<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q
                                        
(Mark One)

  __X__ Quarterly report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934
        For the quarterly period ended June 30, 1997

                                       or

  _____ 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: 0-27330
                                        
                               HEARTSTREAM, INC.
             (Exact name of registrant as specified in its charter)

             DELAWARE                                   91-1577477
  (State or other jurisdiction of                    (I.R.S. Employer
   incorporation or organization)                 Identification Number)

                           2401 4TH AVENUE, SUITE 300
                               Seattle, WA  98121
          (Address of principal executive offices, including zip code)

                                 (206) 443-7630
              (Registrant's telephone number, including area code)

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

                        Yes __X__                 No _____
                                        
At July 23, 1997, there were 11,763,672 shares of the Registrant's Common Stock
outstanding.

<PAGE>
 
                               HEARTSTREAM, INC.
                                        
                         QUARTERLY REPORT ON FORM 10-Q

                                     INDEX

PART I.  FINANCIAL INFORMATION
<TABLE>
<CAPTION>
 
Item 1.  Financial Statements
                                                                           Page
                                                                           ----
<S>                                                                        <C>
         Balance Sheets as of June 30, 1997 (Unaudited) and December 31,
          1996...........................................................    3
 
         Statements of Operations (Unaudited) for the three and six months
           ended June 30, 1997 and 1996..................................    4
 
         Statements of Cash Flows (Unaudited) for the six months ended
           June 30, 1997 and 1996........................................    5
 
         Notes to Financial Statements...................................    6
 
 Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations.....................................    8
 
</TABLE>
PART II.    OTHER INFORMATION
<TABLE>
<S>                                                                        <C> 
 Item 4.  Submission of Matters to a Vote of Security Holders............   18

 Item 6.  Exhibits and Reports on Form 8-K...............................   19

SIGNATURES...............................................................   20

INDEX TO EXHIBITS........................................................   21
</TABLE>

                                       2
<PAGE>
 
PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

                               HEARTSTREAM, INC.
                                 BALANCE SHEETS
                                        
                                     ASSETS
<TABLE>
<CAPTION>
                                                  June 30,     December 31
                                                    1997           1996
                                                ------------   ------------
                                                (Unaudited)
<S>                                             <C>          <C>
Current assets:
   Cash and cash equivalents..................  $ 20,684,595   $ 24,726,216
   Securities available-for-sale..............    17,921,512     25,353,693
   Accounts receivable, net...................     1,139,963        944,579
   Inventories................................     4,008,538      1,548,441
   Prepaid expenses and other.................       994,499        114,091
                                                ------------   ------------
      Total current assets....................    44,749,107     52,687,020
Property and equipment, net...................     2,486,644      2,492,351
Other assets..................................            --        111,084
                                                ------------   ------------
                                                $ 47,235,751   $ 55,290,455
                                                ============   ============
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>                                         
<CAPTION>                                       
<S>                                            <C>            <C>
Current liabilities:                                                       
   Accounts payable...........................  $    992,938   $  1,779,871
   Accrued compensation and benefits..........       855,753        293,312
   Other accrued expenses.....................       496,974        127,246
   Current portion of long-term obligations...       384,768        409,207
                                                ------------   ------------
      Total current liabilities...............     2,730,433      2,609,636
  
 Long-term obligations, less current portion..        77,446        215,753
  
 Commitments and contingencies
  
 Stockholders' equity:
   Common stock, $0.001 par value
      Authorized shares - 30,000,000
      Issued and outstanding shares -
       11,758,296 at June 30, 1997 and
       11,635,404 at December 31, 1996........        11,758         11,635
   Additional paid-in-capital.................    77,468,264     77,271,965
   Accumulated deficit........................   (33,035,377)   (24,779,410)
   Deferred compensation......................       (16,773)       (39,124)
                                                ------------   ------------
      Total stockholders' equity..............    44,427,872     52,465,066
                                                ------------   ------------
                                                $ 47,235,751   $ 55,290,455
                                                ============   ============
</TABLE>
                            See accompanying notes.

                                       3
<PAGE>
 
                               HEARTSTREAM, INC.
                            STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                      Three Months                 Six Months
                                     Ended June 30,              Ended June 30,
                               -------------------------   -------------------------
                                   1997          1996          1997          1996
                               -----------   -----------   -----------   -----------
<S>                            <C>           <C>           <C>           <C> 
Net sales....................  $ 2,380,899   $        --   $ 3,661,878   $        --
Cost of sales................   (1,698,515)           --    (2,504,044)           --
                               -----------   -----------   -----------   -----------
 Gross margin................      682,384            --     1,157,834            --
 
Operating expenses:
 Research and development....    1,309,289     1,612,801     2,661,003     2,960,667
 General and administrative..    1,636,697     1,270,378     3,181,421     2,187,159
 Sales and marketing.........    2,428,407       642,766     4,733,580       982,797
                               -----------   -----------   -----------   -----------
                                 5,374,393     3,525,945    10,576,004     6,130,623
 
Loss from operations.........   (4,692,009)   (3,525,945)   (9,418,170)   (6,130,623)
 
Interest income, net.........      549,231       746,316     1,150,023     1,260,102
                               -----------   -----------   -----------   -----------
Net loss.....................  $(4,142,778)  $(2,779,629)  $(8,268,147)  $(4,870,521)
                               ===========   ===========   ===========   ===========
 

Net loss per share, 
 historical..................       $(0.35)       $(0.24)       $(0.71)       $(0.49)
                                    ======        ======       =======        ======
Shares used to calculate
 historical net loss per
 share.......................   11,743,757    11,427,645    11,709,184     9,976,584
                               ===========   ===========   ===========   ===========



Net loss per share, pro forma.........................................   $     (0.45)
                                                                         ===========
Shares used to calculate
 pro forma net loss per 
 share................................................................    10,793,360
                                                                         ===========
</TABLE> 

                            See accompanying notes.

