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


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

                         Commission file number 0-27802

                       ARTERIAL VASCULAR ENGINEERING, INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                  94-3144218
        (State of incorporation)                       (I.R.S. Employer 
                                                       Identification No.)

3576 Unocal Place, Santa Rosa, California                    95403
(Address of principal executive offices)                   (Zip code)

                                 (707) 525-0111
              (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          
      -----              -----

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

Class                                         Outstanding
Common Stock, $0.001 par value                64,342,561 as of November 1, 1998

<PAGE>
<TABLE>

                               INDEX TO FORM 10-Q
<CAPTION>
                                                                                                                Page
<S>             <C>                                                                                               <C>  
PART I          FINANCIAL INFORMATION

                Item 1.    Financial Statements

                           Condensed Consolidated Balance Sheets as of September 30, 1998                         3
                                 and June 30, 1998

                           Condensed Consolidated Statements of Operations for the three                          4
                                 months ended September 30, 1998 and 1997

                           Condensed Statements of Stockholders' Equity for the                                   5
                                 three months ended September 30, 1998 and 1997

                           Condensed Consolidated Statements of Cash Flows for the                                6
                                 three months ended September 30, 1998 and 1997

                           Notes to Condensed Consolidated Financial Statements                                   7

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


PART II         OTHER INFORMATION

                Item 1.    Legal Proceedings                                                                     19

                Item 2.    Change in Securities and Use of Proceeds                                              19

                Item 6.    Exhibits and Reports on Form 8-K                                                      20


SIGNATURES                                                                                                       21

</TABLE>

                                       2
<PAGE>


PART I          FINANCIAL INFORMATION

         Item 1.     Financial Statements
<TABLE>

                   ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED BALANCE SHEETS
                                        (Unaudited)
                                      (In thousands)
<CAPTION>
                                                                   September 30,  June 30,
                                                                      1998          1998
                                                                    ---------    ---------
<S>                                                                 <C>          <C>      
                                          ASSETS
Current assets:
     Cash and cash equivalents                                      $ 135,555    $  48,282
     Short-term investments                                            96,729      126,843
     Accounts receivable, net                                          90,456      109,851
     Inventories                                                       11,544        9,524
     Deferred income tax                                               14,687       14,687
     Prepaid expenses and other current assets                          9,042        5,814
                                                                    ---------    ---------
         Total current assets                                         358,013      315,001
Property, plant and equipment, net                                     78,573       71,095
Deferred income tax                                                       896          896
Other assets                                                              445          477
                                                                    ---------    ---------
         Total assets                                               $ 437,927    $ 387,469
                                                                    =========    =========

                                        LIABILITIES
Current liabilities:
     Accounts payable                                               $  11,718    $  13,894
     Accrued employee bonus                                            18,133       25,585
     Accrued expenses                                                  36,281       27,530
     Income taxes payable                                              32,813       43,482
                                                                    ---------    ---------
         Total current liabilities                                     98,945      110,491
                                                                    ---------    ---------

                                   STOCKHOLDERS' EQUITY
Common stock                                                               64           64
Additional paid-in capital                                            125,100      117,281
Deferred compensation                                                    (224)        (268)
Treasury stock                                                           (390)        (390)
Comprehensive loss                                                       (767)      (1,731)
Retained earnings                                                     215,199      162,022
                                                                    ---------    ---------
         Total stockholders' equity                                   338,982      276,978
                                                                    ---------    ---------
         Total liabilities and stockholders' equity                 $ 437,927    $ 387,469
                                                                    =========    =========

<FN>
                                  See accompanying notes
</FN>
</TABLE>
                                            3
<PAGE>

              ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)

                                                         Three Months Ended
                                                            September 30,
                                                       -----------------------
                                                         1998           1997
                                                       --------       --------
Net sales                                              $161,268       $ 26,263
Cost of sales                                            24,574          5,489
                                                       --------       --------
Gross profit                                            136,694         20,774
                                                       --------       --------

Operating expenses:
     Research and development                            14,938          5,478
     Selling, general and administrative                 36,387          7,517
                                                       --------       --------
         Total operating expenses                        51,325         12,995
                                                       --------       --------

Operating income                                         85,369          7,779
Interest and other income                                 3,260          1,006
                                                       --------       --------
Income before provision for income taxes                 88,629          8,785
Provision for income taxes                               35,452          3,075
                                                       --------       --------
Net income                                             $ 53,177       $  5,710
                                                       ========       ========

Net income per share - basic                           $   0.84       $   0.10

Net income per share - diluted                         $   0.80       $   0.09

Shares used to calculate net income per share:
         Basic                                           63,189         59,626
         Diluted                                         66,181         64,474


                             See accompanying notes

                                       4
<PAGE>
<TABLE>

                                       ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
                                           CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                           (Unaudited)
                                                          (In thousands)


<CAPTION>
                                     Common Stock        Additional                                                        
                                   ----------------       Paid-in    Deferred     Treasury     Retained  Comprehensive          
                                   Shares    Amount       Capital  Compensation     Stock      Earnings      Loss         Total
                                   ------    ------       -------  ------------     -----      --------      ----         -----
<S>                                <C>      <C>         <C>         <C>          <C>          <C>         <C>          <C>      
Balances, June 30, 1997            62,094   $      62   $  92,990   $    --      $    (390)   $  46,902   $  (1,364)   $ 138,200

Issuance of common stock
    upon exercise of stock
    options and Employee
    Stock Purchase Plan               202        --           632        --           --           --          --            632

Income tax reduction relating
     to stock plans                  --          --         1,016        --           --           --          --          1.016
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Subtotal                           62,296          62      94,638        --           (390)      46,902      (1,364)     139,848
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Net income                           --          --          --          --           --          5,710        --          5,710
Translation adjustment               --          --          --          --           --           --          (113)        (113)
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Comprehensive income                 --          --          --          --           --          5,710        (113)       5,597
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Balances, September 30, 1997       62,296   $      62   $  94,638   $    --      $    (390)   $  52,612   $  (1,477)   $ 145,445
                                   ======   =========   =========   =========    =========    =========   =========    =========


Balances, June 30, 1998            63,974   $      64   $ 117,281   $    (268)   $    (390)   $ 162,022   $  (1,731)   $ 276,978

Issuance of common stock
     upon exercise of stock
     options and Employee
     Stock Purchase Plan              412        --         5,395        --           --           --          --          5,395

