<PAGE>

                                    [LOGO]

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

(in thousands, except per share data)      1997      1996       1995      1994        1993
------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>       <C>        <C>        <C>
Years Ended March 31,
Statements of Operations Data:
Net revenues. . . . . . . . . . . . . .  $  4,456   $ 2,457   $   178    $     -    $     -
Loss from operations. . . . . . . . . .   (11,293)   (8,860)   (7,192)    (2,676)      (615)
Net loss. . . . . . . . . . . . . . . .    (9,658)   (8,084)   (6,993)    (2,624)      (608)
Net loss per share(1) . . . . . . . . .     (1.01)    (1.34)    (1.04)         -          -
Shares used in per share 
  calculations(1) . . . . . . . . . . .     9,517     6,025     6,717          -

At March 31,
Balance Sheets Data:
Cash, cash equivalents and
  short-term investments. . . . . . . .  $ 27,673   $37,857   $ 8,127    $ 5,539    $ 1,441
Total assets. . . . . . . . . . . . . .    32,514    40,916    10,949      6,386      1,613
Current liabilities . . . . . . . . . .     3,003     1,905     1,315        487        106
Long term obligations . . . . . . . . .       128       511       593        174          -
Total stockholders' equity. . . . . . .    29,382    38,500     9,041      5,725      1,507

</TABLE>
----------------------------
(1) Prior to 1995, statements of operations data omit the historical net loss 
    per share, as it was not presented in the initial public offering 
    registration statement pursuant to SEC guidelines. Pro forma net loss per 
    share is presented for 1995. See Note 1 of Notes to Financial Statements.

<PAGE>

OVERVIEW  The Company has a fiscal year ending March 31. Since its inception in 
March 1992, the Company has been engaged in the design, development, clinical 
testing, manufacture and sale of a family of suture-based Percutaneous 
Vascular Surgery (PVS) systems that close the femoral artery access site 
following catheter procedures that diagnose or clear blocked arteries. These 
products are known as the Prostar, Prostar Plus, Techstar and Techstar XL 
systems. The Company has received regulatory approvals where required to 
market certain of these products in Europe, Canada, Japan and the United 
States.

     In April 1997 the Company received approval from the United States Food 
and Drug Administration ("FDA") for clearance of its Prostar systems for 
commercial sale in the United States under the Pre-Market Approval ("PMA") 
regulatory pathway. In May 1997 the Company filed an application with the FDA 
for clearance of its Techstar systems for commercial sale in the United 
States under the Pre-Market Approval Supplement ("PMA Supplement") regulatory 
pathway. An Investigational Device Exemption ("IDE") clinical trial for the 
Prostar Plus systems was completed in December 1996 and, following completion 
of data analysis, the Company plans to submit a PMA Supplement application 
for clearance of the Prostar Plus systems for sale in the United States. 
There can be no assurance as to when or whether the Company will receive 
approval of such PMA Supplement applications. Delays in or the failure to 
receive FDA approval of PMA Supplement applications would have a material 
adverse effect on the Company's business, financial condition and results of 
operations.

RESULTS OF OPERATIONS  FISCAL YEARS ENDED MARCH 31, 1997 AND 1996  Net 
revenues of $4.5 million in fiscal year 1997 increased from $2.5 million in 
fiscal year 1996 as a result of increased volume of Techstar and Prostar Plus 
shipments to international distributors. Sales attributable to the Company's 
German, French and Japanese distributors in fiscal 1997 were 59%, 15% and 15% 
of total sales, respectively. Sales to the French distributor were lower than 
anticipated due to the French government's discontinuation of direct 
reimbursement to private French hospitals for the use of Perclose products in 
October 1996. The Company and its distributor are currently formulating 
different reimbursement and marketing strategies for selling the Company's 
products in France. The fiscal year 1996 revenues of $2.5 million represented 
shipments of Prostar, Prostar Plus and Techstar systems to international 
distributors.

     Cost of goods sold decreased to $4.7 million in fiscal year 1997 from 
$4.8 million in fiscal year 1996 as a result of higher costs of producing 
earlier versions of products in fiscal year 1996 that have been phased out of 
the product mix and efficiencies gained in manufacturing in fiscal year 1997.

     Research and development expenses increased 55% to $4.7 million in 
fiscal year 1997 from $3.1 million in fiscal year 1996. This increase was 
primarily the result of costs associated with the Prostar Plus and Techstar 
U.S. clinical studies, additional personnel required for continued product 
development of the Company's PVS products and the development of new products.

     Marketing, general and administrative expenses increased 81% to $6.3 
million in fiscal year 1997 from $3.5 million in fiscal year 1996. The 
increase was primarily due to increases in sales and marketing personnel, 
expansion of the Company's European and United States field sales forces, 
other sales and marketing expenditures and, to a lesser degree, increased 
administrative personnel costs.

     Net interest income increased to $1.6 million for fiscal year 1997 from 
$776,000 for fiscal year 1996, primarily due to the higher cash and 
investment balances for a full year in fiscal year 1997 versus approximately 
half a year in fiscal 1996 from the Company's initial public offering, which 
occurred on November 7, 1995.

FISCAL YEARS ENDED MARCH 31, 1996 AND 1995  Net revenues of $2.5 million in 
fiscal year 1996 were the result of Prostar, Prostar Plus and Techstar 
shipments to international distributors, with 53% and 25% of the 


PERCLOSE                               NINE                       ANNUAL REPORT

<PAGE>

sales attributable to the Company's German and French distributors, 
respectively. The Company commenced international commercial shipments in 
December 1994 and for fiscal year 1995 had total net revenues of $178,000 
representing initial shipments of Prostar systems to the Company's German, 
English and Canadian distributors.

     Cost of goods sold increased to $4.8 million in fiscal year 1996 from 
$2.1 million in fiscal year 1995 as a result of direct material costs 
associated with products sold and a significant increase in personnel and 
other costs associated with the commencement of manufacturing and assembly 
operations, manufacturing engineering and support functions, and a materials 
procurement and handling function.

     Research and development expenses were approximately equal at $3.1 
million in fiscal year 1996 and fiscal year 1995. Fiscal year 1996 had higher 
costs associated with additional personnel required for new product 
development of the Company's Prostar, Prostar Plus and Techstar systems when 
compared to fiscal year 1995, but fiscal 1995 included a license fee totaling 
$378,000.

     Marketing, general and administrative expenses increased 62% to $3.5 
million in fiscal year 1996 from $2.2 million in fiscal year 1995. The 
increase was primarily due to increases in personnel and costs associated with 
the expansion of the Company's European branch office, marketing 
expenditures, physician training expenses related to the international 
commercial introduction of the Prostar and Techstar systems and increased 
administrative personnel in the United States.

