<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 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 0-27540


                         ENDOVASCULAR TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in its Charter)

 
               DELAWARE                           94-3096794
       (State of Incorporation)       (I.R.S. Employer Identification No.)

                               1360 O'BRIEN DRIVE
                          MENLO PARK, CALIFORNIA 94025
                                  415-325-1600
     (Address, Zip Code and Telephone Number of Principal Executive Offices)



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 [ ]

The number of shares outstanding of the issuer's common stock as of August 6,
1997 was 8,538,050.


       This document contains 21 pages and the Exhibit Index is on Page 20


<PAGE>   2
                         ENDOVASCULAR TECHNOLOGIES, INC.


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I.      FINANCIAL INFORMATION                                                             PAGE
----------------------------------                                                             ----
<S>                                                                                            <C>

   Item 1.   Financial Statements

             Condensed Balance Sheets as of June 30, 1997 and
             December 31, 1996                                                                  3

             Condensed Statements of Operations for the Three and Six Month
             Periods Ended June 30, 1997 and June 30, 1996                                      4

             Condensed Statements of Cash Flows for the Six Month Periods Ended
             June 30, 1997 and June 30, 1996                                                    5

             Notes to Condensed Financial Statements                                            6

             Risk Factors                                                                       7


   Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                                         14



PART II.     OTHER INFORMATION
------------------------------

   Item 6.   Exhibits and Reports on Form 8-K                                                  18

   Signatures                                                                                  19

   Exhibit Index                                                                               20

   Exhibits                                                                                    21
</TABLE>


                                     Page 2
<PAGE>   3
                         ENDOVASCULAR TECHNOLOGIES, INC.


                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          June 30,         December 31,
                                                                            1997               1996
                                                                        ------------       ------------
<S>                                                                     <C>                <C>         
ASSETS                                                                   (unaudited)
Current Assets
        Cash and cash equivalents                                       $  1,045,888       $  2,530,792
        Securities available-for-sale                                      7,048,247         15,328,545
        Accounts receivable                                                  827,973            505,440
        Interest receivable                                                  210,917            269,329
        Inventory                                                            357,740                 --
        Prepaids and other                                                   573,745            306,837
        Notes receivable from employees                                      381,501             31,501
                                                                        ------------       ------------
                 Total current assets                                     10,446,011         18,972,444

Property and equipment, net                                                2,615,575          1,905,579

Other assets                                                                  72,861             74,361
                                                                        ------------       ------------
                 Total assets                                           $ 13,134,447       $ 20,952,384
                                                                        ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
        Accounts payable                                                     365,022            714,323
        Accrued and other liabilities                                      2,752,445          1,563,384
                                                                        ------------       ------------
                 Total current liabilities                                 3,117,467          2,277,707
                                                                        ------------       ------------

Stockholders' Equity

        Common stock, $0.00001 par value:

                 Authorized:  30,000,000 shares at June 30, 1997
                 and December 31, 1996, respectively; issued and
                 outstanding: 8,512,061 and 8,402,371 shares at
                 June 30, 1997 and December 31, 1996, respectively                85                 84

        Additional paid-in capital                                        56,894,166         56,298,754
        Deferred compensation                                                (68,280)           (81,934)
        Accumulated deficit                                              (46,808,991)       (37,542,227)
                                                                        ------------       ------------
                 Total stockholders' equity                               10,016,980         18,674,677
                                                                        ------------       ------------
                 Total liabilities and stockholders' equity             $ 13,134,447       $ 20,952,384
                                                                        ============       ============
</TABLE>


            See accompanying notes to condensed financial statements


                                     Page 3
<PAGE>   4
                         ENDOVASCULAR TECHNOLOGIES, INC.


                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                  Three Months Ended June 30,          Six Months Ended June 30,
                                                 -----------------------------       -----------------------------
                                                     1997              1996              1997              1996
                                                 -----------       -----------       -----------       -----------
<S>                                              <C>               <C>               <C>               <C>        

Net product sales                                $   844,180       $   252,500       $ 1,687,305       $   355,500
Cost of goods sold                                   782,461           315,047         1,558,283           432,087
                                                 -----------       -----------       -----------       -----------
     Gross margin                                     61,719           (62,547)          129,022           (76,587)

Operating costs and expenses
     Research and development                      3,673,318         2,828,651         7,323,534         5,287,303
     Selling, general and administrative           1,239,541           696,824         2,431,861         1,128,393
                                                 -----------       -----------       -----------       -----------
         Total operating costs and expenses        4,912,859         3,525,475         9,755,395         6,415,696

Loss from operations                              (4,851,140)       (3,588,022)       (9,626,373)       (6,492,283)

Interest income                                      152,569           362,085           359,609           600,402
                                                 -----------       -----------       -----------       -----------
Net loss                                         $(4,698,571)      $(3,225,937)      $(9,266,764)      $(5,891,881)
                                                 ===========       ===========       ===========       ===========
Net loss per share                               $     (0.55)      $     (0.38)      $     (1.09)      $     (0.73)
                                                 ===========       ===========       ===========       ===========
Shares used in computing net loss per share        8,495,503         8,465,573         8,466,979         8,052,827
</TABLE>


            See accompanying notes to condensed financial statements


                                     Page 4
<PAGE>   5
                         ENDOVASCULAR TECHNOLOGIES, INC.


                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        Six Months Ended June 30,
                                                                     -------------------------------
                                                                         1997               1996
                                                                     ------------       ------------
<S>                                                                  <C>                <C>          
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                             $ (9,266,764)      $ (5,891,881)
                                                                     ------------       ------------
Adjustments to reconcile net loss to net cash used in 
operating activities -
     Depreciation and amortization                                        271,810            145,196
     Amortization of deferred compensation                                 13,654             13,654
     Changes in current assets and liabilities -
        Accounts receivable                                              (322,533)          (242,500)
        Interest receivable                                                58,412           (164,052)
        Inventory                                                        (357,740)              --
        Prepaids and other                                               (266,908)           (95,165)
        Note receivable from employees                                   (350,000)              --
        Other assets                                                         --              (20,205)
        Accounts payable                                                 (349,301)           242,393
        Accrued and other liabilities                                   1,189,061            346,816
                                                                     ------------       ------------
           Total adjustments                                             (113,545)           226,137
                                                                     ------------       ------------
           Net cash used in operating activities                       (9,380,309)        (5,665,744)

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of securities available-for-sale                      (4,471,161)       (27,886,447)
        Sale/maturity of securities available-for-sale                 12,751,459         13,711,145
        Purchases of property and equipment                              (980,306)          (959,161)
                                                                     ------------       ------------
        Net cash provided by (used in) investing activities             7,299,992        (15,134,463)

