technologies until 2002, at which time
the payment levels for procedures are expected to incorporate the costs of these newer medical devices. If hospitals fail to properly code and submit a request for separate reimbursement, Medicare
will not recognize that the procedure payment levels are inadequate to cover the higher cost of the EnSite catheter, thereby affecting the hospital's ability to achieve adequate reimbursement.
Additionally, there can be no assurance that the movement to a prospective payment system will not cause hospitals to reduce their expenditure payments for devices such as the EnSite System.

Reimbursement
systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a
country-by-country basis. Many international markets have government managed health care systems that control reimbursement for new products and procedures. In most markets,
there are private insurance systems as well as government managed systems. Market acceptance of the Company's products will depend on the availability and level of reimbursement in international
markets targeted by the Company. There can be no assurance that the Company will obtain reimbursement in any country within a particular time, for a particular time, for a particular amount, or at
all.

The
Company believes that less invasive procedures generally provide less costly overall therapies as compared to conventional drug, surgery and other treatments. The Company
anticipates that hospital administrators and physicians would justify the use of the Company's products by the attendant cost savings and clinical benefits that the Company believes would be derived
from the use of its products. However, there can be no assurance that this will be the case. Accordingly, reimbursement for the Company's products may not be in international markets under either
government or private reimbursement systems, and health care providers may not advocate reimbursement for procedures using the Company's products. Failure by hospitals in the United States or in
international markets and other users of the Company's products to obtain reimbursement from third-party payors, or changes in government and private third-party payors' policies toward reimbursement
for procedures employing the Company's products, would have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, the Company is unable to
predict what additional legislation or regulation, if any,

12

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relating to the health care industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on the Company.

Political,
economic and regulatory influences are subjecting the health care industry in the United States to increased scrutiny. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess alternative health care delivery and payment systems. Potential approaches that have been considered include mandated basic
health care benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, greater reliance on prospective
payment systems, the creation of large insurance purchasing groups, price controls and other fundamental changes to the health care delivery system. Legislative debate is expected to continue in the
future, and market forces are expected to demand reduced costs. The Company cannot predict what impact the adoption of any federal or state health care reform measures, future private sector reform or
market forces may have on its business.

Government Regulation



The Company's EnSite System is regulated in the United States as a medical device by the FDA under the federal Food, Drug, and Cosmetic Act ("FDC Act") and
requires premarket approval by the FDA prior to commercialization. In addition, certain material changes or modifications to medical devices also are subject to FDA review and approval. Pursuant to
the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States.
Noncompliance with applicable requirements can result in warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the
government to grant premarket approval for devices, and criminal prosecution.

Medical
devices are classified into one of three classes, Class I, II or III, on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety
and effectiveness. Class I devices are subject to general controls (e.g., labeling and adherence to GMPs). Class II devices are subject to general controls and to special controls (e.g.,
performance standards, and premarket notification). Generally, Class III devices are those which must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices), and require clinical
testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class II devices.

If
human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or the distributor of the device is required to file an IDE
application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and, possibly, mechanical testing. If the IDE
application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the FDA. Sponsors of clinical trials
are permitted to sell those devices distributed in the course of the study provided such costs do not exceed recovery of the costs of manufacture, research, development and handling. The clinical
trials must be conducted under the auspices of an independent institutional review board ("IRB") established pursuant to FDA regulations.

The
FDC Act provides two basic review procedures for medical devices. Certain products may qualify for a submission authorized by Section 510(k) of the FDC Act, wherein the
manufacturer gives the FDA a premarket notification of the manufacturer's intention to commence marketing the product. The manufacturer must, among other things, establish that the product to be
marketed is substantially equivalent to
another legally marketed product. Marketing may commence when the FDA issues a letter finding substantial equivalence. If a medical device does not qualify for the 510(k) procedure, the manufacturer

13

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must file a premarket approval ("PMA") application. This procedure requires more extensive prefiling testing than the 510(k) procedure and involves a significantly longer FDA review process.

A
PMA application must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the
device. Following receipt of a PMA application, if the FDA determines that the application is sufficiently complete to permit a substantive review, the FDA will "file" the application. Under the FDC
Act, the FDA has 180 days to review a PMA application, although the review of such an application more often occurs over a protracted time period, and generally takes approximately two years or
more from the date of filing to complete.

The
PMA application approval process can be expensive, uncertain and lengthy. A number of devices for which premarket approval has been sought have never been approved for marketing.
The review time is often significantly extended by the FDA, which may require more information or clarification of information already provided in the filing. During the review period, an advisory
committee likely will be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. In addition, the FDA will inspect the
manufacturing facility to ensure compliance with the FDA's GMP requirements prior to approval of an application. If granted, the approval of the PMA application may include significant limitations on
the indicated uses for which a product may be marketed.

The
Company conducted clinical trials of its EnSite System on patients with VT in the United Kingdom in late 1995, 1996 and 1997 under an authorization of the Medical Devices Agency
("the MDA") of the British government. The Company submitted its IDE application to the FDA in May 1996 based on the results of the initial four patient trial plus extensive
pre-clinical testing. Based on consultation with the FDA, and to further support its IDE submission, the Company conducted nine additional ventricular patient trials and submitted this
data in November 1996 in an amendment to the IDE application. In December 1996, the FDA granted the Company an IDE to conduct in the United States a limited clinical trial of the EnSite
System for left ventricular tachycardia mapping in five patients at one institution. The Company conducted in early 1997 a limited five patient clinical study authorized under the IDE. Based on the
results of those trials, the FDA approved testing of the EnSite System on an additional ten patients. The Company had completed 13 of the 15 clinical trials in June 1997 when the FDA authorized
full-scale testing of the EnSite System in 73 patients at up to five institutions in the United States. In December 1998, the Company filed a premarket notification application with
the FDA under Section 510(k) of the FDC Act containing the results of its left ventricular multi-center clinical trials and indicating the Company's intention to commence marketing in the U.S.,
but the FDA did not find substantial equivalence with other devices used in the ventricles based on initial clinical data. Following discussion with the FDA, in March 1999, the Company
announced that its FDA application for left ventricular use of the EnSite System will be submitted as a PMA application. Portions of the application have been submitted and approved, but the Company
has not yet undertaken another
clinical study for left ventricular use. The Company is still in discussions with the FDA regarding the best approach to obtain market approval for left ventricular use, which may include a revised
510(k) application.

The
Company conducted an initial study of its technology for mapping atrial tachycardia in seven patients in the United Kingdom during the second half of 1996. The Company submitted
an IDE application to the FDA in June 1997 for use of the EnSite System in the right atrium, and received an IDE approval in August 1997. In September 1998, the Company filed a
510(k) application with the FDA containing the results of its right atrial multi-center clinical trials. In April 1999 received FDA approval to market the EnSite System for use in the right
atrium. In January 2001, the Company received IDE approval from the FDA for use in a multi-center clinical study of the EnSite System in the left atrium for diagnosing arrhythmias, including
atrial fibrillation in the left atrium. The Company expects to begin this study in the second quarter of 2001.

The
Company is also required to register as a medical device manufacturer with the FDA and state agencies, and to list its products with the FDA. As such, the Company will be
inspected by both the FDA

14

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for compliance with the FDA's GMP and other applicable regulations. These regulations require that the Company manufacture its products and maintain its documents in a prescribed manner with respect
to manufacturing, testing and control activities. Further, the Company is required to comply with various FDA requirements for design, safety, advertising and labeling.

The
Company is required to provide information to the FDA on death or serious injuries alleged to have been associated with the use of its medical devices, as well as product
malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. In addition, the FDA prohibits an approved device from being marketed for unapproved
applications. If the FDA believes that a company is not in compliance with the law, it can institute proceedings to detain or seize products, issue a recall, enjoin future violations and assess civil
and criminal penalties against the Company, its officers and its employees. Failure to comply with the regulatory requirements could have a material adverse effect on the Company's business, financial
condition and results of operations.

The
advertising of most FDA-regulated products is subject to both FDA and Federal Trade Commission jurisdiction. The Company also is subject to regulation by the
Occupational Safety and Health Administration and by other governmental entities.

Regulations
regarding the manufacture and sale of the Company's products are subject to change. The Company cannot predict what impact, if any, such changes might have on its
business, financial condition or results of operations.



International sales of the Company's products are subject to the regulatory agency product registration requirements of each country. The regulatory review
process varies from country to country. There can be no assurance that such approvals will be obtained on a timely basis or at all.

The
Company received ISO 9001 certification for its catheter and quality system in August 1997, and ISO 9001 certification for the clinical workstation in
November 1998. The Company has obtained CE certification for the EnSite catheter and for the EnSite 3000 clinical workstation. The ISO 9000 series of standards for quality operations
have been developed to ensure that companies know the standards of quality to which they must adhere to receive certification. The European Union promulgated rules which required that medical products
receive, by mid-1998, the right to affix the CE Mark, an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives.
ISO 9000 certification was one of the CE Mark certification requirements.

Product Liability and Insurance

The development, manufacture and sale of medical products entail significant risk of product liability claims and product failure claims. The Company has
conducted only limited clinical trials and does not yet have, and will not have for a number of years, sufficient clinical data to allow the Company to measure the risk of such claims with respect to
its products. The Company faces an inherent business risk of financial exposure to product liability claims in the event that the use of its products results in personal injury or death. The Company
also faces the possibility that defects in the design or manufacture of the Company's products might necessitate a product recall. There can be no assurance that the Company will not experience losses
due to product liability claims or recalls in the future. The Company currently maintains product liability insurance with coverage limits of $5 million per occurrence and $5 million
annually in the aggregate and there can be no assurance that the coverage limits of the Company's insurance policies will be adequate. Product liability insurance is expensive, may be difficult to
obtain and may not be available in the future on acceptable terms, or at all. Any claims against the Company, regardless of their merit or eventual outcome, could have a material adverse effect upon
the Company's business, financial condition and results of operations.