     Net interest income increased to $775,000 for fiscal year 1996 from 
$199,000 for fiscal year 1995 as a result of higher cash and investment 
balances from the Company's initial public offering in November 1995.

INCOME TAXES  The Company has not generated any net income to date and 
therefore has not paid any federal income taxes since its inception. No 
income tax benefit has been recorded for the net operating losses incurred in 
the fiscal years ended March 31, 1997, 1996, and 1995.  Accordingly, 
valuation allowances, in amounts equal to the net deferred tax assets as of 
March 31, 1997, 1996, and 1995 have been established in each period.

LIQUIDITY AND CAPITAL RESOURCES  During the fiscal years ended March 31, 
1997, 1996 and 1995 the Company used cash to fund operations of $8.5 million, 
$7.3 million, and $7.0 million respectively. The increase in cash used in 
operations during fiscal year 1997 was due to increases in spending on sales 
and marketing personnel and related expenditures, higher expenses associated 
with increased research and development activities, and, to a lesser degree, 
increased general and administrative expenses.

     The Company's net cash provided by investing activities was $1.9 million 
in fiscal year 1997 compared to net cash used in investing activities of 
$24.2 million and $2.5 million in fiscal 1996 and fiscal 1995, respectively. 
In fiscal 1997, net proceeds from short-term investments generated $3.1 
million in cash that was offset by $1.3 million used for purchases of 
equipment. These equipment purchases were primarily for computer and 
production equipment due to increased personnel hires and manufacturing 
activities. In fiscal 1996 and fiscal 1995, net cash used included net 
purchases of short-term investments of $24.8 million versus $1.4 million and 
purchases of equipment of $0.5 million versus $1.0 million.

     Net cash used in financing activities of $0.5 million in 1997 was due to 
payment of notes payable and the issuance of employee notes receivables. 
Issuances of common stock and preferred stock provided net cash of $37.6 
million in fiscal 1996 and $10.7 million in fiscal 1995.

     The Company's principal source of liquidity at March 31, 1997 consisted 
of cash, cash equivalents and short-term investments of $27.7 million. From 
inception through March 31, 1997, Perclose raised $22.7 million in net 
proceeds of private equity financings and stock option exercises and $34.2 
million in an initial public offering. In addition, the Company borrowed $1.3 
million under an equipment credit facility.

     The Company anticipates that its operating losses will continue for at 
least the next year since it plans to expend substantial resources in 
funding clinical trials in 


PERCLOSE                               TEN                       ANNUAL REPORT
<PAGE>

support of regulatory approvals and continues to expand research, 
development, marketing and sales activities. Although Perclose believes that 
current cash balances and short-term investments along with cash generated 
from the future sales of products will be sufficient to meet the Company's 
operating and capital requirements through fiscal 1998, there can be no 
assurance that the Company will not require additional financing within this 
time frame. There can be no assurance that additional financing, if required, 
will be available on satisfactory terms or at all. In any event, Perclose may 
in the future seek to raise additional funds through bank facilities, debt or 
equity offerings or other sources of capital. Perclose's future liquidity and 
capital requirements will depend on numerous factors, including progress of 
the Company's clinical trials, actions relating to regulatory and 
reimbursement matters, the costs and timing of expansion of marketing, sales, 
manufacturing and product development activities, the extent to which the 
Company's products gain market acceptance and competitive developments.

               FACTORS AFFECTING OPERATING RESULTS

This report contains forward-looking statements within the meaning of Section 
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange 
Act of 1934. The Company's future results of operations could vary 
significantly as a result of the factors described in this section.

     The Prostar, Prostar Plus, Techstar, and Techstar XL systems are 
currently the Company's only products. The Prostar systems have been approved 
in the United States by the FDA and other products have been approved in 
certain international markets by the appropriate regulatory authorities. The 
clinical data that have been obtained to date on the Techstar, Techstar XL 
and Prostar Plus systems has not been reviewed under applicable FDA 
regulatory guidelines. There can be no assurance that these products will 
prove to be safe and effective under applicable regulatory guidelines. In 
addition, the clinical trial data may identify significant technical or other 
obstacles to be overcome prior to obtaining necessary United States 
regulatory or United States and international reimbursement approvals. If the 
Techstar, Techstar XL, and Prostar Plus systems do not prove to be safe and 
effective in United States clinical trials or if the Company is otherwise 
unable to commercialize these products successfully in the United States, the 
Company's business financial condition and results of operations could be 
materially and adversely affected.

    In April 1997 the Company received approval from the United States Food 
and Drug Administration for clearance of its Prostar systems for commercial 
sale in the United States under the Pre-Market Approval regulatory pathway. 
In May 1997 the Company filed an application with the FDA for clearance of 
its Techstar systems for commercial sale in the United States under the 
Pre-Market Approval Supplement regulatory pathway. An IDE clinical trial for 
the Prostar Plus systems was completed in December 1996 and, following 
completion of data analysis, the Company also plans to submit a PMA 
Supplemental application for clearance of the Prostar Plus systems for sale 
in the United States. There can be no assurance as to when or whether the 
Company will receive approval of such PMA Supplement applications. Delays in 
or the failure to receive FDA approval of PMA Supplement applications would 
have a material adverse effect on the Company's business, future financial 
condition and results of operations.

    There can be no assurance as to when or whether the Company will receive 
FDA clearance or approval for sale of the Prostar Plus, Techstar or Techstar 
XL systems in the United States. There can be no assurance that the Company's 
development efforts will be successful or that the Prostar Plus, Techstar and 
Techstar XL systems or any other product developed by the Company will be 
safe or effective, capable of being manufactured in commercial quantities at 
acceptable costs, approved by appropriate regulatory and reimbursement 
authorities or successfully marketed. Furthermore, because the Prostar, 
Techstar, Techstar XL and Prostar Plus systems represent the Company's sole 
near-term product focus, the Company could be materially and adversely 
affected if these systems are not successfully commercialized.

PERCLOSE                            ELEVEN                        ANNUAL REPORT

<PAGE>

    The Company's largest markets have been Germany, France and Japan. The 
Company, through its Japanese distributor, has applied for and received 
regulatory approval to sell the Prostar, Prostar Plus, Techstar and Techstar 
XL systems in Japan and intends to commence clinical trials in Japan that 
will form the basis of an application for Japanese reimbursement approval. 
The Company has received certain reimbursement approvals in certain states in 
Germany. In October 1996 the Company's French distributor was informed that 
the French government has decided to discontinue direct reimbursement to 
private French hospitals for the use of Perclose products. The Company's 
products still retain regulatory approval in France. The Company and its 
distributor are currently formulating different reimbursement and marketing 
strategies for selling the Company's products to private hospitals in France. 
The Company experienced a lower level of sales to its French distributor in 
the three most recent quarters and it is likely that the Company will, as a 
result of the current limited reimbursement availability in France, 
experience a lower level of sales in France in future fiscal periods than it 
had obtained prior to the September 1996 quarter.

