NOVOSTE CORP /FL/, 10-K405, 1998-03-06

NOVOSTE CORP /FL/
10-K405, 1998-03-06
MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934. FOR THE TRANSITION PERIOD _____________ TO ______________.

Commission File Number: 0-20727

Novoste Corporation
(Exact Name of Registrant as Specified in Its Charter)

Florida 59-2787476
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

4350-C International Blvd., Norcross, GA 30093
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone, including area code: (770) 717-0904

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of Class)

Rights to Purchase Preferred Shares
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |X|.

As of February 27, 1998, there were 10,418,337 shares of Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $174,422,253 based upon the closing sales
price of the Common Stock on February 27, 1998 on the NASDAQ National Market.
Shares of Common Stock held by each officer, director, and holder of five
percent or more of the Common Stock outstanding as of February 27, 1998 have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information is incorporated into Part III of this report by reference to
the Proxy Statement for the Registrant's 1998 annual meeting of stockholders to
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this Form
10-K.

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NOVOSTE CORPORATION
FORM 10-K
INDEX

PART I

Item 1. Business
The Company
Industry Overview
The Novoste Solution
Clinical Trial and Regulatory Status
The Beta-Cath System
The Novoste Business Strategy
Product Development
Marketing and Distribution
Manufacturing and Materials
Patents and Proprietary Technology
Competition
Government Regulation
Third-Party Reimbursement
Product Liability and Insurance
Employees and Consultants
Executive Officers of the Company
Additional Risk Factors

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters

Item 6. Selected Financial Data

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

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

PART III.

Item 10. Directors and Executive Officers of The Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

PART IV.

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

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PART I

Item 1. BUSINESS

The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-Cath
System, the Company's primary product in development, will prove safe and
effective; the speed of patient enrollment in the Company's clinical trials;
whether and when the Company will obtain approval of the Beta-Cath System from
the United States Food and Drug Administration (FDA) and corresponding foreign
agencies; the Company's need to achieve manufacturing scale-up in a timely
manner, and its need to provide for the efficient manufacturing of sufficient
quantities of its products; the Company's dependence on the Beta-Cath System as
the primary source of future revenue; the lack of an alternative source of
supply for the radiation source materials used in the Beta-Cath System; the
Company's patent and intellectual property position; the Company's need to
develop the marketing, distribution, customer service and technical support and
other functions critical to the success of the Company's business plan; the
effectiveness and ultimate market acceptance of the Beta-Cath System;
limitations on third party reimbursement; and competition between rival
developers of restenosis reduction products. These risks are discussed under
"Item 1 - Business" and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations." Additional risk factors include
those that may be set forth in reports filed by the Company from time to time on
Forms 10-Q and 8-K. The Company does not undertake any obligation to update any
forward-looking statements.

The Company

Novoste Corporation ("Novoste" or the "Company") is developing the Beta-Cath
System, an intraluminal beta radiation catheter delivery system designed to
reduce the frequency of restenosis subsequent to percutaneous transluminal
coronary angioplasty ("PTCA"). The Beta-Cath System applies localized beta
radiation to the site of the vascular injury caused by a PTCA procedure and is
designed to inhibit long-term cell proliferation ("hyperplasia") and vascular
remodeling, each primary causes of restenosis.

The Company has conducted feasibility trials at two U.S. medical centers under
an Investigational Device Exemption ("IDE") granted by the U.S. Food and Drug
Administration ("FDA") and at a Canadian and a European site. Novoste completed
enrollment into the feasiblility trials in December 1997 with 85 patients
treated. Of the 50 patients, which as of January 30, 1998 had received six-month
follow-up and analysis, 12% were reported restenotic. This data suggests a 70%
reduction in the rate of restenosis in patients who received treatment with the
Beta-Cath System, when compared to a historical control group which received
PTCA only. Additionally, treated arteries on average maintained 100% of the
enlargement achieved with PTCA (a late loss index of 0%). Using data from these
feasibility trials, the Company intends to submit during the first half of 1998
an application for a CE mark to commence marketing of the Beta-Cath System in
Europe.