Amortization of deferred
     compensation                    --          --          --            44         --           --          --             44

Income tax reduction relating
     to stock plans                  --          --         2,424        --           --           --          --          2,424
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Subtotal                           64,386          64     125,100        (224)        (390)     162,022      (1,731)     284,841
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Net income                           --          --          --          --           --         53,177        --         53,177
Translation adjustment               --          --          --          --           --           --           964          964
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Comprehensive income                 --          --          --          --           --         53,177         964       54,141
                                   ------   ---------   ---------   ---------    ---------    ---------   ---------    ---------

Balances, September 30, 1998       64,386   $      64   $ 125,100   $    (224)   $    (390)   $ 215,199   $    (767)   $ 338,982
                                   ======   =========   =========   =========    =========    =========   =========    =========
<FN>

                                                      See accompanying notes
</FN>
</TABLE>
                                                                5

<PAGE>
<TABLE>

                  ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (Unaudited)
                                     (In thousands)
<CAPTION>

                                                                 Three Months Ended
                                                                    September 30,
                                                              -------------------------
                                                                1998            1997
                                                              ---------       ---------
<S>                                                           <C>             <C>      
Cash flows from operating activities:
     Net income                                               $  53,177       $   5,710
     Adjustments to reconcile net income to net cash
         provided by operating activities:
            Depreciation and amortization                         1,445             662
            Provision for doubtful accounts                       1,132             246
            Provision for obsolete inventory                        584             104
            Amortization of deferred compensation                    43            --
            Income tax reduction relating to stock plans          2,424           1,016
            Changes in assets and liabilities:
                Short-term investments                           30,114           4,594
                Accounts receivable                              18,977          (4,119)
                Inventories                                      (2,197)         (3,549)
                Prepaid expenses and other current assets        (3,147)         (3,719)
                Accounts payable                                 (2,233)          4,815
                Accrued employee bonus                           (7,473)           (303)
                Accrued expenses                                  8,585             866
                Income taxes payable                            (10,624)          3,195
                                                              ---------       ---------
                   Net cash provided by operating activities     90,807           9,518
                                                              ---------       ---------

Cash flows from investing activities:
     Acquisition of property, plant and equipment                (8,927)         (9,943)
                                                              ---------       ---------
                   Net cash used in investing activities         (8,927)         (9,943)
                                                              ---------       ---------

Cash flows from financing activities:
     Increase in short-term borrowings                             --             2,449
     Proceeds from issuance of common stock                       5,395             632
                                                              ---------       ---------
                   Net cash provided by financing activities      5,395           3,081
                                                              ---------       ---------

Effect of exchange rate changes on cash and cash equivalents         (2)            (26)

Net increase in cash and cash equivalents                        87,273           2,630
Cash and cash equivalents, at beginning of period                48,282          25,036
                                                              ---------       ---------
Cash and cash equivalents, at end of period                   $ 135,555       $  27,666
                                                              =========       =========
<FN>

                                 See accompanying notes
</FN>
</TABLE>
                                           6
<PAGE>

              ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.         Basis of Presentation

                    The condensed  consolidated  financial  statements  included
           herein  have  been  prepared  by  the  Company,   without  audit,  in
           accordance with generally accepted accounting  principles for interim
           financial  information  and pursuant to the rules and  regulations of
           the Securities and Exchange Commission. In the opinion of management,
           all  adjustments  (consisting of only normal  recurring  adjustments)
           considered  necessary  to  present  fairly  the  financial  position,
           results  of  operations  and cash  flows  have been  included.  These
           consolidated  financial statements should be read in conjunction with
           the  audited  consolidated  financial  statements  contained  in  the
           Company's Form 10-K for the fiscal year ended June 30, 1998.

                    Certain  information  and  footnote   disclosures   normally
           included  in  financial   statements   prepared  in  accordance  with
           generally  accepted  accounting  principles  have been  condensed  or
           omitted.  The  year-end  balance  sheet data was derived from audited
           financial  statements,  but does not include disclosures  required by
           generally accepted accounting principles.

                    Operating results for the three-month period ended September
           30, 1998 are not necessarily indicative of the results to be expected
           for any other interim period or for the full fiscal year.

2. Inventories (in thousands):
                                                September 30,       June 30,
                                                    1998              1998
                                                 ------------      -----------

                            Raw materials             $3,272           $3,346
                            Work in process            2,786            2,554
                            Finished goods             5,486            3,624
                                                 ------------      -----------
                                                     $11,544           $9,524
                                                      [6,297]          [3,352]
                                                 ============      ===========

3.         Computation of Net Income Per Share

                    In 1997,  the Financial  Accounting  Standards  Board issued
            Statement of Financial  Accounting  Standards No. 128, "Earnings per
            Share (SFAS No.  128)".  SFAS No. 128  replaced the  calculation  of
            primary and fully diluted  earnings per share with basic and diluted
            earnings  per  share.  Unlike  primary  earnings  per  share,  basic
            earnings  per share  excludes  any  dilutive  effects of options and
            warrants.  Diluted  earnings  per  share  is  very  similar  to  the
            previously reported fully diluted earnings per share. Net income per
            share -- diluted, as reported, includes the effect of dilutive stock
            options (using the treasury stock method).  All net income per share
            amounts  presented  have been  restated  to  conform to SFAS No. 128
            requirements, where appropriate.

                                       7
<PAGE>

              ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                   (Unaudited)

                    The table  below  sets  forth the  computation  of basic and
diluted net income per share (in thousands, except per share data):

                                                            Three Months Ended
                                                              September 30,
                                                       -------------------------
                                                         1998           1997
                                                       ----------     ----------

Numerator:
     Net income                                          $53,177         $5,710
                                                       ----------     ----------

Denominator for net income per share - basic:
     Weighted average common shares outstanding           63,189         59,626
Denominator for net income per share - diluted:
     Effect of dilutive securities:
          Employee stock options                           1,998          2,345
          Other dilutive securities                          994          2,503
     Weighted average common shares and dilutive
                                                       ----------     ----------
          securities outstanding                          66,181         64,474
                                                       ----------     ----------

Net income per share - basic                               $0.84          $0.10
Net income per share - diluted                             $0.80          $0.09

4.         Contingencies

                    Legal  proceedings  to  which  the  Company  is a party  are
           discussed in Part I, Item 3 ("Legal  Proceedings")  in the  Company's
           Annual Report on Form 10-K for the year ended June 30, 1998. Material
           developments in such matters are discussed in Part II, Item 1 of this
           report.