15

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Employees

The Company had a total of 136 full-time employees as of December 31, 2000. Of this number, 24 persons were engaged in research and
development, 12 were involved in regulatory and quality assurance, 46 were involved with manufacturing and 54 were involved with administration, sales and marketing and support functions. No employee
of the Company is covered by a collective bargaining agreement. In addition to its full-time workforce, the Company has consulting or other contractual relationships with 3 other
individuals. The Company expects to add such new employees as are necessary to expand its manufacturing capacity for future commercial production.

Executive Officers

The executive officers of the Company, their ages and positions and a brief biography of each individual are as follows:

Name

Age

PositionJames W. Bullock

44

President and Chief Executive Officer and DirectorMichael D. Dale

41

Vice President, Sales and MarketingFrank J. Callaghan

47

Vice President, Research and DevelopmentRichard J. Omilanowicz

48

Vice President, Manufacturing and OperationsGraydon E. Beatty

44

Chief Technical Officer and Director


James W. Bullockhas been President, Chief Executive Officer and a Director of the Company since May 1994. In addition,
Mr. Bullock served as the Chief Financial Officer of the Company from May 1994 until May 1996. From April 1992 until joining the Company, Mr. Bullock served as
President and Chief Operating Officer of Stuart Medical, Inc., a cardiac monitoring start-up company. From April 1990 to April 1992, Mr. Bullock served as Vice
President of Sales and Marketing of the Stackhouse Division of Bird Medical Technologies, a medical device company. From 1978 to 1990, Mr. Bullock served in a
variety of marketing and sales management positions, most recently as Vice President of Sales, for the Pharmaseal Division of Baxter International Inc., a medical products company.
Mr. Bullock is a director of Appriva Medical, a manufacturer of medical devices.

Michael D. Dalehas been Vice President of Sales and Marketing since March 2000. Mr. Dale joined the Company in
December 1998 as Vice President Worldwide Sales. From October 1996 until joining the Company, Mr. Dale was Vice President of Global Sales for Cyberonics, Inc., a medical
device company, and additionally as managing director of Cyberonics Europe S.A. From July 1988 to October 1996, Mr. Dale served in several capacities at St. Jude Medical, most
recently as the Business Unit Director for St. Jude Medical Europe.

Frank J. Callaghanhas been Vice President of Research and Development of the Company since November 1995. From 1987 until
joining the Company, Mr. Callaghan served as a Director of Research and Development at Telectronics Pacing Systems, Inc., a manufacturer of cardiac rhythm management devices. From 1983
to 1987 Mr. Callaghan served in several capacities, including Manager, Systems Technology, at Cordis Corporation, a manufacturer of angiographic and implantable devices.

Richard J. Omilanowiczhas been Vice President of Manufacturing of the Company since November 1994, and Vice President of
Operations since January 2001. From May 1993 until joining the Company, Mr. Omilanowicz served as General Manager of McKechnie Plastic Components, a custom injection molding
company. From 1980 to May 1993, Mr. Omilanowicz served in several capacities at the Pharmaseal Division of Baxter International Inc., most recently as Director of Research,
Development and Engineering.

Graydon E. Beattyis a founder of the Company and has been Chief Technical Officer of the Company since May 1995 and a Director
since August 1992. Since the Company's inception in May 1992, Mr. Beatty

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has served in several technical and management positions. In addition, from May 1992 until December 1993, Mr. Beatty served as a consultant with GMN Consulting, an engineering
consulting firm, and as a consulting engineer of AngeMed, a division of Angeion Corp., a cardiovascular device company, from February 1992 to September 1992. Mr. Beatty was Senior
Development Engineer of Bio-Medical Design Group, Inc., an electrophysiology system developer, from December 1991 to May 1992. From 1989 to December 1991,
Mr. Beatty served as Principal Research Engineer at Cardiac Pacemakers, Inc., a cardiovascular device company.

Forward-Looking Statements

This Form 10-K Annual Report and the Company's financial statements, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 and other documents incorporated by reference contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs, including, but not limited to, our current
assumptions about future financial performance, anticipated problems, and our plans for future operations, which are subject to various risks and uncertainties. When used in this
Form 10-K and in future filings by the Company with the Securities and Exchange Commission, in our press releases, presentations to securities analysts or investors, in oral
statements made by or with the approval of an executive officer of the Company, the words or phrases "believes," "may," "will," "expects," "should," "continue," "anticipates," "intends," "will likely
result," "estimates," "projects," or similar expressions and variations thereof are intended to identify such forward-looking statements. However, any statements contained in this
Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and
uncertainties, certain of which are beyond our control, and actual results may differ materially depending upon a variety of important factors, including those described in Exhibit 99 to this
Form 10-K.

ITEM 2. PROPERTIES

The Company leases approximately 26,000 square feet in St. Paul, Minnesota as its corporate headquarters and production facility. The facility is leased
through March 2004. The Company believes that this facility will be adequate to meet its needs through the full commercial introduction of its planned products.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently subject to any pending or threatened litigation.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock began trading on the Nasdaq National Market under the symbol "ECSI" on March 19, 1997. On March 24, 1997, the Company
received net proceeds of approximately $18,833,000 from an initial public offering of 2,250,000 shares of its common stock and approximately $6,278,000 from a concurrent private placement to
Medtronic, Inc. of 750,000 shares of its common stock. In July 1999, the Company received proceeds of $10,000,000 from a private placement of 1,111,111 shares of its common stock to
accredited investors. In June 2000, the Company received proceeds of $12,687,500

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from a private placement of 2,030,000 shares of its common stock to accredited investors. On March 26, 2001, the Company received proceeds of $7,349,000 from a private placement of 2,449,666
shares of its common stock to accredited investors. The Company also issued warrants to purchase an additional 122,450 shares of common stock, at an exercise price of $4.00 per share, to the
placement agent in the transaction. Proceeds from the sale of these shares are being used for expenses associated with current operating expenses, U.S. market expansion, clinical trials for atrial
fibrillation, and software and hardware product development, as well as replenishment of some of the funds used to repay the loan from Medtronic, Inc. The shares of common stock were sold pursuant to
Section 4(2) of the Securities Act of 1933, as amended.

The
following table sets forth, for the period indicated, the high and low sales prices of the Company's common stock, as quoted on the Nasdaq National Market.

2000

1999High

Low

High

LowFirst Quarter

$
10.500

$
5.625

$
10.375

$
7.438Second Quarter


10.000


6.000


10.750


8.750Third Quarter


10.000


6.375


9.938


8.125Fourth Quarter


6.750


1.313


11.750


8.500


On
March 26, 2001, the closing sales price per share of the Company's common stock as quoted on the Nasdaq National Market was $3.13 per share. On March 26, 2001, there
were approximately 101 holders of record of the Company's common stock, representing approximately 2,750 stockholder accounts.

The
Company has never declared or paid cash dividends on its capital stock. The Company currently intends to retain future earnings for use in its business and does not anticipate
paying any cash dividends in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below and the Consolidated Financial Statements and the Notes thereto included in Item 8 below.

|                                     |                          | Year Ended December 31, |           
|------------------------------------ | ------------------------ | ----------------------- | ----------
|
|
|Statement of Operations Data:        |                          |                         |           
|Revenue                              |                          | $                       | 14,563    
|Cost of Goods Sold                   |                          |                         | 7,174     
|                                     |                          |                         |           
|Gross Margin                         |                          |                         | 7,389     
|Operating Expenses:                  |                          |                         |           
|                                     | Research & Development   |                         |           
|                                     | General & Administrative |                         |           
|                                     | Sales & Marketing        |                         |           
|                                     |                          |                         |           
|Operating Loss                       |                          |                         | (10,238   
|Net Interest Income (Expenses)       |                          |                         | (73       
|                                     |                          |                         |           
|                                     | Net Loss                 |                         | $         
|                                     |                          |                         |           
|Net loss per sharebasic and diluted |                          | $                       | (.92      
|                                     |                          |                         |           
|Weighted average shares outstanding  |                          |                         | 11,212,420

|                                                                  |  | Year Ended December 31, |        
|----------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Balance Sheet Data:                                               |  |                         |        
|Cash and cash equivalents                                         |  | $                       | 10,759 
|Working capital                                                   |  |                         | 7,273  
|Total assets                                                      |  |                         | 21,356 
|Long-term debt and capital lease
obligations less current portion |  |                         | 584    
|Accumulated deficit                                               |  |                         | (62,007
|Total stockholders' equity                                        |  |                         | 9,864  

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

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, and the other financial information included elsewhere in this Form 10-K Report. This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains descriptions of the Company's expectations regarding future trends affecting its business. These forward-looking statements and other forward-looking
statements made elsewhere in this document are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following discussion sets forth certain factors
the Company believes could cause actual results to differ materially from those contemplated by the forward looking statements.

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Summary

The Company was incorporated in May 1992. The Company develops, manufactures and markets the EnSite 3000 clinical workstation and EnSite catheter for
use by electrophysiologists in diagnosing and mapping abnormal heart rhythms known as tachycardias. The EnSite 3000 clinical workstation and EnSite catheter received FDA approval for right atrial use
in the U.S. during the second quarter 1999. Through a distribution agreement with Medtronic, Inc., the products are available in full market release to electrophysiologists in Europe.