CASH FLOWS FROM FINANCING ACTIVITIES:
        Repayment of capital lease obligations                               --              (15,131)
        Proceeds from exercise of stock options                           194,451             56,206
        Proceeds from employee stock purchase plan                        222,783               --
        Stock option vesting acceleration                                 178,179               --
        Proceeds from sale of common stock                                   --           24,000,000
        Stock issuance costs                                                 --           (2,405,312)
                                                                     ------------       ------------
        Net cash provided by (used in) financing activities               595,413         21,635,763
                                                                     ------------       ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (1,484,904)           835,556
CASH AND CASH EQUIVALENTS, beginning of period                          2,530,792          2,203,937
                                                                     ------------       ------------
CASH AND CASH EQUIVALENTS, end of period                             $  1,045,888       $  3,039,493
                                                                     ============       ============
</TABLE>


            See accompanying notes to condensed financial statements


                                     Page 5
<PAGE>   6
                         ENDOVASCULAR TECHNOLOGIES, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Interim Unaudited Financial Information

     The accompanying unaudited condensed financial statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange Commission. They do not include all of the information and
     footnotes required by generally accepted accounting principles for complete
     financial statements. In the opinion of management, all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     presentation have been included. Operating results for the three and six
     month periods ended June 30, 1997 are not necessarily indicative of the
     results that may be expected for the year ended December 31, 1997. The
     condensed financial statements should be read in conjunction with the
     Company's annual audited financial statements included in the Company's
     Form 10K for the year ended December 31, 1996.


     Revenue Recognition

     Revenue from product sales is related to the sale of the Company's EGS
     systems consisting of an endovascular prosthesis and delivery catheter. As
     the Company's products are in clinical trials, the Company recognizes
     revenue once the EGS system has been used in a surgical procedure with the
     exception of ancillary devices sold to its international distributors, for
     which revenue is recognized upon shipment. Costs of goods sold include
     costs attributable to the manufacture of the products.


     Net Loss Per Share

     Net loss per share is computed using the weighted average number of common
     shares outstanding. Common equivalent shares from stock options are
     excluded from the computation as their effect is anti-dilutive, except
     that, pursuant to the Commission's Staff Accounting Bulletins, common and
     common equivalents (stock options and preferred stock) issued during the
     12-month period prior to the initial public offering of the Company's
     common stock at prices below the initial public offering price of $12.00
     per share have been included in the calculation as if they were outstanding
     for all periods prior to the initial public offering (using the treasury
     stock method).

     In February 1997, the Financial Accounting Standards Board (FASB) issued
     Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
     Share, which simplifies the standards for computing earnings per share
     previously found in Accounting Principles Board Opinion ("APBO") No. 15.
     SFAS No. 128 replaces the presentation of primary earnings per share with a
     presentation of basic earnings per share, which excludes dilution. SFAS No.
     128 also requires dual presentation of basic and diluted earnings per share
     on the face of the income statement for all entities with complex capital
     structures and requires a reconciliation. Diluted earnings per share is
     computed similarly to fully diluted earnings per share pursuant to APBO No.
     15. SFAS No. 128 must be adopted for financial statements issued for
     periods ending after December 15, 1997, including interim periods; earlier
     application is not permitted. SFAS No. 128 requires restatement of all
     prior-period earnings per share data presented. For the three and six
     months ended June 30, 1997, basic and diluted loss per share would be
     equivalent to the loss per share presented in the accompanying condensed
     statement of operations.

2.   CREDIT AGREEMENT 

     In February 1997, the Company entered into a $30 million credit agreement.
     Borrowings under the agreement bear interest at 16.5% to 19%. Interest
     accruing during the first thirty months in which loans are outstanding is
     payable in full thirty months after the date the first loan is made.
     Interest accruing thereafter is due quarterly. Principal payments are due
     in full on March 31, 2002. Balances owed under the agreement may be prepaid
     subject to a prepayment fee, which is initially set at 5% of the prepayment
     amount and is reduced on each anniversary date of the agreement by 1%.
     Further, all principal outstanding will be due upon the occurrence of
     certain asset sales and issuances of equity securities, and will be due at
     the lender's discretion upon a change in control of the Company. Among
     other requirements, the agreement prohibits the Company from paying
     dividends and incurring additional indebtedness.

     There are no balances outstanding under this agreement.


                                     Page 6
<PAGE>   7
3.   RISK FACTORS

     Early Stage of Clinical Trials; No Assurance of Safety and Efficacy

     The Company's EGS systems for endovascular abdominal aortic aneurysm (AAA)
     repair are at an early stage of clinical testing. There can be no assurance
     that the Company's products will prove to be safe and effective in clinical
     trials or will ultimately be cleared for marketing by United States or
     foreign regulatory authorities. The Company does not expect to submit a PMA
     for any of its EGS systems until 1998, and there can be no assurance that
     the Company will ever submit a PMA or that, if submitted, such PMA will be
     approved by the FDA. If the Tube, Bifurcated or Aortoiliac EGS systems do
     not prove to be safe and effective in clinical trials or if the Company is
     otherwise unable to commercialize either system successfully, the Company's
     business, financial condition and results of operations will be materially
     adversely effected and cessation of the Company's business could occur.

     During the course of its clinical trials, the Company identifies technical
     difficulties and areas of improvement for its products. The clinical trials
     may identify significant technical or other obstacles to be overcome prior
     to obtaining necessary regulatory or reimbursement approvals. For example,
     the Company continues to observe blood flow outside the implant ("Perigraft
     Flow") in patients treated with the Tube and Bifurcated EGS systems. The
     clinical significance of Perigraft Flow is unknown. There can be no
     assurance that Perigraft Flow or other difficulties will not have a
     material adverse effect on the safety and efficacy of the Company's EGS
     systems or any follow-on devices and thereby prevent the Company from
     obtaining PMA approval from the FDA.


     Attachment System Fractures; Suspension of Clinical Trials January 1995

     In January 1995, the Company discovered fractures in the attachment system
     component of the Tube EndoGraft prosthesis during routine follow-up tests.
     Based on this discovery, the Company suspended its clinical trials
     worldwide. As of August 6, 1997 a total of 46 patients, representing
     approximately 51% of 91 patients, implanted prior to February 1995, with
     the Tube EndoGraft prosthesis in place for more than six weeks, have
     experienced attachment system fractures. In eight patients with fractures,
     the Tube EndoGraft prosthesis was removed and the AAA was treated by open
     surgery. Three patients with fractures have died for reasons unrelated to
     the attachment system fractures. The remaining patients are closely
     monitored by their physicians and the Company for fractures or the onset of
     adverse clinical consequences. The Company expects additional fractures to
     occur in these attachment systems. There can be no assurance that
     additional adverse clinical consequences will not occur in the future,
     which could result in the suspension of clinical trials or otherwise have a
     material adverse effect on the Company's business, financial condition and
     results of operations.