    The Company's products represent a new method of closing arterial access 
sites and there can be no assurance that these products will gain any 
significant degree of market acceptance among physicians, patients and health 
care payors, even if necessary international and United States regulatory and 
reimbursement approvals are obtained. The Company believes that factors 
affecting market acceptance include: recommendations and endorsements from 
physicians, that the products represent an attractive alternative to other 
means of closing arterial access sites, that the products reduce the time to 
ambulation and hospital stays, and the Company's ability to train 
international cardiologists. Failure of the Company's products to achieve 
significant market acceptance would have a material adverse effect on the 
Company's business, financial condition and results of operations.

    Perclose has a limited history of operations and has experienced 
significant operating losses since inception. As of March 31, 1997 the 
Company had an accumulated deficit of $28.0 million. The Company has been 
primarily engaged in research and development of its percutaneous vascular 
surgery products. The Company has generated limited revenues from 
international sales in certain markets, which sales commenced in December 
1994, and does not have experience in manufacturing, marketing or selling its 
products in quantities necessary for achieving profitability. Manufacturers 
often encounter difficulties in scaling up production of new products, 
including problems involving production yields, quality control and 
assurance, component supply and shortage of qualified personnel. Difficulties 
encountered by Perclose in manufacturing scale-up could have a material 
adverse effect on its business, financial condition and results of operation.

    There can be no assurance that the Prostar, Prostar Plus, Techstar and 
Techstar XL systems will be successfully commercialized or that the Company 
will achieve significant revenues from either international or domestic 
sales. Sales through international distributors are subject to risks, 
including the risk of financial instability and the risk that the 
distributors will not effectively promote the Company's products. Loss, 
termination or ineffectiveness of distributors could have a material adverse 
effect on the Company's international sales efforts and could result in the 
Company repurchasing unsold inventory from former distributors by virtue of 
local laws applicable to distribution relationships, provisions of 
distribution agreements or negotiated settlements entered into with such 
distributors.

    The Company anticipates that its operating losses will continue for at 
least the next year since it plans to expend substantial resources in funding 
clinical trials in support of regulatory approvals and continues to expand 
research, development, marketing and sales activities. Even so there can be 
no assurance that the Company will achieve or sustain profitability in the 
future.

PERCLOSE                            TWELVE                        ANNUAL REPORT

<PAGE>

    The Company anticipates that its results of operations will fluctuate on 
a quarterly basis for the forseeable future due to several factors, including 
actions relating to regulatory and reimbursement matters, progress of 
clinical trials, the extent to which the Company's products gain market 
acceptance, introduction of alternative means for arterial access site 
closure, and competitive developments. Results of operations will also be 
affected by the timing of orders received from distributors, the extent to 
which the Company expands its international distribution network and the 
ability of distributors to effectively promote the Company's products.

    Competition in the emerging market for arterial access site closure 
devices is expected to be intense and to increase. The Company believes its 
principal competition will come from existing compression closure techniques, 
as well as newer collagen plug closure devices. Most of the Company's 
competitors have significantly greater financial, technical, research, 
marketing, sales, distribution and other resources than the Company. There 
can be no assurance that the Company's competitors will not succeed in 
developing or marketing technologies and products that are technologically 
superior, more effective or commercially more attractive than any that are 
being developed by the Company, or that such competitors will not succeed in 
introducing or commercializing any such products prior to the Company. Such 
developments could have a material adverse effect on the Company's business, 
financial condition and results of operations. In addition, the medical 
device market is generally characterized by rapid change and by frequent 
emergence of new technologies, products or procedures. There can be no 
assurance that any such new technologies, products or procedures will not 
reduce the number of coronary catheterization procedures performed.

    The Company currently manufactures and ships products shortly after 
receipt of orders, and the Company anticipates that it will continue to do so 
in the future. Accordingly, to date the Company has not developed a 
significant backlog and the Company does not anticipate that it will develop 
a material backlog in the future.

PERCLOSE                           THIRTEEN                       ANNUAL REPORT

<PAGE>


                                                             MARCH 31,
                                                   ----------------------------
                                                       1997            1996
                                                   ------------    ------------

ASSETS
Current assets:
  Cash and cash equivalents                        $  2,677,278    $  9,803,777
  Short-term investments                             24,995,229      28,052,742
  Accounts receivable, net of allowance for 
   returns and doubtful accounts of $176,000 in
   1997 and $20,000 in 1996                           1,529,959         923,429
  Inventories                                           743,531         529,606
  Prepaid expenses                                      279,894         274,364
                                                   ------------    ------------
    Total current assets                             30,225,891      39,583,918

Equipment and leasehold improvements, net             1,646,723         982,122

Officer notes receivable                                400,000              --
Other assets                                            241,221         350,421
                                                   ------------    ------------
Total assets                                       $ 32,513,835    $ 40,916,461
                                                   ------------    ------------
                                                   ------------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                 $    422,646    $    317,222
  Accrued compensation                                  852,255         413,840
  Accrued license fee                                   200,000         188,750
  Accrued  warranty                                     324,313          79,044
  Accrued clinical trial costs                          309,812              --
  Other accrued expenses                                520,247         550,209
  Short-term portion of notes payable                   373,795         356,153
                                                   ------------    ------------
    Total current liabilities                         3,003,068       1,905,218

Long-term portion of notes payable                      128,387         510,789

Commitments

Stockholders' equity:
  Common stock, $0.001 par value
    Authorized shares: 30,000,000
    Issued and outstanding shares: 9,566,069 in
      1997 and 9,501,782 in 1996                         9,564           9,502
  Additional paid-in capital                        58,308,167      57,372,411
  Deferred compensation                               (891,789)       (444,852)
  Accumulated deficit                              (28,043,562)    (18,436,607)
                                                   ------------    ------------
Total stockholders' equity                           29,382,380      38,500,454
                                                   ------------    ------------
Total liabilities and stockholders' equity         $ 32,513,835    $ 40,916,461
                                                   ------------    ------------
                                                   ------------    ------------


See accompanying notes.


