**EXHIBIT99.1**

 

**CAUTIONARY STATEMENT**

** **

Forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995 (the “PSLRA”) are included in our Form 10-Q.  The words or phrases “believes,” “may,”“will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will likelyresult,” “estimates,” “projects” or similar expressions identifyforward-looking statements in our Form 10-Q and in our future filings with theSecurities and Exchange Commission, in our press releases, in our presentationsto securities analysts or investors, and in oral statements made by or approvedby an executive officer of Endocardial Solutions, Inc.  Forward-looking statements involve risks anduncertainties that may materially and adversely affect our business, results ofoperation, financial condition or prospects, and may cause our actual resultsto differ materially from historical results or the results discussed in theforward-looking statements.

 

Youshould consider carefully the following cautionary statements if you own ourcommon stock or are planning to buy our common stock.  We intend to take advantage of the “safe harbor” provisions ofthe PSLRA by providing this discussion. We are not undertaking to address or update each factor in future filingsor communications regarding our business or results except to the extentrequired by law.

 

**Our successdepends on the commercialization and market acceptance of the EnSite System**

 

TheEnSite System is currently our only potential product, and our success dependsentirely on the successful commercialization and market acceptance of theEnSite System.  Problems in thefollowing areas could materially impact the commercialization of the EnSiteSystem:

 

•              research and development,

•              clinical testing,

•              regulatory submissions and approval,

•              product manufacturing and continuedcommercial growth,

•              marketing, or

•              product distribution.

 

We began to generate revenue from the EnSite Array inthe second quarter of 1998.  We began togenerate revenue from EnSite NavX in 2003. We cannot assure you that we will continue to derive revenues from thesale of the EnSite System sufficient to generate a substantial return oninvestment for our stockholders.

 

**Ourproducts are subject to regulatory approval before they may be marketed in theU.S. and abroad, and we may not obtain regulatory approval for use of theEnSite Array for all chambers of the heart**

 

Themanufacture and sale of medical devices, including the EnSite System, aresubject to extensive regulation in the United States, principally by the U.S.Food and Drug Administration and corresponding state agencies, and in othercountries.  In the United States, humandiagnostic devices are regulated under the federal Food, Drug and Cosmetic Act,and are subject to clinical testing mandated by the FDA before they will giveclearance for marketing.  The Food, Drugand Cosmetic Act provides two basic review procedures, including a shortenedsubmission procedure under Section 510(k) whereby the manufacturer notifies theFDA of its intent to market the product and attempts to establish that theproduct to be marketed is substantially equivalent to another FDA-clearedproduct.  If a device fails to qualifyfor the 510(k) procedure, the manufacturer must file a pre-market approvalapplication, which typically involves more clinical testing and a significantlylonger FDA review process.  During thethird and fourth quarters of 1998, we submitted to the FDA two pre-marketnotification applications under Section 510(k) containing the results of ourleft ventricular and right atrium multi-center clinical trials.  The FDA cleared the marketing of the EnSiteArray for use in the right atrium of the heart in April 1999.  Following discussions with the FDA, in March1999, we announced that our FDA application for left ventricular use of theEnSite Array would be submitted as a pre-market approval application becausethe FDA did not find, based on initial clinical data, substantial equivalencewith other devices used in the ventricles of the heart.  We have submitted portions of our pre-marketapproval application that have been approved by the FDA.  However, we may

 

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not be able to file a complete pre-market approvalapplication with the FDA until we complete more clinical trials, but we havenot yet undertaken another clinical study for use of the EnSite Array in theleft ventricle.  We are still indiscussions with the FDA regarding the extent of additional clinical trialsthat may be required and the best approach to obtain market approval for use ofthe EnSite Array in the left ventricle. In the meantime, we received FDA approval in January 2001 to conduct aleft atrium multi-center clinical trial for the EnSite Array that we began inthe second quarter of 2001.  We receivedclearance from the FDA under Section 510(k) in April of 2003 to market the useof EnSite NavX in all chambers of the heart, and have received similarregulatory approvals to market EnSite NavX in Europe, as well as all othergeographies in which the EnSite Array is currently sold and distributed.

