UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------
                                   FORM 10-K/A

(Mark One)
[  X  ]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934.

                For the fiscal year ended August 31, 1997

[     ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                SECURITIES EXCHANGE ACT OF 1934.

                For the transition period from ____________ to ___________

                Commission File No. 0-7578

                        ELECTRO-CATHETER CORPORATION
         (Exact name of the registrant as specified in its charter)

      New Jersey                                       22-1733406
      ----------                                       ----------
(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                        No.)

2100 Felver Court, Rahway, New Jersey                           07065
-------------------------------------                           -----
(Address of Principal Executive Offices)                     (Zip Code)

Registrant's Telephone Number including Area Code: 732-382-5600

           Securities Registered Pursuant to Section 12(b) of the Act: None 
               Securities Registered Pursuant to Section 12(g) of the Act
                common stock, $.10 par value
                ----------------------------

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 such shorter period that the Registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
at least the past 90 days.

                Yes    X                             No
                           
Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or  information  statements  incorporated  by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A. [ ]

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold,  or the  average  bid and ask  prices of such
stock, as of a specified date within 60 days prior to the date of filing.

Aggregate market value as of November 18, 1997............$2,661,185

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







<PAGE>



                    common stock, $.10 par value
                    as of November 18, 1997............... 6,383,611

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  Proxy  Statement  to be filed with respect to its
1998 Annual Meeting of Stockholders are incorporated into Part III.







<PAGE>



                                 AMENDMENT NO. 1

     The undersigned  hereby amends the following items,  financial  statements,
exhibits or other portions of its Annual Report on Form 10-K for the fiscal year
ended August 31, 1997, as set forth in the pages attached hereto:

  PART I

         Item 1.        Business

  PART II

         Item 7.        Management's   Discussion   and  Analysis  of  Financial
                        Condition and Results of Operations

  PART III

         Item  12.      Security   Ownership  of  Certain   Beneficial  Owners
                        and Management

  PART IV

         Item 14.       Exhibits,  Financial  Statement Schedules and Reports on
                        Form 8-K







<PAGE>



                                     PART I

FORWARD LOOKING INFORMATION

     Electro-Catheter  Corporation  ("Electro"  or  the  "Company")  desires  to
provide  investors with  meaningful and useful  information.  As a result,  this
Report  contains   certain   statements  which  describe  the  Company's  belief
concerning  future business  conditions and the outlook for the Company based on
currently available information. Many of the statements other than statements of
historical  facts  included  in  this  report  are  forward-looking  statements,
including,  without  limitation,  those regarding the Company's future financial
position,  business strategy,  budgets, projected costs and plans and objectives
of  management  for  future  operations.  Wherever  possible,  the  Company  has
identified these "forward-looking"  statements (as defined in Section 21E of the
Securities  Exchange  Act of 1934) by words such as  "anticipates,"  "believes,"
"estimates,"   "expects,"  and  similar   expressions.   These   forward-looking
statements  are  subject  to risks  and  uncertainties  which  could  cause  the
Company's actual results, performance and achievements to differ materially from
those  expressed  in,  or  implied  by,  these   statements.   These  risks  and
uncertainties  include,  but are not limited to, the  following:  the  financial
strength of the industry,  demand for the Company's  products,  the  competitive
pricing  environment  within the industry and the Company's  ability to develop,
market  and sell new  products.  The  Company  assumes no  obligation  to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

ITEM 1.         BUSINESS
-------         --------

General
-------

Electro-Catheter  Corporation is engaged in the business of design, development,
manufacture,  marketing  and  sale  of  products  utilized  in  connection  with
illnesses  of the heart and  circulatory  system and make use of  catheters  and
related  products.  The  Company  was  incorporated  in New Jersey in 1961.  The
Company has targeted  electrophysiology as its focal area for future growth, but
intends to maintain and develop  products for the emergency  care,  invasive and
non-invasive  cardiology  and  invasive  radiology  markets.  The  Company  also
continues   to  explore   opportunities   to  expand  its   Original   Equipment
Manufacturing ("OEM") business and contract research and development business to
capitalize  on  its  catheter   technology   expertise  and  its   manufacturing
capabilities.  Electro produces a wide range of catheter products intended to be
utilized by doctors and other trained hospital  personnel for diagnostic as well
as therapeutic purposes.

The Company markets its cardiovascular  catheters and other catheters worldwide.
Export sales were  approximately  $1,828,000 in fiscal year 1997,  $2,324,000 in
fiscal year 1996 and $1,964,000 in 1995, representing approximately 27%, 32% and
27% of net sales in such fiscal years, respectively.

On October 23,  1997,  the Company  entered into a letter of intent with Cardiac
Control Systems,  Inc., a Delaware  corporation ("CCS"), to effect a merger (the
"Merger") of the two companies  targeted toward the development and marketing of
advanced specialty electrophysiology  products.  Currently, the structure of the
transaction contemplates the Merger of a newly-created,  wholly-owned subsidiary
of CCS into and with the Company as a result of which the Company shall become a
wholly-owned subsidiary of CCS. The transaction further contemplates an exchange
of common stock of the two companies,  with two shares of CCS common stock, $.10
par value per share,  to be exchanged  for every three  shares of the  Company's
common stock,  $.10 par value per share. It is intended that upon the closing of
the Merger, 50% of the Company's senior debt would be redeemed and the remaining
50% of such debt would be  converted  into  convertible  preferred  stock of the
surviving subsidiary in the Merger.





                                        1

<PAGE>


Consummation of the Merger is subject, among other things, to: (i) the execution
of a definitive agreement reflecting the intentions of the parties; (ii) raising
sufficient capital to support the product development efforts of both companies;
(iii) the approval of the transaction by the Board of Directors of each company;
(iv) the approval of the transaction by the stockholders of the Company; and (v)
the receipt of all required regulatory approvals by each company.

CCS  develops,  manufactures  and  sells a broad  line  of  implantable  cardiac
pacemakers,  pacemaker  leads and related  products  which the management of the
Company  believes are  complementary  to its own product  lines.  Management  of
Electro  believes  that the Merger  may allow  certain  efficiencies  to improve
operating  performance  and that the broader product line may provide for a more
effective  marketing  and  distribution  process.  There  can  be no  assurance,
however,  that consummation of the Merger will yield positive  operating results
in the future.

Products
--------

The Company produces a wide range of catheter  products  intended to be utilized
by doctors and other trained  hospital  personnel for diagnostic and therapeutic
purposes.  Catheters are hollow tubes that can be passed through veins, arteries
and other anatomical passageways.  The Company considers the market within which
it sells its present and proposed products as a single industry segment.

In over  thirty-six  years of  business,  Electro has sold well over two million
catheters.  The current selling prices for the products  marketed by the Company
typically range from thirty-five to five hundred dollars.

Electrophysiology  Catheters. The field of cardiac  electrophysiology ("EP")  is
one  of  the  most  rapidly  growing  areas  of  medical   technology.   Cardiac
electrophysiology  is the study of the electrical  system of the heart.  Cardiac
electrophysiologists are concerned with electrical disorders in the heart, their
etiology,  diagnosis  and  treatment.  The  medical  problems  on which  cardiac
electrophysiologists  focus are conduction  problems of the heart, which include
tachyarrhythmic episodes which can lead to sudden cardiac death. The development
of transcatheter  diagnosis of the heart's  conduction  system and transcatheter
correction of certain  conduction  dysfunctions have increasingly  attracted the
attention of cardiologists.

The Company's line of diagnostic EP catheters is comprised of three  categories:
the Detector,  the  Investigator  and the Cloverleaf,  and each category has its
unique  characteristics  requested by physicians that desire different  handling
features. In addition, Electro has a Genesis line of steerable EP catheters that
provides the  physicians  with a more  sophisticated  mapping tool for difficult
diagnostic procedures. These catheters are available in many curve and electrode
configurations.

The Company markets its Circuit  Breaker  steerable  catheters with  temperature
control  for  catheter  ablation  for  international  distribution  only.  These
catheters are compatible  with most  radiofrequency  generators.  Due to certain
development issues, clinical trials scheduled for 1997 were delayed. The Company
plans to begin clinical  trials in the U.S. in 1998 in order to seek approval to
market these catheters domestically.

Monitoring and Pacing Catheters.  The Company's line of monitoring catheters are
made  of  flexible  radiopaque  materials  which  are  visible  in  use  through
fluoroscopy.  The  catheters  have  a  variety  of  tips,  shapes  and  internal
configurations  and can be manipulated by an experienced  physician  through the
anatomy  to  the  desired   location.   Through  the  use  of  these  catheters,
electrophysiological  data,  pressure and flow readings and blood samples may be
obtained.  In addition,  the Company's catheters may be utilized as conduits for
the  injection  of  radiopaque   materials   into  the   bloodstream  to  permit
fluoroscopic observation of abnormalities in the vasculature.

Monitoring  catheters are marketed under the following  names:  Baltherm(R) Flow
Directed   Balloon   Catheters,   Pacewedge(R)   Balloon  Guided  Catheters  and
Balwedge(R) Catheters.

The Company's  pacing  catheters are  fabricated  from a number of materials and
frequently  consist of an  electrode-bearing  tube.  The tube is guided into the
body and the electrode is delivered through the venous system to the heart where
it is then used for pacing.  This  procedure  involves the delivery to the heart
muscle,  from a source  outside  the body,  of an  electrical  stimulus  causing
contractions like the natural heartbeat. Such pacing is necessary where there is
a  conduction  blockage  in the  heart  causing  the  heart to beat at a slow or
irregular rate.

One of the pacing  catheters  manufactured  by the Company is the  Balectrode(R)
Bipolar Pacing Probe. With this product,  both the amount of manipulation of the
catheter  required to cause the  stimulating  electrode to be  positioned in the
proper location within the heart and the time required from the  commencement of
the procedure until it is completed,  are substantially  reduced over what would
result if a non-balloon catheter were used as the delivery system.

The  pacing  products  usually  are  sold in kits  containing  the  catheter,  a
placement  needle,  connectors  and various other  devices.  These kits are sold
under  various  names,  including  the  following:  Balectrode(R)  Flow-Directed
Temporary Pacing Kit, Silicore(R) Semi-Floating Pacing Kit and Multipace.

Multi-Purpose  Catheters.  Multi-Purpose  catheters have features or uses which,
under certain circumstances,  result in the combination of pacing and monitoring
functions. Further, the Company manufactures certain electrode-bearing catheters
used to make  electrical  measurements  within the heart and provide  electrical
stimulation for both therapeutic and diagnostic purposes.

Drainage Catheters. Although the Company's principal activities have been in the
cardiovascular  area, it currently is manufacturing and marketing the Elecath(R)
One Step(TM) Fluid Drainage System which is used for draining fluid  collections
from various locations in the body. This system consists of a catheter, composed
of  a  unique  formulation  developed  by  the  Company,  mounted  on  a  simple
penetration apparatus.  In the opinion of the Company's management,  the product
may be useful to a broad range of physicians,  in addition to radiologists,  and
the use thereof may result in more complete and safer drainage.

Sales, Marketing and Distribution Methods
-----------------------------------------

The Company markets, sells and distributes its products domestically through its
own sales force. At November 18, 1997 the Company employed 4 salespersons in the
field and a home office staff of marketing  and sales  support of 6 people.  The
Company also employs an  International  Marketing  Manager based in Europe on an
independent contractor basis. In previous years, the Company had one significant
distributor in the United States which was  responsible for sales in all or part
of thirteen  Eastern  states plus the  District of  Columbia.  This  distributor
accounted for  approximately  11% of net sales in fiscal year 1995.  The Company
terminated its arrangement with this distributor on May 31, 1995 and the Company
now markets its  products  directly in this  territory.  As such,  there were no
sales to this distributor in fiscal years 1997 and 1996. The principal customers
for  the  Company's  products  are  hospitals  whose  purchasing  decisions  are
determined on the basis of assessment of the products by the physicians.  No one
customer  accounted  for more than ten percent of the Company's net revenues for
fiscal years 1997 and 1996.  International  markets are serviced by a network of
independent  distributors.  Electro  also sells its  products to OEM  customers,
performs contract research and development work for third parties and engages in
licensing of its technology to third parties.

While  export sales have  contributed  significantly  to Electro's  net sales in
fiscal  years  1997,  1996  and  1995,  Electro  has  not  effected  substantial
penetration of the domestic  electrophysiology market which is attributable,  in
part,  to its lack of an  FDA-approved  ablation  catheter.  Electro's  focus on
engineering  efforts in contract  research and  development and its OEM business
has also  contributed  to lower  domestic  sales  together with lower demand for
older products in pacing and monitoring.

