<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

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

                                    FORM 10-Q

 X  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
--- Act of 1934.

                 For the quarterly period ended March 31, 2001.

    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
--- Act of 1934.

        For the transition period from ________________to_______________.

                        COMMISSION FILE NUMBER: 000-28372

                          CARDIAC PATHWAYS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                             77-0278793
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)


995 BENECIA AVENUE, SUNNYVALE, CA                                  94085
(Address of principal executive offices)                         (Zip Code)


Registrant's telephone number, including area code:  (408) 737-0505


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.  X  Yes     No
                                   ---     ---

As of May 15, 2001 there were 9,052,234 shares of the Registrant's Common Stock
outstanding.


<PAGE>   2


                          CARDIAC PATHWAYS CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
                                                                                       PAGE NO.
<S>      <C>                                                                            <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial  Statements and Notes (Unaudited)

         Condensed Consolidated Balance Sheets as of March 31, 2001 and
         June 30, 2000 ..............................................................      3

         Condensed Consolidated Statements of Operations for the Three and Nine
         Months Ended March 31, 2001 and 2000........................................      4

         Condensed Consolidated Statements of Cash Flows for the Nine Months
         Ended March 31, 2001 and 2000...............................................      5

         Notes to Condensed Consolidated Financial Statements........................      6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations.......................................................     10

Item 3.  Quantitative and Qualitative Disclosures about Market
         Risk........................................................................     28

PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K............................................     29

SIGNATURES...........................................................................     30
</TABLE>



                                       2
<PAGE>   3
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND NOTES

                          CARDIAC PATHWAYS CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                              March 31,      June 30,
                                                                                2001         2000 (1)
                                                                              ---------      ---------
                                                                                     (unaudited)
<S>                                                                           <C>            <C>
                                  ASSETS
Current assets:
   Cash and cash equivalents                                                  $  16,218      $   8,488
   Short-term investments                                                         8,448          4,137
   Accounts receivable, net of allowance for doubtful accounts
      of $147 at March 31, 2001 and $139 at June 30, 2000                         2,437          1,271
   Inventories                                                                    1,807          2,095
   Prepaid expenses                                                                 336            227
   Other current assets                                                             104            222
                                                                              ---------      ---------
             Total current assets                                                29,350         16,440
Property and equipment, net                                                       4,823          3,506
Notes receivable from related parties                                               100            100
Intangible assets, net of accumulated amortization of
      $637 and $367 at March 31, 2001 and at June 30, 2000                        1,363          1,633
Deposits and other assets                                                            72             86
                                                                              ---------      ---------
                                                                              $  35,708      $  21,765
                                                                              =========      =========

      LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Accounts payable                                                            $   1,080      $     980
  Accrued compensation and related benefits                                       1,947          1,196
  Accrued clinical expenses                                                         316            527
  Other accrued expenses                                                          1,593            907
  Current obligations under capital leases                                          139            258
  Deferred income-current portion                                                   300            400
                                                                              ---------      ---------
           Total current liabilities                                              5,375          4,268
Long-term obligations under capital leases                                            6             85
Deferred income                                                                   1,806          2,031
Accrued Preferred dividends                                                       5,038          2,784

Redeemable Convertible Preferred Stock, $.001 par value
  5,000,000 shares authorized and 27,250 issued and outstanding
  at March 31, 2001 and at June 30, 2000; liquidation preference of
  $32,288 and $30,034 at March 31, 2001 and June 30, 2000, resepectively         26,828         26,828
Receivable from stockholder                                                        (250)          (250)

Stockholders' deficit:
   Common stock, $.001 par value; 30,000,000 shares authorized; 9,002,240
     shares issued and outstanding at March 31, 2000 and 3,078,486
     issued and outstanding at June 30, 2000                                          9              3
   Additional paid-in capital                                                   103,192         82,439
   Receivable from stockholders                                                     (72)           (72)
   Accumulated deficit                                                         (106,224)       (96,351)
                                                                              ---------      ---------
           Total stockholders' deficit                                           (3,095)       (13,981)
                                                                              ---------      ---------
                                                                              $  35,708      $  21,765
                                                                              =========      =========
</TABLE>


(1) Derived from the Company's audited consolidated balance sheet as of June 30,
    2000.


           See notes to condensed consolidated financial statements.

                                       3
<PAGE>   4
                          CARDIAC PATHWAYS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                            Three months ended          Nine months ended
                                                                 March 31,                   March 31,
                                                          ----------------------      ----------------------
                                                            2001          2000          2001          2000
                                                          --------      --------      --------      --------
<S>                                                       <C>           <C>           <C>           <C>
Net sales                                                 $  3,311      $  1,511      $  9,595      $  4,755
Cost of goods sold                                           2,558         1,904         7,631         4,832
                                                          --------      --------      --------      --------
   Gross margin                                                753          (393)        1,964           (77)
Operating expenses:
   Research and development                                  1,453         1,713         3,595         5,365
   Selling, general and administrative                       2,910         3,643         8,832         7,337
                                                          --------      --------      --------      --------
           Total operating expenses                          4,363         5,356        12,427        12,702
                                                          --------      --------      --------      --------
Loss from operations                                        (3,610)       (5,749)      (10,463)      (12,779)
Other income (expense):
   Interest income                                             388           283           707           801
   Interest expense                                             (5)          (11)          (19)          (59)
   Other, net                                                  (81)         (340)          (98)         (213)
                                                          --------      --------      --------      --------
           Total other income, net                             302           (68)          590           529
                                                          --------      --------      --------      --------
Net loss                                                    (3,308)       (5,817)       (9,873)      (12,250)
Preferred stock dividend                                       749           880         2,255         2,420
Beneficial conversion feature related to the issuance
   of the redeemable convertible preferred stock                --            --            --           960
                                                          --------      --------      --------      --------
Net loss attributable to common stockholders              $ (4,057)     $ (6,697)     $(12,128)     $(15,630)
                                                          ========      ========      ========      ========

Net loss per share - basic and diluted                    $  (0.45)     $  (3.29)     $  (2.34)     $  (7.74)
                                                          ========      ========      ========      ========

Shares used in computing
    net loss per share - basic and diluted                   9,002         2,033         5,183         2,020
                                                          ========      ========      ========      ========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4

<PAGE>   5
                          CARDIAC PATHWAYS CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      Nine months ended
                                                                           March 31,
                                                                    ----------------------
                                                                      2001          2000
                                                                    --------      --------
<S>                                                                 <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                            $ (9,873)     $(12,250)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                                       1,411         1,284
   Amortization of deferred compensation                                  --            97

Changes in operating assets and liabilities:
   Accounts receivable                                                (1,166)          168
   Inventories                                                           288           259
   Prepaid expenses                                                     (109)          158
   Other current assets                                                  118          (326)
   Accounts payable                                                      100           199
   Accrued compensation and related benefits                             751           345
   Accrued clinical expenses                                            (211)         (312)
   Other accrued expenses                                                686           157
   Deferred income                                                      (325)         (225)
                                                                    --------      --------
Net cash used in operating activities                                 (8,330)      (10,446)
                                                                    --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments                                   (7,811)      (11,135)
Maturities and sales of short-term investments                         3,500         2,000
Purchases of property and equipment                                   (2,458)       (1,331)
Decrease in notes receivable                                              --          (170)
Purchase of rights to certain patents                                     --        (2,000)
Decrease in deposits and other assets                                     14            15
                                                                    --------      --------
Net cash used in investing activities                                 (6,755)      (12,621)
                                                                    --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations                      (198)         (262)
Proceeds from issuance of common stock, net of issuance cost          23,013           184
Decrease in notes receivable from stockholders                            --            63
Proceeds from issuance of preferred stock, net of issuance cost           --        28,750
                                                                    --------      --------
Net cash provided by financing activities                             22,815        28,735
                                                                    --------      --------
Net increase in cash and cash equivalents                              7,730         5,668
   Cash and cash equivalents at beginning of period                    8,488         2,340
                                                                    --------      --------
   Cash and cash equivalents at end of period                       $ 16,218      $  8,008
                                                                    ========      ========

SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash conversion of bridge loan financing to preferred stock     $     --      $  3,000
                                                                    ========      ========
</TABLE>

           See notes to condensed consolidated financial statements.