                                       4
<PAGE>
 
                               HEARTSTREAM, INC.
                            STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                                         Six Months Ended June 30,
                                                        ----------------------------
                                                            1997           1996
                                                        -------------  -------------
<S>                                                     <C>            <C>
 
OPERATING ACTIVITIES:
Net loss..............................................  $ (8,268,147)  $ (4,870,521)
Adjustments to reconcile net loss to
 net cash used in operating activities:
  Depreciation and amortization.......................       452,406        347,040
  Amortization of deferred compensation...............        22,351        111,827
  (Accretion) of discounts and amortization of
   premiums on securities.............................       (26,481)       106,778
  Changes in:
   Increase in accounts receivable....................      (195,384)            --
   Increase in inventories............................    (2,460,097)      (422,354)
   Increase in prepaid expenses and other.............      (880,408)      (195,986)
   Decrease (increase) in other assets................       111,084        (86,895)
   Increase in accounts payable and accrued expenses..       145,236        504,950
                                                        ------------   ------------
Net cash used in operating activities.................   (11,099,440)    (4,505,161)
 
INVESTING ACTIVITIES:
Purchase of property and equipment....................      (446,699)      (508,255)
Purchase of securities................................    (5,758,735)   (52,470,841)
Sales of securities...................................     4,200,000      2,700,000
Maturities of securities..............................     9,029,577      4,010,160
                                                        ------------   ------------
Net cash provided by (used in) investing activities...     7,024,143    (46,268,936)
 
FINANCING ACTIVITIES:
Deferred offering costs...............................            --        301,806
Principal payments on capitalized lease obligations...      (162,746)      (151,072)
Issuance of common stock, net of issuance costs.......       196,422     49,023,529
                                                        ------------   ------------
Net cash provided by financing activities.............        33,676     49,174,263
                                                        ------------   ------------
Net decrease in cash and cash equivalents.............    (4,041,621)    (1,599,834)
Cash and cash equivalents, beginning of period........    24,726,216      5,970,768
                                                        ------------   ------------
Cash and cash equivalents, end of period..............  $ 20,684,595   $  4,370,934
                                                        ============   ============
 
NONCASH TRANSACTION AND SUPPLEMENTAL DISCLOSURES:
Cash paid for interest................................  $     40,557   $     66,822
                                                        ============   ============
Conversion of preferred stock to common stock.........  $         --   $      6,190
                                                        ============   ============
</TABLE>
                            See accompanying notes.

                                       5
<PAGE>
 
                               HEARTSTREAM, INC.
                         NOTES TO FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

      The accompanying unaudited financial statements have been prepared by
    Heartstream, Inc. ("Heartstream" or the "Company") according to the rules
    and regulations of the Securities and Exchange Commission. Accordingly, they
    do not include all of the information and footnote disclosures normally
    included in financial statements prepared in accordance with generally
    accepted accounting principles. In the opinion of management, the financial
    statements reflect all adjustments, which include only normal and recurring
    items, necessary for fair presentation of the interim periods presented. The
    results for the three and six months ended June 30, 1997 may not necessarily
    be indicative of the results for the year ending December 31, 1997. These
    financial statements and related notes should be read in conjunction with
    the Company's audited financial statements for the year ended December 31,
    1996, included in its Annual Report to Stockholders incorporated by
    reference into the Form 10-K filed with the Securities and Exchange
    Commission on March 31, 1997.

2.  INVENTORIES

      Inventories consist of the following:
<TABLE>
<CAPTION>
 
                                   June 30,   December 31,
                                     1997         1996
                                  ----------  ------------
<S>                               <C>         <C>
 
               Raw materials      $1,918,887    $1,023,182
               Work-in-process     1,533,230       462,919
               Finished goods        556,421        62,340
                                  ----------    ----------
                                  $4,008,538    $1,548,441
                                  ==========    ==========
</TABLE>
3.  NET LOSS PER SHARE

      Historical net loss per share is computed based on the weighted average
    number of common shares outstanding and gives effect to the following
    adjustments: common equivalent shares are not included in the per-share
    calculation where the effect of their inclusion would be antidilutive,
    except that, in accordance with Securities and Exchange Commission
    requirements, common and common equivalent shares issued during the 12-month
    period prior to the filing of an initial public offering have been included
    in the calculation as if they were outstanding for all periods using the
    treasury stock method and the initial public price of $13 per share even
    though their inclusion would be antidilutive.

      The pro forma net loss per share is computed based on the historical net
   loss per share adjusted for the assumed conversion of all outstanding shares
   of convertible preferred stock into common stock at the time of issuance.

                                       6
<PAGE>
                               HEARTSTREAM, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
3.  NET LOSS PER SHARE (CONTINUED)

      In February 1997, the Financial Accounting Standards Board issued
    Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
    ("Statement 128"), which is effective for financial statements for both
    interim and annual periods ending after December 15, 1997. At that time, the
    Company will be required to change its method for calculating earnings per
    share and restate all prior periods presented. The impact of Statement 128
    on the calculation of net loss per share for all current and prior periods
    is not expected to be material.

4.  LITIGATION

      In 1995, Physio-Control International Corporation ("Physio-Control"), a
    competitor of the Company, filed a lawsuit in Washington state court
    alleging trade secret misappropriation and tortious interference with
    business relations against the Company and five of its employees and their
    spouses in connection with development of the ForeRunner(R) automatic
    external defibrillator. These employees were founders of Heartstream and
    former employees of Physio-Control. The complaint includes related
    allegations that the five employees breached proprietary information
    agreements with Physio-Control. The complaint seeks injunctive relief,
    unspecified monetary damages and an order declaring Physio-Control the owner
    of certain patent applications filed by the Company and any patents that may
    issue from those applications. Heartstream has filed counterclaims against
    Physio-Control. The pending litigation has resulted and will continue to
    result in substantial expense to the Company and significant diversion of
    effort by the Company's technical and management personnel. If the court
    finds against the Company, the Company could be enjoined from manufacturing
    or selling its ForeRunner product, the Company could be required to seek
    licenses from Physio-Control, and the Company could also be held liable for
    damages. The litigation is currently in the discovery phase with a trial
    date set for March 1998. The Company has conducted a review of its
    technology in light of the Physio-Control claims and, after consultation
    with its intellectual property and litigation counsel, believes that the
    Company should prevail in the litigation based on several defenses
    including, among other things, the Company's conclusion that it has
    independently developed the technology at issue. However, litigation is
    subject to inherent uncertainties, especially cases such as this where
    complex technical issues may be decided by a lay jury. Accordingly, no
    assurance can be given that the lawsuit will not be decided against the
    Company. Adverse determinations in the litigation with Physio-Control could
    have a material adverse effect on the Company's business, financial
    condition and results of operations.