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Industry Overview

Coronary Artery Disease. Coronary artery disease is the leading cause of death
in the United States. More than 13 million people in the United States currently
suffer from coronary artery disease, which is generally characterized by the
progressive accumulation of plaque as a result of the deposit of cholesterol and
other fatty materials on the walls of the arteries. The accumulation of plaque
leads to a narrowing of the interior passage, or lumen, of the arteries,
reducing blood flow to the heart muscle. When blood flow to the heart muscle
becomes insufficient, oxygen supply is restricted and a heart attack and death
may result. Each year more than 1 million revascularization procedures are
performed in the United States, and approximately 1.8 million of such procedures
are performed worldwide to increase blood flow to the heart muscle.

Coronary Artery Bypass Graft. Coronary artery bypass graft ("CABG") surgery was
introduced as a treatment for coronary artery disease in the 1950s. CABG is a
highly invasive, open surgical procedure in which blood vessel grafts are used
to bypass the site of a blocked artery, thereby restoring blood flow. CABG,
still considered the most effective and long-lasting treatment for coronary
artery disease, is generally the primary treatment for severe coronary artery
disease involving multiple vessels. In addition, CABG is often a treatment of
last resort for patients who have undergone other less invasive procedures but
require reintervention. However, CABG has significant limitations, including
medical complications such as stroke, multiple organ dysfunction, inflammatory
response, respiratory failure and post-operative bleeding, each of which may
result in death. In addition, CABG is a very expensive procedure, and requires a
long recovery period. In the United States, the average cost of undergoing CABG
is approximately $36,000, the average postoperative hospital stay following CABG
is approximately five to seven days and the average recuperation period
following discharge from the hospital is approximately six to eight weeks. In
1997 approximately 400,000 CABG procedures were performed in the United States.
Several new minimally invasive surgical techniques have been commercialized
which attempt to lessen the cost and trauma of CABG procedures while maintaining
efficacy.

PTCA. Since its introduction in the late 1970s, PTCA has emerged as the
principal less invasive alternative to CABG. PTCA is a procedure performed in a
cath lab by an interventional cardiologist. During PTCA a guidewire is inserted
into a blood vessel through a puncture in the leg (or arm, in some cases) and
guided through the vasculature to a diseased site in the coronary artery. A
balloon-tipped catheter is then guided over the wire to the deposit of plaque
("lesion") occluding the artery. Once the balloon is positioned across the
lesion inside the vessel, the balloon is inflated and deflated several times.
Frequently successively larger balloons are inflated at the lesion site
requiring the use of multiple balloon catheters. The inflation of the balloon
cracks or reshapes the plaque and the arterial wall, thereby expanding the
arterial lumen. Though injury to the arterial wall often occurs under balloon
pressure, PTCA typically results in increased blood flow. In 1997 it is
estimated that more than 600,000 PTCA procedures were performed in the United
States and approximately another 500,000 procedures were performed outside the
United States. The average cost of each PTCA procedure in the United States is
approximately $ 15,000, or less than one-half of the average cost of CABG, and
the length of stay and recuperation period are substantially less than those
required for CABG.

Though PTCA has grown rapidly as a highly effective, less invasive therapy to
treat coronary artery disease, the principal limitation of PTCA is the high rate
of restenosis, a re-narrowing of a treated artery, which often requires
reintervention. Due to the effects of restenosis, the long-term
cost-effectiveness of PTCA has not proven greater than that of CABG for
multi-vessel diseases. Studies have indicated that, within six months after
PTCA, between 25% and 45% of PTCA patients experience restenosis. In addition,
45% of patients with multi-vessel coronary artery disease who received PTCA have
been shown to require reintervention within three years of treatment. Finally,
although the average cost of PTCA is less than one-half of that of CABG, a study
indicated that three years after the procedure, PTCA has no cost advantage over
CABG due to the need for subsequent interventional treatment.

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Pathology of Restenosis. Restenosis is typically defined as a renarrowing of a
coronary artery within six months of a revascularization treatment to less than
50% of its original size. Restenosis is a vascular response to arterial injury
and occurs frequently after a revascularization procedure, which stretches
coronary arteries or otherwise damages the treated segment of the artery. Due to
multiple mechanisms controlling vascular repair, restenosis may occur within a
short period after a revascularization procedure or may develop over the course
of months or years. Restenosis that occurs shortly after a revascularization
procedure is usually attributed to elastic recoil (acute loss of lumen diameter)
of the artery.