Advertising of the Company's  products consists primarily of displays at medical
conventions and meetings,  advertisements  in medical  journals and direct mail.
The Company also  cooperates in the  publication of technical  papers written by
medical authorities in areas relating to the Company's products.

Product Warranties
------------------

     Electro's  catheters  are covered by a limited  warranty,  the  duration of
which is tied to product expiration dates.  Generally,  however,  the warranties
extend for five years. All warranties  provide for replacement with a comparable
Electro product or issuance of a credit at Electro's discretion. Product returns
are not material to Electro's results of operations.

Certain Patents, Trademarks and Licenses
----------------------------------------

     Electro's  policy is to protect its  proprietary  position  by, among other
methods,  filing United States and select foreign patent applications to protect
the technology that is important to the development of the business. Pursuant to
provisions adopted under the General Agreement on Tariffs and Trade,  patents in
force on June 8, 1995,  are  entitled to a patent term of the longer of 17 years
from issuance or 20 years from the earliest  filing date of the patent.  Electro
currently  holds six  patents in the U.S.  (one of which is owned  jointly  with
another party) and has one application  pending. The last to expire of Electro's
patents  will remain in effect  until 2015.  Electro has also  obtained  certain
patents in its principal  overseas markets.  The following are Electro's current
material patents:

United States Patents                      Description         Date of Issue
---------------------                      -----------         -------------

4,699,157                             Pacing Catheter and          10/13/87
                                       Method for Making
                                       Same

4,790,825                             Closed Chest Cannulation     12/13/88
                                       Method and Device for
                                       Atrial Major Artery

5,190,050                             Tip Deflectable               3/2/93
                                       Steerable Catheter

5,358,479                             Multiform Twistable Tip      10/25/94
                                       Deflectable Catheter

5,571,085                             Steerable Open Lumen         11/5/96
                                       Catheter

5,718,701*                            Ablation Electrode            2/17/98

---------------
*owned jointly with another party

Although Electro holds such patents, it believes that its business as a whole is
not or will not be materially dependent upon patent protection. However, Electro
will continue to seek such patents as it deems advisable to protect its research
and development efforts and to market its products.  Electro believes that it is
not infringing on any other party's patent.  However,  there can be no assurance
that current and potential  competitors will not file  applications or apply for
patents or additional proprietary rights relating to materials or processes used
by Electro.

Electro  develops  new  products as a result of its own analysis of the needs of
the market which it serves and as a result of needs  perceived by physicians and
researchers  who work with Electro on the design and  development of the devices
and systems needed by them. In certain  instances,  Electro pays the cooperating
physician or researches a royalty based upon the revenues derived from the sales
of the product to others.

Electro  also  relies  upon  technical  know-how  and  continuing  technological
innovation  to develop and maintain its position in the market and believes that
the  success of its  operations  will  depend  largely  upon such  know-how  and
innovation.  Electro requires  employees and consultants to execute  appropriate
confidentiality  agreements  and  assignments  of inventions in connection  with
their employment or consulting arrangement with Electro.

There can be no assurance that trade secrets will be  established,  that secrecy
obligations will be honored or that competition will not  independently  develop
superior or similar technology.

Research and Development
------------------------

The Company's  research and development  activities are devoted primarily to the
design and development of new products and  enhancements  to existing  products.
For the three years ended August 31, 1997, the Company incurred aggregate direct
expenses of  approximately  $2,824,000 for research and development  activities,
including  new  product  development,   of  which  approximately   $882,000  was
attributable to fiscal year 1997, $1,010,000 to fiscal year 1996 and $932,000 to
fiscal year 1995.  All of such  activities  were  sponsored by the Company.  The
major  portion of such  expenses was related to salaries  and other  expenses of
personnel  employed on a regular  basis in  research  and  development  efforts.
During fiscal year 1997 and 1996, the Company performed research and development
and  pre-production  planning for an unrelated  medical device company for which
services the Company recognized $544,293 and $155,707 in revenues in such years,
respectively.  The costs  associated  with these  revenues  are shown in cost of
sales and, as such, are not included in research and  development  expenses.  In
May  1997,  the   agreement-in-principle   to  perform  contract   research  and
development  work for the medical device  company,  which work commenced in June
1996,  was  terminated  at the  request of the other  company.  The terms of the
agreement-in-principle called for the other company to pay Electro a monthly fee
of $150,000 for a period of one year. A definitive agreement was never executed.
Electro received $600,000 for the work it had performed prior to termination and
an additional  $100,000  termination  fee. As a result of the  termination,  the
Company's revenues were adversely affected.

Production and Sources of Supply
--------------------------------

The Company  manufactures its products in a 25,000 square foot facility which it
owns and  another  10,000  square  foot  facility  which it leases.  The Company
believes that these  facilities have  sufficient  capacity to meet the Company's
anticipated  catheter needs for several years. The manufacturing of catheters is
a complex process and each catheter is assembled and tested. The Company designs
its  catheters  and  manufactures  a portion of the tubing,  balloons,  and many
components with tooling and  formulations  developed by it or especially for it.
The Company maintains  facilities to manufacture tubing and balloons and for the
production of catheters in the unique configurations  required for their use. In
addition, where more convenient or when the level of sophistication warrants it,
the Company uses outside suppliers for certain components.  The Company utilizes
the services of outside contractors for the performance of sterilization.

Although most of the components and processes necessary for Electro's production
activities  are  available  from more than one vendor,  certain  components  and
processes are  manufactured or provided by single vendors,  some involving molds
owned by the  Company.  Significant  components  for which  Electro has only one
source include tubing for  catheters,  connector pins used in pacing  catheters,
latex used in balloons,  needles and certain packaging.  The Company attempts to
maintain an adequate  supply of the  components on hand in order to minimize any
supply  interruption  from single  source  vendors to allow  sufficient  time to
locate and qualify a new vendor or to find a substitute for a single source.  As
such,  there can be no  assurance  that the  Company's  ability  to  manufacture
certain products will not be materially affected by single source vendors.

Insurance
---------

Electro  maintains  comprehensive  general liability  insurance  coverage in the
amount  of  $5,000,000  and  products   liability  coverage  in  the  amount  of
$2,000,000.  Electro  believes that such coverages are adequate and  reasonable,
however,  no assurance can be given that the products liability coverage will be
sufficient to protect  Electro's  assets against claims by users of its products
or that Electro  will be able to maintain  such  coverage (or obtain  additional
coverage) in the future at reasonable premium rates or at all, in which case its
assets  will be at risk in the  event  of  successful  claims  by  users  of its
products. Furthermore, Electro's liability coverage may not cover costs incurred
by Electro  under its product  warranties  (see "Product  Warranties")  or costs
incurred by Electro in the event of a product recall.

Electro  has no pending,  threatened  or actual  claims as of this date,  nor is
Electro aware of a ny current circumstances that might give rise to such claims.
However,  Electro  could be exposed to possible  claims for  personal  injury or
death resulting from the sale or subsequent  malfunction of allegedly  defective
products.

Employees
---------

At November 18, 1997, the Company had approximately 104 full-time employees.  Of
the total employees, 74 were engaged in manufacturing and quality control, 10 in
general administration and executive activities,  10 in engineering and research
and  development,  and 10 in sales and marketing.  The Company is not a party to
any  collective  bargaining  agreement  and  considers  its  relations  with its
employees to be good.

Government Regulation
---------------------

Federal  Regulations.  The  products  developed  by the  Company  come under the
jurisdiction  of the Food and Drug  Administration  (the  "FDA")  of the  United
States Department of Health and Human Services, as well as other Federal,  state
and local agencies and similar  health  authorities  in foreign  countries.  The
regulations  promulgated by such agencies govern the introduction of new medical
devices  and  modifications  to approved  devices,  the  observances  of certain
standards  with respect to the  manufacture  and labeling of such  devices,  the
maintenance of certain records and the reporting of potential product defects.

The Federal Food, Drug and Cosmetics Act, as amended (the "FDA Act"),  regulates
manufacturers of "medical  devices".  The Company's products are medical devices
within the  meaning  of such Act.  An  amendment  to the FDA  providing  for the
classification of medical devices and the establishment of standards relating to
their safety and  effectiveness,  scientific  review of certain  devices and the
registration of  manufacturers  and others has been in effect since 1976 and has
been  supplemented  by the  Safe  Medical  Devices  Act  of  1991.  Under  these
provisions,  a manufacturer  must obtain  approval from the FDA of a new medical
device before it can be marketed,  which approval process requires,  in the case
of certain  classes of medical  devices,  that the safety and  efficacy  of such
devices be demonstrated by the manufacturer to the FDA through the conduct of an
FDA-approved clinical evaluation program. Under certain circumstances,  the cost
of obtaining such approval may be high and the process  lengthy and no assurance
can be given that approval  will be obtained.  Although the Company has received
FDA approval to market its principal existing products, or is exempt from formal
approval   requirements  as  provided  by  law  for  those  devices  already  in
distribution  before May 28, 1976,  there can be no  assurance  that the Company
will receive the requisite approvals to market additional products. Furthermore,
any substitution by the Company of its current sources for certain raw materials
utilized in its production  processes  will, if such  substitution  results in a
change in the composition of the material, be subject to FDA approval, and there
can be no assurance that such approvals will be obtained.

Since the devices  developed by the Company are  intended  for "human  use",  as
defined by the FDA, the Company and such devices are subject to FDA  regulations
which, among other things, allow for the conduct of routine detailed inspections
of device  manufacturing  establishments  and require adherence to "current good
manufacturing  practices"  ("cGMP") in the  manufacture of medical devices which
include testing, quality control, design and documentation requirements.

In  addition,  certain  other  classes  of  medical  devices  must  comply  with
industry-wide   performance  standards  with  respect  to  safety  and  efficacy
promulgated by the FDA. The FDA has not yet developed industry-wide  performance
standards with respect to the safety and efficacy of those products manufactured
by the  Company  which  will be  subject  to such  standards.  When  and if such
standards are adopted, the Company will be required to submit data demonstrating
compliance with the standards  (during which period the Company may be permitted
to continue to market products which have been previously approved by the FDA).

In recent  years,  the FDA has pursued a more  rigorous  enforcement  program to
ensure that regulated businesses,  like the Company, comply with applicable laws
and regulations. Noncompliance with applicable requirements can result in fines,
penalties,  recall of products,  suspension  of  production  or the inability to
obtain  premarket  clearance or approval for new  products.  The Company  cannot
predict the extent or impact of future  Federal,  State or local  legislation or
regulation.

In February 1997,  the FDA conducted an inspection and audit of the Company.  At
the conclusion of the audit,  the FDA issued a number of observations  regarding
violations  of cGMP. On March 11, 1997,  the FDA issued a Warning  Letter to the
Company requesting that prompt action be taken to correct the violations.

The areas of noncompliance  include Electro's methods of investigation of device
complains,   methods  of  validation  of  device  sterilization,   environmental
monitoring  procedures,  methods of validation of extrusion  processes which are
used in the  manufacture  of certain of Electro's  catheters  and other  quality
assurance and record keeping requirements. Electro has communicated with the FDA
its intentions to remedy the noncompliance, has established a plan and timetable
to effectuate such  remediation and has diligently  worked to take the necessary
corrective actions; Electro's actions have included the establishment of certain
validation  protocols,  revisions to Electro's Quality System and Quality System
Manual, the implementation of a program for environmental  testing, the purchase
of equipment for extrusion  process  validation and the  institution of file and
record  keeping  protocols.  A  subsequent  FDA  inspection  in  September  1997
indicated  that,  while  substantial  progress has been made, not all corrective
actions have been  completed.  Electro is  continuing in its efforts to complete
such actions but the Company is unable to precisely  determine when such actions
will be completed.  There can be no assurance that Electro will be ready for any
reinspection by the FDA nor that Electro will pass any such reinspection when it
occurs.  While Electro is currently  under no  restrictions by the FDA regarding
the  manufacture  or  sale of its  products,  Electro  is  unable  to  precisely
determine the short-term  economic impact of instituting the required corrective
actions and there can be no assurance that the FDA will not take further action,
including  seizure  of  products,  injunction  and/or  civil  penalties,  if the
necessary  corrective actions are not completed on a timely basis. While Electro
is unable to  precisely  estimate  whether and to what extent  adverse  economic
impact may  result  from  instituting  the  corrective  actions,  the  voluntary
discontinuation  of  manufacturing of certain products and the delay in the sale
of other products has adversely affected sales by an estimated 10%.