      On January 7, 1997, the Company was awarded a patent relating to the
    Company's defibrillator self-test technology. On January 10, 1997, the
    Company filed a lawsuit in U.S. Federal District Court in Seattle against
    Physio-Control for infringement of this patent. Physio-Control has filed a
    counterclaim charging infringement of one of its patents by the Company.
    Each party is seeking injunctive relief and unspecified monetary damages.
    The litigation is at a very early stage and a trial date has not yet been
    determined.

                                       7
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 

OVERVIEW

  Heartstream, Inc. ("Heartstream" or "Company") was founded in December 1992
and has conducted organizational, research and development, market development
and clinical trial activities of its ForeRunner(R) automatic external
defibrillator ("AED") during the past four years.  In 1996 the Company received
the required approvals to market ForeRunner and its accessories in several
countries, including the United States, Canada and the 18 countries of the
European Economic Area.  With completion of ForeRunner's development process and
required regulatory approvals, the Company initiated commercial shipments of the
ForeRunner AED and its accessories to Heartstream's direct customers and
international distribution partners in November 1996.  During 1997, regulatory
approvals have been awarded to the Company in nine additional countries
including Australia and China.

  The Company's ForeRunner is an innovative AED which utilizes a patented low-
energy biphasic  waveform for the treatment of sudden cardiac arrest (SCA), the
leading cause of death in the United States.  The Company's ForeRunner AED is
the only currently available AED which utilizes a biphasic waveform.

  The Company had an accumulated deficit of $33.0 million at June 30, 1997, and
expects to continue to incur operating losses into 1999 as it increases market
development activities, initiates new research and development projects, seeks
regulatory clearance for its products in additional jurisdictions and increases
administrative activities to support growth of the Company.  The Company does
not have significant experience manufacturing, marketing or selling its products
in commercial quantities and there can be no assurance that the ForeRunner
defibrillator will ever gain broad commercial acceptance or that the Company
will ever achieve profitability.  In addition, the Company and its distributors
are required to comply with regulations regarding product quality and safety in
order to maintain regulatory approvals.  Failure to comply with these
requirements could result in warning letters, fines, injunctions, civil
penalties, recall or seizure of products, suspension of production, or delays in
the approval of additional products, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.

  In 1995, Physio-Control International Corporation ("Physio-Control"), a
competitor of the Company, filed a lawsuit in Washington state court alleging
trade secret misappropriation and tortious interference with business relations
against the Company and five of its employees and their spouses in connection
with development of the ForeRunner automatic external defibrillator.  These
employees were founders of Heartstream and former employees of Physio-Control.
The complaint includes related allegations that the five employees breached
proprietary information agreements with Physio-Control.  The complaint seeks
injunctive relief, unspecified monetary damages and an order declaring Physio-
Control the owner of certain patent applications filed by the Company and any
patents that may issue from those applications.  Heartstream has filed
counterclaims against Physio-Control.  The pending litigation has resulted and
will continue to result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel.  If the
court finds against the Company, the Company could be enjoined from
manufacturing or selling its ForeRunner product, the Company could be required
to seek licenses from Physio-Control, and the Company could also be held liable
for damages.  The litigation is currently in the discovery phase with a trial
date set for March 1998.  The Company has conducted a review of its technology
in light of the Physio-Control claims and, after consultation with its
intellectual property and litigation counsel, believes that the Company should
prevail in the litigation based on several defenses 

                                       8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

including, among other things, the Company's conclusion that it has
independently developed the technology at issue. However, litigation is subject
to inherent uncertainties, especially cases such as this where complex technical
issues may be decided by a lay jury. Accordingly, no assurance can be given that
the lawsuit will not be decided against the Company. Adverse determinations in
the litigation with Physio-Control could have a material adverse effect on the
Company's business, financial condition and results of operations.

  On January 7, 1997, the Company was awarded a patent relating to the Company's
defibrillator self-test technology.  On January 10, 1997, the Company filed a
lawsuit in U.S. Federal District Court in Seattle against Physio-Control for
infringement of this patent.  Physio-Control has filed a counterclaim charging
infringement of one of its patents by the Company.  Each party is seeking
injunctive relief and unspecified monetary damages.  The litigation is at a very
early stage and a trial date has not yet been determined.

RESULTS OF OPERATIONS

  Net sales totaled $2.4 million and $3.7 million for the three and six months
ended June 30, 1997, respectively.  The Company had no sales during the first
six months of 1996 as shipment of the Company's products commenced in November
1996.  Sales to the Company's international distribution partners accounted for
approximately 45% and 23% of net sales for the three months ended March 31 and
June 30, 1997, respectively.  During the second quarter of 1997 the Company
entered into a domestic distribution agreement for certain geographic market
segments in the United States, and expects to enter into agreements with other
distribution partners throughout the remainder of 1997.  In addition, the
Company expects domestic sales to further increase as a percent of total sales
as it increases the size of its domestic sales force and adds domestic
distribution partners.  Accessories accounted for approximately 15% and 12% of
total sales for the three months ended March 31 and June 30, 1997, respectively.