     Following suspension of clinical trials in January 1995, the Company
     determined that the fractures were caused by metal fatigue resulting from
     higher than anticipated forces acting on the attachment systems. As a
     result, the Company has implemented a number of significant modifications
     to the attachment systems and subjected the redesigned attachment systems
     to accelerated fatigue testing. There can be no assurance, however, that
     the accelerated fatigue testing accurately simulates the actual forces
     present in the human body. In addition, there can be no assurance that
     fractures will not occur in the redesigned attachment systems, which may
     not be apparent for a substantial period of time, or that the Company will
     not experience additional problems with the redesigned attachment systems.
     Any future attachment system fractures that might occur could result in
     another suspension or termination of clinical trials, which would have a
     material adverse effect on the Company's business, financial condition and
     results of operations.


     Limited Operating History; History of Losses; Substantial Additional
     Losses; Fluctuations in Operating Results

     The Company has a limited history of operations. Since its inception in
     June 1989, the Company has been primarily engaged in research and
     development of the EGS systems. The Company has experienced significant
     operating losses since inception, and as of June 30, 1997, the Company's
     accumulated deficit was approximately $46.8 million. The Company will incur
     substantial additional losses until it can achieve significant commercial
     sales of its EGS systems which are dependent on a number of factors,
     including receipt of marketing approval. There can be no assurance that the
     EGS systems or any other products of the Company will be approved, can be
     successfully commercialized or that the Company will achieve significant
     revenues from either international or domestic sales of such products. In
     addition, there can be no assurance that the Company will achieve or
     sustain profitability in the future. Failure to achieve significant
     revenues or profitability would have a material adverse effect on the
     Company's business, financial condition and results of operations.
     Moreover, results of operations have varied and are expected to fluctuate
     significantly from quarter to quarter depending upon numerous factors,

                                     Page 7
<PAGE>   8
     including the results of clinical trials, the introduction and market
     acceptance of products by the Company or competitors, international sales,
     the results of regulatory and reimbursement actions, the timing of orders
     by distributors, the expenditures incurred in the research and development
     of new products, competitive pricing and the expansion of manufacturing
     capacity. See "Management's Discussion and Analysis of Financial Condition
     and Results of Operations."


     Government Regulation; Significant Time Before Submission of any PMA

     The Company's EGS systems are subject to extensive regulation by the FDA
     and most foreign governments. The Company does not anticipate filing a PMA
     for any of the EGS systems until 1998 and does not anticipate receiving
     approval for at least one or two years after a PMA is accepted for filing,
     if at all. There can be no assurance as to when, or if, the Company will
     complete clinical trials of any of its EGS systems or that data from such
     trials, if completed, will be adequate to support approval of a PMA. See
     "-Early Stage of Clinical Trials; No Assurance of Safety and Efficacy" and
     "-Attachment System Fractures; Suspension of Clinical Trials." Furthermore,
     there can be no assurance that the Company will be able to obtain PMA
     approval on a timely basis, or at all, and delays in the receipt of or
     failure to receive such approvals would have a material adverse effect on
     the Company's business, financial condition and results of operations and
     could result in cessation of the Company's business.

     Sales of EGS systems outside of the United States are subject to regulatory
     requirements that vary widely from country to country. 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. In
     addition, there may be foreign regulatory barriers other than premarket
     approval, and the FDA must approve exports of devices that require a PMA
     but are not yet approved domestically. Countries in which the Company
     currently markets or intends to market EGS systems may adopt regulations in
     the future that could prevent the Company from marketing its EGS systems in
     those countries. In addition, the Company may be required to spend
     significant amounts of capital in order to respond to requests for
     additional information by the FDA or foreign regulatory bodies or may
     otherwise be required to spend significant amounts of capital in order to
     obtain FDA and foreign regulatory approvals. Any such events could
     substantially delay or preclude the Company from marketing its EGS systems
     in the United States or foreign countries.

     Any devices manufactured or distributed by the Company pursuant to FDA
     clearances or approvals are subject to pervasive and continuing regulation
     by the FDA and certain state agencies. Foreign and domestic regulatory
     approvals, if granted, may include significant limitations on the indicated
     uses for which the product may be marketed. In addition, the FDA and
     certain foreign regulatory authorities impose numerous other requirements
     with which medical device manufacturers must comply. Product approvals
     could be withdrawn for failure to comply with regulatory standards or the
     occurrence of unforeseen problems following initial marketing. The Company
     is also be required to adhere to applicable FDA regulations setting forth
     current Quality Systems Regulations ("QSR") requirements, which include
     testing, control and documentation requirements. Ongoing compliance with
     QSR and other applicable regulatory requirements are monitored through
     periodic inspections by state and federal agencies, including the FDA, and
     by comparable agencies in other countries. Changes in existing regulations
     or adoption of new regulations or policies could prevent the Company from
     obtaining, or affect the timing of, future regulatory approvals or
     clearances.


     Substantial Dependence on Limited Product Line

     The Company anticipates that for the foreseeable future it will be
     substantially dependent on the successful development and commercialization
     of endovascular products for AAA repair. Failure of the Company to
     successfully develop and commercialize these products would have a material
     adverse effect on the Company's business, financial condition and results
     of operations.


     No Assurance of Market Acceptance

     There can be no assurance that the Tube, Bifurcated or Aortoiliac EGS
     systems will gain any significant degree of market acceptance among
     physicians, patients or health care payors, even if necessary regulatory
     and reimbursement approvals are obtained. The Company believes that
     recommendations by physicians and health care payors will be essential for
     market acceptance of the EGS systems, and there can be no assurance that
     any such recommendations will be obtained. Physicians will not recommend
     the Tube, Bifurcated 


                                     Page 8
<PAGE>   9
     or Aortoiliac EGS systems unless they conclude, based on clinical data and
     other factors, that the EGS systems represent an acceptable alternative to
     open AAA surgical repair. In particular, physicians may elect not to
     recommend the Tube, Bifurcated or Aortoiliac EGS procedure until such time,
     if ever, as successful resolution of the attachment fractures is
     established and the clinical significance of unresolved Perigraft Flow is
     better understood. Widespread use of the Company's EGS systems would
     require the training of numerous physicians, and the time required to
     complete such training could result in a delay or dampening of market
     acceptance. Even if the safety and efficacy of the Company's EGS systems is
     established, physicians may elect not to use them for a number of reasons
     including unfavorable reimbursement from health care payors. Failure of the
     Company's products to achieve any significant market acceptance would have
     a material adverse effect on the Company's business, financial condition
     and results of operations.