PERCLOSE                           FOURTEEN                       ANNUAL REPORT

<PAGE>

                                                  Years Ended March 31,
                                        ----------------------------------------
                                            1997          1996          1995
                                        ------------  ------------  -----------

Net revenues                            $  4,455,805  $  2,457,087  $   178,152

Operating expenses:

  Cost of goods sold                       4,703,340     4,772,022    2,149,388
  Research and development                 4,745,054     3,058,529    3,065,400
  Marketing, general and administrative    6,300,895     3,486,188    2,155,304
                                        ------------  ------------  -----------
    Total operating expenses              15,749,289    11,316,739    7,370,092
                                        ------------  ------------  -----------

Loss from operations                     (11,293,484)   (8,859,652)  (7,191,940)

Interest income                            1,752,831       941,389      258,338
Interest expense                            (116,942)     (165,756)     (59,256)
                                        ------------  ------------  -----------
   Net interest income                     1,635,889       775,633      199,082
                                        ------------  ------------  -----------

Net loss                                $ (9,657,595) $ (8,084,019) $(6,992,858)
                                        ------------  ------------  -----------

Net loss per share                      $      (1.01) $      (1.34) 
                                        ------------  ------------ 

Shares used in computing net loss
  per share                                9,517,229     6,024,592
                                        ------------  ------------  

Pro forma net loss per share                                        $    (1.04)
                                                                    -----------
Shares used in computing pro forma
  net loss per share                                                 6,717,333
                                                                    -----------



See accompanying notes.


PERCLOSE                            FIFTEEN                       ANNUAL REPORT

<PAGE>

<TABLE>
<CAPTION>
                          Preferred Stock      Common Stock    Additional                                        Total
                         -----------------    ---------------    Paid-in      Accumulated        Deferred     Stockholders'
                          Shares    Amount    Shares   Amount    Capital        Deficit        Compensation      Equity
                          ------    ------    ------   ------   ---------     ------------     ------------   ------------

<S>                       <C>       <C>       <C>       <C>     <C>            <C>             <C>            <C>
Balance at April 1, 1994  3,133,720 $3,134    1,455,671 $1,456  $ 8,952,483    $(3,231,897)     $        --    $ 5,725,076

Issuance of common stock
 under option plan               --     --      526,571    526       92,887             --               --         93,413
Issuance of Series D
 covertible preferred 
 stock, net of issuance 
 costs of $383,545        1,053,920  1,054           --     --   10,154,601             --               --     10,155,655
Issuance of Series D
 convertible preferred
 stock, for purchase of
 license                      6,000      6           --     --       59,994             --               --         60,000
Deferred compensation
 related to stock options        --     --           --     --      292,950             --          292,950             --
Net loss                         --     --           --     --           --     (6,992,858)              --     (6,992,858)
                          --------- ------    --------- ------  -----------    -----------     ------------    -----------

Balance at March 31, 1995 4,193,640  4,194    1,982,242  1,982   19,552,915    (10,224,755)        (292,950)     9,041,386

Issuance of common stock
 under employee stock
 purchase and option plans       --     --      125,113    125      100,330             --               --        100,455
Issuance of Series D
 convertible preferred
 stock, net of issuance
 costs of $1,180            325,787    326           --     --    3,256,364             --               --      3,256,690
Conversion of preferred
 stock in connection with
 initial public offering (4,519,427)(4,520)   4,519,427  4,520           --             --               --             --
Issuance of common stock
 in connection with
 initial public offering,
 net of issuance costs of
 $569,969                        --     --    2,875,000  2,875   34,185,906             --               --     34,188,781
Deferred compensation
 related to stock options        --     --           --     --      276,896             --         (276,896)            --
Amortization of deferred
 compensation                    --     --           --     --           --             --          124,994        124,994
Unrealized loss on
 short-term investments          --     --           --     --           --       (127,833)              --       (127,833)
Net loss                         --     --           --     --           --     (8,084,019)              --     (8,084,019)
                          --------- ------    --------- ------  -----------    -----------      ------------   -----------

Balance at March 31, 1996        --     --    9,501,782  9,502   57,372,411    (18,436,607)        (444,852)    38,500,454

Issuance of common stock
 under employee stock
 purchase and option
 plans, net of repurchases       --     --       64,287     62      226,531             --                --       226,593
Deferred compensation
 related to cancellation
 of stock options                --     --           --     --     (193,373)            --           193,373            --
Deferred compensation
 related to consultants'
 stock options                   --     --           --     --      902,598             --          (902,598)           --
Amortization of deferred
 compensation related
 to stock options                --     --           --      --          --             --           262,288       262,288
Unrealized gain on
 short-term investments          --     --           --      --          --         50,640                --        50,640
Net Loss                         --     --           --      --          --     (9,657,595)               --    (9,657,595)
                          --------- ------    --------- ------  -----------    -----------      ------------   -----------
Balance at March 31, 1997        -- $   --    9,566,069 $9,564  $58,308,167   $(28,043,562)     $   (891,789)  $29,382,380
                          --------- ------    --------- ------  -----------    -----------      ------------   -----------
</TABLE>

See accompanying notes.

PERCLOSE                            SIXTEEN                       ANNUAL REPORT
<PAGE>

<TABLE>
<CAPTION>

                                                                          Years Ended March 31,
                                                                 -----------------------------------------
                                                                    1997           1996           1995
                                                                 ------------    -----------    -----------
<S>                                                             <C>            <C>            <C>
OPERATING ACTIVITIES

Net loss                                                        $ (9,657,595)  $ (8,084,019)  $ (6,992,858)
Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation                                                     668,472        672,556        336,480
    Deferred compensation amortization                               262,288        124,994             --
    Issuance of convertible preferred stock for license                   --             --         60,000
    Changes in operating assets and liabilities:  
      Accounts receivable                                           (593,612)      (810,262)      (109,955)
      Other receivables and prepaid expenses                         (18,448)      (117,294)      (118,979)
      Inventory                                                     (213,925)       427,443       (957,049)
      Accounts payable                                               105,424        (42,662)       170,585
      Accrued warranty                                               245,270         79,044             --
      Accrued clinical trial costs                                   309,812             --             --
      Other accrued expenses                                         419,702        436,604        631,382
                                                                 ------------    -----------    -----------
      Net cash provided by (used in) operating activities         (8,472,612)    (7,313,596)    (6,980,394)

INVESTING ACTIVITIES

Purchases of short-term investments                              (22,442,833)   (32,180,575)    (7,870,138)
Proceeds from sales and maturities of 
  short-term investments                                          25,550,986      8,383,140      6,476,515
Purchases of equipment and improvements                           (1,333,073)      (454,618)      (996,377)
Other assets                                                         109,200         44,888       (129,815)
                                                                 ------------    -----------    -----------
      Net cash provided by (used in) investing activities          1,884,280    (24,207,165)    (2,519,815)

FINANCING ACTIVITIES

Principal payments under notes payable                              (364,760)      (299,464)      (120,450)
Proceeds from borrowing on notes payable                                  --        334,484        565,201
Proceeds from issuance of preferred stock                                 --      3,256,690     10,155,655
Proceeds from issuance of common stock                               273,989     34,289,236         93,413
Repurchase of common stock                                           (47,396)            --             --
Issuance of officer notes receivable                                (400,000)            --             --
                                                                 ------------    -----------    -----------
      Net cash provided by (used in) financing activities           (538,167)    37,580,946     10,693,819

Net increase (decrease) in cash and cash equivalents              (7,126,499)     6,060,185      1,193,610

Cash and cash equivalents at beginning of year                     9,803,777      3,743,592      2,549,982
                                                                 ------------    -----------    -----------
Cash and cash equivalents at end of year                        $  2,677,278    $ 9,803,777    $ 3,743,592
                                                                 ------------    -----------    -----------
Supplemental disclosures of cash flows information:
Cash paid for interest                                          $     68,000    $    83,628    $    59,256
</TABLE>

See accompanying notes.