5.       Comprehensive Income

                    Effective  July  1,  1998,  the  Company  adopted  Financial
           Accounting   Standards  Board   Statement  of  Financial   Accounting
           Standards No. 130, "Reporting  Comprehensive  Income (SFAS No. 130),"
           which states that all items that are required to be recognized  under
           accounting standards as components of comprehensive income (revenues,
           expenses, gains and losses) be reported in a financial statement that
           is displayed with the same prominence as other financial  statements.
           Prior year financial  statements have been reclassified to conform to
           the requirements of SFAS No. 130.

                    During the three months ended  September  30, 1998 and 1997,
           the Company's  comprehensive  income was  $54,141,000 and $5,597,000,
           respectively.

                                       8
<PAGE>

              ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                   (Unaudited)


6.       Subsequent Event

                           On  October 1, 1998  (subsequent  to the close of the
            quarterly  period  to  which  this  report  relates),   the  Company
            consummated  an  agreement  to acquire  the  coronary  catheter  lab
            business (the "Bard Business") of C.R. Bard, Inc. ("Bard"),  as well
            as rights to the supply by Bard of certain materials  (collectively,
            the "Bard Cath Lab Acquisition"),  for approximately $550 million in
            cash (the  "Purchase  Price").  The  Purchase  Price is  subject  to
            adjustment  based upon a statement of assets and  liabilities of the
            Bard Business as of October 1, 1998.  The  adjustment  shall be made
            upward or  downward by the amount by which the net book value of the
            Bard Business  together with a percentage of certain trade  accounts
            receivable  of the Bard  Business  exceeds or is less than an agreed
            sum. Bard's broad range of catheter-based technologies includes PTCA
            balloon catheters  (including  perfusion rapid exchange  catheters),
            guidewires,  guide  catheters,  coronary  diagnostic  catheters  and
            guidewires, introducers and vessel closure devices, coronary stents,
            and various  other  components  and  accessories.  The Bard Cath Lab
            Acquisition  is expected to  substantially  increase  the  Company's
            personnel,  facilities  and  product  offerings  and to  enable  the
            Company to  participate  in new areas of  interventional  cardiology
            through a wider  product  portfolio  and access to new  markets  and
            customers.  However, there can be no assurance that the Company will
            successfully  participate in such new product areas. The Company has
            entered  into a bank  credit  agreement  for $600  million in senior
            secured credit  facilities in order to, among other things,  finance
            substantially all of the Bard Cath Lab Acquisition.


                                       9
<PAGE>


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

            Overview

                  The  statements  contained  in this  Form  10-Q  that  are not
            historical  are  forward-looking  statements  within the  meaning of
            Section  27A of the  Securities  Act of 1933 and  Section 21E of the
            Securities Exchange Act of 1934,  including statements regarding the
            Company's expectations,  beliefs, intentions or strategies regarding
            the future.  Forward-looking statements made herein include, without
            limitation,   statements  regarding   manufacturing   scale-up,  the
            intellectual  property  positions of  competitors,  the  anticipated
            outcome  of  litigation,  the  extent  and  timing  of  new  product
            introductions,   future  revenues,   customer  demand,  competition,
            pricing pressure, barriers to market entry, expansion of operations,
            risks of business combinations,  regulatory approvals,  expenditures
            and margin levels,  and the  establishment of direct sales forces in
            targeted countries. All forward-looking  statements in this document
            are based on  information  available  to the  Company as of the date
            hereof,  and the Company  assumes no  obligation  to update any such
            forward-looking   statement.  It  is  important  to  note  that  the
            Company's actual results could differ  materially from those in such
            forward-looking  statements.  Additional  risk factors include those
            discussed  in the reports  filed by the Company from time to time on
            Forms 10-K, 10-Q and 8-K.

                  The   Company   is  engaged   in  the   design,   development,
            manufacturing  and  marketing  of  stent  systems  and  percutaneous
            transluminal  coronary angioplasty ("PTCA") catheters designed to be
            utilized   in   connection   with   less   invasive   treatment   of
            cardiovascular  disease.  The Company  believes that it is currently
            one of the leading providers of coronary stent systems.  The Company
            began  commercial  sales of its PTCA  catheters in October 1993, its
            coronary  stent systems in October 1994,  and its  peripheral  stent
            systems in  December  1996.  In June 1997,  the  Company's  Japanese
            distributor  received  regulatory  approval for the sale in Japan of
            the  Company's  coronary  stent  systems,  and in  January  1998 the
            Company  received the related  reimbursement  approval.  In December
            1997, the Company  received a pre-market  approval  ("PMA") from the
            United States Food and Drug Administration (the "FDA") in connection
            with its  commencement  of  commercial  sales of its coronary  stent
            systems in the  United  States.  Prior to that  time,  international
            sales accounted for substantially all of the Company's revenues.

                  On October 1, 1998  (subsequent  to the close of the quarterly
            period to which this report  relates),  the Company  consummated  an
            agreement to acquire the coronary  catheter lab business  (the "Bard
            Business") of C.R.  Bard,  Inc.  ("Bard"),  as well as rights to the
            supply by Bard of certain  materials  (collectively,  the "Bard Cath
            Lab  Acquisition"),  for  approximately  $550  million  in cash (the
            "Purchase Price"). The Purchase Price is subject to adjustment based
            upon a statement of assets and  liabilities  of the Bard Business as
            of October 1, 1998. The adjustment  shall be made upward or downward
            by the  amount  by  which  the net book  value of the Bard  Business
            together with a percentage of certain trade  accounts  receivable of
            the Bard Business  exceeds or is less than agreed sum.  Bard's broad
            range of catheter-based technologies includes PTCA balloon catheters
            (including  perfusion rapid exchange catheters),  guidewires,  guide
            catheters, coronary diagnostic catheters and guidewires, introducers
            and vessel  closure  devices,  coronary  stents,  and various  other
            components  and  accessories.  The 

                                       10
<PAGE>

            Bard Cath Lab Acquisition is expected to substantially  increase the
            Company's personnel,  facilities and product offerings and to enable
            the Company to participate in new areas of interventional cardiology
            through a wider  product  portfolio  and access to new  markets  and
            customers.  However, there can be no assurance that the Company will
            successfully  participate in such new product areas. The Company has
            entered  into a bank  credit  agreement  for $600  million in senior
            secured credit  facilities in order to, among other things,  finance
            substantially  all  of  the  Bard  Cath  Lab  Acquisition.  See  "--
            Liquidity and Capital Resources."