Results of Operations

Years ended December 31, 2000 and 1999

General.Net losses decreased to $10,311,147, or $.92 per share, for the year ended December 31, 2000, from
$11,728,656, or $1.23 per share, for the year ended December 31, 1999. The Company expects losses to continue at least through first quarter of 2002. The Company is in a period of growth in
sales and marketing expenses related to market introduction, including increases in personnel costs.

Revenue and Cost of Goods Sold.Worldwide revenue for the year ended December 31, 2000 was $14.6 million,
a $5 million, or 52%, increase over the same period in 1999. Revenue for domestic sales increased $5.3 million, or 99%, compared to the same period in 1999. This increase in revenue can
be directly attributed to a higher number of EnSite clinical workstations sold during fiscal 2000, compared to the same period in 1999. Additionally, with a 158% increase in the installed base of the
EnSite clinical workstation since December 31, 1999 and an overall increase in EnSite catheter utilization per system per month, EnSite catheter revenue increased 143%. However, revenue for
international sales, which includes sales to distributors in Europe and Asia Pacific, decreased $382,000, or 9%, over the same period in 1999. A majority of this decline related to our European
distributor, Medtronic, which purchased a limited number of EnSite clinical workstations during the year and also did not increase its purchases of EnSite catheter sales over the previous fiscal year.
The Company does not believe there has occurred any fundamental decline in the European market for the EnSite workstation. Rather, the Company believes that Medtronic did not devote sufficient
resources during fiscal 2000 necessary to further develop the European market. The Company is discussing with Medtronic tactics for improving sales into the European market. Other revenues, which
represents 6.6% and 7.8% of worldwide sales for the years ending December 31, 2000 and 1999, respectively, includes revenues generated from extended service contracts, repairs and accessories
sales related to the EnSite System.

EnSite
clinical workstation sales were $8.4 million for fiscal year 2000, compared to $6.2 million for the same period in 1999. The increase is due mainly to the higher
sales of the EnSite clinical workstation in the U.S., compared to last year's comparable period, or an increase of 76%. Domestic sales accounted for 72% of total EnSite clinical workstation sales
during fiscal year 2000, compared to 56% for the same period in 1999.

EnSite
catheter sales were $5.9 million for fiscal year 2000, compared to $3 million for the same period in 1999, or an increase of 97%. Domestic sales accounted for 77%
of total EnSite catheter sales during fiscal year 2000, compared to 63% for the same period in 1999.

Cost
of goods sold including unabsorbed manufacturing expenses was $7,174,431 and $6,592,409 for the years ended December 31, 2000 and 1999, respectively. With the market
release of the Company's Clarity software starting in June 2000, capitalized software development costs are being amortized through cost of goods sold over the expected 18-month
product life cycle.

The
gross profit margin was 50.7% for the year ended December 31, 2000, compared with 31.3% during the same period in 1999. The increase in margins is mainly attributed to the
better absorption of manufacturing overhead from the growth in domestic sales over the prior year. Additionally, because the Company's margins on its domestic sales are substantially higher than those
of its international sales, the

20

---

Company saw more favorable results in margins due to 76% of the revenue recorded during the year being from domestic sales, compared to 56% from the same period in 1999.

Research and Development Expenses.Research and development expenses include compensation and benefit costs within the
clinical, software, hardware, catheter and applied research departments as well as costs associated with regulatory expenses. Research and development expenses were $4,459,737 for the year ended
December 31, 2000, compared to $5,102,378 during the same period in 1999, a decrease of $642,641. The decrease is attributable to the capitalization beginning in late 1999, after reaching
technological feasibility, of software development costs related to the Clarity release. The Company believes research and development expenditures will increase for the year 2001 because of the left
atrium study, which is expected to begin second quarter of 2001.

General and Administrative Expenses.General and administrative expenses were $2,073,795 and $2,004,991 for the years
ended December 31, 2000 and 1999, respectively, an increase of $68,804. The increase is due primarily to a rise in personnel costs and professional services expense. The Company expects general
and administrative expenses to increase slightly during the 2001 year.

Sales and Marketing.Sales and marketing expenses increased to $11,093,095 during the year ended December 31,
2000, from $7,712,522 during the same period in 1999, an increase of $3,380,573. The increase is primarily attributable to increases in personnel and costs associated with building and training of the
U.S. sales and clinical team. As the Company continues to penetrate the U.S. market, increases in sales and marketing expenses are expected in the next year, as it adds additional headcount in both
its selling and field clinical engineering areas.

Interest Income and Expense.Interest income was $604,691 and $465,060 for the years ended December 31, 2000 and
1999, respectively. The increase was due primarily to higher average cash and cash equivalent balances. Interest expense was $677,674 and $378,609 for the years ended December 31, 2000 and
1999, respectively. The increase is due the amount of principal outstanding on the loan to Medtronic, Inc. during 2000 versus 1999.

Years ended December 31, 1999 and 1998

General.Net losses decreased to $11,728,656 for the year ended December 31, 1999, from $14,685,275 for the year
ended December 31, 1998. The loss for 1998 includes $3,585,602 for the acquisition of locator technology that was purchased during the first quarter from Medtronic, Inc. The Company is
in a period of growth in sales and marketing expenses related to market introduction, including increases in personnel costs.

Revenue and Cost of Goods Sold.Worldwide revenue for the year ended December 31, 1999 was $9.6 million,
a $7.6 million, or 392%, increase over the same period in 1998. Revenue for domestic sales was $5.4 million during fiscal year 1999, compared to $0 sales in 1998. The Company began
recording revenue in the U.S. in the second quarter of 1999 following receipt of FDA approval. Revenue for international sales, which includes sales to distributors in Europe and Asia Pacific,
increased $2.2 million, or 115%, over the same period in 1998. A majority of this increase related to our European distributor, Medtronic, which saw an increase of 200% in its EnSite clinical
workstations installed base since December 31, 1998. Other revenues, which represents 7.8% and 8.7% of worldwide sales for the years ending December 31, 1999 and 1998, respectively,
includes revenues generated from extended service contracts, repairs and accessories sales related to the EnSite System.

EnSite
clinical workstation sales were $6.2 million for fiscal year 1999, compared to $1.3 million for the same period in 1999. The increase is due mainly to the U.S.
introduction of the EnSite clinical workstation in second quarter of 1999. Domestic sales accounted for 56% of total EnSite clinical workstation sales during fiscal year 1999, compared to 0% for the
same period in 1998.

21

---

EnSite catheter sales were $3 million for fiscal year 1999, compared to $493,000 for the same period in 1998, or an increase of 504%. Domestic sales accounted for 63% of total
EnSite catheter sales during fiscal year 1999, compared to 0% for the same period in 1998.

Cost
of goods sold and unabsorbed manufacturing expenses were $6,592,409 and $3,624,291 for the year ended December 31, 1999 and 1998, respectively. Manufacturing expenses
include costs for unabsorbed overhead from the production of inventory held for resale. The year ended December 31, 1998 includes an inventory write-off of $370,800 for the
obsolescence of Silicon Graphics computer equipment.

The
gross profit margin was 31.3% for the year ended December 31, 1999, compared with (85.8%) during the same period in 1998. The increase in margins is mainly attributed to
the introduction of domestic product sales during 1999. Additionally, because the Company's margins on its domestic sales are substantially higher than those of its international sales, the Company
saw more favorable results in margins due to 56% of the revenue recorded during the year being from domestic sales, compared to none from the same period in 1998.

Research and Development Expenses.Research and development expenses include compensation and benefit costs within the
clinical, software, hardware, catheter and applied research departments as well as costs associated with clinical trials including regulatory expenses and prototype development. Research and
development expenses decreased to $5,102,378 in the year ended December 31, 1999, from $10,651,709 during the same period in 1998. The decrease of $5,549,331 includes $3,585,602 for
the purchase of locator technology from Medtronic. The remaining decrease is attributable to a reduction in clinical trial expenses, including regulatory expenses as well as software development
costs.

General and Administrative Expenses.General and administrative expenses include personnel costs and professional and
legal fees. Expenses were $2,004,991 and $1,774,326 for the years ended December 31, 1999 and 1998, respectively. The increase of $230,665 or 13% was due to increases in personnel.

Sales and Marketing.Sales and marketing expenses increased to $7,712,522 during the year ended December 31,
1999, from $1,310,284 during the same period in 1998. This increase is attributable to increases in personnel and costs associated with building and training the U.S. sales and clinical team. In
addition, travel expense and other costs associated with product introduction increased.

Interest Income and Expense.Interest income was $465,060 and $811,482 for the years ended December 31, 1999 and
1998, respectively. The decrease was due primarily to the lower cash and cash equivalent balances. Interest expense was $378,609 and $86,644 for the years ended December 31, 1999 and 1998,
respectively. The increase is related to the financing agreement with Medtronic, which began in January 1999.

Liquidity and Capital Resources

On March 24, 1997, the Company received net proceeds of approximately $18,833,000 from an initial public offering of 2,250,000 shares of its common
stock and approximately $6,278,000 from a concurrent private placement to Medtronic, Inc. of 750,000 shares of its common stock. Also on March 24, 1997, all outstanding shares of the
Company's preferred stock were automatically converted into an aggregate of 4,705,603 shares of common stock following the 1 for 2 reverse stock split.

The
Company's operations since inception have been funded by net proceeds from the sales of common and preferred stock totaling approximately $71,892,123 through December 31,
2000. As of December 31, 2000 and December 31, 1999, the Company had cash, cash equivalents and short-term investments of approximately $10,759,128 and $7,086,786,
respectively.