 

Salesof medical devices outside of the United States are subject to internationalregulatory requirements that vary from country to country, and approval forsale internationally may take more or less time than that required for FDAapproval.  Prior to clearance formarketing in Europe, the EnSite System was required to meet regulatorystandards outlined in several directives administered by the EuropeanUnion.  In order to affix a CE Mark tothe EnSite System, allowing it to be marketed in Europe, we followed theconformity assessment procedures applicable to our product classification andsubmitted a declaration of conformity. We have obtained CE Mark certification for the EnSite Array for use inthe right atrium and left ventricle of the heart, allowing us to sell theEnSite Array in member countries of the European Union.  We also have obtained CE Mark certificationfor EnSite NavX for use in all chambers of the heart.  We may encounter significant costs and requests for additionalinformation in our continuing efforts to obtain regulatory approvals for otherclinical applications of the EnSite Array in Europe, and in other countries,which could substantially delay or preclude us from marketing our products forthose clinical applications internationally. We have obtained regulatory approval to market and sell EnSite NavX inall other international geographies in which we have approval to market andsell the EnSite Array.

 

Marketingapprovals, if granted for some but not all chambers of the heart, require us tolimit the indicated use of our EnSite Array. FDA enforcement policy strictly prohibits the marketing of approvedmedical devices for unapproved uses. Product approvals could be withdrawn for failure to comply withregulatory standards or the occurrence of unforeseen problems following theinitial marketing.  We will be requiredto follow FDA regulations regarding Good Manufacturing Practices and similarregulations in other countries, which include testing, control, anddocumentation requirements.  Ongoingcompliance with Good Manufacturing Practices and other applicable regulatoryrequirements will be monitored through periodic inspections by federal andstate agencies, including the FDA, and by comparable agencies in othercountries.  If we fail to comply withapplicable regulatory requirements, we could be subjected to warning letters,fines, injunctions, civil penalties, recall or seizure of products, total orpartial suspension of production, refusal of the government to grant pre-marketapproval, withdrawal of approvals and criminal prosecution.

 

Wecannot assure you that we will be able to obtain the necessary regulatoryapprovals on a timely basis or at all for future applications of the EnSiteSystem.  Delays in receipt of or failureto receive the approvals, the loss of previously obtained approvals, or failureto comply with existing or future regulatory requirements could materiallylimit our ability to market the EnSite System and generate substantial revenuefrom additional sales of EnSite Array catheters and EnSite NavX surfaceelectrode kits.

 

**Clinical testingof our EnSite Array may not be completed in a timely manner or prove to be safeand effective in all chambers of the heart**

** **

Wehave conducted clinical trials in the use of the EnSite Array in patients forventricular tachycardia and supraventricular tachycardia in the United Statesand in Europe.  In 1999, we receivedclearance from the FDA  to market theEnSite Array in the U.S. for use in the right atrium of the heart, but webelieve we will be required to conduct more clinical testing in the UnitedStates in order to support a pre-market approval application to the FDA formarketing approval for use of the EnSite Array in the left ventricle of theheart.  In January 2001, we received FDAapproval to also conduct a left atrium multi-center clinical trial that webegan in the second quarter of 2001. Patients selected for clinical trials must meet stringent guidelines toundergo testing, and we cannot assure you that patients can be enrolled inclinical trials on a timely basis. Further, we cannot assure you that use of our EnSite Array will prove tobe safe and effective in clinical trials under United States or internationalregulatory guidelines for all chambers of the heart.  As to be expected when performing delicate and invasiveprocedures involving the heart, we have at times experienced complications inour clinical trials.  The clinical proceduresemploying the EnSite Array for diagnosis are often combined with otherdiagnostic catheters and procedures to treat the

 