                                       5


<PAGE>   6


                          CARDIAC PATHWAYS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the financial information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.

         The preparation of the 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.

         The operating results for the three months and nine months ended March
31, 2001 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 2001. The accompanying condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Cardiac Pathways
Corporation (the "Company") Annual Report on Form 10-K/A for the fiscal year
ended June 30, 2000.

2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

         The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
other liquid investments are classified as short-term investments. At March 31,
2001, all short-term investments were classified as available-for-sale.
Available-for-sale securities are carried at fair market value with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. To date, the Company has not experienced any significant unrealized
gains or losses on available-for-sale securities and, accordingly, no
adjustments have been made to stockholders' equity.



                                       6
<PAGE>   7

The following is a summary of available-for-sale securities at cost, which
approximates fair value (Amounts in thousands):

<TABLE>
<CAPTION>
                                              MARCH 31,    JUNE 30,
DESCRIPTION                                      2001        2000
-----------                                   --------     --------
<S>                                           <C>
Available-for-sale:
    U.S. government agency                     $    --     $ 1,000
    Other government agency                         --       1,000
    Auction rate preferred stock                    --       2,000
    U.S. corporate obligations                  23,990       8,119
                                               -------     -------
                                                23,990      12,119
Amounts classified as cash equivalents          15,542       7,982
                                               -------     -------
Amounts included in short-term investments     $ 8,448     $ 4,137
                                               =======     =======
</TABLE>



         There were no material realized or unrealized gains or losses as of or
for the three-month and nine-month periods ended March 31, 2001 and 2000. The
cost of securities sold is based on the specific identification method.

3. CONDENSED CONSOLIDATED BALANCE SHEET COMPONENTS

         Certain balance sheet components are as follows (Amounts in thousands):

<TABLE>
<CAPTION>
                                  MARCH 31,     JUNE 30,
                                    2001         2000
                                  ---------     --------
<S>                               <C>           <C>
Inventories:
  Raw materials                    $   398      $1,057
  Work-in-process                      808         204
  Finished goods                       601         834
                                   -------      ------
                                   $ 1,807      $2,095
                                   =======      ======
</TABLE>




                                       7
<PAGE>   8

<TABLE>
<CAPTION>
                                  MARCH 31,     JUNE 30,
                                    2001         2000
                                  ---------     --------
<S>                               <C>           <C>
Property and equipment:
  Equipment                       $11,175       $8,320
  Leasehold improvements              449          422
  Equipment-in-process                480          904
                                  -------       ------
                                   12,104        9,646
  Less accumulated depreciation
    and amortization                7,281        6,140
                                  -------       ------
                                  $ 4,823       $3,506
                                  =======       ======
</TABLE>


5. STOCKHOLDER'S EQUITY

         On December 26, 2000, Cardiac Pathways issued and sold 5.9 million
shares of common stock at a price of $4.25 per share for aggregate net proceeds
of approximately $22.8 million. Immediately thereafter, the Company filed a Form
S-3 Registration Statement under the Securities Act of 1933, as amended, with
the Securities and Exchange Commission ("SEC") to register for resale the shares
sold in the common stock financing on behalf of the participants. The
Registration Statement was declared effective by the SEC in February 2001.

6. PREFERRED STOCK

         The March 31, 2001 and June 30, 2000 balance sheets reflect the
discount or beneficial conversion feature present in the convertible securities.
The discount was being recognized as a return to the preferred stockholders
(similar to a dividend) over the minimum period in which the preferred
stockholders can realize a return, immediately for the Series B Convertible
Preferred stockholders. The discount was accreted to additional paid in capital
in the quarter ended September 30, 1999. Each share of Series B Convertible
Preferred Stock is currently convertible into 218 shares of the Company's common
stock, at the option of the holder. Each share of Series B Convertible Preferred
Stock shall automatically be converted into the Company's common stock upon the
election of a majority of the holders of the Series B Convertible Preferred
Stock. Each share of Series B Convertible Preferred Stock shall entitle the
holder thereof to that number of votes on all matters submitted to a vote of the
stockholders of the Company equal to the number of shares of common stock into
which the Series B Convertible Preferred Stock can be converted.

         The Series B Convertible Preferred Stock Purchase Agreement specifies
that, when, as and if dividends are declared, the holder of Series B Convertible
Preferred Stock are entitled to a cumulative dividend equal to 11% of the
purchase price paid for each share of Series B Convertible Preferred Stock, per
share, per year. Any time after May 31, 2004, the cumulative dividend payable
will be increased by 6 percentage points at the beginning of each year if the
Company elects not to redeem the stock after a redemption request is made by the
holders of a majority of the then outstanding shares of Series B Convertible
Preferred Stock, voting as a single class. The Series B Convertible Preferred
Stock has a liquidation preference equal to the initial purchase price plus any
accrued and unpaid dividends upon the occurrence of a liquidation, a merger or
the sale of all or substantially all of the Company's stock or



                                       8
<PAGE>   9

assets. As a result of the liquidation preference, in the event of a
liquidation, merger or the sale of substantially all of the Company's stock or
assets, the holders of Series B Convertible Preferred Stock will receive their
original purchase price plus any accrued and unpaid dividends prior to any
distribution to the holders of common stock. After such payment, any remaining
proceeds would be distributed ratably among the holders of Series B Convertible
Preferred Stock and holders of common stock. As of March 31, 2001, the
liquidation preference and redemption value of the outstanding 27,250 shares of
Series B Convertible Preferred Stock is $32.3 million, which includes the
original investment plus the accrued but unpaid dividends.

         In February 2001, the Company reclassified the Series B Convertible
Preferred Stock to exclude it from total stockholder's equity due to the nature
of the redemption features of the stock, and restated its condensed consolidated
balance sheet at June 30, 2000.

7. RECENT PRONOUNCEMENTS

         In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities", as amended by FAS 137, which is required to be adopted in years
beginning after June 15, 2000. The Company has not in the past and does not
anticipate in the future using derivative instruments, and the Company does not
expect that the adoption of FAS 133 will have a significant impact on its
financial condition or results of operations.

         In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101") that must be adopted
in the quarter ended June 30, 2001. SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue in
financial statements. The Company believes that its current revenue recognition
policies comply with SAB 101 and additional interpretive guidance issued by the
SEC staff. The Company has evaluated the effect of adopting SAB 101 and does not
expect that it will have any significant impact on its financial condition or
results of operations.



                                       9
<PAGE>   10



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

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors that include, but are not limited to, the risks discussed in "Factors
That May Impact Future Operations" as well as those discussed in the following
"Overview and Current Events" section. These forward-looking statements include
the statement in the first paragraph of "Overview and Current Events" related to
expectations of continuing operating losses in the near-term, the statements in
the second and third paragraphs of "Overview and Current Events" relating to the
range of clinical utility for the RPM Tracking System and its version 3.1
software and the potential for economic benefits that may be realized by
end-users of these products, the statements in the fifth paragraph of "Overview
and Current Events" related to the manufacture, marketing and distribution of
our products, the statements in the section entitled "Preferred Stock and
Compliance with Nasdaq National Market Continued Listing Requirements" relating
to efforts at maintaining compliance with the Nasdaq's continued listing
requirements for its National Market, the statements in the last sentence of
"Cost of Goods Sold" relating to expectations for gross margins to improve, the
statements in the last sentence of the first paragraph of "Impact of Adoption of
New Accounting Standards" regarding FAS 133, the statements in the last sentence
of the second paragraph of "Impact of Adoption of New Accounting Standards"
regarding SAB 101, the statements in the first paragraph of "Liquidity and
Capital Resources" regarding expected liquidity and capital needs, the
statements in the last sentence of the third paragraph of "Liquidity and Capital
Resources" regarding expected capital expenditures, the statements in the
section of "Factors That May Impact Future Operations" entitled "Limited
Operating History, History of Losses and Expectations of Future Losses" relating
to expectations of operating losses and the statement in the third paragraph in
the section of "Factors That May Impact Future Operations" entitled "Employees"
relating to the our need to expand operations and hire new personnel.