Foreign  Regulations.  Many  countries  in which  Electro  markets its  products
regulate the manufacture,  marketing and use of medical devices. Electro intends
to pursue product  approval or  registration  procedures for its new products in
countries  where  it is  marketing  existing  products  as  well  as for new and
existing  products in additional  countries  where it believes there is a market
for its  products.  The  international  registration  and  approval  process  is
normally  accomplished in coordination with its international  distributors.  In
order for Electro to continue to sell  certain of its products in the nations of
the EEC after June 14, 1998,  it must obtain  certification,  the CE Mark,  from
ISO.  Since  Electro has not yet  obtained the CE Mark and is now unable to sell
certain  of  its  products  in  the  Nations  of  the  EEC  (which  account  for
approximately  17% of total revenues),  international  sales should be adversely
affected  in Europe for about the next six months or more.  The effort to obtain
the CE  Mark  (which  account  for  approximately  17%  of  total  revenues)  is
continuing and  management of Electro is hopeful of obtaining  this  designation
before  the end of the  calendar  year on its major  products  in order to allow
sales into this market. Even if Electro does obtain the CE mark, there can be no
assurance  that  Electro  will obtain the CE Mark or maintain  the same level of
revenue upon receiving the CE Mark as it did previously.

Export sales of devices that have not received FDA marketing clearance generally
are  subject to export  permit  requirements.  In order to obtain such a permit,
Electro  must  provide  the FDA  with  documentation  from  the  medical  device
regulatory  authority of the country in which the purchaser is located,  stating
that the sale of the device is not in violation of the country's  medical device
laws. In April 1996, new legislation was enacted to permit the export of devices
not approved in the U.S.,  if the product  complies with the laws of the country
and as long as the products are approved by any of the industrialized  countries
specified in the export reform legislation.  Electro has received such clearance
for its Circuit Breaker steerable catheter with temperature control for ablation
and is currently  distributing it outside the U.S.;  sales of Electro's  Circuit
Breaker steerable catheter for the fiscal years ended August 31, 1997 and August
31, 1996 were approximately $87,000 and $180,000, respectively.

The Company is also subject to various Federal,  state and local laws pertaining
to such  matters as safe  working  conditions,  environmental  protection,  fire
hazard  control  and  other  regulations.  The  Company  is  not  aware  of  any
regulations with which it is not in compliance.

Backlog
-------

Electro  does not operate  with  significant  backlog.  The  majority of product
shipments in a quarter relate to orders received in that quarter.  The Company's
actual product shipments depend on its production capacity, manufacturing yields
and  component  availability,  among other  factors.  At October 31,  1997,  the
Company  had  a  backlog  of  orders  for  its  products  which   aggregated  to
approximately  $716,000,  as compared to  approximately  $389,000 at October 31,
1996.

Competition in the Industry
---------------------------

The medical technology industry is a highly competitive field,  characterized by
rapid technological advances, and the Company competes with many other companies
on current  products  and  products  in the  development  stages.  Many of these
competitors have significantly greater financial, marketing, sales, distribution
and technical resources than the Company.  Rapid  technological  advances by the
Company's  competitors  could at any time  require  that the Company  redesign a
portion of its product  line.  Accordingly,  there can be no assurance as to the
success of the Company's products in competition with such companies.

The Company's older products  compete  primarily with those of larger  companies
that have greater resources and better  distribution  capabilities.  The current
principal basis of competition in these markets is price. The Company's  limited
resources  make it less  capable  than larger  competitors  to offer  aggressive
pricing to meet competition.  In addition,  certain customers purchase catheters
in blanket  contracts  which include  products  offered by the Company's  larger
competitors but not by the Company.  For these reasons, the Company has not been
able to  compete  effectively  during  recent  years in the  market  for  non-EP
products.

The  electrophysiology  market is also highly  competitive  and  competition  is
expected to increase.  These  competitors  currently include USCI, a division of
C.R. Bard, Inc.;  Mansfield and EP Technologies,  divisions of Boston Scientific
Corporation;  CardioRhythm,  Inc., a division of Medtronic, Inc.; Cordis-Webster
Laboratories,  a division of Johnson & Johnson,  Inc.  and Daig  Corporation,  a
division of St. Jude Medical,  Inc. These companies are more capable of offering
a broader  range of  products  to the  cardiologist.  The  Company's  ability to
compete  effectively in the future could be dependent upon  broadening its range
of products  and/or forging an alliance with another  company which would effect
greater product diversity. The Company's electrophysiology products compete with
other   treatments,    including   prescription   drugs,   implantable   cardiac
defibrillators and open heart surgery.

The Company's catheter ablation product is not yet approved for marketing in the
U.S., but some  competitors  have developed  products,  specifically  for use in
catheter  ablation,  which are approved in the U.S.  Due to certain  development
issues,  clinical trials  scheduled for 1997 were delayed.  The Company plans to
begin its  clinical  trials for  ablation  in 1998 in order to seek  approval to
market these catheters  domestically.  The costs to perform such clinical trials
are  estimated  at  $150,000  which  Electro  anticipates  would be funded  from
financing  obtained  in  connection  with the Merger.  The  primary  competitive
factors relative to other catheter ablation products are technical  superiority,
financial resources, the timing of regulatory approval,  commercial introduction
and quality.  The Company's  competitive position also depends on its ability to
attract and retain qualified personnel,  develop effective  proprietary products
and  implement  production  and marketing  plans.  The Company hopes that it can
effectively compete in this market.






                                        2

<PAGE>


                                                               PART II


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------  -------------------------------------------------
         CONDITION AND RESULTS OF OPERATIONS
         -----------------------------------

Results of Operations
---------------------

General
-------

On October 23,  1997,  the Company  entered into a letter of intent with Cardiac
Control Systems, Inc., a Delaware corporation ("CCS"), to effect a merger of the
two  companies  targeted  toward  the  development  and  marketing  of  advanced
specialty   electrophysiology   products.   Currently,   the  structure  of  the
transaction contemplates the merger of a newly-created,  wholly-owned subsidiary
of CCS into and with the Company as a result of which the Company shall become a
wholly-owned subsidiary of CCS. The transaction further contemplates an exchange
of common stock of the two companies,  with two shares of CCS common stock, $.10
par value per share,  to be exchanged  for every three  shares of the  Company's
common stock,  $.10 par value per share. It is intended that upon the closing of
the  transaction,  50% of the  Company's  senior debt would be redeemed  and the
remaining 50% of such debt would be converted to convertible  preferred stock of
the surviving subsidiary in the Merger.

Consummation  of the merger is  subject,  among  other  things,  to: (i) raising
sufficient capital to support the product development efforts of both companies;
(ii) the execution of a definitive  agreement  reflecting  the intentions of the
parties; (iii) the approval of the transaction by the Board of Directors of each
company;  (iv) the approval of the  transaction by the  stockholders of Electro;
and (v) the receipt of all required regulatory approvals by each company.

CCS  develops,  manufactures  and  sells a broad  line  of  implantable  cardiac
pacemakers,  pacemaker  leads and  related  products  which  Company  management
believes are  complementary  to its own product lines.  The Company believes the
merger may allow certain efficiencies to improve operating  performance and that
the  broader  product  line  may  provide  for a more  effective  marketing  and
distribution process.  There can be no assurance,  however, that consummation of
the merger will yield positive operating results in the future.

During the past eighteen months, the Company has devoted much of its engineering
efforts to its contract research and development customer and original equipment
manufacturing  ("OEM")  business.  This strategy has adversely  affected product
sales, but the Company hopes that this strategy will yield more positive results
in the  long-term  as the Company  continues  to  investigate  opportunities  to
capitalize on its catheter  technology and  manufacturing  capabilities.  In May
1997, the  agreement-in-  principle to perform contract research and development
work for a medical  device  company,  which work  commenced  in June  1996,  was
terminated   at  the   request   of  the  other   company.   The  terms  of  the
agreement-in-principle called for the other company to pay Electro a monthly fee
of $150,000 for a period of one year. A definitive agreement was never executed.
Electro  received  $600,000 for the work it had  performed  and also  received a
$100,000 termination fee. As a result of the termination, the Company's revenues
were  adversely  affected in the  short-term.  The  Company's  OEM  business may
partially offset the lost revenues from the termination.

Fiscal Year Ended August 31, 1997 Compared to Fiscal Year Ended August 31, 1996
-------------------------------------------------------------------------------

Overview. Net revenues declined $713,998 (9.7%) for the fiscal year ended August
-------- 31, 1997 as compared to the fiscal year ended August 31, 1996.  Product
revenues  declined  $1,148,149  (16.4%) for the year in addition to a decline in
revenues from an OEM customer of $64,133.  These declines were partially  offset
by an increase in contract research and development revenues of $388,586,  which
included the $100,000 termination fee described above and $109,698 received from
licensing certain of the Company's technology.

Sales.  Direct  domestic sales  decreased  $678,405  (14.4%) for the fiscal year
----- ended August 31, 1997 as compared to the prior fiscal year.  This decrease
is  primarily  due to the  Company  not  having  an  approved  electrophysiology
ablation catheter, lack of new products as the Company had focused its attention
on the contract  research and development and OEM business,  a continued decline
in demand for the Company's older products in pacing and monitoring, backorders,
as well as the impact of not replacing sales  representatives  who have left the
Company.  International revenues decreased $496,254 (21.4%) for 1997 as compared
to  1996.   The  decline  in   international   revenues  is  attributed  to  the
insufficiency  of new  products as the Company had focused its  attention on the
contract  research  and  development  and OEM  business,  lower  demand  for the
Company's  electrophysiology  products,  product  redesign  requirements,  lower
prices due to competition and backorders.

Gross Profits.  Gross profit dollars  decreased  $675,982 (20.6%) for the fiscal
-------------  year ended  August 31, 1997 as  compared to the prior year.  This
decrease is primarily  attributed to decreased  production levels related to the
lower  sales  volume  as well  as the  write-off  of  certain  inventories.  The
decreased  production  levels  caused the cost of goods sold of the catheters to
increase due to less efficient  labor  utilization and a greater amount of fixed
overhead  allocated to each catheter  produced.  The gross profit percentage for
the year ended August 31, 1997 was 39.2% as compared to 44.6% for the year ended
August 31, 1996. The lower volume continues to adversely impact gross profit.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
----------------------------------------------------   administrative   expenses
decreased  $570,864  (19.3%) for the current year as compared to the prior year.
This decrease  primarily  reflects lower domestic marketing and selling expenses
of  $641,690  (32.5%)  primarily  attributed  to the  departure  of field  sales
personnel that have not yet been replaced. This decrease was partially offset by
an increase in the provision for bad debt which resulted from non-payments by an
international distributor experiencing cash flow problems.

Engineering,   Research  and  Development  Expenses.  Research  and  development
---------------------------------------------------  expenses decreased $128,345
(12.7%) for the year ended  August 31,  1997 as compared to the prior year.  The
decrease  is  primarily  attributed  to the  transfer  of  expenses  to costs of
revenues  associated  with  billable  research  and  development  activities  in
addition to lower material  purchases and consulting  fees. These decreases were
partially offset by higher expenses for new personnel.

Other Income and Expenses.  Interest expense increased  primarily as a result of
-------------------------  the increased  borrowings from the T Partnership (see
Note 7 of the Financial Statements included in response to Item 14) and interest
associated with capitalized leases for equipment.

Litigation  expense  for  fiscal  year  1997  represents  the  jury  award  to a
terminated  employee as a result of an age discrimination suit and the Company's
legal  costs  from  September  1996 to defend  this  action  (see Note 15 of the
Financial Statements included in response to Item 14).

The net loss for the fiscal year ended August 31, 1997 was  $1,354,942  or $0.21
per share as  compared to a net loss of $892,940 or $0.14 per share for the year
ended August 31, 1996.

Fiscal Year Ended August 31, 1996 Compared to Fiscal Year Ended August 31, 1995
-------------------------------------------------------------------------------

Overview. During 1996, the Company entered into a joint venture arrangement with
-------- one of the leading centers for electrophysiology in the U.S. to develop
products for the diagnosis of ventricular tachycardia. The Company also began to
develop products in the therapeutic area of atrial  fibrillation.  In June 1996,
the Company  received an advance of $300,000 from an unrelated  party to perform
research and development  and  pre-production  planning.  In September 1996, the
Company reached a verbal  agreement-in-principle to perform further research and
development and production for this company pursuant to which the Company was to
receive a monthly fee of $150,000 for a period of one year for this  effort.  As
noted above,  this arrangement was never formalized and has now been terminated.
In October 1996, the Company  reached a formal  agreement to license  certain of
its technology to another  medical device company that is in a market segment in
which the Company does not participate.