     Risk of Need for Substantial Additional Capital

     The Company's development efforts have consumed substantial capital to
     date. The Company's future liquidity and capital requirements will depend
     upon numerous factors, including: the progress of clinical trials; the
     timing and costs of filing future IDEs, PMAs and PMA supplements; the
     timing and costs required to receive both domestic and international
     governmental approvals; the extent to which the Company's products gain
     market acceptance; the timing and costs of product introductions; the
     extent of the Company's ongoing research and development programs; and the
     costs of developing marketing and distribution capabilities, if regulatory
     approvals are received. In February 1997, the Company entered into a credit
     agreement pursuant to which the Company may borrow up to $30,000,000 (the
     "Funds"), subject to the terms and conditions of the credit agreement. The
     Company believes that the amount of Funds available thereunder, together
     with existing cash, cash equivalents and short-term investments will allow
     the Company to meet capital requirements for at least the next 12 months.
     However, the credit agreement requires the Company to satisfy certain
     conditions, the failure of which would prevent the Company from drawing the
     Funds. Furthermore, any default by the Company under the credit agreement
     would result in the acceleration of the Company's obligation to repay any
     drawn Funds. In the event that the Company is unable to borrow Funds under
     the credit agreement or repay Funds previously borrowed on an accelerated
     basis, the Company's business, financial condition and results of
     operations could be materially adversely affected. Furthermore, the Company
     may be required to seek additional debt or equity financing. Issuance of
     additional equity securities could result in substantial dilution to
     stockholders. There can be no assurance that such financing will be
     available on terms acceptable to the Company, or at all. The Company's
     inability to fund its capital requirements would have a material adverse
     effect on the Company's business, financial condition and results of
     operations. See "Management's Discussion and Analysis of Financial
     Condition and Results of Operations."


     Uncertainty Regarding Patents and Protection of Proprietary Technology

     The Company holds a number of issued United States and foreign patents and
     has filed a number of United States and counterpart patent applications in
     other countries. There can be no assurance that the Company's United States
     and foreign issued patents or pending applications will offer any
     protection or that they will not be challenged, invalidated or
     circumvented. In addition, there can be no assurance that competitors will
     not obtain patents that will prevent, limit or interfere with the Company's
     ability to make, use or sell its products either in the United States or in
     international markets

     The Company typically enters into confidentiality and assignment agreements
     in connection with employment, consulting or advisory relationships. There
     can be no assurance, however, that these agreements will not be breached or
     that the Company will have adequate remedies for any breach. Furthermore,
     no assurance can be given that competitors will not independently develop
     substantially equivalent proprietary information and techniques or
     otherwise gain access to the Company's proprietary technology, or that the
     Company can meaningfully protect its rights in unpatented proprietary
     technology.

     Patent applications in the United States are maintained in secrecy until
     patents issue, and patent applications in foreign countries are maintained
     in secrecy for a period after filing. In addition, patents issued and
     patent applications filed relating to medical devices are voluminous.
     Accordingly, there can be no assurance that current and potential
     competitors or other third parties have not or will not file applications
     for, or have not or will not receive, patents and will not obtain
     additional proprietary rights relating to materials or processes used or
     proposed to be used by the Company.

     The Company has received letters from two medical device companies, Cook,
     Inc. ("Cook") and InnerDyne Medical, Inc. ("InnerDyne"). The Cook letter,
     dated July 9, 1993, suggested potential infringement of a Cook-owned patent
     by future commercial sale of the Company's attachment system component of
     the EndoGraft prosthesis. The Company has reviewed the Cook matter and the
     Company believes that no such infringement exists. 


                                     Page 9
<PAGE>   10
     The InnerDyne letter, dated November 2, 1994, proposed that the Company
     discuss licensing an InnerDyne-owned patent that InnerDyne believed to be
     pertinent to the Company's EVT Expandable Sheath. The Company has reviewed
     the InnerDyne matter and the Company believes that it is not necessary to
     enter into a licensing arrangement with InnerDyne. There can be no
     assurance, however, that the Company's products do not infringe upon the
     patent rights or other intellectual property rights of Cook, InnerDyne or
     other companies, that the Company will not be required to seek licenses
     from these or other companies or that these or other companies will not
     bring claims of infringement against the Company. Although patent and
     intellectual property disputes in the medical device industry have
     sometimes been settled through licensing or similar arrangements, costs
     associated with such arrangements may be substantial and could include
     ongoing royalties. There can be no assurance that necessary licenses would
     be available to the Company on satisfactory terms or at all. Furthermore,
     any litigation or administrative proceeding could result in substantial
     costs to the Company and distraction of the Company's management, even if
     the Company ultimately prevails in such litigation. An adverse ruling in
     any litigation or administrative proceeding could have a material adverse
     effect on the Company's business, financial condition and results of
     operations.

     If any relevant claims of third-party patents are upheld as valid and
     enforceable, the Company could be prevented from practicing the subject
     matter claimed in such patents, or would be required to obtain licenses or
     to redesign its products or processes to avoid infringement. There can be
     no assurance that such licenses would be available at all or on terms
     acceptable to the Company or that the Company could redesign its products
     or processes to avoid infringement. Litigation may be necessary to defend
     against claims of infringement, to enforce patents issued to the Company or
     to protect trade secrets and could result in substantial cost to, and
     diversion of effort by, the Company.


     Volatility of Stock Price

     The market price for the Company's Common Stock has been subject to
     significant fluctuations and may be volatile in the future. The Company
     believes that factors such as announcements of developments related to the
     Company's business, announcements of clinical results, regulatory
     approvals, technological innovations or new products or enhancements by the
     Company or its competitors, developments in the Company's relationships
     with its customers, partners, distributors, and suppliers, changes in
     analysts' estimates, regulatory developments, political and economic
     instability, fluctuations in results of operations and general conditions
     in the Company's market or the markets served by the Company's customers or
     the economy could cause the price of the Company's Common Stock to
     fluctuate, perhaps substantially. The Company may be particularly
     vulnerable to fluctuations in the market price of its Common Stock given
     the substantial amount of time before it may achieve significant revenues
     from commercial sales of its products. In addition, in recent years the
     stock market in general, and the market for shares of small capitalization
     health care stocks in particular, have experienced extreme price
     fluctuations, which have often been unrelated to the operating performance
     of affected companies. Such fluctuations could adversely affect the market
     price of the Company's Common Stock. There can be no assurance that the
     market price of the Company's Common Stock will not continue to experience
     significant fluctuations in the future, including fluctuations that are
     unrelated to the Company's performance. Further, it is likely that in some
     future quarter the Company's net sales or operating results will be below
     the expectations of public market analysts and investors. In such event,
     the price of the Company's Common Stock would likely be materially
     adversely affected.