OVERVIEW AND CURRENT EVENTS

         We are continuing our shift from a broad-based research & development
(R&D) and clinical development oriented company to one focused on expansion of
marketing, sales, distribution, customer support and manufacturing capacity. We
have experienced significant operating losses since inception and as of March
31, 2001 had an accumulated deficit of approximately $106.2 million. We expect
to continue operating at a loss at least through the end of fiscal year 2002 as
we continue to expend substantial funds to establish commerical-scale
manufacturing capabilities and to expand our sales and marketing activities. In
December 2000, we completed the sale and issuance of 5.9 million shares of
common stock at a purchase price of $4.25 per share for aggregate net proceeds
of approximately $22.8 million. Pursuant to the terms of this common stock
financing, we filed a Form S-3 Registration Statement under the Securities Act
of 1933, as amended, with the Securities and Exchange Commission to register for
resale the shares sold in the common stock financing on behalf of the
participants. The Registration Statement was declared effective by the SEC in
February 2001. We intend to use the net proceeds of this financing to expand
sales, marketing and manufacturing capacity for our key product platforms, the
RPM Tracking System and the Chilli Cooled Ablation Catheter, and for working
capital and general corporate purposes.



                                       10
<PAGE>   11
         The RPM Tracking System and Chilli Cooled Ablation Catheter with RPM
Tracking were introduced to the U.S. and European markets in May and June of
2000. The proprietary technology, developed by Cardiac Pathways, can be used in
most diagnostic electrophysiology procedures for real-time visualization of
catheters utilizing ultra-sound technology. The RPM Tracking System is expected
to assist physicians in precisely manipulating catheters within the heart during
procedures, offering the potential for reductions in procedure times and
improved economic benefit to the hospital and physician. The RPM Tracking System
and Chilli Cooled Ablation Catheter with RPM Tracking have received FDA
clearance in the U.S. and CE Mark approval in Europe.

         The third quarter of fiscal 2001 represents the first full quarter of
use for the version 3.1 software for the RPM Tracking System. The software
integrates mapping of the heart's electrical signals and navigation tools that
are designed to enable electrophysiologists to more easily identify and ablate
abnormal electrical impulses in a patient's heart which are responsible for an
arrhythmia. The software, in use in the United States and Europe, is an
enhancement to the existing RPM Tracking System. In the new 3.1 software
version, non-fluoroscopic catheter navigation has been enhanced with
three-dimensional (3-D) mapping capability applied to a 3-D heart model. The
system uses ultrasound ranging technology to accurately locate catheter
positions within the heart, render 3-D graphical representations of the
catheters and of their positions with respect to the heart wall, and view
electrical sensing data (mapping) of specific electrode positions. These
features enable the physician to more easily identify locations in the
endocardium where ablation energy can be applied to treat the arrhythmia.

         The increase in revenues for the quarter ended March 31, 2001 as
compared to the quarter ended March 31, 2000 was driven by a 105% increase in
worldwide sales for Chilli Cooled Ablation Catheter in the U.S, placements of
the RPM Tracking Systems and associated RPM catheter revenues in the U.S. and
Europe.

         For our products that have recently obtained FDA clearance or approval,
there can be no assurance that any such products will be successfully
commercialized or that we will achieve significant revenues from either domestic
or international sales. Although the FDA granted 510k clearance for the RPM
Tracking System and PMA approval for the Chilli Cooled Ablation Catheters with
RPM Tracking, we have limited experience in manufacturing, marketing or selling
these products in commercial quantities. In order to successfully implement our
business plan, we must manufacture and sell the RPM and Chilli Cooled Ablation
Catheters in commercial quantities and will need to expend significant capital
resources and develop manufacturing expertise to establish large-scale
manufacturing capabilities. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply shortages, shortages of
qualified personnel, compliance with FDA regulations, and the need for further
FDA approval of new manufacturing processes. We intend to market our products
primarily through a direct sales force in the United States and indirect sales
channels internationally. Establishing a marketing and sales capability
sufficient to support sales in commercial quantities will require significant
management and financial resources. See "-- Factors That May Impact Future
Operations."

PREFERRED STOCK AND COMPLIANCE WITH NASDAQ NATIONAL MARKET CONTINUED LISTING
REQUIREMENTS

         During the third quarter of fiscal 2001, we were advised that the
incremental dividend, redemption and liquidation features of the Series B
Preferred Stock create a presumption that the stock is mandatorily redeemable
for financial reporting purposes. In response, we restated our financial
statements for the year ended June 30, 2000 and for the subsequent interim
periods to exclude the Series B Preferred Stock from stockholders' equity. As a
result of this reclassification, we have fallen out of compliance with the $4



                                       11
<PAGE>   12
million net tangible assets continued listing requirement of the Nasdaq National
Market. We have advised Nasdaq of our plan and timetable for regaining
compliance with the continued listing requirements, and we currently have until
May 21, 2001 to comply with this continued listing requirement.

         Since January 2001, we have been working with our counsel and
independent auditors and the Securities and Exchange Commission ("SEC") to
modify the terms of the Series B Preferred Stock to ensure that the stock is no
longer characterized as mandatorily redeemable under generally accepted
accounting principles. Once the appropriate modifications acceptable to the
accounting authorities have been defined and we have determined if the Series B
Preferred Stockholders are amenable to these revised terms, the Series B
Preferred Stock will be reclassified back to stockholders' equity. Once
reclassified, we should regain compliance with the Nasdaq National Market
continued listing requirements.

         If we are unable to modify the terms of the Series B Preferred Stock in
a manner acceptable to the accounting authorities and the Series B Preferred
Stockholders, we may not be able to reclassify the Series B Preferred Stock as
stockholders' equity. Absent reclassification, we may continue to fail the $4
million net tangible assets continued listing requirement of the Nasdaq National
Market and, as a result, our common stock may be delisted.

         In addition, on April 24, 2001, the staff of the Nasdaq National Market
advised us that, based upon publicly available data we believe to be
out-of-date, we have failed to maintain a minimum market value of public float
of $5 million over the last 30 consecutive trading days, and that we have until
July 23, 2001 to comply with the $5 million public float requirement. We believe
that our stock currently complies with Nasdaq's public float requirements, and
we intend to provide updated information to Nasdaq which demonstrates
compliance.

RESULTS OF OPERATIONS

         Net Sales. Net sales increased 119% to $3.3 million for the three
months ended March 31, 2001 compared to $1.5 million for the three months ended
March 31, 2000. For the nine months ended March 31, 2001, we had net sales of
$9.6 million compared to $4.8 million for the nine months ended March 31, 2000.
The increases in net sales for the three and nine months ended March 31, 2001
compared to the three and nine months ended March 31, 2000 were driven by
continue volume growth of the Chilli Cooled Ablation Catheter in the U.S.,
placements of the RPM Tracking Systems and associated catheter revenues in the
U.S. and Europe. The increase in net sales includes an increase of 105% in
worldwide Chilli Cooled Ablation Catheters for the three months ended March 31,
2001 compared to the three months ended March 31, 2000. Increases in sales of
all catheters for the three and nine months ended March 31, 2001 compared to the
three and nine months ended March 31, 2000 were primarily related to unit volume
increases rather than price changes.

         In December 1995, we received $3.0 million pursuant to a royalty
agreement with Arrow International Inc. ("Arrow"). This amount was recorded as
deferred royalty income and will be amortized to income for those Trio/Ensemble
catheters that Arrow manufactures and sells or, at a minimum, ratably over the
period for which the related technology patents expire. $75 thousand of royalty
income related to the Arrow agreement was recognized for the 3 months ended
March 31, 2001 and 2000. A total of $225 thousand of royalty income related to
the Arrow agreement was recognized for the nine months ending March 31, 2001 and
2000.



                                       12
<PAGE>   13
         Cost of Goods Sold. Cost of goods sold primarily includes the cost of
raw materials, catheter fabrication, system assembly and test. Cost of goods
sold was $2.6 million and $1.9 million for the three months ended March 31, 2001
and 2000, respectively. For the three months ended March 31, 2001, gross margins
were $753 thousand, or 23% of net sales, compared to a gross margin of ($393)
thousand in the year earlier period. For the nine months ended March 31, 2001,
gross margins were $2.0 million, or 20% of net sales, compared to a gross margin
of ($77) thousand for the nine months ended March 31, 2000. Gross margins in the
third quarter of last year included approximately $700 thousand of costs related
to discontinued product lines and new product start-up. The improvement in the
gross margins for the three months ended March 31, 2001 compared to the same
period in the prior year reflect the benefit of increasing product volume,
process yield improvements and material cost reduction programs. Over the next 4
to 5 quarters, we expect product cost reduction efforts to continue to improve
gross margins.