PERCLOSE                           SEVENTEEN                      ANNUAL REPORT
<PAGE>
                                   NOTE 1.
                        ORGANIZATION AND SUMMARY
                   OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION  Perclose, Inc. (or the "Company") was incorporated in the state 
of California in March 1992 and was reincorporated in Delaware in October 
1995. The Company is a medical device company which develops, manufactures 
and markets minimally invasive vascular surgical devices for closing femoral 
artery access sites following angioplasty and angiography procedures. The 
Company was in the development stage through March 31, 1994, and its 
activities during that time consisted primarily of raising capital, 
recruiting personnel and performing research and development. The Company 
commenced initial sales of its products to customers in Europe and Canada 
during the fourth quarter of fiscal 1995.

BASIS OF PRESENTATION  Beginning with fiscal 1995, the Company's fiscal year 
ends on the last Friday in March. For ease of presentation, the accompanying 
financial statements have been shown as ending on March 31 of each year.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS  The preparation 
of financial statements in conformity with generally accepted accounting 
principles requires management to make estimates and assumptions that affect 
the reported amounts of assets and liabilities, the disclosure of contingent 
assets and liabilities at the date of the financial statements, and the 
reported amounts of revenues and expenses during the reporting period. Actual 
results could differ from those estimates.

CASH EQUIVALENTS  The Company considers all highly liquid investments with an 
original maturity of three months or less when purchased to be cash 
equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS  The carrying amounts reported in the 
balance sheet for cash and cash equivalents and short-term investments 
approximate fair value. The fair value of short-term investments is based on 
quoted market prices.
     The carrying amount of the Company's notes payable approximates their 
fair value. The fair values of the Company's notes payable are estimated 
using discounted cash flow analyses, based on the Company's current 
incremental borrowing rate for similar types of borrowing arrangements.

AVAILABLE-FOR-SALE SECURITIES  At March 31, 1997 and 1996 all short-term 
investments are designated as available-for-sale. Available-for-sale 
securities are carried at fair value with unrealized gains and losses, net of 
tax, reported in accumulated deficit. The amortized cost of 
available-for-sale debt securities is adjusted for the amortization of 
premiums and the accretion of discounts to maturity. Such amortization is 
included in interest income.
     Realized gains and losses and declines in value judged to be 
other-than-temporary on available-for-sale securities are included in 
interest income. The cost of securities sold is based on the specific 
identification method. Interest and dividends on securities classified as 
available-for-sale are included in interest income.

     The following is a summary of available-for-sale securities at 
March 31, 1997:

<TABLE>
                                                               Gross
                                            Amortized        Unrealized         Estimated
                                              Cost             Losses           Fair Value
                                           -----------        ---------        -----------
<S>                                        <C>                <C>              <C>
Obligations of federal                  
  government agencies                      $ 6,880,976        $(23,594)        $ 6,857,382
Corporate obligations,
  principally commercial
  paper and corporate
  notes                                     20,607,656         (53,599)         20,554,057
                                           -----------        ---------        -----------
    Total                                  $27,488,632        $(77,193)        $27,411,439
                                           -----------        ---------        -----------
Amounts included in
  short-term investments                   $25,072,422        $(77,193)        $24,995,229
Amounts included in cash
  and cash equivalents                       2,416,210              --           2,416,210
                                           -----------        ---------        -----------
    Total                                  $27,488,632        $(77,193)        $27,411,439
                                           -----------        ---------        -----------
</TABLE>

     The following is a summary of available-for-sale securities as of 
March 31, 1996:

<TABLE>
                                                               Gross
                                            Amortized        Unrealized         Estimated
                                              Cost             Losses           Fair Value
                                           -----------        ---------        -----------
<S>                                        <C>                <C>              <C>
Obligations of federal                  
  government agencies                      $ 2,966,642        $     --         $ 2,966,642
Corporate obligations,                  
  prinipally commercial                 
  paper and corporate                   
  notes                                     33,180,046         (127,833)        33,052,213
                                           -----------        ---------        -----------
    Total                                  $36,146,688        $(127,833)       $36,018,855
                                           -----------        ---------        -----------
                                           -----------        ---------        -----------
Amounts included in                     
  short-term investments                   $28,180,575        $(127,833)       $28,052,742
Amounts included in cash                
  and cash equivalents                       7,966,113               --          7,966,113
                                           -----------        ---------        -----------
    Total                                  $36,146,688        $(127,833)       $36,018,855
                                           -----------        ---------        -----------
                                           -----------        ---------        -----------
</TABLE>

     During the year ended March 31, 1997, there were sales of 
available-for-sale securities with immaterial gross realized losses. 
Available-for-sale debt securities at 

PERCLOSE                           EIGHTEEN                       ANNUAL REPORT


<PAGE>

March 31, 1997, by contractual maturity, are shown below:

<TABLE>
                                                   Estimated Fair Value
                                            ----------------------------------
                                               1997                   1996
                                           -----------            -----------
<S>                                         <C>                    <C>
Due in one year or less                    $14,222,891            $26,319,173
Due between one and two years               13,188,548              9,699,682
                                           -----------            -----------
    Total                                  $27,411,439            $36,018,855
                                           -----------            -----------
                                           -----------            -----------

</TABLE>

INVENTORIES  Inventories are stated at the lower of cost (first-in, first-out 
method) or market and are compromised of the following at March 31:

<TABLE>
                                          1997              1996
                                        --------          --------
<S>                                     <C>               <C>
Raw materials                           $311,952          $226,808
Work-in-process                          385,993           197,583
Finished goods                            45,586           105,215
                                        --------          --------
    Total                               $743,531          $529,606
                                        --------          --------
                                        --------          --------
</TABLE>

EQUIPMENT AND LEASEHOLD IMPROVEMENTS  Equipment and leasehold improvements 
are stated at cost. Depreciation is computed using the straight-line method 
over the estimated useful lives of the assets, ranging from one to five 
years, or over the term of the lease, if shorter.

<TABLE>
                                           1997              1996
                                       -----------        -----------
<S>                                    <C>                <C>
Equipment                              $ 2,625,714        $ 1,742,670
Furniture and fixtures                     400,781            259,391
Leasehold improvements                      74,761             48,414
                                       -----------        -----------
                                         3,101,256          2,050,475
Less accumulated depreciation           (1,454,533)        (1,068,353)
                                       ------------       -----------
    Total                              $ 1,646,723        $   982,122
                                       ------------       -----------
                                       ------------       -----------
</TABLE>

OTHER ASSETS  At March 31, 1997, the Company had approximately $216,981 of 
restricted deposits ($326,000 at March 31, 1996) included in other assets 
supporting leasehold improvements being performed on the Company's facility.