     Risks Associated with International Sales

     International sales are expected to account for a substantial portion of
     the Company's revenues in the foreseeable future. A number of risks are
     inherent in international transactions. International sales may be limited
     or disrupted by the imposition of government controls, export license
     requirements, economic or political instability, trade restrictions,
     changes in tariffs or difficulties in staffing and management.
     Additionally, although the Company's sales are denominated in U.S. dollars,
     the Company's business, financial condition and results of operations may
     be adversely affected by fluctuations in currency exchange rates as well as
     increases in duty rates and difficulties in obtaining export licenses. The
     financial condition, expertise and performance of the Company's
     international distributors and any future international distributors could
     affect sales of the Company's products internationally and could have a
     material adverse effect on the Company's business, financial condition and
     results of operations.


     Dependence on Key Suppliers; Limited Manufacturing Experience

     The Company uses or relies on sole source suppliers for certain components
     and services used to manufacture its EGS systems. The Company utilizes
     materials supplied by third parties, including raw material manufactured by
     Dow Chemical Co. ("Dow Chemical") and DuPont, in its products. In recent
     years, in the wake of litigation 


                                    Page 10
<PAGE>   11
     surrounding silicone breast implants, both Dow Chemical and DuPont have
     ceased supplying chemical raw materials for use in implantable medical
     devices, including DuPont raw material used to produce the graft material
     utilized in the Company's EndoGraft prostheses. There can be no assurance
     that use of such graft material by the Company will not be restricted or
     that the Company will be able to obtain additional quantities of such graft
     material in the future. Moreover, the continued use by the Company of graft
     material based on chemical raw materials manufactured by third parties
     could subject the Company to liability exposure. The Company believes that
     the cessation of the supply of components and materials for implantable
     medical devices may be addressed through legislative action. There can be
     no assurance that such legislative action will occur on a timely basis, if
     at all. The establishment of additional or replacement suppliers for
     certain of these components of raw materials cannot be accomplished
     quickly, particularly because of the time and effort required to obtain FDA
     approval to use materials from alternative suppliers. Although the Company
     routinely attempts to identify primary and alternative vendors, the
     qualification of additional or replacement vendors for certain components
     or services is a lengthy process. Any significant supply interruption would
     have a material adverse effect on the Company's ability to manufacture its
     products and, therefore, a material adverse effect on its business,
     financial condition and results of operations.

     The Company manufactures its products at its Menlo Park, California
     facility. To date, the Company's manufacturing activities have consisted
     primarily of producing limited quantities of products for use in clinical
     trials and controlled market release. The manufacture of the Company's
     products is a complex and costly operation involving a number of separate
     processes and components. Certain manufacturing processes of the EGS
     systems are labor intensive and achieving significant cost reductions will
     depend in part upon reducing the time required to complete these processes.
     There can be no assurance that the Company will be able to achieve cost
     reductions in the manufacture of its products. The Company does not have
     experience in manufacturing its products in the commercial quantities that
     might be required if the Company receives PMA approval. Manufacturers often
     encounter difficulties in scaling up manufacturing of new products,
     including problems involving product yields, quality control and assurance,
     component and service availability, adequacy of control policies and
     procedures and lack of qualified personnel. The Company has and will
     continue to consider as appropriate the internal manufacture of components
     currently provided by third parties, as well as the implementation of new
     production processes. There can be no assurance that manufacturing yields
     or costs will not be adversely affected by the transition to in-house
     production or to new production processes when and if such efforts are
     undertaken, and thereby materially and adversely affect the Company's
     business, financial condition and results of operations.


     Limitations on Third-Party Reimbursement

     In the United States, the Company's products will be purchased primarily by
     medical institutions which then bill various third-party payors, such as
     Medicare, Medicaid and other government programs and private insurance
     plans, for the health care services provided to their patients. Medicare
     traditionally has considered items or services involving devices that have
     not been approved or cleared for marketing by the FDA to be precluded from
     Medicare coverage. There can be no assurance, however, that any of the EGS
     systems and related services will be covered when they are used in clinical
     trials and, if covered, whether the payment amounts for their use will be
     considered to be adequate by hospitals and physicians. If the devices are
     not covered or the payments are considered to be inadequate, the Company
     may need to bear additional costs to sponsor such trials, and such costs
     could have a material adverse effect on the Company's business, financial
     condition and results of operations. Even if a device has received approval
     or clearance for marketing by the FDA, there can be no assurance that
     Medicare will cover the device and related services. Furthermore, Medicare
     may place certain restrictions on the circumstances in which coverage will
     be available. Limited or no coverage of the Company's products would have a
     material adverse effect on the Company's business, financial condition and
     results of operations.

     Acute care hospitals are now generally reimbursed by Medicare for inpatient
     operating costs under a prospective payment system ("PPS"). Under PPS,
     acute care hospitals receive a prospectively determined payment amount for
     each covered inpatient based upon the Diagnosis-Related Group ("DRG") to
     which the patient is assigned, regardless of the actual cost of the
     services provided. The Health Care Financing Administration ("HCFA") has
     not made any decision concerning which DRG will be generally assigned to
     patients who undergo AAA diagnosis and endovascular repair procedures in
     which the Company's products are used, and there can be no assurance that
     the DRG to which such patients will be assigned will result in Medicare
     payment levels that are considered by hospitals to be adequate. Because the
     DRG system is also used by other government and private payors, HCFA's
     decision concerning the DRG assignment for these patients also may affect
     the amount of payment made by other payors.

     Physician services are reimbursed by Medicare based on a physician fee
     schedule which has not been determined for AAA diagnosis and endovascular
     repair procedures in which the Company's products are used. There can be no


                                    Page 11
<PAGE>   12
     assurance that the physicians fee schedule for endovascular AAA procedures
     using the Company's products will result in Medicare payment levels that
     physicians consider to be adequate. In addition, Medicare payment levels
     are used by many other third-party payors in addition to Medicare. Failure
     by hospitals and physicians to receive what they consider to be adequate
     reimbursement for AAA diagnosis and repair procedures in which the
     Company's products are used would have a material adverse effect on the
     Company's business, financial condition and results of operations. See
     "Business-Government Regulation."


     Competition

     The Company expects that significant competition in the endovascular
     grafting market will develop. There are many large companies, with
     significantly greater financial, manufacturing, marketing, distribution and
     technical resources and experience than the Company, focusing on the
     development of endovascular technology. Many of these companies have
     vascular stents, as well as vascular graft and catheter technologies that
     may be applicable to endovascular repair. The Company may compete against a
     number of these companies including: Boston Scientific Corporation;
     Medtronic Corporation; Pfizer Corporation; Johnson & Johnson; C.R. Bard,
     Inc.; and United States Surgical Corporation. Several of these companies
     have designed and developed products that compete directly with the
     Company's products. There can be no assurance that one or more of these or
     other companies will not develop technologies that are more effective or
     less costly than the Company's products, or that would otherwise render the
     Company's products and technology non-competitive or obsolete. Such
     competition could have a material, adverse effect on the Company's
     business, financial condition and results of operations. In addition, the
     Company's products could be rendered obsolete as a result of future
     innovations in AAA surgical techniques, which could have a material adverse
     effect on the Company's business, financial condition and results of
     operations.