For
the year ended December 31, 2000, the Company used $9,622,592 of cash for operations, compared to $12,796,818 for the same period in 1999. The Company saw a decline in its
accounts receivable balances of $209,751 from December 31, 1999, even though it had an increase in sales over last year of 52%. The timing of sales during the last couple months of fiscal 2000,
and shorter payment terms

22

---

for domestic customers, contributed to the lower accounts receivable balance from that of December 31, 1999. Inventories increase $404,853 during the year to meet the additional demand created
by the increase in the Company's customer installed base. The Company believes inventory balances will remain relatively constant during fiscal 2001, as the Company more efficiently manages the levels
of its raw material, work-in-process, and finished goods inventories. Accounts payable decreased $752,560 since December 31, 1999. The decrease is directly attributed to
the inventory and cost control efforts the Company put into place the last three to six months of 2000. The Company expects accounts payable to grow throughout fiscal 2001 as operating and production
expenses increase to support revenue growth. Accrued salaries and related expenses decreased $105,081 since December 31, 1999. A majority of this decline is attributed to the number of days
needed to accrue for salaries as of December 31, 2000, compared to December 31, 1999. The Company expects this accrual balance at December 31, 2001 to be fairly comparable to that
of the December 31, 2000 balance. The Company's short-term investment portfolio decreased by $2,328,218 from the December 31, 1999 balance. The reduction is due the Company
continuing to use its available resources to fund its operating losses.

In
January 1999, the Company announced a financing agreement with Medtronic, Inc. Under the agreement, the Company received $7 million from Medtronic Asset
Management, which was repayable by February 2001 or, if earlier, at the close of a significant round of debt or equity financing. The Company received $3.5 million of the financing in
February 1999 and the remaining $3.5 million in January 2000. The $7 million was paid back to Medtronic Asset Management in full in February 2001.

In
July 1999, the Company received proceeds of $10,000,000 from a private placement of 1,111,111 shares of its common stock to accredited investors. The placement was priced at
$9.00 per share. In August 1999, these shares were registered pursuant to the Securities Act of 1933. In June 2000, the Company received proceeds of $12,687,500 from a private placement
of 2,030,000 shares of its common stock to accredited investors. The placement was priced at $6.25 per share. In July 2000, these shares were registered pursuant to the Securities Act of 1933.

In
March 2001, the Company received proceeds of $7,349,000 from a private placement of 2,449,666 shares of its common stock to accredited investors. The placement was priced at $3.00
per share. Pursuant to the terms of the stock purchase agreement, these shares will be registered under the Securities Act of 1933 on behalf of the investors.

The
Company believes that its existing cash, cash equivalents, short-term investments and bank financing will be sufficient to fund the operations of the Company through
the first quarter of 2001. The Company's future liquidity and capital requirements will depend on numerous factors, including the timing of regulatory actions regarding the Company's products, the
results of clinical trials and competition, the extent to which the Company's EnSite System gains market acceptance, the costs and timing of expansion of sales, marketing and manufacturing activities
and the ability of the Company to obtain bank financing.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had approximately $10.8 million of cash and investments on December 31, 2000. Substantially all of the investments were U.S.
government or investment grade, fixed income securities from domestic issuers. Because of the credit risk criteria of the Company's investment policies, the primary market risk associated with these
investments is interest rate risk. The Company does not use derivative financial instruments to manage interest rate risk or to speculate on future changes in interest rates. A rise in interest rates
could negatively affect the fair value of the Company's investments; however, because management considers it unlikely that the Company would need or choose to substantially liquidate the Company's
investments prior to their maturity, management believes that such an increase in interest rates would not have a material impact on the Company's future earnings or cash flows. Even though the
Company distributes products abroad, the Company does not conduct sales in foreign currencies. Therefore, management does not believe the Company is exposed to any material foreign currency exchange
rate risk.

23

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors

Board of Directors and Stockholders
Endocardial Solutions, Inc.

We
have audited the accompanying balance sheets of Endocardial Solutions, Inc. as of December 31, 2000 and 1999, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Endocardial Solutions, Inc. at
December 31, 2000 and 1999, and the results of its operations and its 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.

|                    
|--------------------
|/s/ERNST & YOUNG LLP

Minneapolis,
Minnesota
February 16, 2001, except for Note 15
 to which the date is March 27, 2001

24

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Endocardial Solutions, Inc.        Balance Sheets

|                                                                                       |                                                                                     | December 31                                                                              |           
|-------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------
|
|Assets                                                                                 |                                                                                     |                                                                                          |           
|Current assets:                                                                        |                                                                                     |                                                                                          |           
|                                                                                       | Cash and cash equivalents                                                           |                                                                                          | $         
|                                                                                       | Short-term investments                                                              |                                                                                          |           
|                                                                                       | Accounts receivable, net of allowance for doubtful accounts (2000$60,000; 1999$0) |                                                                                          |           
|                                                                                       | Inventories                                                                         |                                                                                          |           
|                                                                                       | Prepaid expenses and other current assets                                           |                                                                                          |           
|                                                                                       |                                                                                     |                                                                                          |           
|Total current assets                                                                   |                                                                                     |                                                                                          | 17,993,806
|Furniture and equipment                                                                |                                                                                     |                                                                                          | 6,441,544 
|Less accumulated depreciation                                                          |                                                                                     |                                                                                          | (3,631,642
|                                                                                       |                                                                                     |                                                                                          |           
|                                                                                       |                                                                                     |                                                                                          | 2,809,902 
|Deposits                                                                               |                                                                                     |                                                                                          | 40,174    
|Patents, net of accumulated amortization (2000$102,511; 1999$89,989)                 |                                                                                     |                                                                                          | 28,137    
|Software development costs, net of accumulated amortization (2000$308,201; 1999$-0-) |                                                                                     |                                                                                          | 484,314   
|                                                                                       |                                                                                     |                                                                                          |           
|Total assets                                                                           |                                                                                     | $                                                                                        | 21,356,333
|                                                                                       |                                                                                     |                                                                                          |           
|Liabilities and stockholders' equity                                                   |                                                                                     |                                                                                          |           
|Current liabilities:                                                                   |                                                                                     |                                                                                          |           
|                                                                                       | Accounts payable                                                                    |                                                                                          | $         
|                                                                                       | Accrued salaries and expenses                                                       |                                                                                          |           
|                                                                                       | Current portion of capital lease obligations                                        |                                                                                          |           
|                                                                                       | Current portion of long-term debt                                                   |                                                                                          |           
|                                                                                       | Current portion of deferred revenue                                                 |                                                                                          |           
|                                                                                       |                                                                                     |                                                                                          |           
|Total current liabilities                                                              |                                                                                     |                                                                                          | 10,720,850
|Long-term liabilities:                                                                 |                                                                                     |                                                                                          |           
|                                                                                       | Capital lease obligations                                                           |                                                                                          |           
|                                                                                       | Long-term debt                                                                      |                                                                                          |           
|                                                                                       | Deferred revenue                                                                    |                                                                                          |           
|Stockholders' equity:                                                                  |                                                                                     |                                                                                          |           
|                                                                                       | Undesignated Preferred Stock, par value $.01 per share:                             |                                                                                          |           
|                                                                                       |                                                                                     | Authorized shares10,000,000                                                             |           
|                                                                                       |                                                                                     | Issued and outstanding sharesnone                                                       |           
|                                                                                       | Common Stock, $.01 par value:                                                       |                                                                                          |           
|                                                                                       |                                                                                     | Authorized shares40,000,000                                                             |           
|                                                                                       |                                                                                     | Issued and outstanding sharesDecember 31, 200012,249,695; December 31, 199910,185,183 |           
|                                                                                       | Additional paid-in capital                                                          |                                                                                          |           
|                                                                                       | Accumulated deficit                                                                 |                                                                                          |           
|                                                                                       | Deferred compensation                                                               |                                                                                          |           
|                                                                                       |                                                                                     |                                                                                          |           
|Total stockholders' equity                                                             |                                                                                     |                                                                                          | 9,864,169 
|                                                                                       |                                                                                     |                                                                                          |           
|Total liabilities and stockholders' equity                                             |                                                                                     | $                                                                                        | 21,356,333
|                                                                                       |                                                                                     |                                                                                          |           

See accompanying notes.

25

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Endocardial Solutions, Inc.        Statements of Operations

|                                      |                            | Year ended December 31 |            
|------------------------------------- | -------------------------- | ---------------------- | -----------
|
|Revenue                               |                            | $                      | 14,562,894 
|Cost of goods sold                    |                            |                        | 7,174,431  
|                                      |                            |                        |            
|Gross margin                          |                            |                        | 7,388,463  
|Operating expenses:                   |                            |                        |            
|                                      | Research and development   |                        |            
|                                      | General and administrative |                        |            
|                                      | Sales and marketing        |                        |            
|                                      |                            |                        |            
|Operating loss                        |                            |                        | (10,238,164
|Other income (expense):               |                            |                        |            
|                                      | Interest income            |                        |            
|                                      | Interest expense           |                        |            
|                                      |                            |                        |            
|                                      |                            |                        | (72,983    
|                                      |                            |                        |            
|Net loss                              |                            | $                      | (10,311,147
|                                      |                            |                        |            
|Net loss per sharebasic and dilutive |                            | $                      | (0.92      
|                                      |                            |                        |            
|Weighted average shares outstanding   |                            |                        | 11,212,420 
|                                      |                            |                        |            

See accompanying notes.