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arrhythmia, and complications arising from suchprocedures are often pooled together because of the difficulty of determiningwhich device or procedure is the true cause of any adverse event.  Major complications, as defined by the FDA,that we have experienced during clinical trials of the EnSite Array requiringsurgical repair and/or blood transfusion include: cardiac perforation (apuncture of the heart wall); myocardial infarction (heart attack); and hematoma(localized swelling resulting from a broken blood vessel).  Additional clinical trials of the EnSiteArray may identify significant technical or other obstacles to be overcomeprior to obtaining approvals.  Webelieve further clinical studies will be required in order to obtain clearancefrom the FDA to market the use of the EnSite Array in other chambers of theheart.  If the EnSite Array  does not prove to be safe and effective inclinical trials involving other chambers of the heart, our ability to marketthe EnSite Array, and generate substantial revenue from additional sales ofEnSite Array catheters, EnSite NavX upgrades to the EnSite System, or EnSiteNavX surface electrode kits, may be materially limited.

 

**Our EnSite Systemassists electrophysiologists in the diagnosis and treatment of cardiacarrhythmias, and enables the non-fluoroscopic navigation and positioning ofconventional linear electrophysiology catheters,  but we depend on other companies to develop products to treatcardiac arrhythmias that will increase the usefulness of our EnSite System**

** **

Currenttreatments for cardiac arrhythmias include therapeutic drugs, implantabledefibrillators, implantable pacemakers or bi-ventricular stimulation devices,surgery and catheter ablation.  Webelieve the EnSite System enables increased use of catheter ablation fortreating both complex and “less complex” arrhythmias which, in turn, couldincrease the volume of use of our EnSite System.  Catheter ablation is a procedure in which a physician inserts acatheter through a vein in the groin or neck and advances it into one or more chambersof the heart.  While in contact with theinternal wall of a heart chamber, a high radio frequency energy is appliedthrough the tip of the catheter to deaden the heart tissue at the site causingthe arrhythmia.  Our EnSite Systemenables electrophysiologists to pinpoint the location within a heart chamber tobe ablated and visualize and navigate the catheter to that spot.  Because ablation treatment is relativelynew, the long-term effects of ablation on patients are unknown.  As a result, the long term success ofablation therapy in treating arrhythmias may not be known for severalyears.  Catheter ablation devicesrequire approval by the FDA, and we cannot assure you that a catheter ablationmarket will continue to develop. Moreover, we cannot assure you of the extent to which the EnSite Arrayis useful in diagnosing arrhythmias for treatment by catheter ablationproducts, and the extent to which EnSite NavX is useful in guiding andnavigating conventional linear diagnostic and ablation catheters.  We are not in the process of developing acatheter for ablation treatment and are entirely dependent upon other medicaldevice companies to develop those devices. If a market for treating cardiac arrhythmias by catheter ablation doesnot continue to develop, our ability to market the EnSite System and generatesubstantial revenue from additional sales of EnSite Array catheters and EnSiteNavX surface electrode kits may be limited.

 

**Our products may be unable todiagnose or assist in the treatment of atrial fibrillation**

 

Inaddition to assisting the diagnosis and treatment of complex arrhythmias suchas atrial tachycardia and ventricular tachycardia, we intend to apply theEnSite System to the diagnosis of atrial fibrillation.  Atrial fibrillation is the most common typeof sustained arrhythmia, and the ability to diagnose atrial fibrillation, andto navigate linear catheters during the diagnosis and treatment of atrialfibrillation, could lead to a significant market opportunity for us.  However, we have conducted only limitedclinical studies of our technology on patients suffering from atrialfibrillation.  Although it is possiblefor atrial fibrillation to originate in the right atrium, medical research hasshown that atrial fibrillation most often originates in the left atrium.  In January 2001, we received clearance fromthe FDA to market the use the EnSite Array in the left atrium in a multi-centerclinical study for mapping and diagnosing arrhythmias including atrialfibrillation.  We may, however, be unableto successfully extend our EnSite Array technology to the mapping of atrialfibrillation or obtain regulatory approval to market any products developedusing the technology to map atrial fibrillation.  In April of 2003 we received clearance from the FDA to market theuse of EnSite NavX in all chambers of the heart, including the leftatrium.  We have made, and expect tocontinue to make, research and development expenditures to extend theapplication of the EnSite System technology to the diagnosis of atrialfibrillation.  We cannot assure you thatwe will realize any benefit from these expenditures.