Sales.  Net revenues  increased  $99,012 (1.4%) for the fiscal year ended August
------ 31, 1996 to  $7,362,436  as compared to the fiscal year ended  August 31,
1995. Total domestic sales decreased $416,351 (7.9%) while  international  sales
increased  $359,656  (18.3%)  for fiscal 1996 as  compared  to fiscal  1995.  In
addition,  the  Company  had  revenues  of  $155,707  in  1996  related  to  the
performance  of research  and  development  activities  for a third  party.  The
decline in domestic  sales is attributed to a decline in sales in several of the
Company's product lines,  especially the Company's steerable catheters,  and the
loss of field sales  personnel that have not yet been replaced.  The increase in
international  sales is  attributed  to an  increase  in sales of the  Company's
traditional and electrophysiology  products,  including sales to distributors in
countries where the Company had not previously been represented.

Gross Profits.  Gross profit dollars  decreased  $118,899  (3.5%) in fiscal year
-------------- 1996 as compared to the prior year. This decrease in gross profit
is attributed  primarily to the increased  fourth quarter  production  costs and
write-offs  of certain  inventories.  The gross profit  percentage  for 1996 was
44.6% as  compared  to 46.8% for 1995.  Gross  profit for fiscal  year 1996 also
included the positive  impact of selling  directly to hospitals in the northeast
region  rather than through a  distributor,  as previously  accomplished,  which
required  discounts.  In December  1995, the Company  reduced its  manufacturing
staff as a result  of lower  than  anticipated  demand.  Gross  profit  was also
negatively affected as a result of this labor reduction, since overhead expenses
were  allocated  over a smaller  direct labor pool. In October 1996, the Company
again reduced its workforce.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
----------------------------------------------------    administrative  expenses
decreased  by  $483,820  (14.1%) for fiscal year 1996 as compared to fiscal year
1995.  This decrease  primarily  reflects lower  domestic  marketing and selling
expenses.  This decrease is attributed to the departure of some of the Company's
sales representatives and the Director of Clinical Development who have not been
replaced.  This  decrease  was  offset  partially  by  hiring  an  International
Marketing Manager.

Engineering, Research and Development Expenses. Research and development expense
----------------------------------------------  increased by $78,117  (8.4%) for
fiscal  year  1996 as  compared  to the  prior  fiscal  year.  The  increase  is
attributed  to an  increase  in  personnel,  consulting  fees and  purchases  of
materials and supplies for new product development.

Other Income and Expenses.  Interest expense  increased in fiscal year 1996 as a
-------------------------  result of increased borrowings from the T Partnership
(see Note 7 of the Notes to the  Financial  Statements  included  in response to
"Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K").

The net loss for fiscal year 1996 was  $892,940 or $.14 per share as compared to
a loss of $1,135,890 or $.18 per share for fiscal year 1995.

Liquidity and Capital Resources
-------------------------------

At August 31, 1997, working capital decreased $1,066,572 to $958,174 from August
31, 1996.  The current  ratio was 1.6 to 1 at August 31, 1997 as compared to 2.7
to 1 at August 31, 1996.  Net cash used in operating  activities was $37,025 for
the fiscal year ended August 31, 1997 as compared to $546,610  used in operating
activities  for the prior fiscal year.  This  decrease in cash used in operating
activities is primarily a result of the decline in inventories  and the increase
in accounts payable and accrued expenses and accrued litigation costs which have
yet to be paid. Electro has been able to satisfy its obligations with borrowings
from the T Partnership, cash on hand and extending its accounts payable.

In September  1997, a Superior  Court jury in Middlesex  County New Jersey found
Electro liable for age  discrimination  in connection with its termination of an
employee in April 1994. The jury awarded the employee  $283,000 plus  attorneys'
fees  and  expenses  and   prejudgment   interest  in  the  combined  amount  of
approximately $47,990. The Company also incurred legal costs from September 1996
in the amount of approximately $115,665 which is also included in the litigation
expense in the  accompanying  1997  Statements  of  Operations.  The  Company is
contemplating the filing of an appeal.

On  October  11,  1993,  the  Company  entered  into  an  agreement  with  the T
Partnership, a related party, to borrow up to $1,000,000.  Ervin Schoenblum, the
Company's Acting President and Director and Abraham Nechemie, also a Director of
the Company,  are members of the T  Partnership.  On August 31, 1995,  after the
Company  had drawn  down all of the  $1,000,000,  the  Company  entered  into an
agreement  with the T  Partnership  to borrow an additional  $500,000  ("Lending
Agreement").  In January  1996,  the Company and the T  Partnership  agreed to a
restructuring of its financing agreement.

The T Partnership  advanced an additional  $200,000 to the Company and agreed to
defer  interest  payments for a period of three months  (interest  payments were
added to the  outstanding  principal on the T Partnership  indebtedness)  and in
April 1997, the Company  borrowed an additional  $100,000 from the T Partnership
under the same terms and conditions as its previous borrowing.

The rate of interest on the debt is 12% per annum on any outstanding balance and
is  payable  monthly.  Principal  payments  of  $25,000  scheduled  to  begin on
September  1, 1996,  have been  deferred to  September  1, 1998.  Any  remaining
balance is due on August 1, 2003. The loan is secured by the Company's property,
building,  accounts  receivable,  inventories  and machinery and equipment.  The
Company is to prepay the outstanding  balance in the event the Company is merged
into or  consolidated  with  another  corporation  or the  Company  sells all or
substantially  all of its assets,  unless the T  Partnership  and Company  agree
otherwise.

Under the  provisions of the agreement  with the T  Partnership,  the Company is
obligated to comply with certain financial covenants,  to be tested on a monthly
basis. Non-compliance by the Company shall allow the T Partnership to declare an
Event of Default and  accelerate  repayment  of  indebtedness.  As of August 31,
1997, the Company was not in compliance with this financial  covenant.  However,
in  November  1997,  the T  Partnership  agreed  not to  exercise  its  right to
accelerate the repayment of indebtedness  through  September 1, 1998 as a result
of non-compliance with the aforementioned  financial covenant and the nonpayment
of principal payments in the 1998 fiscal year. The T Partnership has also agreed
to a  modification  to the  financial  covenant.  The  Company is  currently  in
compliance with such covenant.  The total  indebtedness due to the T Partnership
at August 31, 1997 was $1,747,125.

Under the provisions of the original  agreement,  the T Partnership  was granted
warrants  which  permit the T  Partnership  to  purchase  166,667  shares of the
Company's  common stock at a price of $3.25 per share. The August 1995 agreement
provides  that the T  Partnership  surrender  its  warrants and be granted a new
warrant to purchase  500,000 shares of the Company's  common stock at a price of
$0.9875  per  share in  exchange  for the  surrendered  warrant.  No  additional
warrants  were  issued as a result of  subsequent  borrowings.  A value has been
allocated to the warrants  based upon their  estimated  fair market value at the
date of the agreement. Such amount ($50,000) is amortized as additional interest
expense over the term of the indebtedness.  The unamortized  balance is shown in
other assets in the accompanying 1997 and 1996 balance sheets.  The warrants are
immediately  exercisable  and  expire on August 1, 2001.  As of August 31,  1997
these warrants remain outstanding.

In  September  1997,  the Company  borrowed an  additional  $100,000  from the T
Partnership.

The report of the  Company's  independent  auditors on the  Company's  financial
statements,  included elsewhere herein,  includes an explanatory paragraph which
states that the Company's  recurring  losses and limited  working  capital raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The financial  statements do not include any adjustments  that might result from
the outcome of this  uncertainty.  During fiscal year 1997, the Company was able
to satisfy its cash shortfall from operating activities with the borrowings from
the T Partnership,  and advances from an unrelated  company to perform  contract
research and  development,  as well as cash on hand.  The  Company's  ability to
continue with its plans is contingent upon its ability to obtain sufficient cash
flow from  operations  or to obtain  additional  financing.  The Company has had
difficulty in paying its obligations  and, as a result,  has delayed payments to
vendors.  The Company  continues to re-evaluate  its plans to obtain funds.  The
contemplated  merger is contingent  upon the Company and CCS raising  sufficient
capital  to support  each  company's  product  development  efforts.  Management
believes that this merger can offer advantages to both companies by, among other
benefits, providing economies of scale and elimination of redundancies. However,
there can be no assurance that the merger will occur or that the Company will be
able to generate the funding required.

The Company does not plan to pay dividends in the near future.

Operating Trends and Uncertainties
----------------------------------

Sales.  The ability of Electro to attain a  profitable  level of  operations  is
------  dependent  upon  expansion  of  sales  volume,   both  domestically  and
internationally,  and continued  development of new and advanced products.  Many
countries  in which  Electro  markets its  products  regulate  the  manufacture,
marketing and use of medical devices. Electro intends to pursue product approval
or registration  procedures in countries where it is marketing its products. The
international  registration  and approval  process is normally  accomplished  in
coordination  with its  international  distributors.  In order  for  Electro  to
continue to sell certain of its products in the nations of the European Economic
Community  (the "EEC") after June 14, 1998,  Electro must obtain  certification,
the CE Mark, from the  International  Organization for  Standardization.  In the
event that  Electro  is unable to obtain  the CE Mark by such  date,  it will be
unable to sell  certain  products  in the  nations of the EEC and  international
sales  (which  account  for  approximately  17% of  total  revenues)  should  be
adversely  affected in Europe for some period of time.  The effort to obtain the
CE Mark is  continuing  and  Electro is hopeful of  obtaining  this  designation
before June 14, 1998.

Year 2000 Issue. Many existing computer programs use only two digits to identify
----------------  a year in the date field.  These  programs  were  designed and
developed  without  considering  the impact of the  upcoming  change in the year
2000.  Some older  computer  systems  stored  dates with only a  two-digit  year
reference  with an  assumed  prefix of "19".  Consequently,  this  limits  those
systems to dates between 1900 and 1999. If not corrected,  many computer systems
and applications  could fail or create erroneous  results by or at the year 2000
(the "Year 2000 Issue").

The  Company  has  undertaken  to review the  potential  impact of the Year 2000
Issue.  The Company  believes that such assessment will need to include a review
of the impact of the issue in  primarily  four  areas:  products,  manufacturing
systems, business systems and miscellaneous/other areas.  Additionally,  testing
of the various  potentially  affected  systems  will be  required  to  determine
whether upgrading or replacement will be required. Management does not currently
anticipate that it will encounter  serious Year 2000 Issues with its systems and
does not believe that any incremental  costs associated with achieving Year 2000
compliance,  to  the  extent  necessary,  will  be  material  to  the  Company's
operations.

The Company  relies on its  customers,  suppliers,  utility  service  providers,
financial  institutions  and other partners in order to continue normal business
operations. At this time, it is impossible to assess the impact of the Year 2000
Issue on each of these organizations. There can be no assurance that the systems
of other  unrelated  entities on which the Company relies will be corrected on a
timely basis and will not have a material adverse effect on the Company.

Recently Issued Accounting Standard
-----------------------------------

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standard No. 128 "Earnings Per Share" (SFAS 128). SFAS 128
supersedes  Accounting  Principles  Board Opinion No. 15, Earnings Per Share and
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with  publicly  held common stock.  SFAS 128 is effective
for  financial  statements  relating to both interim and annual  periods  ending
after December 15, 1997. The Company does not expect the adoption of SFAS 128 to
have a material impact on the Company.

Inflation and Changing Prices
-----------------------------

Inflation  did not  have a  material  impact  on the  results  of the  Company's
operations during the last three fiscal years.







                                       

<PAGE>



                                    PART III


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
-------    ----------------------------------------
           OWNERS AND MANAGEMENT
           ---------------------

Certain Beneficial Owners
-------------------------

  A. Set forth below is information concerning persons (including any "group" as
that term is used in Section  13(d)(3) of the  Securities  Exchange Act of 1934)
known to the Company to own more than 5% of the common stock of Electro,  of the
Company as of November 18, 1997.