         Research and Development. Research and development expenses include
costs associated with product research, clinical trials, prototype development,
design and testing, and costs associated with obtaining regulatory approvals.
Research and development expenses decreased 15% to $1.4 million for the three
months ended March 31, 2001 from $1.7 million for the three months ended March
31, 2000. Research and development expenses were $3.6 million for the nine
months ended March 31, 2001 compared to $5.4 million for the nine months ended
March 31, 2000. The decrease in research and development expenses was due
primarily to the allocation of a greater share of facility space and related
costs to manufacturing and the continued refocusing of R&D resources on RPM and
Chilli/7 French catheter development and product delivery initiatives.

         Selling, General and Administrative. Selling, general and
administrative expenses include compensation and benefits for sales, marketing,
senior management and administrative personnel, various legal and professional
fees and trade show costs. Selling, general and administrative expenses
decreased to $2.9 million for the three months ended March 31, 2001 from $3.6
million for the three months ended March 31, 2000. Approximately $1.0 million of
non-recurring expenditures were incurred in the third quarter of fiscal 2000
related to severance, recruiting, relocation and vendor settlements. Additional
expense growth for the three months ended March 31, 2001 as compared to the
three months ended March 31, 2000 on a normalized basis resulted primarily from
increased marketing and sales infrastructure supporting the North American and
European markets. Selling, general, and administrative expenses were $8.8
million for the nine months ending March 31, 2001 compared to $7.3 million for
the nine months ended March 31, 2000. The nine months ended March 31, 2001
included approximately $500 thousand of non-recurring expenditures related to
severance and recruiting/relocation.

         Other Income (Expense), Net. Net other income (expense) was $302
thousand for the three months ended March 31, 2001, compared to ($68) thousand
for the three months ended March 31, 2000. Net other income for the three months
ended March 31, 2000 included the write-off of a loan to a former officer of
Cardiac Pathways. Net other income was $590 thousand for the nine months ended
March 31, 2001 compared to $529 thousand for the nine months ended March 31,
2000. Other income consists primarily of interest income earned on cash, cash
equivalents and short-term investment balances.

         Net Loss Attributable to Common Stockholders. The net loss attributable
to common stockholders for the three months ended March 31, 2001 was $4.1
million or $.45 per share compared to a net loss attributable to common
stockholders of $6.7 million or $3.29 per share for the three months ended March
31, 2000. The net loss attributable to common stockholders for the nine months
ended March 31, 2001 was $12.1 million or $2.34 per share compared to a net loss
attributable to common stockholders of $15.6 million or $7.74 per share for the
nine months ended March 31, 2000. The net loss attributable to common
stockholders for the three months ended March 31, 2001 and 2000, and the nine
months ended March 31, 2001 include the accrued Series B Preferred Stock
dividend. The net loss attributable to common stockholders for the nine



                                       13
<PAGE>   14

months ended March 31, 2000 include the accrued Series B Preferred Stock
dividend and beneficial conversion feature related to the issuance of the Series
B Preferred Stock.

Impact of Adoption of New Accounting Standards.

         In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging
Activities," as amended by FAS 137, which is required to be adopted in years
beginning after June 15, 2000. We have not in the past used, and do not
anticipate in the future using, derivative instruments, and we do not expect
that the adoption of FAS 133 will have a significant impact on our financial
condition or results of operations.

         In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101") that must be adopted
in the quarter ended June 30, 2001. SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue in
financial statements. We believe that our current revenue recognition policies
comply with SAB 101 and additional guidance issued by the SEC staff. We have
evaluated the effect of adopting SAB 101 and do not expect that it will have any
significant impact on our financial condition or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

         Our initial public offering closed in June 1996 and raised net proceeds
of $43.1 million. In July 1999, we raised net proceeds of $31.5 million through
a Series B Convertible Preferred Stock financing. In December 2000, we raised
aggregate net proceeds of approximately $22.8 million through the issuance and
sale of common stock through a private placement. As of March 31, 2001, we had
$24.7 million in cash, cash equivalents and short-term investments. We believe
that current cash and investment balances are sufficient to fund operations for
at least the next twelve months.

         Net cash used in operating activities was $8.3 million and $10.4
million for the nine months ended March 31, 2001 and 2000, respectively. For
each of these periods, the net cash used in operating activities resulted
primarily from net losses. Net cash used in investing activities was $6.8
million for the nine months ended March 31, 2001 compared to a use of cash for
investing activities of $12.6 million for the same period in fiscal 2000. For
the nine months ended March 31, 2001, net cash used in investing activities
resulted primarily from purchases of short-term investments and purchases of
property and equipment. Net cash provided by financing activities was $22.8
million and $28.7 million for the nine months ended March 31, 2001 and 2000,
respectively. Net cash provided by financing activities primarily resulted from
net proceeds from the common stock financing and preferred stock financing
during fiscal 2001 and 2000, respectively.

         As of the end of March 31, 2001, we had capital equipment with a value
of approximately $12.1 million, less accumulated depreciation and amortization
of approximately $7.3 million, to support our product development, manufacturing
and administrative activities. A significant portion of capital expenditures
resulted from the building and placements at customer sites of RF Generators and
RPM Systems in the U.S to facilitate the utilization of Chilli and Chilli RPM
catheters. We expect capital expenditures to increase over the next several
years as we build and place systems and acquire equipment to support
manufacturing and development activities.



                                       14
<PAGE>   15

FACTORS THAT MAY IMPACT FUTURE OPERATIONS

WE HAVE A LIMITED HISTORY, A HISTORY OF LOSSES AND AN EXPECTATION OF FUTURE
LOSSES

         Cardiac Pathways was founded in 1991 and to date has engaged primarily
in researching, developing, testing and obtaining regulatory clearances for our
products. Cardiac Pathways has experienced significant operating losses since
inception. As of March 31, 2001, we had an accumulated deficit of $106.2
million. To date, Cardiac Pathways has generated only limited revenues from
sales of our products and we expect our operating losses to continue through at
least the end of fiscal 2002, as we continue to expend funds to conduct our
research and development activities, establish commercial-scale manufacturing
capabilities and expand our sales and marketing activities. There can be no
assurance that any of our products for diagnosis and treatment of ventricular
tachycardia and other arrhythmias, particularly the RPM Tracking System or
Chilli Cooled Ablation Catheter, will be successfully commercialized or that we
will achieve significant revenues from either international or domestic sales.
In addition, there can be no assurance that Cardiac Pathways will achieve or
sustain profitability in the future or meet the expectations of securities
industry analysts. Our results of operations may fluctuate significantly from
quarter to quarter or year to year and will depend on numerous factors,
including actions relating to regulatory matters, progress of clinical trials,
the extent to which our products gain market acceptance, the scale-up of
manufacturing abilities and the expansion of sales and marketing activities and
competition.

THERE IS NO ASSURANCE THAT OUR PRODUCTS WILL PROVE TO BE SAFE AND EFFECTIVE

         There can be no assurance that our current or future products will
prove to be safe and effective in clinical trials under applicable United States
or international regulatory guidelines or that additional modifications to our
products will not be necessary. Furthermore, there can be no assurance that
Cardiac Pathways will be successful in perfecting the design of the RPM Tracking
System. With respect to the Chilli Cooled Ablation System, because ablation
treatment of cardiac arrhythmias is relatively new, the long-term effects of
radiofrequency ablation on patients are unknown. As a result, the long-term
success of ablation therapy in treating ventricular tachycardia and other
tachyarrhythmias will not be known for several years.

THERE IS NO EXISTING MARKET FOR OUR PRODUCTS

         Our future success will depend upon the successful commercialization of
the Chilli Cooled Ablation Catheter and RPM Tracking System. These products have
only recently received FDA approval and clearance to be commercialized in the
United States for the treatment of ventricular tachycardia. Cardiac Pathways has
to date demonstrated only limited ability to commercialize these new products.
There can be no assurance that these products will gain any significant degree
of market acceptance among physicians, patients, and health care payors. Cardiac
Pathways believes that physicians' acceptance of procedures using our RPM
Tracking System will be essential for market acceptance of such system. Even
though the clinical efficacy of the system has been established,
electrophysiologists, cardiologists and other physicians may elect not to
recommend the use of the RPM Tracking System for any number of reasons.