 

Atrialfibrillation is a complex disease and the subject of continuing research.  The device therapies and techniques fordiagnosing and treating atrial fibrillation presently available continue todevelop and evolve, and the long-term effectiveness of such treatments arestill unknown.  Even if we aresuccessful in extending our EnSite

 

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technology to map, diagnose, and navigate cathetersused in the treatment of atrial fibrillation, we cannot assure you that thesetreatments for atrial fibrillation will prove effective over the long-term, orthat the diagnostic and navigation capabilities of any of our EnSite productswill continue to be utilized or prove to be effective for atrialfibrillation.  As a result, thecommercial market for the diagnosis and treatment of atrial fibrillation maynot continue to develop for any of our current or future EnSite products.  We have no present intention to develop anymedical devices on our own for the treatment of atrial fibrillation.

 

**Our products maynot succeed in the market**

** **

Thecommercial success of the EnSite System ultimately depends upon the number ofdiagnostic and therapeutic ablation procedures performed byelectrophysiologists using the EnSite System. Our EnSite System may not gain any significant increased marketacceptance among electrophysiologists, patients, health care insurers andmanaged care providers.  Electrophysiologists and other physicians may elect not to recommenddiagnostic or therapeutic procedures for any number of reasons, includingsafety and efficacy, the availability of alternative procedures and treatmentoptions, or inadequate levels of reimbursement.  Broad use of the EnSite System also requires time-consumingtraining of electrophysiologists and electrophysiology lab staff, which alsocould adversely affect market acceptance.

 

**We facesignificant industry competition**

 

Thecardiac medical device market is highly competitive, and the EnSite System mustcompete with more established devices. Certain of our competitors are developing new approaches and newproducts for diagnosing and treating arrhythmias, including mapping systemsthat use single or multiple-point catheters that physically must come incontact with the heart wall in order to record electrical activity.  Certain of our competitors have integratedproduct lines that include products for both diagnosis and ablation treatmentof cardiac arrhythmias, which may afford them opportunities for productbundling and other marketing advantages. Many of our competitors have an established presence in the field ofelectrophysiology and established relationships with electrophysiologylabs.  Many of our competitors have substantiallygreater financial and other resources than we do, including larger research anddevelopment staffs and more experience and capabilities in conducting researchand development activities, testing products in clinical trials, obtainingregulatory approvals, and manufacturing, marketing and distributingproducts.  Some of our competitors mayachieve patent protection, regulatory approval or product commercializationmore quickly than us, which may decrease our ability to compete.

 

**Our products maybecome obsolete if we are unable to anticipate and adapt to rapidly changingtechnology**

** **

Themedical device industry is subject to rapid technological innovation and,consequently, the life cycle of any particular product is short.  Alternative diagnostic systems or otherdiscoveries and developments with respect to mapping cardiac arrhythmias, andnavigating and positioning catheters used to diagnose and treat cardiacarrhythmias, may render our products obsolete. Furthermore, the greater financial and other resources of many of ourcompetitors may permit them to respond more rapidly than us to technologicaladvances.  If we fail to demonstrate thesafety, benefit, efficacy, and cost-effectiveness of our products as comparedto those of our competitors, or if we fail to develop new technologies andproducts or upgrade our existing products before our competitors, our abilityto market our products and generate substantial revenues may be limited.