                  In April  1998,  the  Company  entered  into an  agreement  to
            acquire World Medical Manufacturing Corporation ("World Medical"), a
            leading independent developer,  manufacturer and marketer of medical
            devices for the treatment of abdominal aortic  aneurysms,  for stock
            and stock options of the Company valued at approximately $62 million
            (the "World Medical Acquisition").  The World Medical Acquisition is
            scheduled  to be  submitted to the World  Medical  shareholders  for
            approval at a meeting to be held on December 14, 1998.  Consummation
            of  the  World  Medical  acquisition  is  subject  to  a  number  of
            conditions,  and there can be no  assurance  that the World  Medical
            acquisition  will be  successfully  consummated  or, if consummated,
            that the Company will  successfully  participate in such new product
            areas. World Medical is conducting  development programs for several
            medical  devices,  including the  Talent(TM)  system,  a proprietary
            catheter-based stent graft system.

                  The  Company's  current  analysis  of the value of the  Talent
            development   program   and   expectations    regarding   commercial
            development  are  consistent  with the  discussions  regarding  such
            program set forth in Amendment No. 4 to the  Company's  Registration
            Statement on Form S-4 filed on November 12, 1998.

                  The  increase  in the  Company's  sales  to  date  has  almost
           entirely been due to greater demand for the Company's  coronary stent
           systems.  In order to support increased levels of sales in the future
           and to  augment  its long  term  competitive  position,  the  Company
           anticipates  that it will be required to make continuing  significant
           additional  expenditures in  manufacturing,  research and development
           (including clinical study and regulatory costs), sales and marketing,
           and  administration,  both in absolute dollars and as a percentage of
           net  sales.  The  Company  also  expects to incur  significant  legal
           expenses relating to ongoing litigation, including patent litigation.

                  At various times and to varying  degrees  throughout the third
            and fourth quarterly periods of the fiscal year ended June 30, 1998,
            as a result of the significant  demands on the Company's  production
            capabilities  related to its entry into the U.S. market, the Company
            delivered some  customers'  orders several weeks after receiving the
            orders.  The Company  normally  attempts to deliver  products to its
            customers  within a few days after  receiving an order.  The Company
            does  not  believe  that  any of  its  customer  relationships  were
            materially damaged by the resulting temporary inconvenience and does
            not believe that the financial impact on the Company of the backlog,
            if any, was material.  The Company substantially reduced the backlog
            during  the  fourth  quarter  of  fiscal  year  1998  as  additional
            production  resources were developed,  and has not, since such time,
            ever been in significant backlog with respect to customer orders for
            its  products.  There can be no assurance,  however,  that a backlog
            will not develop in the future and that such backlog will not have a
            material  adverse  effect  on  the  Company's  business,   financial
            condition and results of operations.

                  Since the  commencement of sales of its coronary stent systems
            in the United  States,  several of the  Company's  competitors  have
            filed claims against the Company alleging,  among other things, that
            such stent systems infringe on certain patents of such  competitors.
            Although the Company  continually reviews the scope of relevant U.S.
            and  foreign  patents  and  related  litigation,   the  question  of
            infringement involves complex legal and factual issues and is highly
            uncertain.  There can be no assurance that any conclusion reached by
            the  Company  regarding  infringement  will be  consistent  with the

                                       11
<PAGE>

            resolution of such issue by a court.  If the Company's  products are
            determined  to infringe  such patents and it cannot obtain a license
            on commercially reasonable terms or modify its current technology or
            develop new  products to avoid  infringement,  the Company  would be
            required to cease its sales of the  affected  products in the United
            States,  which could have a material adverse affect on the Company's
            business,  financial  condition and results of operations.  See Part
            II, Item 1.

                  The increasing number of devices in the worldwide stent market
            and the desire of companies  to obtain  market share has resulted in
            increased  price  competition.  Such  competition  has, in the past,
            caused  the  Company  to reduce  prices on its  stent  systems.  The
            Company  expects that, as the stent  industry  continues to develop,
            competition and pricing pressures will increase.  In particular,  it
            is likely that the FDA will begin to use a  streamlined  PMA process
            once a sufficient  number of similar  coronary  stent  products have
            been  cleared for  commercial  sale in the United  States,  and will
            permit coronary stent manufacturers to utilize a simplified clinical
            trial structure in obtaining  marketing  approval here as sufficient
            stent   performance  data  enters  the  public  domain.   Thus,  the
            regulatory  barriers to entry in the United  States  coronary  stent
            market  that  currently  exist  may,  in  the  future,   be  lowered
            significantly  with  respect  to both new  market  entrants  and new
            products introduced by existing U.S. competitors.  If the Company is
            forced to effect  further price  reductions in connection  with such
            increased  competition,  such  reductions  would reduce net sales in
            future  periods  if not  offset  by  increased  unit  sales or other
            factors.

                  The Company  intends to expand its operations by promoting new
            or complementary  products and by expanding the breadth and depth of
            its product offerings.  The Bard Cath Lab Acquisition,  for example,
            is  expected to enable the  Company to  participate  in new areas of
            interventional  cardiology  through a wider  product  portfolio  and
            access to new  markets and  customers.  Expansion  of the  Company's
            operations in this manner requires significant additional expense as
            well as substantial managerial, financial and operational resources.
            Furthermore, gross margins attributable to new business areas may be
            lower than those  associated  with the Company's  existing  business
            activities.  It is expected that gross  margins  related to products
            acquired  in  the  Bard  Cath  Lab  Acquisition  will  generally  be
            significantly lower than the Company's current gross margins.  There
            can be no  assurance  that the  Company  will be able to utilize the
            Bard  Cath Lab  Acquisition  or other  transactions  to  expand  its
            operations in a  cost-effective  or timely manner or to successfully
            participate  in new product areas.  Furthermore,  any new product or
            business  launched by the Company that is not favorably  received by
            customers may damage the Company's  reputation or the AVE brand. The
            lack  of  market  acceptance  of such  efforts  or an  inability  to
            generate  satisfactory revenues from such expanded product offerings
            to  offset  their  costs  (which,  in the case of the Bard  Cath Lab
            Acquisition,  include significant transaction-related  indebtedness)
            could  have a material  adverse  effect on the  Company's  business,
            financial condition and results of operations.