  Gross margin totaled $0.7 million, or 29% of net sales, for the three months
ended June 30, 1997.  For the six month period ended June 30, 1997, gross margin
totaled $1.2 million, or 32% of net sales.  Margins declined during the second
quarter of 1997 from 37% in the first quarter of 1997 due to a significant
lower-margin order shipped during the quarter.  Partially offsetting the impact
of this order was an increase in direct domestic sales which generally have
higher gross margins than sales to international distributors.  Future margins
may be impacted by shifts in the sales distribution channel mix and large sales
at volume discounts to certain customers.  In addition, the Company has
established production facilities based on forecasted product demand.  Actual
utilization of these facilities may affect future margins.

  Research and development expenses totaled $1.3 million for the three months
ended June 30, 1997, compared to $1.6 million for the same period in 1996.  For
the six months ended June 30, 1997 and 1996, research and development expenses
totaled $2.7 million and $3.0 million, respectively.  Higher expenses in the
prior year were due to greater research and development activities focused on
the final validation and qualification of ForeRunner, and activities associated
with obtaining regulatory approval to manufacture, market and sell the Company's
products.  The Company expects research and development expenses during the next
several quarters to increase over second quarter 1997 results as the Company
undertakes development of new products and product enhancements and works to
improve existing production processes of the ForeRunner AED.

                                       9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (CONTINUED)

  General and administrative expenses totaled $1.6 million for the three months
ended June 30, 1997 compared to $1.3 million for the three months ended June 30,
1996.  This represents an increase of $0.3 million, or 29% over the same period
in the prior year.  For the six months ended June 30, 1997, general and
administrative expenses increased 45% to $3.2 million from $2.2 million for the
same period in 1996.  The increase was due to increased costs to operate as a
public company, additional personnel and facilities costs to support growth of
the Company and additional legal costs in connection with the Physio-Control
litigation.

  Sales and marketing expenses totaled $2.4 million for the three months ended
June 30, 1997 compared to $0.6 million for the same period in 1996. For the six
months ended June 30, 1997 and 1996, sales and marketing expenses totaled $4.7
million and $1.0 million, respectively.  Commercial shipments of the ForeRunner
AED totaled $3.7 million through June 30, 1997 while no commercial shipments
were made during the same periods in the prior year.  The increase in expenses
is primarily due to the hiring of direct sales representatives and marketing
personnel, as well as promotional and market development activities.  Sales and
marketing expenses for the remainder of 1997 are expected to increase somewhat
compared to current levels due to continued worldwide commercialization of the
ForeRunner AED, including the hiring of additional direct sales representatives,
establishment of additional domestic and international distribution channels,
and increased advertising and promotional activities.

  Net interest income was $0.5 million for the three months ended June 30, 1997
compared to $0.7 million for the same period in 1996.  This represents a
decrease of $0.2 million, or 26%.  The decrease was primarily due to lower cash
and investment balances in 1997 as proceeds from the Company's initial public
offering of common stock were received in February 1996.     Net interest income
was $1.2 million for the six months ended June 30, 1997 compared to $1.3 million
for the same period in 1996.

INCOME TAXES

  The Company has not generated any net income to date and therefore has not
paid any federal income taxes since inception.  At June 30, 1997, the Company
had net operating loss carryforwards of approximately $32.0 million and research
and development credit carryforwards of approximately $0.3 million, net of
carryforwards expected to expire before their complete utilization.  The
operating loss carryforwards and research and development carryforwards begin to
expire in the year 2008.  Utilization of federal income tax carryforwards is
subject to certain limitations under Section 382 of the Internal Revenue Code of
1986, as amended.  The Company's past sales of preferred and common stock have
resulted in "ownership changes" as defined under Section 382, resulting in
limitations on the future use of carryforwards.  These limitations are expected
to result in the expiration of approximately $1.0 million of net operating loss
carryforwards and approximately $0.1 million research and development credit
carryforwards before their complete utilization.

                                       10
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
LIQUIDITY AND CAPITAL RESOURCES

  At June 30, 1997, the Company's cash, cash equivalents and securities
available-for-sale totaled $38.6 million, compared to $50.1 million at December
31, 1996.  Cash used to fund operating activities was $11.1 million for the six
months ended June 30, 1997 compared to $4.5 million for the six months ended
June 30, 1996, reflecting increased inventory balances and net losses
principally related to increased sales and marketing expenditures.  The Company
expects to continue to incur operating losses as it supports the growth of its
sales and marketing organization, undertakes new development activities and
supports its ongoing litigation and administrative activities.  Although the
Company believes that its existing liquid assets and cash flows from sales will
be sufficient to fund its operations through 1998, there can be no assurance
that the Company will not require additional financing in the near future or
that additional financing will be available on satisfactory terms, if at all.

RISK FACTORS

  This quarterly report on Form 10-Q contains forward-looking statements which
involve risks and uncertainties.  The Company's actual results could differ
materially from those anticipated by such forward-looking statements as a result
of certain factors including those set forth below.

  Fluctuations in Operating Results.  The Company's results of operations will
depend upon numerous factors, including actions relating to regulatory matters,
the extent to which the Company's products gain market acceptance, increased
competition, and changes in pricing policies by the Company and its competitors.
Results of operations will also be affected by the size and timing of orders
received and the ability of its sales force and distributors to effectively
commercialize the Company's products.  In addition, the mix of sales to
distribution partners versus sales by direct sales representatives may affect
operating results since sales to distribution partners generally are made at
lower prices and there timing is more difficult to predict.  Based on these
factors, operating results may fluctuate significantly from quarter to quarter
and differ from expectations of public market analysts and investors.

  History of Losses and Expectation of Future Losses.  The Company was founded
in December 1992 and to date has generated limited revenues.  At June 30, 1997,
the Company had an accumulated deficit of approximately $33.0 million.  The
Company expects to continue to incur operating losses into 1999 as it increases
market development activities, initiates new research and development projects,
seeks regulatory clearance for its products in additional jurisdictions and
increases administrative activities to support growth of the Company.  The
Company has limited experience in manufacturing, marketing and selling its
products in commercial quantities and there can be no assurance that the
ForeRunner will ever gain broad commercial acceptance or that the Company will
ever achieve profitability.