Longer term, restenosis may result from excessive proliferation of cells at the
treatment site ("hyperplasia") or from a generalized geometric remodeling of the
arterial segment, the causes of which are not well understood. Hyperplasia is a
physiological response to injury, similar to scarring, which occurs in wound
healing. In response to an arterial injury from revascularization, the body sets
off a biochemical response to repair the injury site and protect it from further
harm. This response will include a signal to adjacent cells of the arterial wall
to multiply. Often this cell proliferation goes unchecked, resulting in a much
thicker and inelastic arterial wall and in reduced blood flow. Hyperplasia and
vascular remodeling are responsible for a large portion of the overall effect of
restenosis.

Coronary Stenting and Other Catheter-Based Technologies. Coronary stents are
expandable, implantable metal devices permanently deployed at a lesion site.
Stents maintain increased lumen diameter by mechanically supporting the diseased
site in a coronary artery. Of all the non-surgical treatments which have sought
to improve upon PTCA, stents have demonstrated the best results in reducing the
rate of restenosis. In a typical stent procedure the artery is pre-dilated at
the lesion site with a balloon catheter and the stent is delivered to the site
of the lesion and deployed with the use of a second balloon catheter, which
expands the stent and firmly positions it in place. This positioning is often
followed by a third dilatation using a high pressure balloon to fully expand and
secure the stent. Once placed stents exert radial force against the walls of the
coronary artery to enable the artery to remain open and functional.

Studies have concluded that the rate of restenosis in patients who receive
coronary stents following PTCA is approximately 30% lower than in patients
treated only by PTCA. Additional clinical studies with new stent designs may
show a greater reduction in the rate of restenosis than stents which are
currently available. Stents appear to be effective in reducing the frequency of
restenosis resulting from elastic recoil and vascular remodeling, but they
increase hyperplasia.

The use of stents has grown rapidly since commercial introduction in the United
States in 1994, and it is estimated that they were utilized in approximately 50%
of the approximately 1,100,000 PTCA procedures performed worldwide in 1997.
Despite their rapid adoption stents have certain drawbacks. Not only are they
permanent implants which may result in unforeseen, long-term adverse effects,
but they cannot be used in cases where the coronary arteries are too tortuous or
too narrow. In addition, the use of stents significantly increases the cost of a
PTCA procedure, especially as is often the case when two or more stents are
used. Further, restenosis may still occur and reintervention options for stent
patients are limited.

A variety of other catheter-based, minimally invasive, interventional devices
for coronary artery disease have been developed in an attempt to reduce the
frequency of restenosis following PTCA. These devices include atherectomy
devices (catheter devices that cut and remove plaque from the arterial wall),
rotational ablation devices (catheter devices which use a rotating burr to
remove plaque), and laser catheter devices (devices that use laser energy to
reduce plaque in arteries). Although these new approaches to coronary artery
disease have been found to be effective in certain lesion types and in certain
locations in the coronary arteries, like PTCA they also exhibit high rates of
restenosis.

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The Novoste Solution

The Company's Beta-Cath System is designed to reduce the frequency of restenosis
following PTCA by applying localized beta radiation to the treatment site in the
coronary artery. The Beta-Cath System is designed to be safe and cost-effective
and to fit well with techniques currently used by interventional cardiologists
in the cardiac catheterization lab. The Beta-Cath System targets the primary
causes of restenosis by attempting to prevent or inhibit hyperplasia and
long-term vascular remodeling. The Beta-Cath System, which delivers localized
beta radiation, can be handled with little risk to the health care workers or to
the patients because the penetration of electrons associated with beta radiation
is quite limited and easily shielded by the device. The Company expects that the
Beta-Cath System will provide significant cost savings, to the extent that it
(i) reduces the need for reintervention often required following PTCA and
coronary stenting and (ii) replaces coronary stents as a primary therapy.