<TABLE>

<CAPTION>
Name and Address of                                  Amount and Nature of                        Percentage
Beneficial Owner                                     Beneficial Ownership                        of Class(1)
----------------                                     --------------------                        -----------

           
<S>                                                       <C>                                     <C>  
The T Partnership, L.L.P.                                 2,464,844(3)                            35.3%
c/o Wiss & Co.
354 Eisenhower Pkwy.
Livingston, NJ 07039(2)

  Fred S. Lafer                                           2,464,844                               35.3%
  c/o The Taub Foundation
  300 Frank W. Burr Blvd.
  Teaneck, NJ 07666

  Abraham H. Nechemie                                     2,469,844(4)                            35.4%
  Wiss & Co.
  354 Eisenhower Pkwy.
  Livingston, NJ 07039

  Ervin Schoenblum                                        2,512,844(5)                            35.8%
  c/o Electro Catheter Corp.
  2100 Felver Court
  Rahway, NJ 07065

  Stephen D. Shapiro                                      2,464,844                               35.4%
  20 Old Post Road
  E. Setauket, NY 11733

  Henry Taub                                              2,464,844                               35.4%
  c/o The Taub Foundation
  300 Frank W. Burr Blvd.
  Teaneck, NJ 07666

Bruce Paul                                                  658,400                               10.3%
1 Hampton Road
Purchase, NY 10577

----------------------------
<FN>

(1)      The  common  stock  deemed  to be owned  which is not  outstanding  but
         subject to warrants and currently  exercisable  options is deemed to be
         outstanding  for the  purpose  of  determining  the  percentage  of all
         outstanding   common  stock   owned.   The  same  shares  may  be  held
         beneficially by more than one owner  resulting in the total  percentage
         being greater than 100%.

(2)      The T Partnership, L.L.P. is a New Jersey limited liability partnership
         (formerly  The  T  Partnership,   a  New  Jersey  general  partnership)
         consisting of Fred Lafer (10% equity interest), Abraham H. Nechemie (5%
         equity  interest),  Ervin Schoenblum (5% equity  interest),  Stephen D.
         Shapiro (10% equity interest) and Henry Taub (70% equity interest). The
         T Partnership  disclaims any  beneficial  ownership of shares  issuable
         upon  currently  exercisable  stock  options  held by  each of  Messrs.
         Nechemie and Schoenblum.

(3)      Includes  83,344 and 500,000  shares  which the T  Partnership  has the
         right to acquire pursuant to outstanding  warrants,  which warrants are
         immediately  exercisable  at prices of $1.425  and  $.9875  per  share,
         respectively.

(4)      Includes   5,000  shares   issuable  upon  the  exercise  of  currently
         exercisable stock options.

(5)      Includes   48,000  shares  issuable  upon  the  exercise  of  currently
         exercisable stock options.
</FN>
</TABLE>


Management
----------

  B. The  following  table sets  forth the  number of shares of common  stock of
Electro  beneficially  owned by each  Director  of  Electro,  each of the  named
executive officers named in the Summary Compensation Table set forth above as of
November  18,  1977,  and  the  percentage  of the  outstanding  shares  of such
ownership  represented  at the close of business on November 18, 1977,  together
with  information as to stock ownership of all Directors and Executive  Officers
of Electro as a group as of November 18, 1977.
<TABLE>

<CAPTION>
                                                    Amount and Nature of                        Percentage
Name of Beneficial Owner                              Beneficial Ownership                       of Class(1)
------------------------                              --------------------                       -----------
<S>                                                       <C>                                        <C>    <C>    <C>    <C>

Abraham H. Nechemie                                       2,469,844(2)                               35.4%
Ervin Schoenblum                                          2,512,844(2)                               35.8%
Lee W. Affonso                                               35,300(3)                                0.6%
Joseph P. Macaluso                                           29,400(3)                                0.5%
All executive officers and                                2,577,544(2)(4)                            36.9%
  directors as  group
  (8 persons)


----------------------------
<FN>

(1)      The common stock subject to currently  exercisable options is deemed to
         be  outstanding  for the purpose of  determining  the percentage of all
         outstanding common stock owned.

(2)      Messers.  Nechemie and  Schoenblum  are partners in the T  Partnership,
         which owns  2,464,844  shares of common  stock of  Electro  and has the
         right to acquire  583,344  share  pursuant to  immediately  exercisable
         warrants.  Also included in the table above are  currently  exercisable
         options  for the  purchase  of 5,000 and 48,000  shares held by Messrs.
         Nechemie and Schoenblum, respectively.

(3)      All 21,900 shares are subject to currently exercisable options.

(4)      Includes 140,400 shares subject to currently  exercisable  options held
         by all  executive  officers and directors of Electro  (including  those
         individually named in the table above).
</FN>
</TABLE>

BOARD COMPENSATION REPORT ON EXECUTIVE COMPENSATION

     The Company has no  compensation  committee or other committee of the Board
of Directors performing similar functions. All members of the Board of Directors
review and determine  executive  compensation  for all executive  officers on an
annual basis.  Ervin  Schoenblum,  the Company's Acting  President,  is the only
executive  officer of the Company  also serving on the Board.  Mr.  Schoenblum's
compensation  as Acting  President  was  negotiated  between the parties and was
based  in  part  on the  amount  of  compensation  paid  to him  while  he was a
consultant to the Company and the level of compensation historically paid by the
Company for this position.

     The Board of Directors has implemented an executive compensation philosophy
that seeks to relate executive compensation to corporate performance, individual
performance  and  creation of  stockholder  value.  Historically,  this has been
achieved through compensation  programs which focus on both short- and long-term
results.

     In  accordance  with  the  Board  of  Directors'   executive   compensation
philosophy,  the major component of executive compensation has been base salary.
Salaries  for   executive   officers  are  based  on  current   individual   and
organizational   performance,   affordability  and  competitive  market  trends.
Additional incentives are provided through issuance of incentive stock options.

Board of Directors:                   Abraham H. Nechemie
                                      Ervin Schoenblum

PERFORMANCE GRAPH

  The following performance graph compares the five-year cumulative total return
on the  Company's  Common  Stock to the S & P 500  Index  and the S & P  Medical
Products and Supplies  Index  assuming  $100 was invested on August 31, 1992 and
all dividends were reinvested.

             [Graphic presentation omitted in EDGAR filed document]
<TABLE>



                                                      INDEXED RETURNS
                                                       Years Ending
                      Base
                      Period
<CAPTION>
Company/Index                               Aug92        Aug93     Aug94        Aug95         Aug96          Aug95
<S>                                         <C>         <C>       <C>          <C>           <C>           <C>  
ELECTRO-CATHETER CORP.                      100         125.00     62.50        40.60         81.25         34.00
S&P 500 INDEX                               100         115.21    121.52       147.58        175.22        246.44
HLTH CARE (MED PDS&SUPP)-500                100          76.73     89.69       138.08        157.11        224.95
</TABLE>


     Notwithstanding anything set forth in any of the Company's previous filings
under the Securities  Act of 1933 or the  Securities  Exchange Act of 1934 which
might incorporate future filings, the preceding performance graph and the Report
of the  Compensation  Committee  herein  above  provided  shall  not  be  deemed
incorporated by reference into any such filings.






                                        

<PAGE>



                                     PART IV

ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
--------        ---------------------------------------------------------------

                (a)    1.   Financial Statements: The financial statements
                            filed in this Annual Report on Form 10-K are listed
                            in the attached Index to Financial Statements.

                       2.   Financial Statement Schedules: The financial
                            statement schedules filed in this Annual Report on
                            Form 10-K are listed in the attached Index to
                            Financial Statements.

                       3.   Exhibits: The exhibits required to be filed as part
                            of this Annual Report on Form 10-K are listed in the
                            attached Index to Exhibits.

                (b)   Current Reports on Form 8-K:

                            The Company filed a Current Report on Form 8-K dated
                            October 7, 1997, which, under "Item 5. Other Events"
                            thereunder reported a verdict in certain litigation
                            in which the Company has been involved. Also, the
                            Company has filed a Current Report on Form 8-K dated
                            November 7, 1997, which, under "Item 5. Other
                            Events" thereunder, reported the execution of a
                            letter of intent with Cardiac Control Systems, Inc.
                            contemplating the merger of the two companies.







                                        

<PAGE>



                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                             ELECTRO-CATHETER CORPORATION


Dated:  October 8, 1998                     By:   s/Ervin Schoenblum
        ----------------                           ------------------
                                                    Ervin Schoenblum
                                                    Acting President


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and the
capacities and on the dates indicated:



Dated:  October 8, 1998                       /s/Ervin Schoenblum
        ----------------                      -------------------
                                              Ervin Schoenblum, Acting President
                                               & Director



Dated:  October 8, 1998                       /s/Joseph P. Macaluso
        -------------                         ---------------------
                                              Joseph P. Macaluso
                                              Principal Accounting Officer



Dated:  October 8, 1998                       /s/Abraham H. Nechemie
        ----------------                      ----------------------
                                              Abraham H. Nechemie, Director





                                        

<PAGE>



                          ELECTRO-CATHETER CORPORATION

                          Index to Financial Statements





                                                                        Page

Independent Auditors' Report                                             F-1
Financial Statements:
     Balance Sheets - August 31, 1997 and 1996                           F-2 
     Statements of Operations - Years ended August 31, 1997,
        1996 and 1995                                                    F-3
     Statements of Stockholders' Deficiency/Equity -
          Years ended August 31,  1997,  1996 and 1995                   F-4  
     Statements  of Cash Flows - Years ended August 31, 1997,
        1996 and 1995                                                    F-5
     Notes to Financial Statements                                       F-6

Financial Statement Schedule:

  II - Valuation and Qualifying Accounts                                F-20


All other schedules are omitted for the reason that they are not required or are
not applicable or the required  information is shown in the financial statements
or notes thereto.





                                        7

<PAGE>



                          Independent Auditors' Report
                          ----------------------------


The Board of Directors
Electro-Catheter Corporation:

We have audited the financial  statements  of  Electro-Catheter  Corporation  as
listed in the accompanying index. In connection with our audits of the financial
statements,  we have also audited the financial  statement schedule as listed in
the  accompanying  index.  These  financial  statements and financial  statement
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial  statements and financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Electro-Catheter Corporation at
August 31, 1997 and 1996,  and the results of its  operations and its cash flows
for  each of the  years  in the  three-year  period  ended  August  31,  1997 in
conformity with generally accepted accounting  principles.  Also in our opinion,
the related  financial  statement  schedule,  when considered in relation to the
basic financial  statements taken as a whole,  presents fairly,  in all material
respects, the information set forth therein.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and has limited working capital  resources which raise  substantial  doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters are also  described in Note 2. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


                                                      KPMG Peat Marwick LLP

Short Hills, New Jersey
November 12, 1997





                                       F-1

<PAGE>



                          ELECTRO-CATHETER CORPORATION

                                 Balance Sheets

                            August 31, 1997 and 1996
<TABLE>

<CAPTION>
                                                                    1997                                  1996
                                                                  --------                              -------
                        Assets

Current assets:

<S>                                                              <C>                                   <C>    
     Cash and cash equivalents                                   $  98,127                               275,283
     Accounts receivable, less
       allowance for doubtful
       accounts of $152,070 in 1997
       and $15,000 in 1996                                         988,859                             1,016,201
     Inventories                                                 1,242,367                             1,862,179
     Prepaid expenses and other
       current assets                                              168,781                                64,344
                                                                 ---------                             ---------

           Total current assets                                  2,498,134                             3,218,007

Property, plant and equipment, net                                 777,663                               551,698
Other assets, net                                                   97,275                               123,407
                                                                 ---------                             ---------
           Total assets                                          3,373,072                             3,893,112
                                                                 =========                             =========

Liabilities and Stockholders' Deficiency/Equity
-----------------------------------------------

Current liabilities:
  Current installments of long-term debt                                 -                               300,000
  Current installments of capitalized
    lease obligations                                               50,734                                 7,489
  Accounts payable - trade                                         566,816                               345,888
  Deferred revenues                                                      -                               144,293
  Accrued expenses                                                 478,590                               395,591
  Accrued litigation expenses                                      443,820                                     -
                                                                                                       ---------

           Total current liabilities                             1,539,960                             1,193,261

Subordinated debentures due to
  T Partnership, a related party,
  excluding current portion                                      1,747,125                             1,447,125
Capitalized lease obligation,
  excluding current installments                                   222,277                                37,756
                                                                 ---------

           Total liabilities                                     3,509,362                             2,678,142
                                                                 ---------                             ---------