  Dependence Upon ForeRunner.  The ForeRunner AED and its related accessories
are currently the Company's only products.  The Company expects that the
ForeRunner and its related accessories will account for substantially all of the
Company's revenues for the foreseeable future.  Accordingly, any problem or
disruption in the manufacturing, acceptance or sale of the ForeRunner AED and
its accessories could have a material adverse effect on the Company's business,
financial condition and results of operations.

                                       11
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
  Product Liability and Recall Risk; Limited Insurance Coverage.  The
manufacture and sale of medical products entail significant risk of product
liability claims and product recalls.  There can be no assurance that the
Company's existing insurance coverage limits are adequate to protect the Company
from any liabilities it might incur in connection with the sale of its product.
In addition, the Company may require increased product liability coverage as its
products are further commercialized.  Such insurance is expensive and in the
future may not be available on acceptable terms, if at all.  A successful
product liability claim or series of claims brought against the Company in
excess of its insurance coverage, or a recall of the Company's products, could
have a material adverse effect on the Company's business, financial condition
and results of operations.

  Uncertainty of Market Acceptance and Dependence on Market Development.  The
Company's success is substantially dependent upon market acceptance of the
ForeRunner AED.  Currently, all other commercially available AEDs utilize a
monophasic waveform and utilize 200 to 360 Joules of energy in delivering their
defibrillation therapy.  Many of these AEDs have been marketed for several
years, comply with the American Heart Association ("AHA") recommended guideline
for external defibrillation therapy and have been extensively used in the field.
The Company's ForeRunner AED utilizes a biphasic waveform delivered at lower
energy levels.  There can be no assurance that the market will broadly accept
the Company's lower energy biphasic waveform protocol.  In addition, there can
be no assurance that ForeRunner will demonstrate benefits in ease of use,
maintenance and safety or will achieve wide acceptance in its target markets.

  The Company's success is also substantially dependent upon market development
and expansion.  AEDs are currently marketed by a number of companies into the
existing professional emergency medical technician ("EMT") market, the Company's
initial target market.  The Company's future success depends upon substantially
increasing the number of AEDs sold into the professional EMT market segment, as
well as the emerging first responder market.  Development of the first responder
market will depend in large part on the Company's ability to demonstrate to
physicians and potential customers the benefits, safety, efficacy and cost-
effectiveness of widespread use of its AED by first responders who are generally
less trained than EMTs.  Doing so may require significant sales and marketing
resources.  There can be no assurance that the ForeRunner will gain broad
commercial acceptance or that market demand for the ForeRunner will be
sufficient to allow profitable operations.

  Several states and foreign jurisdictions have enacted laws and regulations
which govern the delivery of emergency medical services, including the use of
external defibrillators.  These laws and regulations in many cases currently
restrict use of these devices to physicians or other specified categories of
trained personnel, mandate levels of operator training and, in some cases,
require that certain features be incorporated into external defibrillators,
including features such as an ECG strip chart printer which are not currently
incorporated into the ForeRunner.  Accordingly, market acceptance of the
ForeRunner will be significantly dependent upon the Company's ability to
convince state, local and foreign government bodies and medical directors of the
safety and efficacy of the ForeRunner and its potential for widespread
deployment.  There can be no assurance that restrictions on the use of AEDs will
be eased or removed.

                                       12
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
  Lengthy Customer Decision Processes.  Because of budgetary and bureaucratic
constraints, and because of the ForeRunner's innovative approach to treatment of
sudden cardiac arrest, the Company believes purchasing decisions of some of its
customers, particularly municipal accounts, may be characterized by long
decision processes.  The lengthy decision process may be exacerbated through
sales and marketing tactics of the Company's competitors, which may be designed
to create uncertainty and doubt in the minds of customers concerning the
technology and efficacy of the ForeRunner AED.  Accordingly, the Company's
products may be subject to long sales cycles.

  Competition and Risk of Technological Obsolescence.  The domestic and
international markets for external defibrillators are highly competitive, and
several of the Company's competitors have substantial installed bases of
products and significantly greater financial, technical, research and
development, or sales and marketing resources than the Company.  Several of the
Company's competitors have been manufacturing defibrillators for many years and
may have greater name recognition than the Company.  Accordingly, the Company's
competitors may be able to bring new product offerings to market quickly and may
be able to increase sales of their products by leveraging their installed bases
and established distribution channels.  The Company believes that its primary
competitors are companies that currently market AEDs into the professional EMT
segment of the market.  This market segment is dominated by Laerdal Medical,
Inc. ("Laerdal") and Physio-Control International Corporation ("Physio-
Control").  Other competitors that sell products into this market segment
include SurVivaLink Corporation ("SurVivaLink"), and Zoll Medical, Inc.
Laerdal, Physio-Control and SurVivaLink have recently introduced new AEDs
targeted at markets similar to those targeted by the ForeRunner defibrillator.
The introduction of these or other similar products may cause pricing pressure
on the Company's existing products in order for the Company to remain
competitive in the market.

  The Company believes that the principal competitive factors for AEDs in the
professional EMT and first responder market segments are ease of use, low
maintenance and training requirements, cost-effectiveness, size, safety and
reliability.  The ForeRunner AED is designed to address all these factors.
However, there can be no assurance that the Company's products will compete
favorably with the products offered by its competitors, or that superior
defibrillation technologies will not be developed by these competitors or others
which may render the Company's technology or products obsolete or
noncompetitive.  In addition, a number of companies may be engaged in the
development of approaches for the treatment of sudden cardiac arrest other than
those utilized by the Company.   There can be no assurance that superior
defibrillation technologies will not be developed by these competitors or
others, or that alternative therapies or approaches, including pharmaceutical or
other alternatives, will not render the Company's technology, products, or
products under development obsolete or noncompetitive.