The Beta-Cath System is founded on the Company's belief, based on recent
clinical and pre-clinical studies, that localized beta radiation is likely to
reduce coronary artery restenosis rates by inhibiting cell proliferation which
occurs in response to PTCA. Radiation has been used therapeutically in medicine
for more than 50 years, and is extensively used for the treatment of
proliferative cell diseases, such as cancer. Cancer therapy has primarily
involved the use of gamma radiation, which is highly penetrating and may be
dangerous unless handled and used with great care. The Company has designed the
Beta-Cath System to use beta radiation, which is much less penetrating and thus
easier to use and control than gamma radiation. Beta radiation has been used
less frequently in medicine (primarily in a topical application to treat certain
skin and eye disorders) because of its more limited depth of penetration, but is
viewed by the Company as well-suited for intraluminal use following PTCA, where
the objective is to treat the inner surface and the wall of the artery with
minimal exposure to adjacent tissues.

Clinical Trial and Regulatory Status

The Company has conducted a feasibility trial of the Beta-Cath System at Emory
University Hospital in Atlanta and Rhode Island Hospital in Providence under an
IDE granted by the FDA. A total of 23 patients were enrolled from January
through October 1996, each of whom had a single-vessel de novo (previously
untreated) lesion. The patients were treated with standard PTCA and immediately
thereafter with intracoronary beta radiation using the Beta-Cath System. To
examine the safety of different dosing parameters, patients received dosage
ranging from 12 Gy to 16 Gy for vessels ranging from at least 2.5 to 3.5
millimeters in diameter. A follow-up review of the patients 30 days after
treatment and a follow-up angiogram six months after the initial treatment were
performed to observe the treated artery. During 1997 the Company also performed
two isolated, demonstration cases at two other medical centers in the U.S. using
the same IDE protocol utilized in the trials at Emory University Hospital and
Rhode Island Hospital.

In February 1997 the Company commenced a similar 30-patient feasibility study in
Canada, enrollment for which was completed in June 1997. In April 1997 another
similar 30-patient feasibility study was initiated in The Netherlands and
enrollment was completed in December 1997.

As of December 31, 1997 a total of 85 patients had been enrolled in the U.S. and
international feasibility studies. Of the 50 patients, which as of January 30,
1998 had received six-month angiographic follow-up analyzed in a core lab, 12%
were reported restenotic. This data suggests a 70% reduction in the rate of
restenosis in patients who received treatment with the Beta-Cath System when
compared to a historical control group ( from the Lovastatin Restenosis Trial)
which received PTCA only and had been selected based upon inclusion and
exclusion criteria similar to those utilized by the Company. Arteries treated
with the Beta-Cath System on average maintained 100% of the enlargement achieved
with PTCA (a "late loss index" of 0%). The following table compares the
Company's data on the 50 patients to the historical control group:

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Novoste Lovastatin
Feasibility Placebo
Studies Group
------- -----
No. of Treated
Patients............. 50 161
Restenosis Rate...... 12% 42%
Late Loss Index...... 0% 43%

Using data from these feasibility trials, the Company intends to submit during
the first half of 1998 an application for a CE mark to commence marketing of the
Beta-Cath System in Europe.

On July 30, 1997 the Company initiated a randomized, triple-masked,
placebo-controlled, multicenter human clinical trial under an IDE granted by the
FDA to determine the clinical safety and efficacy of the Beta-Cath System for
use in coronary arteries. The Company expects to enroll approximately 1,100
patients in the trial at up to 35 medical sites principally located in the
United States. The patients will be divided into two approximately equal
subgroups, one for PTCA alone and one with coronary stenting. Each subgroup of
the trial will be randomized to either intracoronary radiation therapy or a
placebo control. In both subgroups, patients who receive the beta radiation will
receive dosages of 14Gy for vessels ranging from at least 2.7 to 3.35
millimeters and 18Gy for vessels ranging from 3.35 to 4.0 millimeters. A
follow-up review of patients 30 days after treatment and a follow-up angiogram
eight months after the initial treatment will be performed to observe the
treated artery. The angiograms will be analyzed to determine whether there has
been an incidence of restenosis and to measure the late loss index (the extent
of the loss in the enlargement of lumen achieved with PTCA). As of January 30,
1998 a total of 144 patients had been enrolled at 20 medical centers.

The trials are administered by the Company's clinical and regulatory staff of
eight people. The Company uses consultants to monitor the clinical sites and to
assist in training. The Company also has engaged an independent contract
research organization to compile data from the trial and to perform statistical
analysis.