         There can be no assurance that this system will be successfully
commercialized for the approved product set in the United States and Europe.
There can be no assurance that we will be able to obtain



                                       15
<PAGE>   16

regulatory approval in any market where the Chilli Cooled Ablation Catheter and
RPM Tracking System have not yet received approval. Currently, the Chilli Cooled
Ablation Catheter and RPM Tracking System have been submitted for regulatory
approval in Japan. Cardiac Pathways believes that, as with any novel medical
technology, there will be a significant learning process involved for physicians
to become proficient. Broad use of the system will require training of
electrophysiologists, and the time required to complete such training could
adversely affect market acceptance. Failure of the product to achieve
significant market acceptance would have a material adverse effect on our
business, financial condition and results of operations. Even if the RPM
Tracking System achieves market acceptance, Cardiac Pathways will be required to
significantly ramp up manufacturing operations to produce sufficient quantities
of the product to satisfy customer demand. Any failure to manufacture the RPM
Tracking System in quantities sufficient to satisfy demand will materially
adversely affect our business, financial condition and results of operations.

WE HAVE LIMITED MARKETING AND DISTRIBUTION EXPERIENCE

         Establishing a marketing and sales capability sufficient to support
planned sales growth will require substantial efforts and significant management
and financial resources. There can be no assurance that Cardiac Pathways will be
able to continue to expand its marketing staff or sales force, that the
establishment of such a marketing staff or sales force will be cost-effective or
that Cardiac Pathways' sales and marketing efforts will be successful. There can
be no assurance that we will be able to maintain or enter into agreements with
existing or new distributors, or that such distributors will devote adequate
resources to selling our products. Failure to establish appropriate distribution
relationships could have a material adverse effect upon our business, financial
condition and results of operations.

WE ARE DEPENDENT ON SELLING CERTAIN OF OUR PRODUCTS IN INTERNATIONAL MARKETS

         Cardiac Pathways currently sells its Chilli Cooled Ablation Catheters,
Radii-T mapping and ablation catheters, Trio/Ensemble diagnostic catheters and
RPM Tracking System products through distributors in Europe and Japan. All sales
of our products to date have been denominated in U.S. dollars. Changes in
overseas economic conditions, currency exchange rates, foreign tax laws, or
tariffs or other trade regulations could have a material adverse effect on our
ability to market our products internationally and therefore on our business,
financial condition and results of operations.

WE RELY ON MAJOR DISTRIBUTORS

         We currently rely upon international distributors of specialty
cardiovascular products to market and sell our products. A large percentage of
our revenues are derived from sales to our Japanese distributor, Japan Lifeline,
Inc. Sales to Japan Lifeline accounted for 49%, 52% and 80%, of our net sales in
fiscal 2000, 1999 and 1998, respectively. International sales accounted for 63%,
78% and 87% of our net sales in fiscal 2000, 1999 and 1998, respectively.
Cardiac Pathways anticipates that Japan Lifeline will continue to account for a
significant percentage of our net sales. Sales to Japan Lifeline accounted for
35% of our net sales for the nine months ended March 31, 2001. Cardiac Pathways
also relies on three distributors in Europe for a significant portion of its
revenues. Ela Medical S.A. (Ela) covers the territory of France, Italy, Greece,
Turkey, Israel, Belgium and Switzerland. Curative EP (Curative) GmbH is Cardiac
Pathways' distributor in Germany, while Izasa S.A. (Izasa) distributes for
Cardiac Pathways in Spain, Canary Islands and Portugal. The distributor
agreement for Japan Lifeline, covering Japan, is up for renewal in May 2001. The
Ela distributor agreement expires in June 2003. The distributor agreements for
Curative and Izasa both expire in June 2002. If our sales to any of our
international distributors



                                       16
<PAGE>   17
decline, we would experience a material decline in revenues. Even if Cardiac
Pathways is successful in selling its products through new international
distributors, the rate of growth of our net sales could be materially and
adversely affected if current international distributors do not continue to sell
a substantial number of our products. If our sales to our current international
distributors decline, we cannot be certain that we will be able to attract
additional distributors that can market our products effectively or that can
provide timely and cost-effective customer support and service. None of Cardiac
Pathways' international distributors are obligated to sell our products after
its agreement with Cardiac Pathways has expired. Further, Cardiac Pathways
cannot be certain that our current international distributors will continue to
represent our products or devote a sufficient amount of effort and resources to
selling Cardiac Pathways' products.

WE WILL NEED TO DEVELOP STRATEGIC RELATIONSHIPS WITH THIRD PARTIES TO EXECUTE ON
OUR BUSINESS PLAN

         We intend to pursue strategic relationships with corporations and
research institutions with respect to the research, development, international
regulatory approval, manufacturing and marketing of our products. There can be
no assurance that we will be successful in establishing or maintaining any such
relationships or that any such relationship will be successful.

WE RELY ON SOLE SOURCE SUPPLIERS

         A number of components for our catheters and our RPM Tracking System
products are provided by sole source suppliers. For components such as molded
plastics and ultrasound transducers, there are relatively few alternative
sources of supply, and establishing additional or replacement vendors for such
components could not be accomplished quickly. For some components such as saline
tubing sets and distal tip wiring assemblies, there is currently a long
lead-time between purchases and the receipt of shipments. For those components
from a single source, the vendor's inability to supply such components in a
timely manner could have a material adverse effect on our ability to manufacture
the RPM Tracking System and other diagnostic and ablation catheters and
therefore on its business, financial condition and marketing efforts.

WE HAVE LIMITED MANUFACTURING EXPERIENCE

         We have limited experience manufacturing our products in the volumes
that will be necessary for us to achieve significant commercial sales, and there
can be no assurance that reliable, high volume manufacturing capacity can be
established or maintained at commercially reasonable costs. Cardiac Pathways
needs to expend significant capital resources and develop manufacturing
expertise to establish large scale manufacturing capabilities. Manufacturers
often encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply shortages, shortages of qualified personnel, compliance with FDA
regulations, and the need for further FDA approval of new manufacturing
processes. In addition, we believes that substantial cost reductions in our
manufacturing operations will be required if we are to commercialize our
catheters and systems on a profitable basis. Any inability to establish and
maintain large scale manufacturing capabilities would have a material adverse
effect on our business, financial condition and results of operations.

IF WE LOSE OUR LICENSE TO MANUFACTURE MEDICAL DEVICES IT MAY HARM OUR BUSINESS



                                       17
<PAGE>   18
         Our manufacturing facilities are subject to periodic inspection by
regulatory authorities, and our operations must undergo Quality System
Regulations (QSR) compliance inspections conducted by the FDA. Cardiac Pathways
is required to comply with QSR in order to produce products for sale in the
United States and with ISO9001/EN46001 standards in order to produce products
for sale in Europe. If we fail to comply with QSR or ISO9001/EN46001 standards
we may be required to take corrective actions, such as modifying our current
policies and procedures. Cardiac Pathways has been granted the required
license to manufacture medical devices by the State of California. If Cardiac
Pathways is unable to maintain such a license, we would be unable to manufacture
or ship any product, and such inability would have a material adverse effect on
Cardiac Pathways' business, financial condition and results of operations.

OUR PATENT POSITION IS UNCERTAIN AND OUR SUCCESS DEPENDS ON OUR PROPRIETARY
RIGHTS

         Our success will depend in part on our ability to obtain patent and
copyright protection for our products and processes, to preserve our trade
secrets and to operate without infringing or violating the proprietary rights of
third parties. The patent positions of medical device companies, including those
of Cardiac Pathways, are uncertain and involve complex and evolving legal and
factual questions. The coverage sought in a patent application either can be
denied or significantly reduced before or after the patent is issued.
Consequently, there can be no assurance that:

              -   any patents from pending patent applications or from any
                  future patent application will be issued,
              -   the scope of any patent protection will exclude competitors or
                  provide competitive advantages to Cardiac Pathways, or
              -   any of Cardiac Pathways' patents will be held valid if
                  subsequently challenged or that others will not claim rights
                  in or ownership of the patents and other proprietary rights
                  held by us.