  Limited Sales, Marketing and Distribution Experience. The Company has limited
experience selling and marketing its product in domestic or international
markets.  In the United States, the Company currently sells its products
primarily through a direct sales force.  The Company intends to expand the size
of its direct sales force during the remainder of 1997.  However, competition
for sales personnel is fierce and there can be no assurance that the Company
will be able to attract or retain qualified personnel.  In addition, the Company
believes that it may be necessary to enter into alliances with additional
domestic partners with significant distribution capabilities to successfully
penetrate various segments of the first responder market.  There can be no
assurance that the Company will be able to enter into any such alliances.  In
international markets, the Company sells its products primarily through
distributors, and to date has entered into agreements with distributors covering
33 countries worldwide.  

                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
However, there can be no assurance that the Company's distributors will devote
adequate resources to selling the Company's products over other products or will
adequately train their sales force about the Company's products. In addition,
there can be no assurance that the Company's sales and marketing organization
will be cost-effective, or that the Company's sales and marketing efforts will
be successful.

  Limited Manufacturing Experience.   The Company performs final assembly,
testing, and inspection at its facility in Seattle, Washington.  Due to limited
experience in manufacturing its products in commercial quantities, the Company
may encounter difficulties in manufacturing the ForeRunner AED, including
problems involving material requirements planning, production yields, quality
control and assurance, and scaling production capacity and other resources to
meet current and future demand for the product.  Fluctuations in any of the
above factors could impact the Company's ability to manufacture its products in
a profitable manner.

  Potential Component Shortages; Dependence on Sole Sources of Supply.  The
Company manufactures its products based on forecasted product orders, and
purchases subassemblies and components prior to receipt of purchase orders from
customers.  Lead times for materials and components ordered by the Company vary
significantly and depend upon factors such as the specific supplier, contract
terms and demand for a component at a given time.  In addition, certain
components used in the Company's products have long lead times and have been in
short supply.  The Company has acquired an inventory of certain components in
anticipation of possible shortages, and may continue this practice for these or
other components in the future.  If orders do not match forecasts, the Company
may have excess or inadequate inventory of certain materials and components.
The Company purchases some key components, such as the main energy storage
capacitor and the LCD display screen used in the ForeRunner, from sole source
suppliers.  For certain components, including the ForeRunner's batteries and
microprocessors, there are relatively few sources of supply.  In addition,
several of the subassemblies in the ForeRunner require the supplier to perform
extensive testing before the Company accepts the subassembly into its final
manufacturing process.  These tests are specific to the design of ForeRunner and
if a supplier is unable to meet the Company's requirements, an alternate
supplier may be required. There can be no assurance that establishment of
additional or replacement suppliers for these components can be accomplished
quickly, or at all.  Any significant component supply delay or interruption
could require the Company to qualify new sources of supply, if available.
 
  Dependence Upon Patents and Proprietary Technology; Related Litigation.  At
June 30, 1997, the Company had filed a total of 39 patent applications with the
United States Patent and Trademark Office, 18 of which had either been issued or
allowed.  The Company's success will depend in part on its ability to obtain
patent protection for its products and processes, to preserve its trade secrets
and to operate without infringing the proprietary rights of third parties.  The
Company's strategy is to actively pursue patent protection in the United States
and foreign jurisdictions for technology that it believes to be proprietary and
that offers a potential competitive advantage for its products.  However, no
assurance can be given that any patents from pending patent applications or from
any future patent application will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's 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 the Company.  In addition, the laws of
certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the United States.  Litigation or
regulatory proceedings, which could result in substantial cost and uncertainty
to the Company, may also 

                                       14
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
be necessary to enforce patent or other intellectual
property rights of the Company or to determine the scope and validity of other
parties' proprietary rights.  There can be no assurance that third parties will
not assert infringement claims in the future with respect to the Company's
current or future products or that any such claims will not require the Company
to enter into license arrangements or result in litigation, regardless of the
merits of such claims.  No assurance can be given that any necessary licenses
can be obtained on commercially reasonable terms, or at all.  Should litigation
with respect to any such claims commence, such litigation could be extremely
expensive and time consuming regardless of the outcome of such litigation.

  The medical device market has been characterized by extensive litigation
regarding patents, trade secrets and other intellectual property rights.  In
1995, Physio-Control, a competitor of the Company, filed a lawsuit in Washington
state court alleging trade secret misappropriation and tortious interference
with business relations against the Company and five of its employees and their
spouses in connection with development of the ForeRunner automatic external
defibrillator.  These employees were founders of Heartstream and former
employees of Physio-Control.  The complaint includes related allegations that
the five employees breached proprietary information agreements with Physio-
Control.  The complaint seeks injunctive relief, unspecified monetary damages
and an order declaring Physio-Control the owner of certain patent applications
filed by the Company and any patents that may issue from those applications.
Heartstream has filed counterclaims against Physio-Control.  The pending
litigation has resulted and will continue to result in substantial expense to
the Company and significant diversion of effort by the Company's technical and
management personnel.  If the court finds against the Company, the Company could
be enjoined from manufacturing or selling its ForeRunner product, the Company
could be required to seek licenses from Physio-Control, and the Company could
also be held liable for damages.  The litigation is currently in the discovery
phase with a trial date set for March 1998.  The Company has conducted a review
of its technology in light of the Physio-Control claims and, after consultation
with its intellectual property and litigation counsel, believes that the Company
should prevail in the litigation based on several defenses including, among
other things, the Company's conclusion that it has independently developed the
technology at issue.  However, litigation is subject to inherent uncertainties,
especially cases such as this where complex technical issues may be decided by a
lay jury.  Accordingly, no assurance can be given that the lawsuit will not be
decided against the Company.  Adverse determinations in the litigation with
Physio-Control could have a material adverse effect on the Company's business,
financial condition and results of operations.