 

**We depend on our patents andproprietary technology, which we may not be able to protect**

 

Oursuccess will depend in part on our ability to obtain and maintain patentprotection for our products and processes, to preserve our trade secrets and tooperate without infringing the intellectual property rights of others.  The patent positions of medical devicecompanies are uncertain and involve complex and evolving legal and factualquestions.  We cannot assure you thatany of our pending or future patent applications will result in issued patents,that any current or future patents will not be challenged, invalidated orcircumvented, that the scope of any of our patents will exclude competitors orthat the patent rights granted to us will provide us any competitiveadvantage.  We may discover that ourtechnology infringes patents or other rights owned by others, and we cannot becertain that we were the first to make the inventions covered by each of ourissued patents and our pending patent applications, or that we were the firstto file patent applications for such inventions.  In addition, we cannot assure you that our competitors will notseek to apply for and obtain patents that will prevent, limit or interfere withour

 

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ability to make, use or sell our products either inthe United States or in international markets. Further, the laws of certain foreign countries may not protect ourintellectual property rights to the same extent as do the laws of the UnitedStates.

 

Inaddition to patents, we rely on trade secrets and proprietary knowledge that weseek to protect, in part, through confidentiality agreements with employees,consultants and others.  We cannotassure you that our proprietary information or confidentiality agreements willnot be breached, that we will have adequate remedies for any breach, or thatour trade secrets will not otherwise become known to or independently developedby competitors.

 

**We may faceintellectual property infringement claims which would be costly to resolve**

** **

Therehas been substantial litigation regarding patent and other intellectualproperty rights in the medical device industry and our competitors may resortto intellectual property litigation as a means of competition.  Intellectual property litigation is complexand expensive and the outcome is difficult to predict.  We cannot assure you that we will not becomesubject to patent infringement claims or litigation, or interferenceproceedings declared by the United States Patent and Trademark Office, or thepatent regulatory agencies of foreign jurisdictions, to determine the priorityof inventions.  Litigation or regulatoryproceedings may also be necessary to enforce our patent or other intellectualproperty rights.  We may not always havethe financial resources to assert patent infringement suits or to defendourselves from claims.  An adverseresult in any litigation could subject us to liabilities to, or require us toseek licenses from or pay royalties to, others that may be substantial.  Furthermore, we cannot assure you that thenecessary licenses would be available to us on satisfactory terms, if at all.

 

**We have limitedmanufacturing experience necessary for high-volume manufacturing capacity**

** **

Wehave limited experience manufacturing our products in the volumes that may benecessary for us to achieve significant growth in the commercial sales of ourproducts.  We may need to expendsignificant capital resources and develop the necessary expertise to establishlarge-scale manufacturing capabilities. We may encounter the following difficulties in scaling up production ofour products:

 

•              problems involving production yields,

•              quality control and assurance,

•              component supply shortages,

•              shortages of qualified personnel,

•              compliance with U.S. and foreignregulations, or

•              the need for further U.S. or foreignregulatory approval of new manufacturing processes.

 

Ourmanufacturing facilities will be periodically inspected by United States andforeign regulatory authorities.  Inorder to manufacture products for sale in the United States, our operationsmust undergo “Good Manufacturing Practices” compliance inspections conducted bythe FDA.  We passed inspection of ourfacility and manufacturing processes by the FDA in the fourth quarter of 2001.  We will also be required to comply with ISO9001 Quality System requirements and CE Mark regulations in order to continueto sell our products in Europe.  Wereceived ISO 9001 Quality System Certification in August 1997.  We began placing the CE Mark on the EnSiteArray catheter and the EnSite clinical workstation in the second quarter of1998.  We began using the CE Mark on theEnSite NavX surface electrode kits in second quarter of 2003.  If we fail to comply with Good ManufacturingPractices or ISO 9001 and CE Mark regulations in future audits, we may berequired to modify our manufacturing policies and procedures.  In addition, we may be required to stop allor part of our operations until we can demonstrate that appropriate steps havebeen taken to comply with the regulations.