                  The Company may continue to choose to expand its operations or
            market   presence   by   entering   into   business    combinations,
            acquisitions,   investments,   joint  ventures  or  other  strategic
            alliances with third parties.  Any such  transaction,  including the
            Bard Cath Lab  Acquisition,  is  accompanied  by the risks  commonly
            associated  with  such  transactions,  such  as  the  difficulty  of
            assimilating  the  operations,   technology  and  personnel  of  the
            combined  companies,  the  potential  disruption  of  the  Company's

                                       12
<PAGE>

            ongoing  business,   the  inability  to  retain  key  technical  and
            managerial  personnel,  the  inability of management to maximize the
            financial  and  strategic   position  of  the  Company  through  the
            successful  integration of acquired businesses,  additional expenses
            associated with  amortization  of acquired  intangible  assets,  the
            maintenance  of uniform  standards,  controls  and  policies and the
            impairment of relationships  with existing  employees and customers.
            There can be no  assurance  that the Company will be  successful  in
            overcoming these risks or any other potential  problems  encountered
            in  connection  with the  Bard  Cath Lab  Acquisition  or any  other
            business combinations,  acquisitions, investments, joint ventures or
            other strategic alliances, or that such transactions will not have a
            material  adverse  effect  on  the  Company's  business,   financial
            condition and results of operations.

                  Until April 1996,  substantially  all of the  Company's  sales
            were to  international  distributors  who resell  products to health
            care  providers.  Since then,  however,  the Company has established
            direct  sales  forces  in  Canada,  France,   Germany,   Italy,  the
            Netherlands  (servicing the Benelux  countries),  Singapore,  Spain,
            Switzerland,  the United Kingdom and the United States (with respect
            to its coronary stent  systems).  Additional  direct sales forces in
            Australia,  Japan  and  India  were  obtained  on  October  1,  1998
            (subsequent  to the  close of the  quarterly  period  to which  this
            report  relates)  as a result  of  consummating  the  Bard  Cath Lab
            Acquisition,  although in Japan the Company  currently  continues to
            sell its coronary stent systems through Japan Lifeline Co., Ltd., an
            independent   distributor.   The  Company  continually  reviews  its
            existing  distributor  arrangements and expects from time to time to
            establish  direct  sales  forces  in other  countries.  The  Company
            believes  that the  establishment  and  maintenance  of direct sales
            forces has required and will continue to require significant ongoing
            expenditures and additional  management  resources and has resulted,
            and may  continue  to  result,  in  additional  costs  to  eliminate
            existing  distributor  relationships  (including  costs  relating to
            litigation with former distributors).

                  The Company believes that its computer programs utilized as of
            the  quarterly  period  to which  this  report  relates  will not be
            adversely affected by the "Year 2000" problem.  However, the Company
            believes that some of the computer  programs acquired as part of the
            Bard Cath Lab Acquisition are not Year 2000 compliant.  As a result,
            the Company is  considering  installing  the same computer  programs
            used by the  Company for the  management  of,  among  other  things,
            inventory,  customer orders and financial and other  operations,  at
            certain  of the  facilities  acquired  through  the  Bard  Cath  Lab
            Acquisition  (the "Bard  sites").  The software that will  interface
            with the hardware and systems utilized at the Bard sites has already
            been developed by an independent  consultant to Bard. The conversion
            of the Bard  sites to AVE's  existing  computer  programs  using the
            developed  software or the  conversion to an  alternative  system is
            expected to be completed  within the next six to twelve  months at a
            cost to the Company of  approximately  $1.2 million.  The Company is
            also considering  adapting its operational computer systems to World
            Medical's  systems  if and when the  World  Medical  Acquisition  is
            consummated. Such conversion would occur over approximately the same
            time  period  and is  expected  to cost  the  Company  approximately
            $300,000.  The Company is currently assessing its systems outside of
            information systems and the Year 2000 readiness of its suppliers and
            customers.  The Company is also  assessing  the type of  contingency
            plans that may be  required  in the event that any of its systems or
            those of its customers,  suppliers or third parties are not 

                                       13
<PAGE>

            ready by 2000, and expects such  assessments to continue  throughout
            1999.  The Company  currently  expects  that the total costs of such
            programs,   including  the  cost  of  converting  Bard's  and  World
            Medical's systems to the Company's systems, will be approximately $2
            million.  Such total cost estimate does not include  potential costs
            relating  to any  customer  or other  claims or the cost of internal
            software and hardware replaced in the normal course of business.  In
            the reasonable worst case scenario, the installment of the Company's
            computer  programs at the Bard sites and at World  Medical would not
            be  completed  by the Year  2000,  or,  if  completed,  would not be
            effective in  resolving  all  difficulties  related to the Year 2000
            problem.  In such case,  AVE's  computer  systems  would  experience
            delays or other  problems  relating to Year 2000,  and the Company's
            suppliers  and  customers  would  experience  delays  in  orders  or
            payments or other Year 2000 problems.  Management does not currently
            believe that Year 2000 matters will have a material  adverse  impact
            on  the  Company's  business,  financial  condition  or  results  of
            operations,  but there can be no  assurance  of this and the Company
            continues  to  investigate  Year 2000  matters and to  evaluate  the
            potential impact of the Year 2000 problem. In addition, there can be
            no  assurance  that the failure by a supplier or customer or another
            third  party  would  not  have  a  material  adverse  effect  on the
            Company's business, financial condition or results of operations.