REVENUE RECOGNITION  Revenues from sales of products are recognized at the 
time of shipment with allowances provided for estimated returns and warranty 
costs.

NET LOSS PER SHARE  Except as noted below, historical net loss per share is 
computed using the weighted average number of common shares outstanding. 
Common equivalent shares from stock options and convertible preferred stock 
are excluded from the computation as their effect is antidilutive except 
that, pursuant to the Securities and Exchange Commission ("SEC") Staff 
Accounting Bulletins, common and common equivalent shares issued during the 
period beginning twelve months prior to the initial filing of the Company's 
initial public offering at prices substantially below the initial public 
offering price have been included in the calculation as if they were 
outstanding for all periods presented (using the treasury stock method and 
the assumed public offering price for stock options and warrants and the 
if-converted method for convertible preferred stock). Historical net loss per 
share is presented for the years ended March 31,1997 and 1996.

PRO FORMA NET LOSS PER SHARE  Pro Forma net loss per share has been computed 
as described above and also gave effect to common equivalent shares from the 
convertible preferred stock that automatically converted upon the closing of 
the Company's initial offering (using the if-converted method). Pro forma net 
loss per share is presented for the year ended March 31, 1995.

     Pro forma share information calculated on the above basis for 1996 is 
as follows:


Year Ended March 31,                                 1996
                                                     ----

Pro forma net loss per share                      $     0.03
Shares used in computing pro forma net 
  loss per share                                   7,852,596

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES  Supplemental noncash 
financing activities are as follows:

Year Ended March 31,                  1997       1996        1995
                                      ----       ----        ----
Issuance of Series D convertible
  preferred stock for purchase of 
  license                             $ --       $ --       $60,000


RECENT PRONOUNCEMENTS  In February 1997, the Financial Accounting Standards 
Board issued Statement No. 128, Earnings per Share, which the Company is 
required to adopt on December 31, 1997. At that time, the Company will be 
required to change the method currently used to compute earnings per share 
and to restate all prior periods. Under the new requirements for 
calculating primary earnings per share, the dilutive effect of convertible 
preferred stock, stock options and common and common equivalent shares issued 
during the period twelve months prior to the initial public offering will be 
excluded. The impact is expected to result in an increase in the primary loss 
per share for the year ended March 31, 1996 of $0.07 per share with no impact 
to fiscal 1997. The impact of Statement 128 on the calculation of fully 
diluted loss per share for these years is not expected to be material.

RECLASSIFICATIONS  Certain prior year amounts have been reclassified to 
conform with the current year presentation.

PERCLOSE                           NINETEEN                       ANNUAL REPORT


<PAGE>

                                   NOTE 2.

                                 COMMITMENTS

The Company leases its principal facility under an operating lease agreement 
expiring in August 1998. The agreement requires the Company to pay taxes, 
insurance, and maintenance expenses. Rental expense was approximately 
$397,000, $353,000 and $187,000 in fiscal 1997, 1996 and 1995, respectively.

    The annual minimum rental commitments under all noncancelable operating 
lease arrangements are as follows at March 31, 1997:

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

1998                                                    $543,000
1999                                                     350,000
2000                                                      43,000
2001                                                      23,000
2002                                                      17,000
                                                        --------
                                                        $976,000
                                                        --------
                                                        --------

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


                                   NOTE 3.

                            FINANCING ARRANGEMENTS


The Company had a $1,750,000 equipment credit and loan agreement with a bank 
that expired on March 31, 1996. Loans under the agreement bear interest 
ranging from 9.07% to 10.60% and are secured by the equipment purchased.

    Maturities for the next three years under the financing arrangements are 
as follows at March 31, 1997:

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

1998                                                    $377,000
1999                                                     114,000
2000                                                      11,000
                                                        --------
    Total                                               $502,000
                                                        ---------
                                                        ---------

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


                                   NOTE 4.

                             STOCKHOLDERS' EQUITY

PUBLIC OFFERING   In November 1995 the Company sold a total of 2,875,000 
shares of common stock at $13.00 per share through its initial public 
offering. The net proceeds (after underwriters' commissions and fees and 
other costs associated with the offering) totaled approximately $34,189,000. 
In connection with the offering, all convertible preferred stock totaling 
4,519,427 shares with an aggregate paid-in value of approximately $22,391,000 
were converted into 4,519,427 shares of common stock of the Company.

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

PREFERRED STOCK   In September 1995 the Board of Directors amended, and the 
stockholders subsequently approved, the Company's Articles of Incorporation 
to authorize 5,000,000 shares of undesignated preferred stock. Preferred 
stock may be issued from time to time in one or more series. The Board of 
Directors is authorized to determine the rights, preferences, privileges, 
and restrictions granted to and imposed upon any wholly unissued series of 
preferred stock and to fix the number of shares of any series of preferred 
stock and the designation of any such series without any vote or action by 
the Company's stockholders.

COMMON STOCK   Shares of common stock reserved for future issuance are as 
follows at March 31, 1997:

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

Stock plans:       
Options outstanding                                      1,395,963
Options reserved for future grants                         185,943
                                                         ---------
Total stock option plans                                 1,581,906
Employee stock purchase plan                               131,452
                                                         ---------
    Total reserved shares                                1,713,356
                                                         ---------
                                                         ---------

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


                                   NOTE 5.

                                 STOCK PLANS

STOCK OPTION PLANS   The Company currently has two stock option plans for 
employees, directors and others -- the 1992 Stock Plan and the 1995 Director 
Option Plan.

    Under the Company's 1992 Stock Plan, the Board of Directors may grant 
options for the purchase of up to 1,650,000 shares of common stock by 
directors, employees and others. Options may be granted at an exercise price 
of not less than 85% of the estimated fair value of the common stock, at the 
date of grant, as determined by the Board of Directors. Options are 
exercisable at such times and under such conditions as determined by the 
Board of Directors. Options granted under this plan generally become 
exercisable over a four-year period and generally expire ten years from the 
date of grant. Unexercised options are canceled upon termination of 
employment and become available under the plan.

    The Company's 1995 Director Option Plan grants options automatically each 
year to non-employee directors of the Company. Options may only be granted at 
the estimated fair value of the common stock at the date of grant. Options 
under this plan generally become exercisable over a four-year period and 
generally expire ten years from the date of grant. Unexercised options are 
canceled upon the director leaving the Board.