 

**We depend on a fewsuppliers for key components of our products**

** **

Wepurchase components for the EnSite System from a variety of vendors.  While it is our goal to be able to havemultiple sources to procure these components, in some cases it is noteconomically practical to do so.  Whilewe do have some components that we currently obtain from a single source, suchas the EnSite System computer from Silicon Graphics and EnSite NavX surfaceelectrode kits from a division of Tyco, Inc., we are aware of

 

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alternate supply sources that could provide suchcomponents or products with minimal modification to the current versions of theEnSite System or EnSite NavX surface electrode kits.  Additionally, we practice supply chain management and maintainsafety stocks of critical components and products, and have put agreements inplace with our key vendors to manage the availability of critical componentsand products.  Despite our efforts tomitigate this risk, if our vendors are unable to provide an adequate supply ofcomponents or products in a timely manner, or if we are unable to locatequalified alternate vendors for components or products at a reasonable cost,the availability of some or all of our EnSite System products to our customersand our ability to generate substantial revenues could be materially limited.

 

**Our sales andmarketing efforts may not be successful**

** **

Wecontinue to gain experience in marketing and selling the EnSite System througha direct sales organization in the U.S., but we have limited experience inmarketing and selling the EnSite System through a direct sales organization inparts of Europe, and through third-party distributors in other geographies inwhich the EnSite System is sold and distributed.  We cannot assure you that we will be able to maintain a suitablesales force in the U.S. or abroad or enter into or maintain satisfactorymarketing and distribution arrangements with others.  Our sales and marketing efforts may not be successful.

 

**We will need tocarefully manage our expanding operations in order to achieve sustainablegrowth**

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Inorder to achieve increased sales levels, complete clinical trials, prepareadditional products for clinical trials, and develop future products, webelieve that we will be required to periodically expand our operations,particularly in the areas of research and development, manufacturing, qualityassurance, and sales and marketing.  Aswe expand our operations in these areas, the expansion likely will result in newand increased responsibilities for management. To accommodate any growth and compete effectively, we must implement andimprove our information systems, procedures and controls, and expand, train,motivate and manage our work force.  Ourfuture success will depend significantly on the ability of our current andfuture management to operate effectively. We cannot assure you that our personnel, systems, procedures andcontrols will be adequate to support our future operations.

 

**Internationaloperations will expose us to additional risks**

** **

We aremarketing and will continue to market and sell the EnSite System either througha direct sales force or through distributors in international markets, subjectto our receipt of the requisite foreign regulatory approvals.  We have distribution arrangements withapproximately seventeen distributors in international markets, and currentlyretain all distribution rights in the United States and several countries inEurope.  We cannot assure you thatinternational distributors for our products will devote adequate resources toselling and servicing our products.

 

Changesin overseas economic conditions, currency exchange rates, foreign tax laws ortariffs or other trade regulations could materially and adversely affect on ourability to market our products internationally.  Our business is also expected to subject us and ourrepresentatives, agents and distributors to laws and regulations of the foreignjurisdictions in which we operate or our products are sold.  We may depend on foreign distributors andagents for compliance and adherence to foreign laws and regulations.

 

**Our success maydepend on the ability of health care providers to achieve adequate levels ofthird-party reimbursement**

** **

Salesof our products will continue to depend largely on the availability of adequatereimbursement for diagnostic and therapeutic procedures for cardiac arrhythmiasfrom third-party payors, such as government and private insurance plans,health maintenance organizations and preferred provider organizations.  In the United States, our products arepurchased primarily by health care providers such as doctors and hospitals whothen seek  reimbursement for the healthcare services provided to their patients. Specific to Medicare, the use of the EnSite Array or EnSite NavX iscurrently reimbursable under both inpatient and outpatient procedurescenarios.  For inpatient procedures,the EnSite Array and EnSite NavX will most typically be reimbursed under DiagnosisRelated Group 518.  For outpatientprocedures, both the EnSite Array and EnSite NavX is eligible for separate

 

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reimbursement in addition to the hospital’s AmbulatoryPayment Classification for cardiac three-dimensional mapping.  Third-party payors are increasinglychallenging the pricing of medical products and procedures they considerunnecessary, inappropriate, not cost-effective, experimental or used fora non-approved indication.  Evenif a procedure is eligible for reimbursement, the level of reimbursement maynot be adequate to enable us to achieve or maintain market acceptance of ourproducts or maintain price levels that exceed our costs of developing andmanufacturing our products.