                  The Company  anticipates  that its results of  operations  may
            fluctuate  for  the  foreseeable  future  due  to  several  factors,
            including  variations  in  operating  expenses,  the  costs  and the
            outcome of  litigation,  the  potential  disruption  of business and
            other  additional  costs and expenses in  connection  with  possible
            business  combinations,   acquisitions,   joint  ventures  or  other
            strategic  alliances,  the  Company's  ability  to  manufacture  its
            products efficiently, competition (including pricing pressures), the
            timing of new product  introductions or transitions to new products,
            the costs of  establishing  direct sales  operations,  the timing of
            research and development  expenses (including clinical trial related
            expenditures),  timing of regulatory  and third party  reimbursement
            approvals,  the  level  of  third-party   reimbursement,   sales  by
            distributors,  the mix of sales among distributors and the Company's
            direct sales force,  fluctuations in international currency exchange
            rates,  and  seasonal  factors  impacting  the  number  of  elective
            angioplasty or stent procedures.  In addition, the Company's results
            of  operations  could be  affected  by the timing of orders from its
            distributors,   changes  in  the   Company's   distributor   network
            (including   expenses  in  connection  with  termination  of  former
            distributors),  the ability of direct  sales  force and  independent
            distributors to effectively  promote the Company's  products and the
            ability of the Company to quickly and cost-effectively  establish an
            effective  direct sales force in targeted  countries.  The Company's
            limited  operating  history  makes  accurate  prediction  of  future
            operating results difficult or impossible.  Although the Company has
            experienced  growth in recent  years and  substantial  growth in the
            most recent quarter,  there can be no assurance that, in the future,
            the Company will sustain  revenue  growth or remain  profitable on a
            quarterly or annual basis or that its growth will be consistent with
            predictions   made  by   securities   analysts.   The   Company  has
            experienced,  and may  experience  in one or more  future  quarters,
            operating  results that are below the  expectations of public market
            analysts and  investors.  In such event,  the price of the Company's
            common stock has been, and would likely be, materially and adversely
            affected.

            Results of  Operations - Three Months Ended  September  30, 1998 and
            1997

                                       14
<PAGE>

                  Net sales.  For the three months ended September 30, 1998, net
           sales were $161.3 million,  an increase of 514% from $26.3 million in
           the  comparable  period in fiscal 1998. The increase in net sales for
           the three-month period was primarily due to significant  increases in
           net sales of the  Company's  GFX(R)  coronary  stent  systems  in the
           United  States and in Japan.  The  Company  first  began sales of its
           coronary stent systems in Japan in June 1997 and in the United States
           in late  December  1997 (with the U.S.  release  of the GFX  coronary
           stent systems in the United States occurring in late March 1998). The
           Company expects that coronary stent system sales, particularly of the
           Company's GFX family of products,  will  constitute  the  substantial
           majority of total net sales in the near future.

                  The  Company  experienced  sales  growth  in all of its  major
           markets, including the United States, Europe, and Japan. Sales in the
           United States, Europe and Asia represented approximately 76%, 11% and
           11%, respectively,  of the Company's total net sales during the three
           months ended  September  30, 1998.  Japan  Lifeline  Co.,  Ltd.,  the
           Company's  Japanese  distributor,  accounted for approximately 10% of
           the  Company's  total net sales for the three months ended  September
           30, 1998.

                  In certain international territories, including most countries
            in Europe,  the Company  suffered some price  reductions  during the
            three months ended September 30, 1998.  These price  reductions were
            attributable  both to competitive  pressures and, in those countries
            outside of the United  States  where the  Company  has direct  sales
            operations,  exchange rate fluctuations. If the Company is forced to
            effect further price  reductions,  such reductions  would reduce net
            sales in future  periods  if not offset by  increased  unit sales or
            other factors.

                  Cost of Sales. Cost of sales increased to $24.6 million in the
            three  months  ended  September  30,  1998 from $5.5  million in the
            comparable  period in fiscal 1998,  and decreased as a percentage of
            net  sales to 15.2% in the  fiscal  1999  period  from  20.9% in the
            fiscal 1998  period.  The  increase in absolute  dollars  during the
            period was  primarily a result of the  increased  volume of products
            sold and, to a lesser extent, the costs of additional  manufacturing
            capacity and personnel  necessary to support increased sales volume.
            The  decrease  as a  percentage  of net sales  during the period was
            primarily the result of increased  aggregate  average selling prices
            (primarily  due to U.S.  sales),  leveraging  certain fixed overhead
            expenses  across a higher  base of sales  and,  to a lesser  extent,
            decreased average unit manufacturing costs.

                  The Company  expects  cost of sales to continue to increase in
            absolute  dollars as the  Company  increases  the volume of products
            sold and  adds  additional  manufacturing  capacity  and  personnel.
            Primarily as a result of the Bard Cath Lab Acquisition,  the Company
            expects  cost of  sales as a  percentage  of net  sales to  increase
            significantly  from the level experienced for the three months ended
            September 30, 1998.

                  Research and Development.  Research and development  expenses,
            which include  clinical  study and  regulatory  costs,  increased to
            $14.9 million in the three months ended September 30, 1998 from $5.5
            million in the comparable  period in fiscal 1998, and decreased as a
            percentage of net sales to 9.3% in the fiscal 1999 period from 20.9%
            in the fiscal 1998 period.  The increase in absolute  dollars during
            the  period  was  primarily  due to the  addition  of  research  and
            development  personnel,  increased  levels of spending in connection
            with  clinical  studies  relating  to the GFX,  GFX 2.5,  and GFX XL
            coronary  stent systems and costs  incurred in  connection  with the
            development of

                                       15
<PAGE>

            additional  products.  In  addition,  during the period the  Company
            incurred  approximately  $2.3 million in legal expenses  relating to
            ongoing patent  litigation  and a $1.8 million  provision for a loan
            made to CorMedica  Corporation,  a development  stage  company.  The
            decrease  as a  percentage  of  net  sales  during  the  period  was
            primarily the result of leveraging research and development expenses
            across a higher base of sales.

                  The  Company  expects  research  and  development  expenses to
            continue to increase  in absolute  dollars as the Company  increases
            clinical trial  activities,  pursues the development of new products
            and incurs  increased legal costs related to patent  litigation.  If
            the Company is successful  in  continuing  to leverage  research and
            development  expenses  across a higher  base of sales,  the  Company
            expects such  expenses as a  percentage  of net sales to remain at a
            level  generally  similar to that  experienced  for the three months
            ended September 30, 1998.

                  Selling,  General  and  Administrative.  Selling,  general and
            administrative  expenses  increased  in  absolute  dollars  to $36.4
            million  in the three  months  ended  September  30,  1998 from $7.5
            million in the comparable  period in fiscal 1998, and decreased as a
            percentage  of net sales to 22.6% in the  fiscal  1999  period  from
            28.6% in the fiscal 1998 period.  The increase  during the period in
            absolute  dollars  primarily  reflected  additional  costs of sales,
            marketing  and other  personnel  necessary to support the  Company's
            higher level of  operations,  including the  commencement  of direct
            sales  operations in the United States in late  December  1997.  The
            decrease in  percentage  of sales for the period was  primarily  the
            result of  leveraging  sales,  general and  administrative  expenses
            across a higher base of sales.