26

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Endocardial Solutions, Inc.
Statements of Changes in Stockholders' Equity

|                             |                                                                                 | Common Stock |           |   |         |        |   |            |            |   |            
|---------------------------- | ------------------------------------------------------------------------------- | ------------ | --------- | - | ------- | ------ | - | ---------- | ---------- | - | -----------
|
|
|Balance at December 31, 1997 |                                                                                 | 8,934,409    |           | $ | 89,344  |        | $ | 48,174,629 |            | $ | (25,178,332
|                             | Value of warrants granted in connection with purchase of technology             |              |          |   |         |       |   |            | 2,085,602  |   |            
|                             | Exercise of stock options                                                       |              | 77,353    |   |         | 774    |   |            | 69,472     |   |            
|                             | Amortization of deferred compensation                                           |              |          |   |         |       |   |            |           |   |            
|                             | Net loss                                                                        |              |          |   |         |       |   |            |           |   |            
|                             |                                                                                 |              |           |   |         |        |   |            |            |   |            
|Balance at December 31, 1998 |                                                                                 | 9,011,762    |           |   | 90,118  |        |   | 50,329,703 |            |   | (39,863,607
|                             | Value of warrants exercised, net of issuance in connection with lease agreement |              | 30,565    |   |         | 306    |   |            | 103,455    |   |            
|                             | Private placement at $9.00 per share in July 1999, net of offering costs        |              | 1,111,111 |   |         | 11,111 |   |            | 9,346,787  |   |            
|                             | Exercise of stock options                                                       |              | 31,747    |   |         | 317    |   |            | 61,870     |   |            
|                             | Redemption of Common Stock                                                      |              | (2        | ) |         |       |   |            | (9         | ) |            
|                             | Deferred compensation related to stock options                                  |              |          |   |         |       |   |            | 35,628     |   |            
|                             | Amortization of deferred compensation                                           |              |          |   |         |       |   |            |           |   |            
|                             | Net loss                                                                        |              |          |   |         |       |   |            |           |   |            
|                             |                                                                                 |              |           |   |         |        |   |            |            |   |            
|Balance at December 31, 1999 |                                                                                 | 10,185,183   |           |   | 101,852 |        |   | 59,877,434 |            |   | (51,696,024
|                             | Private placement at $6.25 per share in June 2000, net of offering costs        |              | 2,030,000 |   |         | 20,300 |   |            | 11,846,268 |   |            
|                             | Exercise of stock options                                                       |              | 34,512    |   |         | 345    |   |            | 38,112     |   |            
|                             | Deferred compensation related to stock options                                  |              |          |   |         |       |   |            | 7,812      |   |            
|                             | Amortization of deferred compensation                                           |              |          |   |         |       |   |            |           |   |            
|                             | Net loss                                                                        |              |          |   |         |       |   |            |           |   |            
|                             |                                                                                 |              |           |   |         |        |   |            |            |   |            
|Balance at December 31, 2000 |                                                                                 | 12,249,695   |           | $ | 122,497 |        | $ | 71,769,626 |            | $ | (62,007,171
|                             |                                                                                 |              |           |   |         |        |   |            |            |   |            

See accompanying notes.

27

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Endocardial Solutions, Inc.        Statements of Cash Flows

|                                                                            |                                                                     | Year ended December 31            |            
|--------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------- | -----------
|
|Operating activities                                                        |                                                                     |                                   |            
|Net loss                                                                    |                                                                     | $                                 | (10,311,147
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                     |                                   |            
|                                                                            | Depreciation and amortization                                       |                                   |            
|                                                                            | Amortization of deferred compensation                               |                                   |            
|                                                                            | Value of warrants granted in connection with purchase of technology |                                   |            
|                                                                            | Loss on disposal of equipment                                       |                                   |            
|                                                                            | Changes in operating assets and liabilities:                        |                                   |            
|                                                                            |                                                                     | Accounts receivable               |            
|                                                                            |                                                                     | Inventories                       |            
|                                                                            |                                                                     | Prepaid expenses and other assets |            
|                                                                            |                                                                     | Accounts payable                  |            
|                                                                            |                                                                     | Accrued salaries and expenses     |            
|                                                                            |                                                                     | Deferred revenue                  |            
|                                                                            |                                                                     |                                   |            
|Net cash used in operating activities                                       |                                                                     |                                   | (9,622,592 
|Investing activities                                                        |                                                                     |                                   |            
|Purchase of short-term investments                                          |                                                                     |                                   | (3,926,782 
|Maturities of short-term investments                                        |                                                                     |                                   | 6,255,000  
|Purchase of furniture and equipment                                         |                                                                     |                                   | (781,727   
|Patent expenditures                                                         |                                                                     |                                   | (13,566    
|Software development costs                                                  |                                                                     |                                   | (493,967   
|Proceeds from sale of equipment                                             |                                                                     |                                   | 2,200      
|                                                                            |                                                                     |                                   |            
|Net cash provided by investing activities                                   |                                                                     |                                   | 1,041,158  
|Financing activities                                                        |                                                                     |                                   |            
|Proceeds from notes payable                                                 |                                                                     |                                   | 3,500,000  
|Principal payments on notes payable and capital lease obligations           |                                                                     |                                   | (823,031   
|Proceeds from issuance of common stock                                      |                                                                     |                                   | 11,905,025 
|                                                                            |                                                                     |                                   |            
|Net cash provided by (used in) financing activities                         |                                                                     |                                   | 14,581,994 
|                                                                            |                                                                     |                                   |            
|Increase (decrease) increase in cash and cash equivalents                   |                                                                     |                                   | 6,000,560  
|Cash and cash equivalents at beginning of year                              |                                                                     |                                   | 1,770,980  
|                                                                            |                                                                     |                                   |            
|Cash and cash equivalents at end of year                                    |                                                                     | $                                 | 7,771,540  
|                                                                            |                                                                     |                                   |            
|Supplemental disclosure of non-cash investing and financing activities      |                                                                     |                                   |            
|Purchase of equipment and inventory through capital lease obligations       |                                                                     | $                                 | 255,610    
|                                                                            |                                                                     |                                   |            

See accompanying notes.

28

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Endocardial Solutions, Inc.        Notes to Financial Statements        December 31, 2000

1. Description of Business

Endocardial Solutions, Inc. (the "Company") designs, develops and manufactures a minimally invasive and integrated system that locates and facilitates
treatment of cardiac tachyarrhythmias. Tachyarrhythmias are abnormal heart rhythms caused by disorders interfering with the normal electrical activity of the heart, which, if undetected and untreated,
can cause palpitations, dizziness and fainting, or sudden cardiac death. The Company is developing products to diagnose ventricular tachycardia, a widespread, complex and serious form of
tachyarrhythmia, and intends to utilize its technology to produce products to diagnose atrial arrhythmias, including atrial fibrillation. The Company believes that its proprietary technology will
enable physicians to rapidly and accurately map the heart's electrical activity and locate the abnormal heart rhythms through three-dimensional imaging.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At December 31, 2000
and 1999, the Company's cash equivalents consisted of investments in government securities carried at amortized cost which approximated market value, with no resulting unrealized gains and losses
recognized.

Revenue Recognition

Revenue from the sale of the Company's system is recognized at the time of shipment in instances where the Company has evidence of a contract, the fee charged
is fixed and determinable, and collection is probable.

In
international markets, the Company sells its system to distributors, which subsequently resell the system to hospitals. The Company has agreements with each of its distributors
which provide that title and risk of loss pass to the distributor upon shipment of the system to the distributor. Revenue is recognized upon shipment of product to the distributors following the
receipt and acceptance of a distributor's purchase order.

Deferred
revenue originates from maintenance agreements the Company enters into with its customers.. With the initial sale of an EnSite clinical workstation the Company offers a
standard one-year maintenance agreement on the system, which covers repairs and service of the patient interface unit and the Silicon Graphics display workstation. It also covers any
software upgrades released during this time frame. Subsequent to the expiration of the first year standardized maintenance agreement, customers are able to purchase an extended one-year
maintenance agreement to cover repair and service costs and also any software upgrades released in this time frame. Long-term deferred revenue originates
from sales into the European market, where the Company offers a standard two year maintenance agreement with the purchase of an Ensite system. Revenue from service and customer support contracts is
deferred and recognized ratably over the period the services are provided.

Software Development Costs

The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. The capitalization of these costs begins when a product's
technological feasibility has been

29

---

established and ends when the product is available for general release to customers. The Company amortizes these costs over an estimated economic useful life of 18 months.

Furniture and Equipment

Furniture and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Amortization of assets recorded under capital leases is provided using the straightline method over the life of the lease.

Patents

Patent costs are being amortized on a straight-line basis over five years. The Company periodically reviews its patents for impairment in value.
Any adjustment from the analysis is charged to operations.

Short-Term Investments

Short-term investments consist of U.S. Government obligations and corporate debt securities with maturities of less than one year. At December 31,
2000 and 1999, the Company had $523,170 and $2,279,028 in U.S. Government obligations and $2,464,418 and $3,036,778 in corporate debt securities, respectively. Management determines the appropriate
classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Management has classified the debt securities as available for
sale. Available for sale securities are carried at fair value with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. At December 31, 2000
and 1999, the fair value of the Company's investments approximates cost.

Income Taxes

Income taxes are accounted for under the liability method. Deferred income taxes are provided for temporary differences between financial reporting and tax
bases of assets and liabilities.

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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market.

Stock-Based Compensation

The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, but
applies Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in
accounting for its options granted to employees and directors. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no
compensation is recognized.

30

---

Impairment of Long-Lived Assets

The Company will record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets' carrying amount.