 

TheEnSite Array catheter and EnSite NavX surface electrode kits are being sold ata premium price compared to other single point catheters used in diagnostic,mapping, or catheter navigation procedures. In addition, an initial capital outlay is  required for acquiring an EnSite clinical workstation (unlesssuch workstation is leased or rented pursuant to a third-party financingtransaction).  Assuming no increase inthe level of reimbursement for electrophysiology procedures utilizing ourproducts, we will continue to be required to justify the relative increasedcost to the health care providers and payors of using the EnSite System.  We will continue to be required todemonstrate the enhanced benefits of the EnSite System to health care providersand payors in terms of such factors as enhanced patient proceduralefficiencies, reduced radiation exposure, reduced procedure times, and improvedpatient outcomes.  The demonstration ofthese benefits may require us to conduct post-marketing clinical studies, whichmay be costly, lengthy, and may not provide the cost or clinical justificationresults we are seeking.  Withoutadequate support from third-party payors, the market for our products maybe severely limited.

 

We areunable to predict what additional legislation or regulation, if any, relatingto the health care industry or third-party coverage and reimbursement maybe enacted in the future, or what effect such legislation or regulation wouldhave on us.  Reforms may includemandated basic health care benefits, limitations on the growth of private healthinsurance premiums and Medicare and Medicaid spending, greater reliance onprospective payment systems, the creation of large insurance purchasing groupsand fundamental changes to the health care delivery system.  We anticipate that Congress and statelegislatures will continue to review and assess alternative health caredelivery systems and payment methodologies. We cannot predict whether any reform proposals will be adopted or whatimpact they may have on us.

 

Reimbursementsystems in international markets vary significantly by country and by regionwithin some countries.  Manyinternational markets have government managed health care systems that controlreimbursement for new devices and procedures. In most international markets, there are private insurance systems aswell as government managed systems.  Wecannot assure you that reimbursement for our products will be available ininternational markets under either government or private reimbursement systems.

 

**Our products mayexpose us to costly litigation**

** **

We maybe exposed to product liability claims if a patient is adversely affected byour products.  We currently carryproduct liability insurance covering our clinical trial operations with anaggregate limit of $5 million.  Wecannot assure you that our existing insurance coverage limits are adequate tocover any liabilities we might incur in connection with the distribution of ourproducts.  Although we obtained productliability insurance coverage in connection with the commercialization of theEnSite System, insurance may not continue to be available on commerciallyreasonable terms.  In addition,insurance might not adequately cover any product liability claim.

 

**We have a historyof operating losses and expect future losses**

** **

Wehave generated increasing revenue, but have sustained significant operatinglosses each year since our inception. We expect our losses to continue at least through the third quarter of2003.  We may never generate substantialoperating revenues or achieve profitability. Our ability to generate revenues from operations and make a profitdepends upon successful development, regulatory approval, manufacturing andcommercialization of the EnSite System and our successful transition from aresearch and development company to a manufacturing and sales company.

 

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**We may be unableto meet our future capital requirements**

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We mayrequire substantial funds to meet our working capital requirements forexpansion of sales and marketing, research and development, clinical trials,regulatory approval and manufacturing activities.  In order to meet our funding needs, we may be required to raiseadditional funds through public or private financings, including the sale ofequity or debt.  Any additional equityfinancings may dilute current stockholders, and debt financing, if available,may involve restrictive covenants. Adequate funds for our operations, whether from financial markets orfrom other sources, may not be available when needed on attractive terms, if atall.  Insufficient funds may require usto delay, scale back or eliminate some or all of our plans for growth.

 

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