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

PERCLOSE                            TWENTY                        ANNUAL REPORT

<PAGE>

    Activity under the plans is summarized in the below table:

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

<TABLE>
<CAPTION>

                                                                                               Outstanding Options
                                                               ------------------------------------------------------------------
                                   Shares Available              Number of               Price Per               Weighted Average
                                      For Grant                   Shares                   Share                  Exercise Price
                                   ----------------              ---------          ------------------           ----------------
<S>                                <C>                        <C>                  <C>                               <C>
Balance at April 1, 1994                37,340                    891,989           $ 0.10  - $ 0.425                 $  .19
   Shares authorized                   300,000                         --           $              --                     --
   Options granted                    (253,750)                   253,750           $ 0.425 - $ 1.00                  $  .69
   Options exercised                        --                   (526,571)          $ 0.10  - $ 0.425                 $  .18
   Options canceled                     18,229                    (18,229)          $ 0.425 - $ 1.00                  $  .52
                                      --------                  ---------
Balance at March 31, 1995              101,819                    600,939           $ 0.10  - $ 1.00                  $  .41
   Shares authorized                   600,000                         --           $             --                      --
   Options granted                    (398,000)                   398,000           $ 4.00  - $23.50                  $17.46
   Options exercised                        --                   (123,254)          $ 0.10  - $ 1.00                  $  .65
   Options canceled                     33,942                    (33,942)          $ 0.10  - $23.50                  $ 1.09
                                       -------                  ---------    
Balance at March 31, 1996              337,761                    841,743           $ 0.10  - $23.50                  $ 8.57
   Shares authorized                   450,000                         --           $             --  
   Options granted                    (681,346)                   681,346           $15.75  - $24.25                  $21.06
   Options exercised                    47,396                    (94,994)          $ 0.10  - $15.25                  $  .78
   Options canceled                     32,132                    (32,132)          $ 0.10  - $23.50                  $18.38
                                       -------                  ---------
Balance at March 31, 1997              185,943                  1,395,963           $ 0.10  - $24.25                  $14.83
                                       -------                  ---------
                                       -------                  ---------

</TABLE>

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

    Additionally, 23,960 shares exercised under stock options were subject to 
repurchase, at the option of the Company, at March 31, 1997.

    The following table summarizes information about stock options 
outstanding at March 31, 1997:

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

<TABLE>
<CAPTION>
                                      Options Outstanding                                       Options Exercisable
                      ------------------------------------------------               -----------------------------------------

                                           Weighted  
                           Number           Average          Weighted                      Number               Weighted
Range of                 Outstanding       Remaining          Average                    Exercisable             Average
Exercise                    as of         Contractual        Exercise                       as of               Exercise
Prices                 March 31, 1997         Life            Price                    March 31, 1997             Price
---------              --------------     -----------        --------                  --------------           --------
<S>                  <C>                <C>                <C>                      <C>                       <C>

$ 0.10  - $ 0.43           304,900            6.59            $ 0.26                       212,899               $ 0.23
$ 0.43  - $ 1.00            46,604            7.85            $ 1.00                        22,479               $ 1.00
$ 4.00  - $ 6.00            60,834            8.45            $ 5.73                        21,562               $ 5.77
$13.00  - $19.00           299,250            9.07            $15.57                        45,150               $14.27
$19.75  - $24.25           684,375            9.42            $22.74                        53,491               $23.35
                         ---------                                                         -------
$ 0.10  - $24.25         1,395,963            8.63            $14.83                       355,581               $ 5.87
                         ---------                                                         -------
</TABLE>
-------------------------------------------------------------------------------

At March 31, 1996 and 1995, 220,458 and 197,197 shares were exercisable at 
weighted average exercise prices of $0.89 and $0.46, respectively.

1995 EMPLOYEE STOCK PURCHASE PLAN   In September 1995, the 1995 Employee 
Stock Purchase Plan ("ESPP") was adopted by the Company. An aggregate of 
150,000 shares of the Company's common stock have been reserved for issuance 
under this plan. This plan permits eligible employees to purchase common 
stock through payroll deductions (which cannot exceed 15% of the employee's 
compensation) at 85% of its fair market value on specified dates. For the 
year ended March 31, 1997 and 1996, 16,689 and 1,859 shares were issued under 
the ESPP.

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

DEFERRED COMPENSATION   For certain options granted, the Company recognized 
$569,846 as deferred compensation for the excess of the deemed value for 
accounting purposes of the common stock issuable upon exercise of such 
options over the aggregate exercise price of such options. The deferred 
compensation expense is amortized ratably over the vesting period of the 
options.

    During the year, the Company repurchased 47,396 shares of unvested common 
stock and reduced related unamortized deferred compensation by $193,373. For 
the year ended March 31, 1997, amortization of $96,504 was charged to 
operations.

    The Company recognized $902,598 as deferred compensation relating to 
stock options granted to consultants during the year ended March 31, 1997 and 
has

PERCLOSE                          TWENTY-ONE                      ANNUAL REPORT
<PAGE>

charged $165,784 to operations in fiscal 1997. The deferred compensation is 
amortized over the vesting period of the options.

STOCK-BASED COMPENSATION. As permitted under FASB Statement No. 123, 
"Accounting for Stock-Based Compensation" (FASB 123), the Company has elected 
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock 
Issued to Employees" (APB 25) in accounting for stock-based awards to 
employees. Under APB 25, the Company generally recognizes no compensation 
expense with respect to such awards.

    Pro forma information regarding net income and earnings per share is 
required by FASB 123 for awards granted after March 31, 1995 as if the 
Company had accounted for its stock-based awards to employees under the fair 
value method of FASB 123. The fair value of the Company's stock-based awards 
to employees was estimated using the minimum value model for awards prior to 
the Company's initial public offering on November 7, 1995 and the 
Black-Scholes model subsequent to the initial public offering. The 
Black-Scholes options valuation model was developed for use in estimating the 
fair value of traded options which have no vesting restrictions and are fully 
transferable. In addition, the Black-Scholes model requires the input of 
highly subjective assumptions including the expected stock price volatility. 
Because the Company's stock-based awards to employees have characteristics 
significantly different from those of traded options, and because changes in 
the subjective input assumptions can materially affect the fair value 
estimate, in management's opinion the existing models do not necessarily 
provide a reliable single measure of the fair value of its stock-based awards 
to employees. The fair value of the Company's stock-based awards to employees 
was estimated assuming no expected dividends and the following 
weighted-average assumptions:

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

                                     Options                 ESPP
                                  ---------------      ----------------
                                  1997       1996      1997        1996
                                  ----       ----      ----        ----
Expected life (years)             5.00       5.00       .50         .38
Expected volatility                .70        .70       .77         .69
Risk-free interest rate           6.49       5.45      5.47        5.28

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

    For pro forma purposes, the estimated fair value of the Company's 
stock-based awards to employees is amortized over the options' vesting period 
(for options) and the purchase period (for stock purchases under the ESPP). 
The Company's pro forma information follows in thousands except for loss per 
share information:

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

                                         1997          1996
                                    -------------   -----------
Net loss              pro forma     $(11,538,278)   $(8,258,516)
Net loss per share    pro forma     $      (1.21)   $     (1.37)

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

    Because FASB 123 is applicable only to awards granted subsequent to March 
31, 1995, its pro forma effect will not be fully reflected until 
approximately 1999.