Net Loss Per Share

Basic loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share is computed using the combination of
dilutive common share equivalents and the weighted average number of common shares outstanding. Diluted earnings per share is not separately presented, as the effect of outstanding options and
warrants is antidilutive.

Reclassification

Certain prior year items have been reclassified to conform with the 2000 presentation.

3. Inventories

Inventories consist of the following:

December 312000

1999Raw materials

$
1,923,329

$
1,177,590Work-in-progress


320,805


369,803Finished goods


967,684


1,259,572$
3,211,818

$
2,806,965


4. Long-Term Debt and Capital Lease Obligations

Long-Term Debt

In February 1999, the Company entered into a $7,000,000 note agreement with Medtronic. Under the agreement, the Company received $3,500,000 in
February 1999 and an additional $3,500,000 in January 2000. The note agreement bears interest at 8% per year and is payable on a quarterly basis. Any borrowings under the note are due on
the earliest of the following: (i) the closing of any financing from which the Company receives net proceeds of at least $20,000,000; (ii) a change of control; or
(iii) February 2, 2001. Medtronic also received a warrant to purchase shares of the Company's common stock. The number
of shares Medtronic can purchase is based upon the amount outstanding under the note agreement, plus any accrued interest, divided by the exercise price, which as of December 31, 2000 was
$10.08. The warrant may be exercised only immediately before a change of control in the Company if there remains an amount outstanding under the note agreement, or upon an event of default by the
Company. Medtronic may exercise the warrant by either converting any outstanding amounts due under the note agreement or paying cash for the shares of common stock acquired. The exercise price of the
warrant is equal to the average closing price of the Company's common stock for the ten previous trading dates prior to the change of control or event of default.

31

---

Capital Lease Obligations

The Company has entered into equipment leasing line of credit agreements with two different venture leasing companies for the acquisition of furniture,
fixtures and research and development equipment. As of December 31, 2000 and 1999, the Company had outstanding lease obligations under these agreements of $1,177,516 and $1,621,923,
respectively.

At
December 31, 1999, the Company had an additional capital lease agreement with an outstanding balance of $123,104, related to the purchase of inventory components. This lease
was repaid during 2000.

The
cost of furniture and equipment in the accompanying balance sheets includes the following amounts under capital leases:

December 312000

1999Research and development equipment

$
3,237,425

$
2,981,815Less accumulated amortization


1,791,108


1,084,916Net assets under capital leases

$
1,446,317

$
1,896,899


Future
minimum lease payments under capital leases consisted of the following as of December 31, 2000:

Year ending December 31:2001

$
670,6832002


499,3172003


117,785Total minimum payments


1,287,785Less amount representing interest


110,269Present value of net minimum payments


1,177,516Less current portion


593,264Long-term obligations, net of current portion

$
584,252


Interest
paid for the years ended December 31, 2000, 1999 and 1998 was $607,098, $308,034 and $86,644, respectively.

5. Operating Leases

The Company leases its office facility and certain equipment under operating lease agreements which expire on various dates through 2004. Under the office
facility agreement, the Company is required to pay a base rent plus certain operating expenses. Rent expense was $493,576, $386,112 and $381,714 for the years ended December 31, 2000, 1999 and
1998, respectively.

32

---

Future minimum lease commitments required under non-cancelable operating leases as of December 31, 2000 are as follows:

Year ending December 31:2001

$
432,7662002


439,3522003


445,9382004


111,896$
1,429,952


6. Stock Options and Warrants

The Company has adopted the 1993 Long-Term Stock Option Plan ("the Plan") under which directors, officers, employees and consultants of the Company
may receive options to purchase Common Stock. The options granted under the Plan can either be incentive stock options or non-statutory stock options. Options granted under the Plan may
not be at a price less then the fair market value of the Common Stock on the date of grant.

In
1997, the Company adopted the Directors' Stock Option Plan ("the Directors' Plan"). The Directors' Plan provides for the automatic grant of non-statutory stock options
of Common Stock to non-employee directors. The option price for non-employee directors is equal to the fair market value of a share of Common Stock as of the grant date.

The
following table summarizes the activity under the Company's stock option plans:

|                             |                                         | Director's Plan |         | 1993 Long-Term Plan Options Outstanding |         |        
|---------------------------- | --------------------------------------- | --------------- | ------- | --------------------------------------- | ------- | -------
|
|
|Balance at December 31, 1997 |                                         | 150,000         |         | 50,000                                  |         | 557,197
|                             | Granted                                 |                 | (20,000 | )                                       | 20,000  |        
|                             | Canceled                                |                 |        |                                         |        |        
|                             | Exercised                               |                 |        |                                         |        |        
|                             |                                         |                 |         |                                         |         |        
|Balance at December 31, 1998 |                                         | 130,000         |         | 70,000                                  |         | 421,679
|                             | Additional shares reserved for issuance |                 |        |                                         |        |        
|                             | Granted                                 |                 | (20,000 | )                                       | 20,000  |        
|                             | Canceled                                |                 | 11,667  |                                         | (11,667 | )      
|                             | Exercised                               |                 |        |                                         |        |        
|                             |                                         |                 |         |                                         |         |        
|Balance at December 31, 1999 |                                         | 121,667         |         | 78,333                                  |         | 381,196
|                             | Granted                                 |                 | (33,333 | )                                       | 33,333  |        
|                             | Canceled                                |                 |        |                                         |        |        
|                             | Exercised                               |                 |        |                                         |        |        
|                             |                                         |                 |         |                                         |         |        
|Balance at December 31, 2000 |                                         | 88,334          |         | 111,666                                 |         | 344,326
|                             |                                         |                 |         |                                         |         |        

33

---

The
following table summarizes information about the stock options outstanding at December 31, 2000:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$ 0.20 - $ 0.34 |  | 338,855             |  | 3.86               
|0.60 -  2.40    |  | 96,834              |  | 5.32               
|3.70 -  7.88    |  | 150,734             |  | 7.56               
|8.25 - 12.38    |  | 789,968             |  | 7.75               
|12.50 - 13.13   |  | 26,000              |  | 7.64               
|                |  |                     |  |                    
|0.20 - 13.13    |  | 1,402,391           |  | 6.62               
|                |  |                     |  |                    

Options
outstanding under the stock option plans expire at various dates during the period from April 2003 through October 2010. Exercise prices for options outstanding
as of December 31, 2000 ranged from $.20 to $13.13 per share. The number of options exercisable as of December 31, 2000, 1999 and 1998 were 988,584, 766,414 and 557,605, respectively, at
weighted-average exercise prices of $5.32, $3.97 and $2.58 per share, respectively.

The
weighted-average grant date fair value of options granted during the years ended December 31, 2000, 1999 and 1998 was $4.83, $4.63 and $4.87 per share, respectively.

In
October 1996, the Company issued a warrant to purchase 7,500 shares of common stock at an exercise price of $10.24 per share in connection with an equipment lease agreement.
The warrant expires ten years from the grant date and was deemed to have a value of $7,680. Such value was expensed during the year ended December 31, 1996.

Pro
forma information regarding net loss and loss per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under
the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions
for 2000, 1999 and 1998: risk-free interest rates ranging from 4.85% to 6.18%, dividend yields of -0-, volatility factors of the expected market price of the
Company's stock ranging from .41 to .77 and a weighted-average expected life of the options of four years.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

34

---

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as
follows:

2000

1999

1998Pro forma net loss

$
(11,745,304
)
$
(12,921,011
)
$
(15,568,720
)Pro forma net loss per common share

$
(1.05
)
$
(1.35
)
$
(1.73
)


The
Company also has an Employee Stock Purchase Plan under which 200,000 shares have been reserved for purchase by employees. The purchase price of the shares under the Plan is the
lesser of 85% of the fair market value on the first or last day of the offering period. Offering periods are each three months. Employees may designate up to 15% of their compensation for the purchase
of stock under the Plan. There have been no shares issued under the Plan.

7. Deferred Compensation

For options granted during the year ended December 31, 1996 to purchase a total of 298,750 shares of common stock at exercise prices ranging from $.34
to $5.00 per share, the Company recognized $1,484,680 as deferred compensation for the excess of the deemed value for accounting purposes of the common stock issuable upon exercise of such options
over the aggregate exercise price of such options. The deferred compensation expense is amortized ratably over the vesting period of the options. For the years ended December 31, 2000, 1999 and
1998, $-0-, $92,792 and $216,516 was expensed, respectively.

For
options granted during the year ended December 31, 1999 to purchase a total of 95,000 shares of common stock at an exercise price of $8.50 per share, the Company recognized
$35,628 of deferred compensation for the excess of the deemed value for accounting purposes of the common stock issuable upon exercise of such options over the aggregate exercise price of such
options. The deferred compensation expense is amortized ratably over the vesting period of the options. For the years ended December 31, 2000 and 1999, $8,907 and $5,938 was expensed,
respectively.

For
options granted during the year ended December 31, 2000 to purchase a total of 31,247 shares of common stock at an exercise price of $9.125 per share, the Company
recognized $7,812 of compensation expense for the excess of the deemed value for accounting purposes of the common stock issuable upon exercise of such options over the aggregate exercise price of
such options. The options fully vested at the time of grant.

The
remaining unamortized deferred compensation is expected to be charged to operations as follows:

2001

$
8,9102002


8,9102003


2,963Total

$
20,783


35

---

Endocardial Solutions, Inc.