  On January 7, 1997, the Company was awarded a patent relating to the Company's
defibrillator self-test technology.  On January 10, 1997, the Company filed a
lawsuit in U.S. Federal District Court in Seattle against Physio-Control for
infringement of this patent.  Physio-Control has filed a counterclaim charging
infringement of one of its patents by the Company.  Each party is seeking
injunctive relief and unspecified monetary damages.  The litigation is at a very
early stage and a trial date has not yet been determined.

  While the Company generally enters into confidentiality agreements with its
employees and consultants, there can be no assurance that the Company's trade
secrets or proprietary technology will not become known or be independently
developed by competitors in such a manner that the Company has no practical
recourse.

  Government Regulation.  The design, manufacturing, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
government regulation in the United States and 

                                       15
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
certain other countries where the process of obtaining and maintaining required
regulatory approvals is lengthy, expensive and uncertain.

  In 1996 the Company received the required approvals to market ForeRunner and
its accessories in several countries, including the United States, Canada and
the 18 countries of the European Economic Area.  During 1997 regulatory
approvals have been awarded to the Company in nine additional countries,
including Australia and China.  In order for the Company to market the
ForeRunner and its related accessories in other foreign jurisdictions, the
Company and its distributors and agents must obtain the required regulatory
approvals and clearances. These regulations vary from country to country.  There
can be no assurance that the Company will obtain regulatory approvals in such
countries in a timely manner, if at all, or that the Company will not be
required to incur significant costs in obtaining or maintaining its foreign
regulatory approvals.

  Regulatory approvals may include significant limitations on the indicated uses
for which the product may be marketed.  In addition, the Company and its
distributors must comply with various regulations regarding product safety and
quality in order to maintain approvals.  The Company's manufacturing processes
are required to comply with the GMP regulations of the FDA.  These regulations
include design, testing, production, control, documentation and other
requirements.  Enforcement of GMP regulations has increased significantly in the
last several years, and the FDA has publicly stated that compliance will be more
strictly scrutinized.  The Company's facilities and manufacturing processes, as
well as those of certain of the Company's third party suppliers, are subject to
periodic inspection by the FDA and other agencies.  Failure to comply with these
and other applicable regulatory requirements could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of approvals and criminal prosecution.

  Dependence Upon Key Personnel.  The Company's ability to operate successfully
depends in significant part upon the continued service of certain key
scientific, technical and managerial personnel, and its continuing ability to
attract and retain additional highly qualified scientific, technical and
managerial personnel.  Competition for such personnel is intense, and there can
be no assurance that the Company can retain such personnel or that it can
attract or retain other highly qualified personnel in the future.  In addition,
many employees of the Company, including a number of its key scientific,
technical and managerial personnel, are subject to the terms of confidentiality
agreements with respect to proprietary information of their former employers.
The failure of these employees to comply with the terms of their agreements
with, or other obligations to, such former employers could result in assertion
of claims against the Company and such employees, which, if successful, could
restrict their role with the Company.

  Possible Volatility of Stock Price.  The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies.  These broad market fluctuations
may adversely affect the market price of the Company's common stock.  In
addition, the market price of the Company's common stock is likely to be highly
volatile due to the Company's relatively recent introduction of its products.
Factors such as fluctuations in the Company's sales and operating results,
announcements of technological innovations, new products introduced by the
Company or its competitors, significant orders placed by new or existing
customers of the Company or its competitors, FDA and international regulatory
actions, developments with respect to patents or 

                                       16
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS (CONTINUED)
 
proprietary rights, public concern as to the safety of products developed by the
Company or others, changes in health care policy in the United States and
internationally, changes in stock market analyst recommendations regarding the
Company, other medical device companies or the medical device industry generally
and general market conditions may have a significant effect on the market price
of the common stock.

                                       17
<PAGE>
 
PART II.  OTHER INFORMATION

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

  The Company held its 1997 Annual Meeting of Stockholders on April 29, 1997
with three matters submitted to stockholders for vote.  At the record date,
March 7, 1997, there were 11,675,972 shares of the Company's Common Stock issued
and outstanding.  Stockholders representing 9,814,504 shares, or 84.1% of the
total shares issued and outstanding, were present at said meeting either in
person or by proxy.

  The first matter submitted for vote was to elect two directors to serve a
three-year term expiring upon the 2000 Annual Meeting of Stockholders, or until
their successors are duly elected and qualified.  The nominees were elected with
the following results:
<TABLE>
<CAPTION>
 
                     Votes    Percent of    Votes    Percent of
                   Cast For   Votes Cast   Withheld  Votes Cast
                   ---------  -----------  --------  -----------
<S>                <C>        <C>          <C>       <C>
 
Ellen M. Feeney    9,777,202       99.62%    37,302        0.38%
Kurt C. Wheeler    9,776,028       99.61%    38,476        0.39%
</TABLE>

  The Company's Board of Directors is comprised of those elected at the 1997
Annual Meeting as well as the following directors completing their terms:  Alan
J. Levy, Frank M. Fischer, Wende S. Hutton, Mark B. Knudson, Michael J.
Levinthal.

  The Second matter submitted for vote was to ratify the appointment of Ernst &
Young LLP as independent auditors of the Company for the fiscal year ending
December 31, 1997.  The appointment was ratified with the following results:
<TABLE>
<CAPTION>
 
                           Votes         Votes
                          Cast For   Cast Against   Abstentions
                         ----------  -------------  ------------
<S>                      <C>         <C>            <C>
 
Number                   9,780,723         17,022        16,759
Percent of Votes Cast        99.66%          0.17%         0.17%
</TABLE>