         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 our ability to make, modify, use or sell our products
either in the United States or in international markets. Litigation or
regulatory proceedings, which could result in substantial cost and uncertainty
to Cardiac Pathways, may also be necessary to enforce patent or other
intellectual property rights of Cardiac Pathways or to determine the scope and
validity of other parties' proprietary rights. There can be no assurance that we
will have the financial resources to defend our patents from infringement or
claims of invalidity.

         Cardiac Pathways currently holds issued and allowed patents and has
pending patents and applications covering a number of fundamental aspects of the
Chilli Cooled Ablation System, RPM Tracking System and other products. We
currently hold 66 United States issued patents and 4 foreign issued patents. We
hold exclusive field-of-use license on 26 United States issued patents. In
addition, we have 6 United States pending patent applications. We have also
filed or licensed 22 corresponding foreign patent applications that are
currently pending in Europe and/or Japan.

IF OTHERS SUCCESSFULLY ASSERT THEIR PROPRIETARY RIGHTS AGAINST US, WE MAY BE
PRECLUDED FROM MAKING OR SELLING OUR PRODUCTS

         The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual



                                       18
<PAGE>   19

property rights, and companies in the medical device industry have employed
intellectual property litigation to gain a competitive advantage. There can be
no assurance that we 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 (Patent and Trademark Office) 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, Patent
and Trademark Office interference or opposition proceedings and related legal
and administrative proceedings are both costly and time-consuming. Any
litigation, opposition or interference proceedings will result in substantial
expense to Cardiac Pathways and significant diversion of effort by our technical
and management personnel. An adverse determination in litigation or interference
proceedings to which Cardiac Pathways may become a party could:

              - subject Cardiac Pathways to significant liabilities to third
                parties,
              - require disputed rights to be licensed from third parties, or
              - require Cardiac Pathways to cease using such technology.

         Although patent and intellectual property disputes in the medical
device area have often been settled through licensing or similar arrangements,
costs associated with such arrangements may be substantial and could include
ongoing royalties. Furthermore, there can be no assurance that necessary
licenses from others would be available to us on satisfactory terms, if at all.
Adverse determinations in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent us from manufacturing and selling its
products, which would have a material adverse effect on our business, financial
condition and results of operations. Cardiac Pathways is aware of patents owned
or licensed by others and relating to cardiac catheters and cardiac monitoring.
Enhancements of our products are still in the design and pre-clinical testing
phase. Depending on the ultimate design specifications and results of
pre-clinical testing of these enhancements, there can be no assurance that we
would be able to obtain a license to such parties' patents or that a court would
find that such patents are either not infringed by our enhancements or that our
patents are invalid. Further, there can be no assurance that owners or licensees
of these patents will not attempt to enforce their patent rights against Cardiac
Pathways in a patent infringement suit or other legal proceeding, regardless of
the likely outcome of such suit or proceeding.

WE FACE INTENSE COMPETITION

         At present, Cardiac Pathways considers its primary competition to be
companies involved in current, more established therapies for the treatment of
ventricular tachycardia and atrial fibrillation, including drugs, external
electrical cardio version and defibrillation, implantable defibrillators,
ablation accompanied by pacemaker implantation and open-heart surgery. In
addition, several competitors are also developing new approaches and new
products for the treatment and mapping of ventricular tachycardia and other
arrythmias, including ablation systems using ultrasound, microwave, laser and
cryoablation technologies and mapping systems using contact mapping,
single-point spatial mapping and non-contact, multisite electrical mapping
technologies. Many of our competitors have an established presence in the field
of interventional cardiology and electrophysiology, including:

              - Boston Scientific Corporation,
              - C.R. Bard, Inc.,
              - Johnson and Johnson,
              - St. Jude Medical,
              - Medtronic, Inc., and
              - Endocardial Solutions, Inc.

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<PAGE>   20
         Many competitors have substantially greater financial and other
resources than Cardiac Pathways, including larger research and development
staffs, more experience, capabilities in conducting research and development
activities, testing products in clinical trials, obtaining regulatory approvals
and manufacturing, marketing and distributing products. There can be no
assurance that we will succeed in developing and marketing technologies and
products that are more clinically efficacious and cost effective than the more
established treatments or the new approaches and products developed and marketed
by our competitors. Furthermore, there can be no assurance that we will succeed
in developing new technologies and products that are available prior to our
competitors' products. If we fail to demonstrate the efficacy and cost effective
advantages of our products over those of our competitors or develop new
technologies and products before our competitors, this could have a material
adverse effect on our business, financial condition and results of operations.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

         United States The design, pre-clinical and clinical testing,
manufacture, labeling, sale, distribution and promotion of our products are
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state and foreign regulatory agencies. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant Pre-Market Approval (PMA)
clearance or PMA approval for devices, withdrawal of marketing authorization, a
recommendation by the FDA that Cardiac Pathways not be permitted to enter into
government contracts and/or criminal prosecution. The FDA also has the authority
to request repair, replacement or refund of the cost of any device manufactured
or distributed by Cardiac Pathways.

         Before a new device can be introduced into the market, a manufacturer
must generally obtain marketing clearance through a premarket notification under
Section 510(k) of the Federal Food, Drug and Cosmetic Act (FDA Act) or an
approval of a PMA application under Section 515 of the FDC Act. Commercial
distribution of a device for which a 510(k) clearance is required can begin only
after the FDA issues an order finding the device to be "substantially
equivalent" to a predicate device. If Cardiac Pathways cannot establish that a
proposed device is substantially equivalent to a legally marketed predicate
device, Cardiac Pathways must seek premarket approval of the proposed device
from the FDA through the submission of a PMA application.

         Cardiac Pathways will be required to make a new 510(k) submission for
any device that is cleared through the 510(k) process if it modifies or enhances
the device in a manner that could significantly affect safety or effectiveness,
or if those changes constitute a major modification in the intended use of the
device. If Cardiac Pathways cannot establish that a proposed device is
substantially equivalent to a legally marketed predicate device, it must seek
premarket approval of the proposed device from the FDA through the submission of
a PMA application. There can be no assurance that the FDA will act favorably or
quickly on any of our PMA applications. Significant difficulties and costs maybe
encountered by Cardiac Pathways in its efforts to obtain FDA clearance that
could delay or preclude us from selling its products in the United States.
Furthermore, there can be no assurance that the FDA will not request additional
data or require that Cardiac Pathways conduct further clinical studies, causing
us to incur substantial cost and delay. In addition, there can be no assurance
that the FDA will not impose strict labeling requirements, onerous operator
training requirements or other requirements as a condition of its PMA approval,
any of which could limit our ability to market our systems. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission (FTC). FDA enforcement policy
strictly prohibits the marketing of FDA cleared or approved medical devices for
unapproved uses. Further, if a company wishes to modify a product after FDA


                                       20
<PAGE>   21

approval of a PMA, including changes in indications or other modifications that
could affect safety or efficacy, additional clearances or approvals will be
required from the FDA. Failure to receive or delays in receipt of FDA clearances
or approvals, including the need for additional clinical trials or data as a
prerequisite to clearance or approval, or any FDA conditions that limit the
ability of Cardiac Pathways to market its systems, could have a material adverse
effect on our business, financial condition and results of operations.

         International

         The European Union has promulgated rules which require that medical
products distributed after June 14, 1998 bear the CE mark, an international
symbol of adherence to quality assurance standards and compliance with
applicable European medical device directives. Quality system certification is
one of the CE mark requirements. Cardiac Pathways has received ISO9001/EN46001
certification by its ISO Certification Registrar, one of the CE mark
certification prerequisites, for its manufacturing facility in Sunnyvale,
California. Furthermore, in January 1998, Cardiac Pathways received the right to
affix the CE mark to its Arrhythmia Mapping System and Chilli Cooled Ablation
System. In April 1998, Cardiac Pathways received the right to affix the CE mark
to its Radii catheters. In July 1998, we received the right to affix the CE mark
to our Trio/Ensemble catheters. In April 2000, Cardiac Pathways received CE mark
certification for the RPM tracking system, and for our Chilli Cooled Ablation
Catheters incorporating Real-time Position Management navigation technology.
While Cardiac Pathways intends to satisfy the requisite policies and procedures
that will permit it to receive the CE Mark Certification for other products,
there can be no assurance that we will be successful in meeting the European
certification requirements and failure to receive the right to affix the CE mark
will prohibit us from selling these and other products in member countries of
the European Union.