Notes to Financial Statements (Continued)

December 31, 2000

8. Income Taxes

At December 31, 2000, the Company had net operating loss carryforwards of approximately $59,500,000. The net operating loss carryforwards are available
to offset future taxable income and expire at various times between 2009 and 2020. No benefit has been recorded for such loss carryforwards, and utilization in future years may be limited under
Section 382 of the Internal Revenue Code if significant ownership changes have occurred.

Components
of deferred tax assets are as follows:

December 31,2000

1999Deferred tax assets:Net operating loss carryforwards

$
23,793,000

$
19,598,000Inventory reserve


12,000


10,000Accrued liabilities


121,000


101,00023,926,000


19,709,000Deferred tax liabilities:Depreciation and amortization


308,000


278,000Capitalized software costs


194,000


119,000Net deferred tax assets


23,424,000


19,312,000Valuation allowance


(23,424,000
)

(19,312,000
)Total net deferred tax assets

$


$



9. Related Party Transaction

The Company paid approximately $8,600 in the year ended December 31, 1998, to Novel Biomedical in connection with research and development performed for
the Company. The owner of Novel Biomedical is a founder and stockholder of the Company.

10. Sources of Supply

The Company purchases raw materials and certain key components of its products, including the computer workstation and certain components for its catheter from
sole, single or limited source suppliers. The Company currently has no agreements that would ensure delivery of raw materials and components from such suppliers. Establishing additional or replacement
suppliers for any of the numerous components used in the Company's products, if required, may not be accomplished quickly and could involve significant additional costs. The inability of any of the
Company's suppliers to provide an adequate supply of components in a timely manner, or the inability of the Company to locate qualified alternative suppliers for material and components at reasonable
costs, could adversely affect the Company's business, financial condition and results of operations.

11. License Agreement

In January 1998, the Company entered into a license agreement with Medtronic, Inc. to license certain technology developed by Medtronic. As
consideration for the rights to utilize the developed technology, the Company paid Medtronic $1,500,000 and granted Medtronic a warrant to purchase 447,554 shares of the Company's common stock at an
exercise price of $11.1125 per share. The warrant was deemed to have

36

---

a value of $2,085,602. This amount, along with the cash payment to Medtronic, has been expensed as research and development. If the Company develops a product that reaches commercialization, the
Company will grant to Medtronic an additional warrant to purchase 223,777 shares of common stock. The exercise price of the warrant will be 1.25 times the average closing price of the Company's common
stock for the twenty days prior to the commercial products introduction. The value of the additional warrants will be amortized over the shorter of the license agreement or the life of the developed
product.

This
additional warrant becomes exercisable one year after being granted and remains outstanding for five years. The additional warrant will also be granted if the Company undergoes a
change in control. If the warrant is granted due to a change in control, it becomes immediately exercisable.

12. Significant Customer

The Company has a distributor that represents 16% and 42% of all net revenues for the years ended December 31, 2000 and 1999, respectively.

13. Segment Reporting

Sales by geographic destination as a percentage of total sales were as follows for the years ended December 31:

2000

1999

1998Domestic

74
%
56
%
International:Europe

16
%
43
%
100
%Asia Pacific

8
%
1
%
Canada

2
%





14. Quarterly Financial Data (unaudited, in thousands, except per share data)

|                                     |  | First Quarter |        | Second Quarter |   | Third Quarter |   | Fourth Quarter |       
|------------------------------------ |  | ------------- | ------ | -------------- | - | ------------- | - | -------------- | ------
|2000                                 |  |               |        |                |   |               |   |                |       
|Net revenue                          |  | $             | 3,360  |                | $ | 3,737         |   | $              | 3,097 
|Gross profit                         |  |               | 1,484  |                |   | 1,808         |   |                | 1,573 
|Net loss                             |  |               | (2,502 | )              |   | (3,137        | ) |                | (2,791
|Basic and diluted net loss per share |  | $             | (.25   | )              | $ | (.31          | ) | $              | (.23  
|1999                                 |  |               |        |                |   |               |   |                |       
|Net revenue                          |  | $             | 1,293  |                | $ | 1,719         |   | $              | 3,528 
|Gross profit                         |  |               | (149   | )              |   | 307           |   |                | 1,543 
|Net loss                             |  |               | (2,913 | )              |   | (3,750        | ) |                | (2,527
|Basic and diluted net loss per share |  | $             | (.32   | )              | $ | (.41          | ) | $              | (.25  

15. Subsequent Event

On March 26, 2001, the Company completed the sale of 2,449,666 shares of its Common Stock at a price of $3.00 per share, resulting in gross proceeds of
$7,349,000.

37

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The section under the heading "Election of Directors" and the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be held on May 15, 2001 (the "2001 Proxy Statement"), which definitive 2001 Proxy Statement will be filed within
120 days after the close of the fiscal year ended December 31, 2000, are incorporated herein by reference.

See
Item 1 in Part I hereof for information regarding Executive Officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION

The section under the heading "Election of Directors" entitled "Compensation of Directors" and the section entitled "Executive Compensation" in the 2001 Proxy
Statement, which definitive 2001 Proxy Statement will be filed within 120 days after the close of the fiscal year ended December 31, 2000, are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section entitled "Security Ownership of Certain Beneficial Owners and Management" in the 2001 Proxy Statement, which definitive 2001 Proxy Statement will
be filed within 120 days after the close of the fiscal year ended December 31, 2000, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section entitled "Certain Transactions" in the 2001 Proxy Statement, which definitive 2001 Proxy Statement will be filed within 120 days after the
close of the fiscal year ended December 31, 2000, is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)
Documents filed as part of this Report



Page in this
Annual
ReportReport of Independent Auditors

24Audited Financial Statements:Balance Sheets

25Statements of Operations

26Statements of Changes in Stockholders' Equity

27Statements of Cash Flows

28Notes to Financial Statements

29


38

---



|3.1   |  | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on
March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Amended Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 0-22233))                                                                                                                                                                                                                                                                
|3.3   |  | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 0-22233))                                                                                                                                                                                                                  
|4.1   |  | Warrant Agreement dated November 18, 1993 between the Company and Tikkun Resource Development relating to warrant issued to Tikkun Resource Development to purchase shares of common stock (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                      
|4.2   |  | Warrant Agreement dated November 15, 1994 between the Company and Comdisco, Inc. relating to Warrant issued to Comdisco, Inc. to purchase shares of Series B Preferred Stock (incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                    
|4.3   |  | Warrant Agreement dated August 20, 1996 between the Company and Comdisco, Inc. relating to Warrant issued to Comdisco, Inc. to purchase shares of Series D Preferred Stock (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                      
|4.4   |  | Rights Agreement dated as of August 25, 1999 between the Company and Norwest Bank Minnesota, National Association, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A dated August 25, 1999 (File No. 0-22233))                                                                                                                                                                    
|10.1  |  | Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority of St. Paul, together with Amendment Nos. 1, 2 and 3 thereto dated February 6, 1995, May 16, 1995,
June 4, 1996, respectively (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File
No. 333-20677))
|10.2  |  | Amendment No. 4 to the Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority of St. Paul (incorporated by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No. 0-22233)).                                                                                                                                                       
|10.3  |  | Master Lease Agreement dated November 14, 1994, as amended, between the Company and Comdisco, Inc., with Exhibits (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                              
|10.4* |  | Amended and Restated 1993 Long-Term Incentive and Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 0-22233))                                                                                                                                                                                                                       

39

---

|10.5* |  | Directors' Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and
March 18, 1997 (File No. 333-20677))                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6* |  | 1997 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13,
1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                                                                        
|10.7  |  | Investment Agreement dated April 26, 1996 between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, dated January 29,
1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                        
|10.8  |  | Amended and Restated Investors Rights Agreement dated January 31, 1995, together with Amendments thereto dated March 1, 1995 and April 26, 1996, respectively, between the Company and the holders of the
Company's Series A and Series B Preferred Stock (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and
March 18, 1997 (File No. 333-20677))
|10.9  |  | Stock Purchase Agreement between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on
March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                                        
|10.10 |  | Purchase Agreement between the Company, Piper Jaffray Inc., and Volpe, Welty & Company LLC (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form S-1, dated
January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                
|10.11 |  | Distribution/Supply Agreement, dated September 8, 1997, between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, dated
July 23, 1997, as amended on January 9, 1998, June 4, 1998 and July 31, 1998 (File No. 333-31927))                                                                                                                                                             
|10.12 |  | License Agreement, dated January 30, 1998, between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended on July 31, 1998 (File No. 0-22233))                                                                                                                                                                                                    
|10.13 |  | Master Lease Agreement dated May 4, 1998, between the Company and Transamerica Business Credit Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File No. 0-22233))                                                                                                                                                                                                          
|10.14 |  | Amendment to Distribution/Supply Agreement dated December 11, 1998 between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                                           
|10.15 |  | Note Purchase Agreement dated February 2, 1999, between the Company and Medtronic Asset Management, Inc. (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                                             
|10.16 |  | Warrant, dated February 2, 1999, to purchase shares of common stock, issued by the Company to Medtronic Asset Management, Inc. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                       
|10.17 |  | Extension of Lease Commitment, dated February 12, 1999, by Transamerica Business Credit Corporation (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-22233))                                                                                                                                                                                                                  
|10.18 |  | Securities Purchase Agreement dated July 9, 1999, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-22233))                                                                                                                                                                                                                 