Stockholders' deficiency/equity:
  Common stock, $.10 par value,
  Authorized 20,000,000 shares;
  issued 6,383,611 in 1997 and
  6,373,711 in 1996                                                638,361                               637,371
  Additional paid-in capital                                    10,682,008                            10,679,316
  Accumulated deficit                                          (11,456,659)                          (10,101,717)
  Commitments and contingencies                                   (136,290)                           (1,214,970)
  Total stockholders' deficiency/
    equity                                                               -                                     -
                                                               -----------                            -----------

           Total liabilities and
             stockholders' deficiency/
             equity                                            $ 3,373,072                             3,893,112
                                                                 =========                             =========

See accompanying notes to financial statements
</TABLE>




                                       F-2

<PAGE>


<TABLE>

                                                    ELECTRO-CATHETER CORPORATION

                                                      Statements of Operations

                                             Years ended August 31, 1997, 1996 and 1995



<CAPTION>
                                                                    1995                   1996                  1997
                                                                    ----                   ----                  ----

<S>                                                               <C>                    <C>                    <C>    
Net revenues, including research
  and development revenue of
  $544,293 in 1997 and $155,707
  in 1996                                                         $ 6,648,438            7,362,436              7,263,424
Cost of goods sold                                                  4,041,486            4,079,502              3,861,591
                                                                   ----------            ---------              ---------

Gross profit                                                        2,606,952            3,282,934              3,401,833

Operating expenses:
  Selling, general and
administrative                                                      2,384,127            2,954,991              3,438,811
Research and development                                              881,728            1,010,073                931,956
                                                                    ---------            ---------              ---------

Operating loss                                                       (658,903)            (682,130)              (968,934)

Other income (expense):
   Interest income                                                                              86                  1,102
   Interest expense                                                  (249,384)            (210,896)              (168,058)
   Litigation expenses                                               (446,655)                   -                      -
                                                                      -------              -------                -------

Net loss                                                          $(1,354,942)            (892,940)            (1,135,890)
                                                                  ===========             ========             ========== 
                                                                    

Net loss per common share                                         $     (0.21)               (0.14)                 (0.18)
                                                                         ====                =====                  =====












See accompanying notes to financial statements


</TABLE>


                                                                 F-3

<PAGE>



<TABLE>
                                                    ELECTRO-CATHETER CORPORATION

                                            Statements of Stockholders' Deficiency/Equity

                                             Years ended August 31, 1997, 1996 and 1995
<CAPTION>

                                                                     Additional         Accumulated               Total stockholders
                                                    Common           paid-in               deficit                 deficiency/equity
                                                    ------           -------               -------                 -----------------


<S>                                                 <C>               <C>                <C>                      <C>               
Balances at August 31, 1994                         $  576,232        10,106,647         (8,072,887)              2,609,992

Employee stock plan                                        248             1,988                  -                   2,236

Common stock issued under private
placement                                               57,150           442,913                  -                 500,063

Proceeds from issuance of stock
warrants                                                     -            63,750                  -                  63,750

Net loss                                                     -                 -         (1,135,890)             (1,135,890)
                                                      ---------       ----------          ---------               ---------

Balances at August 31, 1995                             633,630       10,615,298         (9,208,777)              2,040,151

Stock options exercised                                   2,350           18,213                  -                  20,563

Employee stock plan                                         287              779                  -                   1,066

Common stock issued for services
rendered                                                  1,104           10,631                  -                  11,735
Amortization of deferred compensation
expense on stock options                                      -           34,395                  -                  34,395

Net loss                                                      -                -           (892,940)               (892,940)
                                                       ---------      ----------            -------

Balances at August 31, 1996                             637,371       10,679,316        (10,101,717)              1,214,970

Employee stock plan                                         990            2,692                  -                   3,682
 
Net loss                                                      -                -         (1,354,942)             (1,354,942)
                                                      ---------       ----------          ---------               ---------

Balances at August 31, 1997                         $  638,361        10,682,008        (11,456,659)               (136,290)
                                                    ==========        ==========        ===========                ======== 
                                                      



See accompanying notes to financial statements


</TABLE>


                                                                 F-4

<PAGE>

<TABLE>


                                                    ELECTRO-CATHETER CORPORATION

                                                      Statements of Cash Flows

                                             Years ended August 31, 1997, 1996 and 1995

<CAPTION>
                                                                         1997                        1996                  1995
                                                                         ----                        ----                  ----
<S>                                                                 <C>                           <C>                  <C>    
Cash flows from operating activities:

Net loss                                                            $(1,354,942)                  (892,940)             (1,135,890)

Reconciliation of net loss to net cash 
     used in operating activities:

   Depreciation and amortization                                        145,614                    130,524                 137,106
   Amortization of deferred charges                                       8,333                      8,333                  61,708
   Changes in assets and liabilities:
        Decrease (increase) in accounts
          receivable, net                                                27,342                    190,087                (141,514)
        Decrease (increase) in
          inventories                                                   619,812                    230,900                (289,789)
        (Increase) decrease in prepaid
          expenses and other current
          assets                                                       (104,437)                   (21,314)                 96,749
        Decrease in other assets, net                                    17,799                      4,207                   3,527
        Decrease (increase) in deferred
          revenues                                                     (144,293)                   144,293                       -
        Increase (decrease) in accounts
          payable and accrued expenses                                  747,747                   (340,700)                124,128
                                                                        -------                    -------                 -------

Net cash used in operating activities                               $   (37,025)                  (546,610)             (1,143,975)
                                                                         ------                    -------               ---------
Cash flows used in investing
  activities:
  Purchases of property, plant
    and equipment                                                      (115,292)                   (34,167)                (12,143)
                                                                        -------                     ------                  ------

Cash flows from financing activities:
  Net proceeds from issuance of stock                                         -                          -                500,063
  Net proceeds from issuance of
    subordinated debentures and
    warrants                                                            100,000                    547,125                 575,000
  Proceeds from exercise of stock options                                     -                     20,563                       -
  Proceeds from employee stock
    purchase plan                                                         3,682                      1,066                   2,236
  Proceeds from loan on officer's
    life insurance policy                                                     -                          -                  25,000
    Repayment of debt                                                  (128,521)                   (17,079)                (18,184)
                                                                        -------                     ------                 -------

    Net cash (used in) provided by
      financing activities                                              (24,839)                   551,675               1,084,115
                                                                         ------                    -------               ---------

    Net decrease in cash                                               (177,156)                   (29,102)                (72,003)
    Cash and cash equivalents
      at beginning of year                                              275,283                    304,385                 376,388
                                                                        -------                    -------                 -------
    Cash and cash equivalents
      at end of year                                                $    98,127                    275,283                 304,385
                                                                         ======                    =======                 =======

    Interest paid                                                   $   241,049                    199,724                 101,967
    Property, plant & equipment
      acquired under capitalized
      lease obligations                                             $   256,287                     49,268                       -

See accompanying notes to financial statements.


</TABLE>


                                       F-5

<PAGE>




                          ELECTRO-CATHETER CORPORATION

                          Notes to Financial Statements

                         August 31, 1997, 1996 and 1995

(1)      Summary of Significant Accounting Policies

         (a)       Nature of Business
                   ------------------

                   Electro-Catheter Corporation ("Company") has been in business
                   for  over  36  years.  The  Company  develops,  manufactures,
                   markets,  and sells  products for hospitals  and  physicians.
                   These products are diagnostic and therapeutic catheters which
                   are utilized in  connection  with  illnesses of the heart and
                   circulatory     system.     The    Company    has    targeted
                   electrophysiology  as its focal area for future  growth,  but
                   intends to maintain and develop  products for emergency care,
                   cardiac  surgery,  invasive and  non-invasive  cardiology and
                   invasive radiology.

         (b)       Revenue Recognition
                   -------------------

                   Revenues  are   recognized   at  the  time  of  shipment  and
                   provisions,  when  appropriate,  are made  where the right to
                   return exists in accordance  with SFAS No. 48.  Revenue under
                   service  contracts  are  accounted  for as the  services  are
                   performed  in  accordance  with the terms of the contract and
                   are not refundable if the research effort is unsuccessful.

         (c)       Cash and Cash Equivalents
                   -------------------------

                   For  purposes of the  statements  of cash flows,  the Company
                   considers all highly  liquid  investments  purchased  with an
                   original  maturity  of  three  months  or  less  to  be  cash
                   equivalents.  Cash  equivalents  are  carried  at cost  which
                   approximates market value.

         (d)       Concentrations of Credit Risk
                   -----------------------------

                   Financial instruments that potentially subject the Company to
                   concentrations  of credit  risk  consist  primarily  of trade
                   accounts receivable. The Company's customer base is primarily
                   comprised of hospitals in the U.S. and  distributors  outside
                   the U.S. As of August 31, 1997,  the Company  believes it has
                   no significant concentration of credit risk with its accounts
                   receivable.

         (e)       Inventory Valuation
                   -------------------

                   Inventories  are  stated  at the  lower  of  cost  (first-in,
                   first-out method) or market.

         (f)       Patents and Trademarks
                   ----------------------

                   Patents and trademarks are recorded at cost and are amortized
                   on a straight-line basis over their useful lives. Such costs,
                   net  of  accumulated  amortization,  are  included  in  other
                   assets, net in the accompanying balance sheets.

         (g)       Property, Plant and Equipment
                   -----------------------------

                   Property,  plant and equipment is carried at cost.  Plant and
                   equipment is depreciated using the straight-line  method over
                   the estimated useful lives of the assets.

                   Repairs and  maintenance  costs are charged to  operations as
                   incurred.  

                                      F-6

<PAGE>

(1) Summary of  Significant  Accounting  Policies, continued
    ---------------------------------------------------------

                   Betterments  are  capitalized.   Leasehold  improvements  are
                   amortized  over the term of the lease or the  useful  life of
                   the asset, whichever is shorter.

                   When assets are retired or otherwise  disposed,  the cost and
                   related accumulated depreciation are removed from the related
                   accounts,  and any  resulting  gain or loss is  recognized in
                   operations for the period.

         (h)       Research and Development
                   ------------------------

                   Research  and  development  costs are charged to expense when
                   incurred.

         (i)       Accounting for Income Taxes
                   ---------------------------

                   Deferred tax assets and liabilities  are determined  based on
                   differences  between the financial reporting and tax bases of
                   assets and liabilities and are measured using the enacted tax
                   rates and laws that will be in effect  when such  differences
                   are  expected to reverse.  The  measurement  of deferred  tax
                   assets is reduced, if necessary, by a valuation allowance for
                   any tax benefits  which are not expected to be realized.  The
                   effect on deferred tax assets and  liabilities of a change in
                   tax rates is  recognized in the period in which such tax rate
                   changes are enacted.

         (j)       Use of Estimates
                   ----------------

                   The  preparation of financial  statements in conformity  with
                   generally accepted accounting  principles requires management
                   to make  estimates  and  assumptions  that affect the amounts
                   reported in the financial  statements and accompanying notes.
                   Actual results could differ from those estimates.

         (k)       Stock-Based Compensation
                   ------------------------

                   Prior to September  1, 1996,  the Company  accounted  for its
                   stock  option  plan in  accordance  with  the  provisions  of
                   Accounting   Principles   Board   ("APB")   Opinion  No.  25,
                   "Accounting  for Stock  Issued  to  Employees",  and  related
                   interpretations.  As  such,  compensation  expense  would  be
                   recorded  on the date of  grant  only if the  current  market
                   price of the underlying stock exceeded the exercise price. On
                   September  1,  1996,  the  Company   adopted  SFAS  No.  123,
                   "Accounting  for  Stock-Based  Compensation",  which  permits
                   entities to recognize as expense over the vesting  period the
                   fair  value of all  stock-based  awards on the date of grant.
                   Alternatively,  SFAS No. 123 also allows entities to continue
                   to apply the provisions of APB Opinion No. 25 and provide pro
                   forma net income and pro forma earnings per share disclosures
                   for  employee  stock  option  grants  made in 1995 and future
                   years as if the fair- value based method  defined in SFAS No.
                   123 had been applied.  The Company has elected to continue to
                   apply the  provisions  of APB  Opinion No. 25 and provide the
                   pro forma disclosure provisions of SFAS No. 123.

         (l)       Loss Per Share
                   --------------

                   Loss per share is computed using the weighted  average number
                   of shares  outstanding during each year. Shares issuable upon
                   exercise  of   outstanding   stock   options,   warrants  and
                   conversion of debentures are not included in the  computation
                   of loss per share because the result of their inclusion would
                   be anti-dilutive.