         The time required to obtain approval for sale in foreign countries may
be longer or shorter than that required for FDA approval, and the requirements
may differ. Export sales of medical devices that have not received FDA marketing
authorization are subject to FDA export requirements. In accordance with the FDA
Export Reform & Enforcement Act of 1996, such devices may be exported to any
country provided that the device meets a number of criteria including marketing
authorization in one of the "Tier I" countries identified in that Act. If the
device has no marketing authorization in a Tier I country, and is intended for
marketing, it may be necessary to obtain approval from the FDA to export the
device. In order to obtain export approval, Cardiac Pathways may be required to
provide the FDA with documentation from the medical device regulatory authority
of the country in which the study is to be conducted or the purchaser is
located, stating that the device has the approval of the country. In addition,
the FDA must find that the exportation of the device is not contrary to the
public health and safety of the country in order for Cardiac Pathways to obtain
the permit. We currently have marketing authorization in one or more Tier I
countries for all our clinically used products. The RPM Tracking System products
are currently undergoing the process and clinical trials necessary to obtain
regulatory approvals in Japan.

WE FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM

         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.
Our success will depend upon, among other things, the ability of health care
providers to obtain satisfactory reimbursement from third party payors for
medical procedures in which our products are used. Third party payors may deny
reimbursement if they determine that a prescribed device has not received
appropriate regulatory



                                       21
<PAGE>   22

clearances or approvals, is not used in accordance with cost-effective treatment
methods as determined by the payor, or is experimental, unnecessary or
inappropriate. Third party reimbursement is generally provided on the basis of
the procedure's diagnosis-related group (DRG) code as established by the United
States Healthcare Financing Administration (HCFA). The failure of the procedures
in which our products are used or an insufficient level of reimbursements for
such procedures would have a material adverse effect on our business, financial
condition and results of operations. In addition, medical equipment
reimbursements have been mandated by statute to be reduced in the past, and
there can be no assurance that any such reimbursements with respect to Cardiac
Pathways' products will be adequate or provided at all. Failure by hospitals and
other users of our products to obtain reimbursement from third party payors, or
changes in government and private third party payors' policies toward
reimbursement for procedures employing our products, would have a material
adverse effect on Cardiac Pathways' business, financial condition and results of
operations. Moreover, we are unable to predict what additional legislation or
regulation, if any, 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 Cardiac Pathways.

         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 our products will
depend on the availability and level of reimbursement in international markets
targeted by Cardiac Pathways. There can be no assurance that we will obtain
reimbursement in any country within a particular time, for a particular amount,
or at all.

         Regardless of the type of reimbursement system, we believes that
physician advocacy of our products will be required to obtain reimbursement.
Cardiac Pathways believes that less invasive procedures generally provide less
costly overall therapies as compared to conventional drug, surgery and other
treatments. In addition, Cardiac Pathways believes that treatment with its
products will be more efficacious than currently available therapies. Cardiac
Pathways anticipates that hospital administrators and physicians would justify
the use of its products by the attendant cost savings and clinical benefits that
Cardiac Pathways believes would be derived from the use of its products.
However, there can be no assurance that this will be the case. There can be no
assurance that reimbursement for our products will be available in the United
States or in international markets under either government or private
reimbursement systems, or that physicians will support and advocate
reimbursement procedures using the Cardiac Pathways' products.

WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE

         The development, manufacture and sale of medical products entail
significant risk of product liability claims and product failure claims. We have
only limited commercial sales to date and do not yet have, and will not have for
a number of years, sufficient clinical data to allow us to measure the risk of
such claims with respect to our products. Cardiac Pathways faces an inherent
business risk of financial exposure to product liability claims in the event
that the use of our products results in personal injury or death. Cardiac
Pathways also faces the possibility that defects in the design or manufacture of
our products might necessitate a product recall. There can be no assurance that
we will not experience losses due to product liability claims or recalls in the
future. In addition, we will require increased product liability coverage if any
of our potential products are successfully commercialized. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, or at all. Any



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<PAGE>   23

claims against us regardless of their merit or eventual outcome could have a
material adverse effect upon our business, financial condition and results of
operations.

WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES

         California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below
1.5%,California has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout California. We currently do
not have backup generators or alternate sources of power in the event of a
blackout, and our current insurance does not provide coverage for any damages we
or our customers may suffer as a result of any interruption in our power supply.
If blackouts interrupt our power supply, we would be temporarily unable to
continue operations at our facilities. Any such interruption in our ability to
continue operations at our facilities could damage our reputation, harm our
ability to retain existing customers and to obtain new customers, and could
result in lost revenue, any of which could substantially harm our business and
results of operations.

WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY EMPLOYEES
AND CONSULTANTS

         Our ability to operate successfully depends significantly upon the
continued service of certain key scientific, technical, clinical, regulatory and
managerial personnel, and our continuing ability to attract and retain
additional highly qualified scientific, technical, clinical, regulatory and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that we can retain such personnel or that we can attract or
retain other highly qualified scientific, technical, clinical, regulatory and
managerial personnel in the future, including key sales and marketing personnel.
The loss of key personnel or the inability to hire and retain qualified
personnel could have a material adverse effect upon our business, financial
condition and results of operations.

OUR MANAGEMENT TEAM IS NEW TO CARDIAC PATHWAYS

         Cardiac Pathways' management has recently gone through a significant
restructuring. Our new President and Chief Executive Officer, Thomas M.
Prescott, joined Cardiac Pathways in May 1999. In addition, our Chief Financial
Officer and Vice President, Sales each joined Cardiac Pathways in January 2000.
We also hired a new Vice President of Human Resources who joined us in July 2000
and a new Vice President, Operations who joined us in December 2000. There can
be no assurance that these newly hired officers of Cardiac Pathways will be able
to operate effectively with that portion of the management team that was
retained.

OUR FUTURE SUCCESS IS DEPENDENT ON OUR ABILITY TO EXPAND OUR MANUFACTURING AND
MARKETING EFFORTS

         In order to manufacture and market our products in commercial
quantities, we believe that we will be required to expand our operations,
particularly in the areas of manufacturing, sales and marketing and, in
connection therewith, to have new personnel to work in these areas. There can be
no assurance that our officers and sales and marketing personnel will be able to
build a successful sales force or that they will be able to operate effectively
with the existing management team. As we expand our operations in these areas,
such expansion will likely result in new and increased



                                       23
<PAGE>   24
responsibilities for management personnel and place significant strain upon our
management, operating and financial systems and resources. To accommodate any
such growth and compete effectively, Cardiac Pathways will be required to
implement and improve information systems, procedures, and controls, and to
expand, train, motivate and manage our work force. Any failure to implement and
improve our operational, financial and management systems or to expand, train,
motivate or manage employees as required by future growth, if any, could have a
material adverse effect on our business, financial condition and results of
operations.

OUR STOCK PRICE IS HIGHLY VOLATILE

         The market price of shares of our common stock, like that of the common
stock of many medical product and technology companies, has in the past been,
and is likely in the future to continue to be highly volatile. Factors that have
a significant effect on the market price of our common stock include:

              -   fluctuations in our operating results,
              -   the fact that our common stock is thinly traded,
              -   the proportion of ownership between common stockholders and
                  Series B Convertible preferred stockholders,
              -   announcements of technological innovations or new commercial
                  products by Cardiac Pathways or competitors,
              -   government regulation,
              -   changes in the current structure of the health care financing
                  and payment systems,
              -   developments in or disputes regarding patent or other
                  proprietary rights,
              -   release of reports by securities analysts and changes in
                  securities analysts recommendations,
              -   economic and other external factors, and
              -   general market conditions.

         Moreover, the stock market has from time to time experienced extreme
price and volume fluctuations which have particularly affected the market prices
for medical products and high technology companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations, as well as general economic, political and market conditions, may
adversely affect the market price of our common stock. In the past, following
periods of volatility in the market price of a company's stock, securities class
action litigation has occurred against the issuing company. There can be no
assurance that such litigation will not occur in the future with respect to
Cardiac Pathways. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, operating results and financial condition. Any
adverse determination in such litigation could also subject Cardiac Pathways to
significant liabilities.