                  The Company expects selling,  general and administrative costs
            (excluding  the effect of the  special  general  employee  bonus) to
            continue to increase in absolute dollars in the future primarily due
            to  increased  levels of sales,  product  support and  manufacturing
            operations,   as  well  as   increases   in   finance,   legal   and
            administrative  costs. If the Company is successful in continuing to
            leverage sales, general and administrative  expenses across a higher
            base of sales,  the Company expects such expenses as a percentage of
            net sales to remain at a level generally similar to that experienced
            in the three months ended September 30, 1998.

                  Interest and Other Income.  The Company had interest and other
            income of $3.3 million in the three months ended September 30, 1998,
            compared to $1.0  million in the  comparable  period in fiscal 1998.
            The  increases  during the period were  primarily due to higher cash
            and short-term investment balances.

                  The Company expects to incur interest expense of approximately
            $10 million for the next three  quarters  due to the $550 million in
            indebtedness  incurred  by the Company in  connection  with the Bard
            Cath Lab Acquisition.

                  Provision for Income Taxes. The Company's provision for income
            taxes was $35.5  million in the three  months  ended  September  30,
            1998,  compared to $3.1 million in the  comparable  period in fiscal
            1998. The increase in this provision  during the period was a result
            of the Company's higher earnings.

                  Net Income.  The Company had net income of $53.2  million,  or
            33.0% of net sales,  in the three  months ended  September  30, 1998
            compared to net income of $5.7 million,  or 21.7% of net sales,  for
            the comparable period in fiscal 1998.

                                       16
<PAGE>

            Liquidity and Capital Resources

                  Net cash  provided by operating  activities  was $90.8 million
            for the three months ended September 30, 1998.  Excluding the effect
            of transactions in short-term investments,  the Company had net cash
            provided  by  operating   activities   of  $60.7   million  for  the
            three-month period,  principally arising as a result of positive net
            income  for  the  period.  Cash,  cash  equivalents  and  short-term
            investments totaled $232.3 million at September 30, 1998 as compared
            to $175.1  million at June 30, 1998.  Working  capital  increased to
            $259.1  million at September 30, 1998 as compared to $204.5  million
            at  June  30,  1998.  Inventories  increased  to  $11.5  million  at
            September 30, 1998 from $9.5 million at June 30, 1998, primarily due
            to increased levels of sales activity.  The Company expects accounts
            receivable and inventories to increase in absolute dollar amounts to
            the extent sales increase.

                  A significant  portion of the Company's revenues are currently
           derived from sales  outside of the United  States.  As a result,  the
           Company's  financial  results  will be affected by changes in foreign
           currency  exchange  rates  to  the  extent  that  such  sales  may be
           denominated in foreign currency.  The Company is currently exposed to
           fluctuations in currencies in western Europe and in Singapore. During
           fiscal  1997,  the  Company  began a  program  of  from  time to time
           entering into derivative financial instruments in the form of forward
           exchange  contracts  in order to reduce  the  uncertainty  of foreign
           exchange rate movement on inter-Company  sales denominated in foreign
           currencies.  These  contracts  are  designed  to  specifically  hedge
           against gains or losses incurred from foreign  currency  transactions
           and are  not  used  for  trading  or  speculative  purposes.  Forward
           exchange    contracts   are   used   to   hedge   material    foreign
           currency-denominated  receivables  and  payables.  They are generally
           settled  between three to six months with gains or losses recorded in
           "Selling,  general and  administrative"  expenses to offset  gains or
           losses on foreign currency receivables and payables.  As of September
           30,  1998,  however,   the  Company  had  no  such  currency  hedging
           instruments outstanding.

                  In connection with the Bard Cath Lab Acquisition,  the Company
           entered  into a bank  credit  agreement  for $600  million  in senior
           secured credit  facilities,  of which $200 million are five-year term
           loans (the "Term A Loans"), $350 million are six-year term loans (the
           "Term B Loans")  and $50  million  is a  five-year  revolving  credit
           facility (the  "Revolving  Loans").  The term loans  amortize and are
           prepayable  at any time,  subject to customary  breakage  provisions.
           Initial interest rates are the higher of the London InterBank Offered
           Rate  ("LIBOR")  plus 2.00% or an agreed  pricing grid for the Term A
           Loans and the  Revolving  Facilities  and at the higher of LIBOR plus
           2.25% or an  agreed  pricing  grid  for the Term B Loans.  The Term A
           Loans,  the Term B Loans and the Revolving Loans  outstanding will be
           reduced by certain mandatory  prepayments,  including (i) 100% of the
           net proceeds from debt issuances, subject to certain exceptions, (ii)
           100% of the net proceeds from extraordinary  asset sales,  subject to
           certain  exceptions,  (iii) 50% of the first $200  million of the net
           cash proceeds from any issuances of equity  securities of the Company
           and 50% of any further net cash  proceeds  from  issuances  of equity
           securities  of the Company if the  Company's  then  current  leverage
           ratio exceeds 2.5, and (iv) 50% of the Company's  consolidated annual
           excess cash flow if the Company's then current leverage ratio exceeds
           2.5.  The  bank  credit  agreement  contains  restrictive   financial
           covenants  relating  to a maximum  leverage  ratio,  a minimum  fixed
           charge  coverage ratio,  and a minimum net worth of the Company.

                                       17
<PAGE>

           The bank credit agreement also contains customary negative covenants,
           including restrictions on (i) the incurrence of additional debt, (ii)
           payment of restricted  payments,  (iii) liens,  (iv) sales of assets,
           (v) acquisitions, mergers or similar combinations, (vii) transactions
           with affiliates, and (viii) capital expenditures.  The senior secured
           credit  facilities  are secured by  substantially  all the  operating
           assets  of the  Company  and its  subsidiaries  and a  pledge  of the
           capital stock of the  Company's  material  subsidiaries,  including a
           newly  formed  subsidiary  that  holds a  substantial  portion of the
           assets acquired from Bard.