     Any product developed by the Company that gains regulatory approval will
     have to compete for market acceptance and market share. An important factor
     in such competition may be the timing of market introduction of competitive
     products. Accordingly, the relative speeds with which the Company can
     develop products, complete clinical testing and regulatory approval
     processes, gain reimbursement acceptance and supply commercial quantities
     of the product to the market are expected to be important competitive
     factors. In addition, the Company believes that the primary competitive
     factors in the market for endovascular grafting products are safety,
     long-term efficacy, ease of delivery, reliability, innovation and price.
     The Company also believes that physician relationships and customer support
     are important competitive factors. There can be no assurance that the
     Company's competitive position will be maintained or that the Company will
     be first to market endovascular products for the treatment of AAA's in the
     United States.


     Risk of Technological Obsolescence

     The medical device industry is characterized by rapid and significant
     technological change. There can be no assurance that third parties will not
     succeed in developing or marketing technologies and products that are more
     effective than those developed or marketed by the Company or that would
     render the Company's technology and products obsolete or noncompetitive.
     Additionally, new less invasive surgical procedures and medications could
     be developed that replace or reduce the importance of current procedures
     that use the Company's products. Accordingly, the Company's success will
     depend in part on its ability to respond quickly to medical and
     technological changes through the development and introduction of new
     products. Product development involves a high degree of risk and there can
     be no assurance that the Company's new product development efforts will
     result in any commercially successful products.


     Risk of Federal Reform of Health Care

     There are widespread efforts to control health care costs in the United
     States on the federal, state and local levels. For example, the U.S.
     Congress is currently considering various legislative proposals to reform
     the Medicare and Medicaid programs. Current proposals call for reductions
     in the annual updates for hospital PPS rates and physician reimbursement
     rates, reductions in the amount of added payments made to teaching
     hospitals and hospitals that serve a disproportionate share of low-income
     persons, increased incentives and opportunities for Medicare beneficiaries
     to obtain their benefits through managed care plans, and the establishment
     of a "block grant" program that would give states greater discretion in
     designing and administering state Medicaid programs. If enacted into law,
     any of these proposals could affect the amount of Medicare and Medicaid
     payment that is made to hospitals and physicians and, in turn, demand for
     the Company's products. Lower demand for the Company's products resulting
     from federal healthcare reform could have a material adverse effect on the
     Company's business, financial condition and results of operations.


                                    Page 12
<PAGE>   13
     Lack of Sales and Marketing Experience; Dependence on International
     Distributors

     The Company currently has a small sales and marketing function and has no
     experience in marketing and selling its EGS systems. There can be no
     assurance that the Company will be able to recruit and train adequate sales
     and marketing personnel. The Company plans to rely on distributors for
     substantially all of its international sales. Any foreign sales by the
     Company may be subject to certain risks, including exchange rate
     fluctuations, international monetary conditions, tariffs, import licenses,
     trade policies, domestic and foreign tax policies and foreign medical
     regulations. The loss of major international distributors could have a
     material adverse effect on the Company's business, financial condition and
     results of operations.


     Product Liability and Availability of Insurance

     The clinical use and sale of the Company's products involve significant
     risk of product liability claims. There can be no assurance that the
     coverage limits of the Company's insurance policies will be adequate.
     Product liability insurance is expensive and in the future may not be
     available to the Company on acceptable terms or at all. While there have
     been no product liability claims to date, there can be no assurance that a
     product liability claim will not be brought against the Company either for
     injuries occurring in the past or in the future, including, but not limited
     to, injuries due to fractures in the attachment system of the Tube
     EndoGraft prosthesis. A successful claim brought against the Company in
     excess of its insurance coverage could have a material adverse effect on
     the Company's business, financial condition and results of operations. See
     "-Attachment System Fractures: Suspension of Clinical Trials in 1995."


     Dependence on Key Personnel

     The Company's future business and operating results depend in significant
     part upon the continued contributions of its key technical personnel and
     senior management, many of whom would be difficult to replace. None of such
     persons is subject to a noncompete agreement. The Company's business and
     future operating results also depend in significant part upon its ability
     to attract and retain qualified management, manufacturing, technical,
     marketing and sales and support personnel for its operations. Competition
     for such personnel is intense, and there can be no assurance that the
     Company will be successful in attracting or retaining such personnel. The
     loss of key employees, the failure of any key employee to perform or the
     Company's inability to attract and retain skilled employees, as needed,
     could materially adversely affect the Company's business, financial
     condition and results of operations.


     Control by Officers, Directors and Principal Stockholders

     The Company's officers, directors and principal stockholders beneficially
     own a significant portion of the Company's Common Stock (assuming exercise
     of immediately exercisable options held by such directors and officers). As
     a result, such persons may have the ability effectively to control the
     Company and direct its affairs and business. Such concentration of
     ownership may also have the effect of delaying, deferring or preventing a
     change in control of the Company.


     Anti-takeover Effects of Certain Charter Provisions, Delaware Law and
     Rights Plan

     Under the Company's Certificate of Incorporation, the Board of Directors
     has the power to authorize the issuance of up to 5,000,000 shares of
     Preferred Stock and to determine the price, rights, preferences, privileges
     and restrictions, including voting rights, of those shares without further
     vote or action by the stockholders. The rights of the holders of Common
     Stock will be subject to, and may be adversely affected by, the rights of
     the holders of any Preferred Stock that may be issued in the future. The
     issuance of Preferred Stock, while providing desirable flexibility in
     connection with possible acquisitions and other corporate purposes, may
     have the effect of delaying, deferring or preventing a change in control of
     the Company, may discourage bids for the Common Stock at a premium over the
     market price of the Common Stock and may adversely affect the market price
     of and the voting or other rights of the holders of the Common Stock. The
     Company has no present plans to issue shares of Preferred Stock. In
     addition, the Company's Certificate of Incorporation provides for a
     classified Board of Directors such that approximately only one-third of the
     members of the Board are elected at each annual meeting of stockholders.
     Classified Boards may have the effect of delaying, deferring or
     discouraging changes in control of the Company. Further, certain provisions
     of the Company's Bylaws and of Delaware law could discourage, delay or
     prevent a merger, tender offer or proxy contest involving the Company.
     Furthermore, the Company has adopted a stockholder rights plan that, in
     conjunction with certain provisions of the Company's charter documents and
     Delaware law, could delay or make more difficult a merger, tender offer, or
     proxy contest involving the Company.


                                    Page 13
<PAGE>   14
     Absence of Dividends

     The Company has never paid cash dividends and does not anticipate paying
     cash dividends on the Common Stock in the foreseeable future. In addition,
     the Company entered into a credit agreement in February 1997, pursuant to
     which the Company the Company has agreed not to make or declare any
     dividends on the Common Stock for so long as it is indebted under such
     credit agreement. See "Management's Discussion and Analysis of Financial
     Condition and Results of Operations - Liquidity and Capital Resources."