                   The weighted average number of shares of common stock used in
                   the computation of loss per share was approximately 6,380,000
                   in 1997, 6,354,000 in 1996 and 6,027,000 in 1995.






                                       F-7

<PAGE>



(1)      Summary of Significant Accounting Policies, continued
         -----------------------------------------------------

         (m)       Long-Lived Assets To Be Disposed Of
                   -----------------------------------

                   In  accordance   with  SFAS  No.  121,  the  Company  reviews
                   long-lived  assets for impairment  whenever events or changes
                   in  business  circumstances  occur  that  indicate  that  the
                   carrying amount of the assets may be recoverable. The Company
                   assesses the  recoverability of long-lived assets held and to
                   be used based on  undiscounted  cash flows,  and measures the
                   impairment,  if any, using discounted cash flows. Adoption of
                   SFAS No.  121 in fiscal  1997 did not have any  impact on the
                   Company's  financial  position,  operating  results  or  cash
                   flows.

         (n)       Financial Instruments
                   ---------------------

                   The carrying  amounts of cash and cash  equivalents and other
                   current assets and current liabilities approximate fair value
                   due to the short-term maturity of these instruments.

(2)  Liquidity
     ---------

         The  accompanying  financial  statements  have been prepared on a going
         concern  basis  which  contemplates  the  continuation  of  operations,
         realization  of assets and  liquidation  of liabilities in the ordinary
         course of  business.  The Company  incurred  net losses of  $1,354,942,
         $892,940 and $1,135,890  for the years ended August 31, 1997,  1996 and
         1995 respectively, and at August 31, 1997 had an accumulated deficit of
         $11,456,659.  The net losses  incurred  by the  Company  have  consumed
         working  capital and weakened the  Company's  financial  position.  The
         Company's ability to continue in business is dependent upon its success
         in  generating  sufficient  cash  flow  from  operations  or  obtaining
         additional  financing.  The Company  continues to re-evaluate its plans
         and adopt certain cost reduction measures. The Company is attempting to
         increase  sales by examining  and,  where  appropriate,  modifying  its
         distribution network,  utilizing aggressive pricing and introducing new
         products  to  market.  The  Company's  ability to  continue  as a going
         concern  is  dependent  upon  the  successful   implementation  of  the
         aforementioned programs. There can be no assurances that these programs
         can  be  successfully  implemented.  The  financial  statements  do not
         include   any   adjustments   relating   to  the   recoverability   and
         classifications of reported asset amounts or the amounts of liabilities
         that might result from the outcome of this uncertainty.

(3)  Inventories
     -----------

         Inventories consisted of the following:

                                              1997             1996
                                              ----             ----


              Finished goods              $  481,660           954,997
              Work-in-process                490,621           490,396
              Materials and supplies         270,086           416,786
                                             -------           -------
                                          $1,242,367        $1,862,179
                                           =========          ========






                                       F-8

<PAGE>



(4)  Property, Plant and Equipment
     -----------------------------
  
         Property, plant and equipment consisted of the following:

                                                 1997                     1996
                                                 ----                     ----


         Land                      $           38,400                    38,400
         Building                             153,597                   153,597
         Building improvements                993,168                   952,837
         Office Equipment                   2,307,607                 2,244,694
         Furniture and equipment              534,232                   519,319
         Leasehold improvements               340,382                   340,382
         Sales equipment and
           diagnostic computers               587,348                   589,348
         Capitalized leases                   305,555                    49,268
                                            ---------                 ---------
                                            5,260,289                 4,887,845

         Less accumulated deprecia-
           tion and amortization            4,482,626                 4,336,147
                                            ---------                 ---------

         Net property, plant
           and equipment           $          777,663                   551,698
                                            =========                 =========

(5)  Accrued Expenses
     ----------------

         The components of accrued expenses consisted of the following:

                                                 1997                     1996
                                                 ----                     ----
         Accrued salaries, wages and
         payroll taxes             $          287,933                   278,263
              Accrued audit fees               52,500                    60,000
              Other expenses                  138,157                    57,328
                                              -------                   -------
                                   $          478,590                   395,591
                                              =======                   =======

(6)  Deferred Revenues
     -----------------

         In June 1996,  the  Company  received  an advance of  $300,000  from an
         unrelated   company   to   perform   research   and   development   and
         pre-production  planning  for it. For services  performed,  the Company
         recognized $155,707 in revenues in 1996 and such amount was reported in
         net revenues in the statement of operations. The remaining $144,293 was
         recorded as deferred  revenues in the  accompanying  1996 balance sheet
         and was recognized as revenue in fiscal year 1997.

(7)  Subordinated Debentures Due to T Partnership
     --------------------------------------------

         On October 11, 1993,  the Company  entered into an agreement with the T
         Partnership to borrow up to $1,000,000. Ervin Schoenblum, the Company's
         Acting President and Director, and Abraham Nechemie, also a Director of
         the  Company,  are members of the T  Partnership.  On August 31,  1995,
         after the  Company  had drawn down all of the  $1,000,000,  the Company
         entered  into  an  agreement  with  the  T  Partnership  to  borrow  an
         additional $500,000 ("Lending Agreement"). In January 1996, the Company
         and  the T  Partnership  agreed  to a  restructuring  of its  financing
         agreement.  The T Partnership  advanced an  additional  $200,000 to the
         Company  and agreed to defer  interest  payments  for a period of three
         months  (interest  payments were added to the outstanding  principal on
         the T Partnership indebtedness) and in April 1997, the Company borrowed
         an additional  $100,000 from the T Partnership under the same terms and
         conditions as its previous borrowing.  

                                      F-9
<PAGE>

(7) Subordinated Debentures Due to T Partnership, continued
    --------------------------------------------------------

         The rate of  interest  on the debt is 12% per annum on any  outstanding
         balance and is payable monthly. Principal payments of $25,000 scheduled
         to begin on September 1, 1996 have been  deferred to September 1, 1998.
         Any remaining  balance is due on August 1, 2003. The loan is secured by
         the Company's property, building, accounts receivable,  inventories and
         machinery  and  equipment.  The  Company is to prepay  the  outstanding
         balance in the event the  Company is merged into or  consolidated  with
         another  corporation or the Company sells all or  substantially  all of
         its assets, unless the T Partnership and Company agree otherwise.

         Under the  provisions  of the  agreement  with the T  Partnership,  the
         Company is obligated to comply with certain financial covenants,  to be
         tested on a monthly  basis.  Non-compliance  by the Company shall allow
         the T  Partnership  to  declare  an Event  of  Default  and  accelerate
         repayment of  indebtedness.  As of August 31, 1997, the Company was not
         in compliance with this financial covenant.  However, in November 1997,
         the T Partnership  agreed not to exercise its right to  accelerate  the
         repayment  of  indebtedness  through  September  1, 1998 as a result of
         non-compliance  with  the  aforementioned  financial  covenant  and the
         nonpayment  of  principal  payments  in the  1998  fiscal  year.  The T
         Partnership  has  also  agreed  to  a  modification  to  the  financial
         covenant.  The Company is currently in compliance  with such  covenant.
         The total  indebtedness due to the T Partnership at August 31, 1997 was
         $1,747,125.

         Under the provisions of the original  agreement,  the T Partnership was
         granted  warrants  which permit the T Partnership  to purchase  166,667
         shares of the Company's common stock at a price of $3.25 per share. The
         August 1995  agreement  provides that the T  Partnership  surrender its
         warrants and be granted a new warrant to purchase 500,000 shares of the
         Company's  common stock at a price of $0.9875 per share in exchange for
         the surrendered warrant. No additional warrants were issued as a result
         of subsequent  borrowings.  A value has been  allocated to the warrants
         based  upon  their  estimated  fair  market  value  at the  date of the
         agreement.  Such amount  ($50,000) is amortized as additional  interest
         expense over the term of the indebtedness.  The unamortized  balance is
         shown in other assets in the accompanying 1997 and 1996 balance sheets.
         The warrants are immediately  exercisable and expire on August 1, 2001.
         As of August 31, 1997 these warrants remain outstanding.

         In September 1997, the Company borrowed an additional $100,000 from the
         T Partnership.

(8)  Capitalized Lease Obligations
     -----------------------------

         The Company has entered into lease  commitments for equipment that meet
         the requirements for capitalization. The equipment has been capitalized
         and shown in property,  plant and  equipment in the  accompanying  1997
         balance sheet (see Note 3). The related  obligations  are also recorded
         in the accompanying  balance sheet and are based upon the present value
         of the future  minimum lease  payments with interest  rates of 13.7% to
         17.1%. The net book value of equipment acquired under capitalized lease
         obligations was $264,867 and $43,520,  respectively for the years ended
         August 31, 1997 and 1996.






                                       F-10

<PAGE>



(8)  Capitalized Lease Obligations, continued
     ----------------------------------------

         The annual  maturities  for  capitalized  lease  obligations as well as
         subordinated  debentures  due to the T  Partnership  for the five years
         subsequent to August 31, 1997, are as follows:

                  1998                 $    51,010
                  1999                     359,186
                  2000                     367,778
                  2001                     367,187
                  2002 and thereafter      874,975

(9)  Other Debt
     ----------

         The Company has borrowed $125,000 against the cash surrender value of a
         life  insurance  policy  of the  former  Chairman  of the  Board of the
         Company.  Interest on the loan is 6%. The loan plus accrued interest is
         recorded as a reduction in the policy's cash surrender value,  which is
         included in other assets in the accompanying balance sheets.

(10)  Stock Options
      -------------

         On May 20, 1987, the Company's stockholders approved the 1987 Incentive
         Stock  Option  Plan (the "1987  Plan").  Under the 1987  Plan,  225,000
         shares of  authorized  but unissued  shares of common  stock,  $.10 par
         value,  of the  Company  were set aside to  provide  an  incentive  for
         officers  and  other  key   employees  to  render   services  and  make
         contributions  to the Company.  Options may be granted at not less than
         their fair  market  value at the date of grant and are  exercisable  at
         such time provided by the grants during the five-year  period beginning
         on the date of grant.

         On May 23, 1990, the Company's stockholders approved the 1990 Incentive
         Stock  Option  Plan (the "1990  Plan").  The terms of the 1990 Plan are
         substantially  the same as the  terms of the 1987  Plan.  The 1990 Plan
         provides  for the  reservation  of 225,000  shares of common  stock for
         issuance thereunder.

         On  July  15,  1992,  the  Company's  stockholders  approved  the  1992
         Incentive  Stock Option Plan (the "1992  Plan").  The terms of the 1992
         Plan  are  substantially  the  same as the  terms  of the 1987 and 1990
         Plans.  The 1992 Plan likewise  provides for the reservation of 225,000
         shares of common stock for issuance thereunder.

         On  April 1,  1992,  the  Board  of  Directors  adopted  the 1992  Non-
         Qualified  Stock  Option  Plan  pursuant  to which  options to purchase
         200,000  shares of common stock may be granted to  directors,  officers
         and key employees.  Options may be granted at a price determined by the
         Board of  Directors,  but not less than 80% of the fair market value at
         the date of grant. Options are exercisable at such time provided by the
         grants,  but each option  granted  shall  terminate no longer than five
         years after the date of grant.

         In July 1994,  the  Company  extended  the  expiration  date of certain
         outstanding options held by two members of its Board of Directors.  The
         extension, relating to a total of 44,500 shares of the Company's common
         stock,  effected options having an exercise price per share of $.875 at
         the date of grant  and a fair  market  value of $1.25  per share at the
         date of  extension.  The  difference  between  the price at the date of
         grant and the fair market value at the date of the  extension  has been
         recorded  as  compensation  expense  and is  being  amortized  over the
         extension period.

                                      F-11

<PAGE>

(10)  Stock Options, continued
      ------------------------

         In October 1994, the Board of Directors  voted in favor of offering all
         employees,  officers and directors  holding  options at a price greater
         than $1.00 per share the opportunity to have those options  replaced by
         stock  options  at a price of $1.00 per  share,  representing  the fair
         market  value at that time.  Accordingly,  options to purchase  384,300
         shares were  terminated and an equal number of new options were issued,
         which is reflected in the table  below.  In addition,  the Company also
         granted 25,000 stock options to the Company's Acting President at $1.00
         per share.