                  The Company's high degree of leverage could have important and
           materially  adverse  consequences to the stockholders of the Company,
           including  the  following:   (i)  the  Company's  ability  to  obtain
           additional  financing  for  working  capital,  capital  expenditures,
           acquisitions,  general  corporate  purposes or other  purposes may be
           impaired in the future;  (ii) a substantial  portion of the Company's
           current and expected cash flow from  operations  must be dedicated to
           the payment of principal  and interest on its  indebtedness,  thereby
           reducing the funds available to the Company for other purposes; (iii)
           the Company's  borrowings under such senior secured credit facilities
           will be at variable rates of interest,  which will expose the Company
           to the risk of increased  interest  rates;  (iv) the  indebtedness is
           secured,  which, among other things,  restricts the Company's ability
           to dispose of assets; (v) the Company is substantially more leveraged
           than  certain of its  competitors,  which may place the  Company at a
           competitive  disadvantage;  and (vi) the Company's substantial degree
           of leverage may limit its  flexibility  to adjust to changing  market
           conditions, reduce its ability to withstand competitive pressures and
           make it more  vulnerable  to a downturn in economic  conditions or in
           its businesses.

                  The Company  expects to incur  substantial  additional  costs,
           including  costs  relating  to  capital  equipment  and  other  costs
           associated   with   expansion   of   the   Company's    manufacturing
           capabilities, increased sales and marketing activities (including the
           establishment of direct sales forces internationally),  and increased
           research and  development  expenditures  in  connection  with seeking
           regulatory  approvals and conducting  additional clinical trials. The
           Company also  intends to expand its  operations  by promoting  new or
           complementary  products and by expanding the breadth and depth of its
           product   offerings,   and  may  do  so  by  entering  into  business
           combinations,  acquisitions,  investments,  joint  ventures  or other
           strategic  alliances  with third  parties.  The  Company  may require
           additional  equity or debt  financing to address its working  capital
           needs, to provide  funding for capital  expenditures in the future or
           to finance any such acquisitions or strategic alliances. Furthermore,
           any additional equity financing may be dilutive to stockholders,  and
           debt financing,  if available,  may involve restrictive covenants and
           may increase the Company's  leverage.  There can be no assurance that
           events in the future will not require the Company to seek  additional
           capital  or,  if so  required,  that it will be  available  on  terms
           acceptable to the Company.

                                       18
<PAGE>

PART II           OTHER INFORMATION

      Item 1.     Legal Proceedings

                  Reference is made to Part I, Item 3 ("Legal  Proceedings")  of
         the  Company's  previously  filed  Annual  Report  on Form 10-K for the
         fiscal year ended June 30, 1998.

                  ESS Litigation.  As previously  disclosed,  a number of claims
         have been  brought  against the  Company  and certain of its  officers,
         directors and shareholders in Texas courts by Dr. Azam Anwar and Benito
         Hidalgo  concerning the Company's  acquisition  of Endothelial  Support
         Systems,  Inc.  (subsequently  known as Endovascular  Support  Systems,
         Inc.)  ("ESS").  The trial date has been  continued to January 25, 1999
         for the several actions and related counterclaims.

                  From time to time,  the  Company is  involved  in other  legal
         proceedings  arising in the ordinary course of its business.  As of the
         date hereof,  except as previously  disclosed or discussed herein,  the
         Company is not a party to any legal  proceedings  with respect to which
         an adverse  outcome would,  in  management's  opinion,  have a material
         adverse  effect  on the  Company's  business,  financial  condition  or
         results of operations.

      Item 2.     Change in Securities and Use of Proceeds

                  The  effective  date of the Company's  registration  statement
         filed on Form S-1 under the Securities Act of 1933 (No.  333-00824) was
         April 2, 1996 (the "Registration  Statement").  The class of securities
         registered  was Common Stock.  The offering  commenced on April 2, 1996
         and all securities were sold in the offering. The managing underwriters
         for the  offering  were Cowen & Company,  Bear,  Stearns & Co. Inc. and
         J.P. Morgan & Co.

                  Pursuant  to the  Registration  Statement,  the  Company  sold
         8,500,000 shares of Common Stock for its own account,  for an aggregate
         offering price of $89,250,000, and 3,000,000 shares of Common Stock for
         the account of certain selling stockholders,  for an aggregate offering
         price of $31,500,000.

                  The Company incurred  expenses of approximately  $7,897,500 in
         connection  with  the  offering,   of  which   $6,247,500   represented
         underwriting  discounts  and  commissions  and  $1,650,000  represented
         estimated  other  expenses.  All such  expenses were direct or indirect
         payments to others.  The net  offering  proceeds  to the Company  after
         total expenses was approximately $81,352,000.

                  The  Company  has used  approximately  $53,500,000  of the net
         proceeds of the  offering,  of which  $38,600,000  represents  payments
         relating to the  construction  of plant,  building and  facilities  and
         $14,900,000  represents  payments  relating  to the  purchase  of  real
         estate.  All such payments were direct or indirect  payments to others.
         All other net  proceeds of the offering  have been  invested in various
         short-term  investments.  The use of the proceeds of the offering  does
         not represent a material change in the use of proceeds described in the
         prospectus that formed a part of the Registration Statement.

                                       19
<PAGE>

      Item 6.     Exhibits and Reports on Form 8-K

(a)      Exhibits

         10.34    Credit  Agreement,  dated  as of  September  30,  1998,  among
                  Arterial Vascular Engineering,  Inc., as Borrower, the lenders
                  listed  therein,  as Lenders,  DLJ Capital  Funding,  Inc., as
                  Syndication Agent,  Paribas, as Documentation Agent, and Royal
                  Bank of Canada, as Administrative Agent, and exhibits thereto.

27       Financial Data Schedule.

(b)      Reports on Form 8-K

         On July 23,  1998,  the  Company  filed a Form 8-K with  respect to its
         agreement to acquire the coronary  catheter lab business of C.R.  Bard,
         Inc.  ("Bard"),  as well as  rights to the  supply  by Bard of  certain
         materials,   for  approximately   $550  million  in  cash,  subject  to
         adjustment.

         Report Date: July 9, 1998
         Filing Date: July 23, 1998
         Item 5 -- Other Events
         Item 7 -- Exhibits


                                       20
<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.



                                    ARTERIAL VASCULAR ENGINEERING, INC.



Date:    November 13, 1998          /s/   John D. Miller             
                                    --------------------------------------------
                                    John D. Miller
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                       21
<PAGE>


                                INDEX TO EXHIBITS


Exhibit
-------


10.34    Credit  Agreement,  dated as of  September  30,  1998,  among  Arterial
         Vascular Engineering, Inc., as Borrower, the lenders listed therein, as
         Lenders, DLJ Capital Funding,  Inc., as Syndication Agent,  Paribas, as
         Documentation Agent, and Royal Bank of Canada, as Administrative Agent,
         and exhibits thereto.

27       Financial Data Schedule