                                    Page 14
<PAGE>   15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This report on Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors".

OVERVIEW

Since its inception in June 1989, the Company has been engaged in the research
and development of its EGS systems and related technology for the endovascular
repair of abdominal aortic aneurysms. To date, the Company has generated limited
revenues and has been unprofitable since inception. The Company does not expect
to begin generating significant revenues from sales of its products until it
receives U.S. marketing approval and market launch, and will continue to incur
substantial losses for the next several years. Furthermore, the Company expects
its expenses in all categories to increase as its clinical trials and other
business activities expand.

The research, manufacture, sale and distribution of medical devices such as the
Company's EGS systems are subject to numerous regulations imposed by
governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a PMA application is required before any EGS system can be
marketed in the United States. Securing FDA approvals and clearances will
require submission to the FDA of extensive clinical data and technical
information. Many foreign governments and the European Union also have a review
process for medical devices.

The Company commenced U.S. clinical trials of its original Tube EGS system in
February 1993 and its Bifurcated EGS system in September 1994. Following
suspension of all clinical trials in January 1995 due to attachment system
fractures, and after receiving FDA clearance to reinitiate clinical trials, the
Company re-initiated Phase II clinical trials of the Tube EGS system in November
1995 and reached its Phase II target enrollment in January 1997. The Company
re-initiated Phase I clinical trials of the Bifurcated EGS system in December
1995. In June 1996, the Phase I clinical trial of the Bifurcated EGS system was
completed, and the Phase II clinical trial of that device was initiated in
August 1997 and reached its Phase II target enrollment in April 1997. Patient
enrollment in each of these Phase II trials is continuing. Additional clinical
testing of the Tube and Bifurcated EGS systems is required and the Company does
not believe it will be able to complete clinical trials of, obtain regulatory
approval for, and begin commercial sales of its EGS systems in the United States
before mid-1999, if ever.

In October 1996, the Company received approval from the FDA to begin Phase II
clinical trials of the Aortoiliac EGS system, bypassing the Phase I trial. The
Aortoiliac EGS system utilizes an endovascular prosthesis that is a hybrid
between the Company's Tube EndoGraft and Bifurcated EndoGraft. The device is
designed to address aneurysms in which one iliac artery is unsuitable for
endovascular attachment of an implant.

In June 1995, the Company became ISO 9001/EN 46001 certified and in May 1997
received CE Mark approval from an independent Dutch Notified Body for Medical
Devices to market its products throughout the European Community. The Company
anticipates that a substantial portion of its revenues from product sales over
the next several years will be derived from international sales through its
distributor network. Any such international sales will be subject to a number of
risks, including exchange rate fluctuations, international monetary conditions,
tariffs, import licenses, trade policies, domestic and foreign tax policies and
foreign medical regulations.

There can be no assurance that the Company's research and development efforts
will be successfully completed. Given that the Company is in clinical testing,
there can be no assurance that the Company's EGS systems will be shown to be
safe and effective. Accordingly, the Company is unable to predict the likelihood
that its products will be approved for marketing by the FDA or any other foreign
government agency, and there can be no assurance that the Company will ever
achieve either significant revenues from sales of its EGS systems or profitable
operations.

Results of operations will fluctuate significantly from quarter to quarter and
will depend upon, among other factors: actions relating to foreign and domestic
regulatory and reimbursement matters; the extent to which the Company's products
gain market acceptance; the rate at which the Company establishes its
international distributor network; the progress of clinical trials; and
introduction of competing products or alternative treatments for AAA. See "Risk
Factors - Limited Operating History; History of Losses; Substantial Additional
Losses; Fluctuations in Operating Results."


                                    Page 15
<PAGE>   16
RESULTS OF OPERATIONS

Three and Six Month Periods Ended June 30, 1997 and June 30, 1996

In 1996, the Company began recognizing revenue on sales of its products used in
clinical trials. During the three month period ended June 30, 1997, the Company
recognized approximately $844,000 in sales, 43% of which were international
sales. For the same period in 1996, the Company recognized $252,500 in sales,
35% of which were international sales.

During the six month period ended June 30, 1997, the Company recognized
approximately $1,687,000 in sales, 37% of which were international sales. For
the same period in 1996, the Company recognized $355,500 in sales, 26% of which
were international sales. The international sales price to European distributors
may to increase due to receipt of CE Mark approval. Currently prices range from
approximately 55% to 60% of the U.S. price. Revenue, in clinical trials, is
recognized only upon successful implantation of an EndoGraft prosthesis.

Gross margin for the three month period ended June 30, 1997 was approximately
$62,000, or 7% of product sales. Negative gross margin for the three month
period ended June 30, 1996 was approximately $63,000, or 25% of product sales.
Gross margin for the six month period ended June 30, 1997 was approximately
$129,000, or 7% of product sales. Negative gross margin for the six month period
ended June 30, 1996 was approximately $77,000, or 22% of product sales. A
positive gross margin was reported for the first six months of 1997 due to
higher sales volume. Higher volume allows fixed costs to be spread over a
greater number of units, thereby decreasing the cost per unit. The negative
gross margin reported in 1996 reflected the Company's early stage of
manufacturing.

Research and development expenses include research, development, clinical and
regulatory expenses and certain manufacturing expenses. Research and development
for the three month period ended June 30, 1997 increased to approximately
$3,673,000 from approximately $2,829,000 for the comparable three month period
in 1996. The increase in spending was due primarily to higher clinical trial
costs, which is directly related to the increased sales volume in the U.S. The
balance of the increased spending is due primarily to personnel costs associated
with headcount increases. These same factors primarily account for the increase
in the six month period ended June 30, 1997 to approximately $7,324,000 from
approximately $5,287,000 in the comparable six month period in 1996. The Company
believes that research and development expenses will continue to increase in the
future due to clinical trial expenses and continuing research spending and
regulatory requirements.

Selling, general and administrative expenses increased to approximately
$1,240,000 during the three month period ended June 30, 1997 from approximately
$697,000 for the comparable three month period in 1996. The 1997 period includes
the costs associated with the Company's European operations. Increases in
personnel account for the balance of the increased spending. For the six month
period ended June 30, 1997, selling, general and administrative expenses
increased to approximately $2,432,000 from approximately $1,128,000. The
increase in spending was due primarily to the establishment of a sales and
marketing function during the second quarter of 1996 and includes the costs
associated with the Company's European operations. Increases in personnel
account for the balance of the increased spending. The Company anticipates
continued increases in administrative expenses due to the increased level of
business activities.