         A summary of all stock option activity follows:
<TABLE>

<CAPTION>
                                                Number
                                                  of              Option Price
                                                Shares             Per Share                Total

<S>                                             <C>               <C>                        <C>    

Year ended August 31, 1995:

       Granted                                  405,300           $ .81 -  1.14              407,025

       Cancelled or expired                     395,800            1.19 -  2.75              791,338

Outstanding at August 31,
1995                                            490,300             .81 -  5.00              698,761
                                                =======            ============              =======

Year ended August 31, 1996:

       Granted                                   12,900           $  .81 -  .88               10,794

       Exercised                                 23,500                     .88               20,563

Cancelled or expired                            129,700              .81 - 5.00              330,231

Outstanding at August 31,
1996                                            350,000              .81 - 2.75              358,761
                                                =======              ==========              =======

Year ended August 31, 1997:

       Granted                                   23,500           $  .81 - 1.13               21,643

       Cancelled or expired                      22,300              .81 - 1.50               20,113

Outstanding at August 31,
 1997                                           351,200              .81 - 2.75              353,791
                                                =======           =============              =======
</TABLE>

         Options to acquire  216,260 shares of common stock were  exercisable at
         August 31, 1997.

         The per share  weighted-average  fair  value of stock  options  granted
         during  1997 and 1996 was $.59 and  $.55,  respectively  on the date of
         grant using the Black Scholes  option-pricing  model with the following
         weighted-average   assumptions:   expected   dividend  yield  of  0.0%,
         risk-free interest rate of 5%, volatility factor of 73% and an expected
         life of 5 years.  The Company  applies APB Opinion No. 25 in accounting
         for its stock options and,  accordingly,  no  compensation  expense has
         been recognized for its stock options in the financial statements.  Had
         the Company determined compensation cost based on the fair market value
         at the  grant  date for its  stock  options  under  SFAS No.  123,  the
         Company's net income would not have been materially  affected.  The pro
         forma amounts are indicated below: 

   

                                  F-12


                                        1997                  1996 
                                     ---------              -------

Net loss - as reported        $     (1,354,942)       $     (892,940)
Net loss - pro forma                (1,357,590)             (893,624)

Loss per share - as reported  $          (0.21)       $        (0.14)
Loss per share - pro forma               (0.21)                (0.14)

       In  accordance  with SFAS No. 123,  pro forma net income and earnings per
       share data reflect only options granted in 1996 and 1997.

       Therefore,  the full impact of calculating compensation expense for stock
       options  under SFAS No.  123 is not  reflected  in the pro forma  amounts
       presented above since  compensation  expense for options granted prior to
       September 1, 1995 was not considered.

(11)    Employee Stock Purchase Plan
        ----------------------------

         The Company has an Employee  Stock  Purchase  Plan (the  "Plan")  which
         provides  for  the  issuance  of a  maximum  of  75,000  shares  of the
         Company's  common  stock which were made  available  for sale under the
         Plan's first offering.

         After  the  first  offering,  subsequent  offerings  were made upon the
         recommendation  of the committee  administering  the Plan. Common stock
         can be purchased through employee- authorized payroll deductions at the
         lower of 85% of the fair market value of the common stock on either the
         first or last day of trading of the stock during the calendar  year. It
         is the intention of the Company that the Plan qualify under Section 423
         of  the  Internal  Revenue  Code.  The  Company's  Board  of  Directors
         authorized  extension of the Plan to January 1, 1998. During 1997, 1996
         and 1995, 9,900, 2,866 and 2,476 shares,  respectively,  were purchased
         under the Plan.

(12)    Preferred Stock, Common Stock and Paid-in Capital
        -------------------------------------------------

         The Company is authorized to issue up to 1,000,000  shares of preferred
         stock. As of August 31, 1997, no preferred shares have been issued.

         In March  1995,  the T  Partnership  purchased  571,500  shares  of the
         Company's  restricted  common  stock,  $.10  par  value,  in a  private
         placement  at $.875  per  share for  gross  proceeds  of  approximately
         $500,000.  In connection with this private placement,  the Company also
         issued to the T  Partnership  a  purchase  warrant to  purchase  83,344
         shares of the Company's common stock at an exercise price of $1.425 per
         share.  This  warrant  will  expire  five  years  from  the date of the
         agreement.   Ervin  Schoenblum,  the  Company's  Acting  President  and
         director,  and Abraham H.  Nechemie,  the other member of the Company's
         Board of Directors, are members of the T Partnership.

(13)   Income Taxes
       ------------

         A valuation  allowance is provided when it is more likely than not that
         some portion or all of the  deferred  tax assets will be realized.  The
         valuation allowance for deferred tax assets as of September 1, 1997 was
         $3,197,000  as compared to  $2,983,000  at September  1, 1996.  The net
         change in the total  valuation  allowance for the year ended August 31,
         1997 was an  increase of $142,000 as compared to a decrease of $536,000
         at August 31, 1996.

         At August 31, 1997 and 1996,  the tax effects of temporary  differences
         that give rise to the deferred tax assets and deferred tax  liabilities
         are as follows:





                                       F-13

<PAGE>



(13)    Income Taxes, continued
        -----------------------

Deferred tax assets:
                                                1997              1996
                                                ----              ----

       Inventories                           $  93,000         155,000
       Accounts receivable, due to
         allowance for doubtful accounts        23,000           3,000
       Contribution carryover                   25,000          23,000
       Compensated absences                     31,000          30,000
       Federal and state net operating
         loss carryforwards                  2,390,000       2,209,000
       Research and development and
         investment tax credit
         carryforwards                         635,000         635,000
                                             ---------       ---------
       Total gross deferred tax assets       3,197,000       3,055,000

       Less valuation allowance              3,137,000       2,983,000
                                             ---------       ---------

       Net deferred tax assets                 60,000           72,000

Deferred tax liabilities:

       Excess of tax over financial
         statement depreciation              (60,000)          (72,000)
                                              ------            ------

       Net deferred tax              $           -0-               -0-
                                           =========        ==========

         At August 31, 1997,  the Company had  available  federal net  operating
         loss carryforwards,  research and development and investment tax credit
         carryforwards that expire as follows:

<TABLE>

<CAPTION>
                                 Net operating                    Research and
       Expiration                loss carry-                      development                Investment tax
       Date                      forwards                         credits                    credits

       <S>                       <C>                                 <C>                         <C>                       
       1999                      $        -                           25,000                          _
       2000                               -                          275,000                     35,000
       2001                       4,417,000                          246,000                     43,000
       2002                       2,063,000                                -                          -
       2003                         690,000                                -                          -
       2004                         268,000                                -                          -
       2005                          46,000                                -                          -
       2006                         223,000                                -                          -
       2007                         454,000                                -                          -
       2008                         854,000                           11,000                          -
       2009                       1,368,000                                -                          -
       2010                       1,178,000                                -                          -
       2011                         589,000                                -                          -
       2012                       1,435,000                                -                          -
                                 ----------                        ---------                     ------
       Total                     13,585,000                          557,000                     78,000



</TABLE>




                                      F-10

<PAGE>



(14)   Segment Data
       ------------

         The  Company  operates  in one  business  segment.  Export  sales  were
         approximately  $1,828,000 in 1997, $2,324,000 in 1996 and $1,964,000 in
         1995. The major areas of export sales are as follows:

Region                   1997              1996                   1995
------                   ----              ----                   ----


Asia                $  448,507        $   459,947            $  419,601

Europe               1,201,036          1,592,469             1,301,582

South America           76,744            127,151               149,621

Other                  101,750            144,724                93,831

         Sales  to the  only  domestic  distributor  of the  Company's  products
         totalled approximately $765,000 in 1995, representing approximately 11%
         of net sales. The agreement with this distributor was terminated on May
         31, 1995 and, as such,  there were no sales to this distributor in 1996
         and 1997.

(15)     Commitments and Contingencies
         -----------------------------

  (a)    The Company has agreements to lease equipment for use in the operations
         of the business under  operating  leases.  The Company  incurred rental
         expenses  of  approximately  $105,000  in  1997,  $116,000  in 1996 and
         $148,000 in 1995.

  The following is a schedule of future  minimum  rental  payments for operating
  leases which expire through 2000:

                        1998                    8,294
                        1999                    4,150
                        2000                    4,150
                                               ------
                                               16,594

  (b)    The Company is involved in certain claims and litigation arising in the
         normal course of business. Management believes, based on the opinion of
         counsel representing the Company in such matters,  that, except for one
         claim,  the  outcome  of such  claims  and  litigation  will not have a
         material  effect on the  Company's  financial  position  and results of
         operations.  The one  exception  is that in  September  1997, a jury in
         Middlesex  County of the Superior Court of New Jersey found the Company
         liable for age  discrimination  when it terminated an employee in April
         1994. The jury awarded the terminated employee $283,000. In addition to
         the  $283,000,  the court  awarded the  plaintiff  attorney's  fees and
         expenses  and   prejudgment   interest  in  the   combined   amount  of
         approximately  $47,990.  The  Company  also  incurred  legal costs from
         September 1996 in the amount of approximately  $115,665. The Company is
         considering taking an appeal, but has accrued all related costs to date
         in the accompanying financial statements.

  (c)    In February  1997,  the FDA  conducted an  inspection  and audit of the
         Company.  At the  conclusion  of the audit,  the FDA issued a number of
         observations  regarding  violations of cGMP. On March 11, 1997, the FDA
         issued a Warning Letter to the Company requesting that prompt action be
         taken to correct the violations.






                                      F-15

<PAGE>



(15)  Commitments and Contingencies, continued
      ----------------------------------------

         In response to the observations and the Warning Letter, the Company has
         provided the FDA with a plan and timetable for  instituting  corrective
         actions.  The Company  has been  working  diligently  in its efforts to
         correct these violations.

         In September  1997,  the FDA  conducted  another audit of the Company's
         facilities.  While the Company has made progress towards correcting the
         violations,  at the  conclusion of this audit,  the FDA issued a report
         which included no additional  violations of cGMP but listed  violations
         which are in the process of  correction  by the Company.  At this time,
         the Company is unable to precisely  determine  the  short-term  adverse
         economic  impact  which will result  from  instituting  the  corrective
         actions.

  (d)    On October 23, 1997,  the Company  entered into a letter of intent with
         Cardiac  Control  Systems,  Inc., a Delaware  corporation  ("CCS"),  to
         effect a merger of the two companies  targeted  toward the  development
         and  marketing  of  advanced  specialty   electrophysiology   products.
         Currently,  the structure of the transaction contemplates the merger of
         a  newly-created,  wholly-owned  subsidiary  of CCS  into  and with the
         Company as a result of which the Company  shall  become a  wholly-owned
         subsidiary of CCS. The transaction further  contemplates an exchange of
         common stock of the two companies, with two shares of CCS common stock,
         $.10 par value per share, to be exchanged for every three shares of the
         Company's  common stock,  $.10 par value per share. It is intended that
         upon the closing of the  transaction,  50% of the Company's senior debt
         would be redeemed and the remaining 50% of such debt would be converted
         to convertible preferred stock.

         Consummation  of the merger is  subject,  among other  things,  to: (i)
         raising sufficient capital to support the product  development  efforts
         of  both  companies;  (ii)  the  execution  of a  definitive  agreement
         reflecting  the  intentions  of the parties;  (iii) the approval of the
         transaction  by the  Board  of  Directors  of each  company;  (iv)  the
         approval of the  transaction by the  shareholders  of  Electro-Catheter
         Corporation;  and (v) the receipt of all required regulatory  approvals
         by each company.

         CCS  develops,  manufactures  and  sells  a broad  line of  implantable
         cardiac pacemakers,  pacemaker leads and related products which Company
         management  believes are  complementary  to its own product lines.  The
         Company  believes the merger may allow certain  efficiencies to improve
         operating performance and that the broader product line may provide for
         a more effective  marketing and distribution  process.  There can be no
         assurance, however, that consummation of the merger will yield positive
         operating results in the future.




                                      F-16

<PAGE>

<TABLE>


                                   Schedule II

                          ELECTRO-CATHETER CORPORATION

                        Valuation and Qualifying Accounts

<CAPTION>
                                                     Addition
                               Balance at            charged to
                               beginning             cost and                                    Balance at
                               of year               expenses             Write-offs             end of year
                               -------               --------             ----------             -----------

<S>                            <C>                   <C>                   <C>                  <C>        
      
1997 Allowance for
doubtful accounts              $15,000               $142,848              $  5,778             $152,070

1996 Allowance for
doubtful accounts              $76,976                 39,383               101,179               15,000

1995 Allowance for
doubtful accounts              $21,776                 55,020                     -               76,796
                                ======                 ======               =======               ======




</TABLE>



                                                                F-17