  The third matter submitted for vote was to approve amendments to the 1993
Employee and Consultant Stock Plan (the "Plan") to increase the number of shares
reserved for issuance thereunder by 1,600,000 shares, to a new total of
4,100,000 shares, to include non-employee directors as persons eligible to
receive awards under the Plan, and to make certain changes to the administration
provisions of the Plan to reflect recent changes made by the Securities and
Exchange Commission to the rules under Section 16 of the Securities Exchange Act
of 1934. The proposal was approved with the following results:
<TABLE>
<CAPTION>
                             Votes         Votes         Broker
                           Cast For    Cast Against   Abstentions   Non-Votes
                          ----------   ------------   -----------   ----------
<S>                       <C>          <C>           <C>          <C>
Number                     5,771,147     1,669,758       66,870     2,306,729
Percent of Votes Cast          76.87%        22.24%      0.89%
 
 </TABLE>

                                       18
<PAGE>
Item 6.  Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
    <C>         <S>
    3.1(1)      Restated Certificate of Incorporation, as in effect prior to initial public offering
    3.2(1)      Restated Certificate of Incorporation, as currently in effect
    3.3(1)      Bylaws
    3.4(3)      Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock
    4.1(1)      Specimen Common Stock Certificate
    4.2(2)      Preferred Share Rights Agreement, dated as of December 6, 1996 between the Registrant and ChaseMellon
                Shareholder Services, L.L.C.
   10.1(1)      Form of Indemnification Agreement between the Registrant and each of its directors and officers
   10.2(5)      1993 Employee and Consultant Stock Plan, as amended, and form of Stock Option Agreement thereunder, as amended
   10.4(1)      1995 Employee Stock Purchase Plan and forms of agreements thereunder
   10.5(1)      Lease dated May 25, 1994 between the Registrant and Martin Selig
   10.6(1)      Restated Investors Rights Agreement dated March 16, 1995 between the Registrant and certain holders of the
                Registrant's securities
   10.7(1)      Agreement dated August 3, 1995 between the Registrant and Oki Semiconductor
   10.8(1)(4)   International Distributor Agreement (undated) between the Registrant and Schiller AG
   10.9(1)      Employee Agreement dated November 8, 1993 between the Registrant and Alan J. Levy
   10.10(1)(4)  International Distributor Agreement dated January 1996 between the Registrant and Nellcor Puritan-Bennett
                Europe B.V.
   10.11        Form of Change of Control Severance Agreement by and between the Registrant and certain individuals, together
                with a schedule identifying such individuals and setting forth the material details, if any, in which the
                document to which each such individual is a party differs from the foregoing document
   10.12        Lease dated June 10, 1997 between the Registrant and Martin Selig
   11.1         Computation of Net Loss Per Share
   27.1         Financial Data Schedule
</TABLE>
   ---------------------------
   (1) Incorporated by reference to the same numbered exhibit previously filed
       with the Company's Registration Statement on Form S-1 (No. 33-99908)
   (2) Incorporated by reference to Exhibit 1 filed with the Registrant's 
       registration statement on Form 8-A filed with the Commission on 
       December 10, 1996
   (3) Incorporated by reference to the Registrant's 1996 Form 10-K filed with
       the Commission on March 31, 1997
   (4) Confidential treatment granted with respect to a portion of this exhibit
   (5) Incorporated by reference to Exhibit 10.1 filed with the Registrant's 
       registration statement on Form S-8 filed with the Commission on 
       June 13, 1997
       
(b) Reports on Form 8-K
    None.

                                       19
<PAGE>
 
                                   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.


                                    HEARTSTREAM, INC.
                                    (Registrant)


Date     August 7, 1997             /s/ Gary Onn
    ------------------------         ---------------------------------
                                    Gary Onn
                                    Vice President, Finance and
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                       20
<PAGE>
 
                               HEARTSTREAM, INC.
                                        
                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C>          <S>
  3.1(1)     Restated Certificate of Incorporation, as in effect prior to initial public offering
  3.2(1)     Restated Certificate of Incorporation, as currently in effect
  3.3(1)     Bylaws
  3.4(3)     Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock
  4.1(1)     Specimen Common Stock Certificate
  4.2(2)     Preferred Share Rights Agreement, dated as of December 6, 1996 between the Registrant and ChaseMellon Shareholder
             Services, L.L.C.
 10.1(1)     Form of Indemnification Agreement between the Registrant and each of its directors and officers
 10.2(5)     1993 Employee and Consultant Stock Plan, as amended, and form of Stock Option Agreement thereunder, as amended
 10.4(1)     1995 Employee Stock Purchase Plan and forms of agreements thereunder
 10.5(1)     Lease dated May 25, 1994 between the Registrant and Martin Selig
 10.6(1)     Restated Investors Rights Agreement dated March 16, 1995 between the Registrant and certain holders of the 
             Registrant's securities
 10.7(1)     Agreement dated August 3, Registrant and Oki Semiconductor
 10.8(1)(4)  International Distributor Agreement (undated) between the Registrant and Schiller AG
 10.9(1)     Employee Agreement dated November 8, 1993 between the Registrant and Alan J. Levy
 10.10(1)(4) International Distributor Agreement dated January 1996 between the Registrant and Nellcor Puritan-Bennett
             Europe B.V.
 10.11       Form of Change of Control Severance Agreement by and between the Registrant and certain individuals, together 
             with a schedule identifying such individuals and setting forth the material details, if any, in which the 
             document to which each such individual is a party differs from the foregoing document
 10.12       Lease dated June 10, 1997 between the Registrant and Martin Selig
 11.1        Computation of Net Loss Per Share
 27.1        Financial Data Schedule
</TABLE> 
-------------------
(1) Incorporated by reference to the same numbered exhibit previously filed 
    the Company's Registration Statement on Form S-1 (No. 33-99908)
(2) Incorporated by reference to Exhibit 1 filed with the Registrant's
    registration statement on Form 8-A filed with the Commission on 
    December 10, 1996
(3) Incorporated by reference to the Registrants 1996 Form 10-K filed with 
    the Commission on March 31, 1997
(4) Confidential treatment granted with respect to a portion of this exhibit
(5) Incorporated by reference to Exhibit 10.1 filed with the Registrant's
    registration statement on Form S-8 filed with the Commission on 
    June 13, 1997

                                       21