40

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|10.19  |  | Registration Rights Agreement dated July 9, 1999, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-22233))                                                                                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.20  |  | Third Amendment, dated March 31, 2000, to the Distribution/Supply Agreement between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 (File No. 0-22233))                                                                
|10.21  |  | Form of Stock Purchase Agreement, dated June 27, 2000, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 (File No. 0-22233))                                                                            
|10.22* |  | Employment and Noncompetition Agreement, dated as of November 3, 2000, between the Company and James W. Bullock (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 0-22233))                                                                      
|10.23* |  | Employment and Noncompetition Agreement, dated as of November 3, 2000, between the Company and Michael D. Dale (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (File No. 0-22233))                                                                       
|10.24* |  | Change in Control Agreement, dated November 3, 2000, between the Company and James W. Bullock (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-22233))                                                                                        
|10.25* |  | Form of Change in Control Agreement dated November 3, 2000, between the Company and each of Graydon Beatty, Frank Callaghan, Michael Dale, and Richard Omilanowicz (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                   
|10.26  |  | Amendment No. 5, dated August 2, 1999, to the Real Property Lease dated September 15, 1993 between the Company and the Port Authority of St. Paul (incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                                    
|10.27  |  | Amendment No. 6, dated January 29, 2001, to the Real Property Lease dated September 15, 1993 between the Company and Place & Plaza LLC (acquired from the Port Authority of St. Paul)
(incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))
|10.28* |  | Stock Purchase and Restriction Agreement, dated January 22, 2001, by and between the Company and Michael Dale (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0-22233))                                                                        
|10.29  |  | Form of Stock Purchase Agreement, dated March 22, 2001, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0-22233))                                                                            
|10.30  |  | Stock Purchase Warrant, dated March 26, 2001, between the Company and U.S. Bancorp Piper Jaffray (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-22233))                                                                                     
|23     |  | Consent of Ernst & Young LLP (Filed herewith)                                                                                                                                                                                                                                                                                         
|24     |  | Power of Attorney (incorporated by reference to Exhibit 24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                                                                                                                                                                       

41

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|99 |  | Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 (Filed herewith)
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------

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42

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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, in the City of St. Paul, Minnesota.

|Date: June 21, 2001 |  | ENDOCARDIAL SOLUTIONS, INC.
|------------------- |  | ---------------------------
|                    |  | By                         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities indicated
on the 21st day of June, 2001.

|Signature                           |  | Title                                                                                                  
|----------------------------------- |  | -------------------------------------------------------------------------------------------------------
|                                    |  |                                                                                                        
|/s/JAMES W. BULLOCKJames W. Bullock |  | President, Chief Executive Officer and Director
(Principal Executive, Financial and
Accounting Officer)
|*Graydon E. Beatty                  |  | Director                                                                                               
|James E. Daverman                   |  | Director                                                                                               
|*Robert G. Hauser, M.D.             |  | Director                                                                                               
|Warren S. Watson                    |  | Director                                                                                               
|*Richard D. Randall                 |  | Director                                                                                               

|* Executed pursuant to a power of attorney
previously filed with this Report. |  |                                   |  | 
|----------------------------------------------------------------------------- |  | --------------------------------- |  | 
|By:                                                                           |  | /s/JAMES W. BULLOCK               |  | 
|                                                                              |  | James W. Bullock Attorney-in-fact |  | 

43

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INDEX TO EXHIBITS

|3.1   |  | Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on
March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                 |  | 
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|3.2   |  | Amended Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 0-22233)                                                                                                                                                                                                                                                                  |  | 
|3.3   |  | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999
(File No. 0-22233))                                                                                                                                                                                                                   |  | 
|4.1   |  | Warrant Agreement dated November 18, 1993 between the Company and Tikkun Resource Development relating to warrant issued to Tikkun Resource Development to purchase shares of common stock (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                       |  | 
|4.2   |  | Warrant Agreement dated November 15, 1994 between the Company and Comdisco, Inc. relating to Warrant issued to Comdisco, Inc. to purchase shares of Series B Preferred Stock (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                     |  | 
|4.3   |  | Warrant Agreement dated August 20, 1996 between the Company and Comdisco, Inc. relating to Warrant issued to Comdisco, Inc. to purchase shares of Series D Preferred Stock (incorporated by reference to
Exhibit 4.4 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                       |  | 
|4.4   |  | Rights Agreement dated as of August 25, 1999 between the Company and Norwest Bank Minnesota, National Association, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A dated August 25, 1999 (File No. 0-22233))                                                                                                                                                                     |  | 
|10.1  |  | Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority of St. Paul, together with Amendment Nos. 1, 2 and 3 thereto dated February 6, 1995, May 16, 1995,
June 4, 1996, respectively (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File
No. 333-20677)) |  | 
|10.2  |  | Amendment No. 4 to the Real Property Lease Agreement dated September 15, 1993 between the Company and the Port Authority of St. Paul (incorporated by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No. 0-22233)).                                                                                                                                                        |  | 
|10.3  |  | Master Lease Agreement dated November 14, 1994, as amended, between the Company and Comdisco, Inc., with Exhibits (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                               |  | 
|10.4* |  | Amended and Restated 1993 Long-Term Incentive and Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 0-22233))                                                                                                                                                                                                                        |  | 

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|10.5* |  | Directors' Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and
March 18, 1997 (File No. 333-20677))                                                                                                                                                                                                                              |  | 
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|10.6* |  | 1997 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13,
1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                                                                         |  | 
|10.7  |  | Investment Agreement dated April 26, 1996 between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, dated January 29, 1997,
as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                         |  | 
|10.8  |  | Amended and Restated Investors Rights Agreement dated January 31, 1995, together with Amendments thereto dated March 1, 1995 and April 26, 1996, respectively, between the Company and the holders of the
Company's Series A and Series B Preferred Stock (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on March 5, 1997, March 13, 1997 and
March 18, 1997 (File No. 333-20677)) |  | 
|10.9  |  | Stock Purchase Agreement between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, dated January 29, 1997, as amended on
March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                                         |  | 
|10.10 |  | Purchase Agreement between the Company, Piper Jaffray Inc., and Volpe, Welty & Company LLC (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form S-1, dated
January 29, 1997, as amended on March 5, 1997, March 13, 1997 and March 18, 1997 (File No. 333-20677))                                                                                                                                                                 |  | 
|10.11 |  | Distribution/Supply Agreement, dated September 8, 1997, between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, dated
July 23, 1997, as amended on January 9, 1998, June 4, 1998 and July 31, 1998 (File No. 333-31927))                                                                                                                                                              |  | 
|10.12 |  | License Agreement, dated January 30, 1998, between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended on July 31, 1998 (File No. 0-22233))                                                                                                                                                                                                     |  | 
|10.13 |  | Master Lease Agreement dated May 4, 1998, between the Company and Transamerica Business Credit Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File No. 0-22233))                                                                                                                                                                                                           |  | 
|10.14 |  | Amendment to Distribution/Supply Agreement dated December 11, 1998 between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                                            |  | 
|10.15 |  | Note Purchase Agreement dated February 2, 1999, between the Company and Medtronic Asset Management, Inc. (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                                              |  | 
|10.16 |  | Warrant, dated February 2, 1999, to purchase shares of common stock, issued by the Company to Medtronic Asset Management, Inc. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 0-22233))                                                                                                                                                                                        |  | 

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|10.17  |  | Extension of Lease Commitment, dated February 12, 1999, by Transamerica Business Credit Corporation (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-22233))                                                                                   |  | 
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|10.18  |  | Securities Purchase Agreement dated July 9, 1999, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-22233))                                                                                  |  | 
|10.19  |  | Registration Rights Agreement dated July 9, 1999, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-22233))                                                                                  |  | 
|10.20  |  | Third Amendment, dated March 31, 2000, to the Distribution/Supply Agreement between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000 (File No. 0-22233))                                                                 |  | 
|10.21  |  | Form of Stock Purchase Agreement, dated June 27, 2000, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 (File No. 0-22233))                                                                             |  | 
|10.22* |  | Employment and Noncompetition Agreement, dated as of November 3, 2000, between the Company and James W. Bullock (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 0-22233))                                                                       |  | 
|10.23* |  | Employment and Noncompetition Agreement, dated as of November 3, 2000, between the Company and Michael D. Dale (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000 (File No. 0-22233))                                                                        |  | 
|10.24* |  | Change in Control Agreement, dated November 3, 2000, between the Company and James W. Bullock (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-22233))                                                                                         |  | 
|10.25* |  | Form of Change in Control Agreement dated November 3, 2000, between the Company and each of Graydon Beatty, Frank Callaghan, Michael Dale, and Richard Omilanowicz. (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                   |  | 
|10.26  |  | Amendment No. 5, dated August 2, 1999, to the Real Property Lease dated September 15, 1993 between the Company and the Port Authority of St. Paul (incorporated by reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                                     |  | 
|10.27  |  | Amendment No. 6, dated January 29, 2001, to the Real Property Lease dated September 15, 1993 between the Company and Place & Plaza LLC (acquired from the Port Authority of St. Paul) (incorporated
by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233)) |  | 
|10.28* |  | Stock Purchase and Restriction Agreement, dated January 22, 2001, by and between the Company and Michael Dale (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0-22233))                                                                         |  | 

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|10.29 |  | Form of Stock Purchase Agreement, dated March 22, 2001, among the Company and the Investors named therein (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 0-22233)) |  | 
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|10.30 |  | Stock Purchase Warrant, dated March 26, 2001, between the Company and U.S. Bancorp Piper Jaffray (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-22233))          |  | 
|23    |  | Consent of Ernst & Young LLP (Filed herewith)                                                                                                                                                                                                              |  | 
|24    |  | Power of Attorney (incorporated by reference to Exhibit 24 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-22233))                                                                                            |  | 
|99    |  | Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 (Filed herewith)                                                                                                                 |  | 

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