The net loss of approximately $4,699,000 for the three months ended June 30,
1997 was greater than the net loss of approximately $3,226,000 for the
comparable period in 1996 due primarily to the increase in research and
development spending, principally related to clinical trial costs, as well as
the establishment of a marketing organization in Europe. Similarly, for the six
months ended June 30, 1997, the net loss of approximately $9,267,000 has
increased from approximately $5,892,000 reported for the six month period ended
June 30, 1996, primarily due to increases in research and development,
principally related to clinical trial costs, as well as European marketing.

The Company has not incurred any income tax expense since inception due to its
history of operating losses.

LIQUIDITY AND CAPITAL RESOURCES

In February 1996, the Company completed an initial public offering of two
million shares of Common Stock with net proceeds to the Company of approximately
$21.6 million after deducting the underwriters discount, commissions and
offering expenses. Cash, cash equivalents and available-for-sale securities were
approximately $8.1 million at June 30, 1997.

Cash used in operating activities for the six months ended June 30, 1997
increased to approximately $9,380,000 from approximately $5,666,000 for the
comparable period in 1996, related to increased spending for research and
development expenditures, primarily clinical trials costs, and the establishment
of a marketing organization in Europe.


                                    Page 16
<PAGE>   17
Cash used for purchases of property and equipment in the six month period ended
June 30, 1997 was approximately $980,000, as compared to approximately $959,000
for the same period in 1996. The 1996 period includes costs associated with a
facilities expansion and the 1997 period includes development payments on a
software diagnostic project that is targeted to provide 3-D modeling of patient
anatomy to assist in selection, delivery and implantation of the Company's
products.

In February 1997, the Company secured a credit facility of $30 million (the
"Funds"). However, the credit agreement requires the Company to satisfy certain
conditions, the failure of which would prevent the Company from drawing the
Funds. Furthermore, any default by the Company under the credit agreement would
result in the acceleration of the Company's obligation to repay any drawn Funds.
In the event that the Company is unable to borrow Funds or repay Funds
previously borrowed on an accelerated basis, the Company's business, financial
condition and results of operations could be materially adversely affected.
Pursuant to the credit agreement the Company has agreed not to make or declare
any dividends on the Common Stock for so long as it is indebted under such
agreement.

The Company expects to continue to incur substantial expenses in support of
additional research and development activities, including costs of clinical
studies, manufacturing, the establishment of a sales and marketing organization
and ongoing administrative activities. The Company anticipates that pre-existing
cash and cash equivalents and available-for-sale securities and capital
available under its credit facility will be sufficient to fund its operations
and planned new product development, including increased working capital
expenditures, through the next 12 months.

The Company's cash requirements may vary materially from those now planned
because of results of research, development, and clinical testing, the
development of regulatory submissions and the FDA regulatory process, the
development of commercial-scale manufacturing capability, the development of
sales, distribution and marketing capabilities, and other factors. The Company
may be required to seek additional funds through debt or equity financing.
Issuance of additional equity securities could result in substantial dilution to
stockholders. There can be no assurance that such financing will be available on
terms acceptable to the Company, or at all. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also
enter into collaborative arrangements with corporate partners that could provide
the Company with additional funding.


                                    Page 17
<PAGE>   18
PART II OTHER INFORMATION

 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    a)   Exhibits
         See Exhibits incorporated by reference on Page 20
         See Exhibit 11.1 on Page 21

    b)   Reports on form 8-K
         There were no reports filed of Form 8-K during the quarterly period
         ended June 30, 1997.


                                    Page 18
<PAGE>   19
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.




                         ENDOVASCULAR TECHNOLOGIES, INC.
                                  (Registrant)





Date:        August 7, 1997                 /s/ W. James Fitzsimmons
         ---------------------          ----------------------------
                                              W. James Fitzsimmons
                                                 President and
                                             Chief Executive Officer
                                          (Principal Executive Officer)




Date:        August 7, 1997                    /s/ G. Bradley Cole
         ---------------------          --------------------------
                                                 G. Bradley Cole
                                           Vice President, Finance and
                                              Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                    Page 19
<PAGE>   20
                         ENDOVASCULAR TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT NO.         DESCRIPTION                                                               PAGE NO.
-----------         -----------                                                               --------
<S>                 <C>                                                                       <C>

           *3.1     Restated Certificate of Incorporation of the Company.
        ****3.2     Bylaws of the Company.
        ****4.1     Reference is made to Exhibits 3.1  and 3.2.
           *4.2     Specimen Common Stock certificate.
           *4.3     Fourth Amended and Restated Investor Rights Agreement, dated
                    August 15, 1994, among the Company and the investors and the
                    founders named therein.
        ****4.4     Credit Agreement between the Company and Guidant Corporation,
                    dated February 28, 1997.
          *10.1     Form of Indemnification Agreement.
          *10.2     1989 Stock Option Plan.
          *10.3     1995 Stock Option Plan.
          *10.4     Employee Stock Purchase Plan.
          *10.5     1996 Incentive Compensation Plan.
          *10.6     Employment agreement between the Company and W. James Fitzsimmons.
          *10.7     Employment agreement between the Company and Victor M. Bernhard.
         **10.8     Employment agreement between the Company and Ronald R. Giannotti.
        ***10.9     Employment agreement between the Company and Elizabeth A. McDermott.
         **10.10    Lease by and between Menlo  Business Park and Patrician
                    Associates, Inc. and the Company, as amended by First
                    Amendment to Lease Agreement, dated February 26, 1996.
       ****10.11    Rights Agreement between the Company and ChaseMellon
                    Shareholder Services dated February 5, 1997.
       ****10.12    Promissory Note Secured by Second Deed of Trust between the
                    Company and Ronald R. Giannotti dated February 9, 1997.
       ****10.13    Officer Severance Plan and Summary Plan Description effective
                    September 24, 1996.
       ****10.14    Multimedia Development Agreement between the Company and
                    Engineering Animation, Inc. dated  March 19, 1997.
      *****10.15    Promissory Note Secured by Second Deed of Trust between the
                    Company and Lori E. Adels dated April 11, 1997.
           11.1     Computation of Net Loss Per Share.                                            21
           27.1     Financial Data Schedule.

----------
*      Incorporated  by reference from an exhibit to the Company's  Registration  Statement on
       Form S-1, as amended,  (File No.  33-80557)  declared  effective by the  Commission  on
       February 6, 1996.

**     Incorporated by reference from an exhibit to the Company Annual Report on
       Form 10-K filed with the Commission on March 29, 1996.

***    Incorporated by reference from an exhibit to the Company Report on Form
       10-Q filed with the Commission on November 12, 1996.

****   Incorporated by reference from an exhibit to the Company Annual Report on
       Form 10-K filed with the Commission on March 28, 1997.

*****  Incorporated by reference from an exhibit to the Company Form 10-Q filed
       with the Commission on May 15, 1997.
</TABLE>


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