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL STOCK MARKET

    Our common stock currently trades on the Nasdaq National Stock Market.
During the third quarter of fiscal 2001, Cardiac Pathways was advised that the
incremental dividend, redemption and liquidation preference features of the
Series B Preferred Stock create a presumption that the stock is mandatorily
redeemable for financial reporting purposes. In response, we restated our
financial statements for the year ended June 30, 2000 and for the subsequent
interim periods to exclude the Series B Preferred Stock from total stockholders'
equity. As a result of this reclassification, Cardiac Pathways has fallen out of
compliance with the $4 million net tangible assets continued listing requirement
of the Nasdaq National Market. Cardiac Pathways has advised Nasdaq of its plan
and timetable for regaining



                                       24
<PAGE>   25
compliance with the continued listing requirements. Cardiac Pathways has until
May 21, 2001 to comply with this continued listing requirement.

         Since January 2001, Cardiac Pathways has been working with counsel, its
independent auditors and the SEC to determine how to modify the terms of the
Series B Preferred Stock to ensure that the stock is no longer characterized as
mandatorily redeemable under generally accepted accounting principles. Once
Cardiac Pathways has defined the appropriate modifications acceptable to the
accounting authorities and has determined that the Series B Preferred
Stockholders are amenable to the revised terms, Cardiac Pathways will reclassify
the Series B Preferred Stock back to stockholders' equity. Once reclassified,
Cardiac Pathways should regain compliance with the Nasdaq National Market
continued listing requirements.

         If Cardiac Pathways is unable to modify the terms of the Series B
Preferred Stock in a manner acceptable to the accounting authorities and the
Series B Preferred Stockholders, we may not be able to reclassify the Series B
Preferred Stock as stockholders' equity. Absent reclassification, Cardiac
Pathways will continue to fail the $4 million net tangible assets continued
listing requirement of the Nasdaq National Stock Market and, as a result, our
common stock may be delisted.

         In addition, on April 24, 2001, the staff of the Nasdaq National Market
advised us that, based upon publicly available information we believe to be
out-of-date, we have failed to maintain a minimum market value of public float
of $5 million over the last 30 consecutive trading days. We have until July 23,
2001 to comply with the $5 million public float requirement. We believe that we
currently comply with Nasdaq's public float requirements, and intend to provide
updated information to Nasdaq which demonstrates compliance.

         If our common stock is delisted from the Nasdaq National Market, the
trading, if any, in our securities would be conducted in the OTC Bulletin Board
or the "pink sheets," where stocks are often lightly traded or not traded at all
on any given day. Any reduction in our liquidity or active interest on the part
of investors in our common stock could have a negative impact on our
stockholders, either because of reduced market prices or a lack of a regular,
active trading market for our common stock.

         If our common stock is delisted from Nasdaq, an investor might find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, our securities. Additionally, delisting of our common stock could hinder our
ability to raise capital in the future.

OUR COMMON STOCK MAY BE SUBJECT TO ADDITIONAL REGULATION IF IT IS DELISTED FROM
THE NASDAQ NATIONAL STOCK MARKET

         SEC rules require broker-dealers to provide certain information to
purchasers of securities traded at less than $5.00 and not traded on a national
securities exchange or authorized for quotation on Nasdaq. These rules require
broker-dealers to deliver a standard risk disclosure document that provides
information about such stocks and the nature and level of risk in the market for
such stocks. Broker-dealers must also disclose to prospective purchasers of such
stocks bid and offer quotations and broker-dealer and sales person
transaction-related compensation information, either orally or in writing prior
to effecting a transaction in the stock and again, in writing, prior to or with
the requisite confirmation. Finally, broker-dealers generally must make a
special written determination that the stock in question is a suitable
investment for the prospective purchaser and receive the prospective purchaser's
written consent to the transaction before consummating the proposed transaction.
If our common stock is delisted from the Nasdaq National Stock Market and
becomes subject to the regulations described above, these regulations may lead
to a reduction in trading activity in our common stock and make it more
difficult for investors to dispose of their stock.



                                       25
<PAGE>   26

HOLDERS OF OUR SERIES B PREFERRED STOCK ARE ENTITLED TO SIGNIFICANT RIGHTS AND
PREFERENCES

         Cardiac Pathways has 27,250 shares of Series B Convertible Preferred
Stock outstanding which are convertible, at the option of the holder, into 5.94
million shares of our common stock. The holders of Series B Preferred Stock are
currently entitled to significant rights, preferences and privileges over
holders of common stock including the right to a preferential cumulative
dividend, to certain redemption rights and to a substantial liquidation payment
preference over our common stock which is also payable upon any transaction or
series of transactions (including, without limitation, any merger,
reorganization or consolidation) involving a transfer of 50% or more of the
outstanding voting power of Cardiac Pathways.

         The holders of Series B Preferred Stock are also entitled to certain
registration rights and enjoy certain protective rights in that their consent is
required to effect certain corporate transactions including, but not limited to,
amending our certificate of incorporation or by-laws, issuing common or
preferred stock, declaring dividends or selling all or substantially all of our
stock or assets. It is likely that the preferences and rights enjoyed by the
holders of Series B Preferred Stock has a negative impact on the market price of
the common stock of Cardiac Pathways. Also, if these holders, by converting
their Series B Preferred Stock into common stock and then exercising their
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could materially and adversely affect the
market price for Cardiac Pathways' common stock. In addition, if we were to
include in a registration statement shares held by these holders pursuant to the
exercise of their registration rights, such sales may impede our ability to
raise needed capital. For a more complete description of the rights, preferences
and privileges attaching to the Series B Convertible Preferred Stock refer to
the section of our Annual Report on Form 10-K/A for the year ended June 30, 2000
entitled "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters."

THE HOLDERS OF OUR SERIES B PREFERRED STOCK EXERCISE SIGNIFICANT INFLUENCE OVER
US

         The holders of Series B Preferred Stock beneficially own an aggregate
of approximately 54.2% of the outstanding voting stock of Cardiac Pathways and
are entitled to elect three of five directors to Cardiac Pathways' Board of
Directors. These stockholders, if acting together, will be able to significantly
influence all matters requiring approval of either the Board of Directors or the
stockholders of Cardiac Pathways, including the approval of significant
corporate transactions. This concentration of ownership may also delay, deter or
prevent a change in control and may make some transactions more difficult or
impossible to complete without the support of these stockholders.

THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON
STOCK COULD CAUSE A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK, EVEN IF OUR
BUSINESS IS DOING WELL

         Sales of substantial amounts of our common stock in the public market
or the perception that these sales could occur could cause a decline in the
market price of our common stock, especially given the thin trading volume of
our publicly held common stock, and could impair our future ability to raise
capital through offerings of our common stock. Upon the closing of our private
placement financing, which occurred on December 26, 2000, Cardiac Pathways had
outstanding an aggregate of 9,000,852



                                       26
<PAGE>   27
shares of common stock. Of these outstanding shares, 2,142,029 are
currently publicly held and 5,858,823 shares may be sold pursuant to a
registration statement which was declared effective by the SEC in February, 2001
and upon such sale will be freely tradable without restriction or further
registration, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act of 1933, as amended. The availability for sale
of such shares could materially and adversely affect the market price of our
common stock.



                                       27

<PAGE>   28




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company does not use derivative financial instruments in its
investment portfolio. The Company places it's investments in instruments that
meet high credit quality standards as specified in the Company's investment
policy. The Company also limits the amount of credit exposure to any one issue,
issuer or type of investment. The Company does not expect any material loss with
respect to its investment portfolio.



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<PAGE>   29


                          CARDIAC PATHWAYS CORPORATION

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

              (a) No exhibits were filed as a part hereof.

              (b) No reports on Form 8-K have been filed for the quarter ended
                  March 31, 2001.



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<PAGE>   30


                          CARDIAC PATHWAYS CORPORATION

                                   SIGNATURES

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

DATE:  MAY 15, 2001                    CARDIAC PATHWAYS CORPORATION


                                       /S/ THOMAS M. PRESCOTT
                                       ---------------------------------------
                                       THOMAS M. PRESCOTT
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER

                                       /S/ ELDON M. BULLINGTON
                                       ---------------------------------------
                                       ELDON M. BULLINGTON
                                       VICE PRESIDENT OF FINANCE AND CHIEF
                                       FINANCIAL OFFICER



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