    The weighted-average fair value of options granted during 1997 and 1996 
was $13.50 and $10.91 per shares, respectively.

    The weighted-average fair value of shares under the ESPP during 1997 and 
1996 was $10.79 and $8.22 per share, respectively.

                                       NOTE 6.

                                     INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences 
between the carrying amounts of assets and liabilities for financial 
reporting purposes and the amounts used for income tax purposes. Significant 
components of the Company's deferred tax assets for federal and state income 
taxes are as follows:

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

Years Ended March 31,                               1997            1996
                                                -----------      ----------

Deferred tax assets:
  Net operating loss carryforwards              $ 8,600,000      $6,200,000
  Tax credit carryforwards                          390,000         270,000
  Other, net                                      1,900,000         760,000
                                                -----------      ----------
    Total                                        10,890,000       7,230,000
Valuation allowance                             (10,890,000)     (7,230,000)
                                                -----------      ----------
    Net                                         $        --      $       --
                                                -----------      ----------

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

    Realization of deferred tax assets is dependent on future earnings, if 
any, the timing and amount of which are uncertain. Accordingly, a valuation 
allowance, in an amount equal to the net deferred tax asset at March 31, 1997 
and 1996, has been established to reflect these uncertainties. The change in 
the valuation allowance was a net increase of $3,660,000, $3,280,000 and 
$2,750,000 for the fiscal years 1997, 1996 and 1995, respectively.

    At March 31, 1997, the Company had net operating loss carryforwards for 
federal and California tax purposes of approximately $24,000,000 and 
$9,000,000, respectively, which will expire from 1998 through 2012, if not

PERCLOSE                          TWENTY-TWO                      ANNUAL REPORT

<PAGE>

utilized. At March 31, 1997, the Company also had research and development 
tax credit carryforwards of approximately $220,000 and $240,000, 
respectively, for federal and California tax purposes expiring from 2007 
through 2012, if not utilized. Utilization of net operating loss and tax 
credit carryforwards may be subject to a substantial annual limitation due to 
the ownership change limitations provided by the Internal Revenue Code of 
1986, as amended, and similar state provisions. The annual limitation may 
result in expiration of net operating loss and tax credit carryforwards 
before full utilization.

    The reconciliation of income tax expense (benefit) attributable to 
continuing operations computed at the U.S. federal statutory rates to income 
tax expense (benefit) is as follows:

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

Years Ended March 31,                1997             1996           1995
                                 -----------      -----------     -----------
Tax provision (benefit) at
 U.S. statutory rates            $(3,283,574)     $(2,748,566)    $(2,377,300)
Loss for which no tax
 benefit is currently              
 recognizable                      3,283,574        2,748,566       2,377,300
                                 -----------      -----------     -----------
                                 $        --      $        --     $        --
                                 -----------      -----------     -----------

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

                                      NOTE 7.

                               EMPLOYEE BENEFIT PLAN

The Company adopted the Perclose 401(k) Retirement Plan to provide retirement 
benefits for its employees in December 1994. As allowed under Section 401(k) 
of the Internal Revenue Code, the plan provides tax-deferred salary 
deductions for eligible employees. Full time employees are eligible to 
participate in the next quarter enrollment period or up to ninety days of 
service. Participants may make voluntary contributions to the plan up to 15% 
of their compensation. The Company does not match contributions towards 
the plan.

                                     NOTE 8.

                            CONCENTRATIONS OF CREDIT
                                 AND OTHER RISKS

The Company operates in a single industry segment and sells its products 
primarily to hospitals. The Company markets its products in foreign countries 
(mainly Europe and Japan) through its sales organizations and distributors. 
Sales to international distributors are denominated in U.S. dollars. In the 
fiscal year ended March 31, 1997, 82% and 15% (87% and 8% in the fiscal year 
ended March 31, 1996) of the Company's net revenues were to Europe and Japan 
respectively.

    Sales to significant customers as a percentage of total revenues are as 
follows:

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

Years Ended March 31,        1997           1996       1995
                             ----           ----       ----
German Distributor            59%            53%        47%
Japanese Distributor          15%             8%        --
French Distributor            15%            25%        --
U.K. Distributor               2%             3%        38%
Canadian Distributor           1%             3%        15%

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

    The Company performs ongoing credit evaluations of its customers but does 
not require collateral. There have been no material losses on customer 
receivables.

DEPENDENCE ON PRODUCT SYSTEMS. The Company has been engaged primarily in 
researching, developing, testing and obtaining regulatory clearances for its 
Prostar, Prostar Plus, Techstar and Techstar XL systems. The Company believes 
that these systems are currently the Company's only significant potential 
products and these systems will require additional development, clinical 
trials and regulatory approvals before they can be marketed in the United 
States. 

    There can be no assurance that the Company's development efforts will be 
successful or that the systems or any other product developed by the Company 
will be safe or effective, approved by appropriate regulatory and 
reimbursement authorities, capable of being manufactured in commercial 
quantities at acceptable costs or successfully marketed.

DEPENDENCE ON INTERNATIONAL DISTRIBUTORS. Currently, substantially all of the 
Company's revenues from product sales are derived from sales to its 
international distributors. Loss, termination or ineffectiveness of 
distributors to effectively promote the Company's products could have a 
material adverse effect on the Company's financial condition and results of 
operations.

DEPENDENCE ON KEY SUPPLIERS. The Company purchases certain key components from 
single source suppliers. Any significant component supply delay or 
interruption could require the Company to qualify new sources of supply, if 
available, and could have a material adverse effect on the Company's 
financial condition and results of operations.

PERCLOSE                         TWENTY-THREE                     ANNUAL REPORT
<PAGE>

THE BOARD OF DIRECTORS
AND STOCKHOLDERS
PERCLOSE, INC.

We have audited the accompanying balance sheets of Perclose, Inc. as of March 
31, 1997 and 1996, and the related statements of operations, stockholders' 
equity and cash flows for each of the three years in the period ended March 
31, 1997. These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements 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 Perclose, Inc. at 
March 31, 1997 and 1996, and the results of its operations and its cash flows 
for each of the three years in the period ended March 31, 1997, in conformity 
with generally accepted accounting principles.

                            ERNST & YOUNG LLP

San Jose, California
April 25, 1997

PERCLOSE                          TWENTY-FOUR                     ANNUAL REPORT