Following completion of the patient followup in the multicenter trial, which the
Company anticipates will occur the second half of 1999, the Company intends to
submit an application to the FDA for pre-market approval ("PMA") for commercial
sale of its Beta-Cath System in the United States.

The Beta-Cath System

The Beta-Cath System, currently being used in the multicenter trial, is designed
to deliver localized, intraluminal beta radiation to reduce the frequency of
restenosis following PTCA. The Company anticipates that the design of the system
to be commercialized in Europe, if and when pre-market approvals are obtained,
will be substantially similar.

The primary components of the Beta-Cath System are:

Radiation Source Train. The beta radiation administered by the
Beta-Cath System emanates from a "train" of several miniature cylindrical
sealed sources ("radiation sources") containing Strontium 90
(Strontium/Yttrium), a beta-emitting radioisotope. The use of beta, rather
than gamma, radiation is intended to make the Beta-Cath System safer, less
penetrating and easier to use in the cath lab environment. The activity of
the Company's radiation sources has been validated by the U.S. Department
of Commerce National Institute of Standards and Technology, enabling a
physician to accurately determine appropriate dosing levels. In addition,
due to the long half-life (approximately 28 years) of Strontium 90, and
because the source train will not come into contact with a patient's blood
or tissue, the radiation sources are expected to be reused for numerous
patients. Beta radiation from the Strontium 90 source can be easily
shielded from health care workers by the use of approximately
one-half-inch-thick quartz in the transfer device.

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Transfer Device. The transfer device is a multiple-use, hand-held
instrument used to deliver and then store the radiation sources when not
in use. The transfer device (i) transfers the radiation sources to and
from the delivery catheter via a hydraulic delivery system, (ii) contains
a switching device that uses a mechanical gating system to contain and
then release the radiation sources and (iii) completely shields the beta
radiation energy from health care workers when the radiation source train
is housed inside it.

Delivery Catheter. The delivery catheter is a single-use,
disposable, multi-lumen catheter that provides a pathway for the radiation
sources to be rapidly delivered and retrieved from the coronary arterial
segment to be treated. The delivery catheter is positioned by advancing it
over the same guidewire used during the immediately preceding PTCA
procedure. The radiation sources are delivered and retrieved through a
dual-lumen closed hydraulic circuit, which uses a standard syringe.

The Beta-Cath System is intended to be used in a cath lab by an interventional
cardiologist immediately after a PTCA procedure. The cardiologist uses a
previously positioned guidewire used in the PTCA procedure to direct the
delivery catheter into the vasculature of the patient until the treatment zone
of the delivery catheter reaches the targeted site. A radiation oncologist then
delivers the radiation sources hydraulically from the transfer device to the
target site in a matter of seconds through the radiation source train lumen of
the delivery catheter. The radiation sources remain at the targeted site for
less than five minutes to deliver a predetermined dose of radiation. They are
then returned through the same lumen by the use of positive hydraulic pressure
applied through the delivery catheter's fluid lumen. Upon completion of each
procedure, the train of radiation sources is stored safely inside the transfer
device. At the end of the day the transfer device is delivered to a designated
radiation storage site within the hospital for safekeeping. While the need for a
cardiologist and a radiation oncologist is expected to result in higher
physician fees, the Company believes the Beta-Cath System will be
cost-effective, principally by reducing the need for reinterventional
procedures.

The Company believes the Beta-Cath System, when fully developed and tested, will
have the following advantages:

o Non-implantable, Site-specific Therapy. The Beta-Cath System was
designed to treat accurately only the area required to prevent
restenosis, without leaving a permanent implant in the body.

o Short Procedure Times. The Beta-Cath System was designed to enhance
patient safety and comfort, as well as to promote efficiency in the
cath lab, by delivering the recommended dosage in less than five
minutes of radiation exposure time per lesion.

o Utilization of Existing PTCA Techniques. Although intracoronary
radiation is a new concept in coronary artery disease treatment, the
hand-held Beta-Cath System was designed to be easily adopted and
used by the cardiologist. The delivery catheter is very similar to a
balloon angioplasty catheter and it is positioned by advancing it
over the guidewire already in place from the previous PTCA
procedure.

o Flexibility. The cylinders that make up the Beta-Cath System's
radiation-source train, as well as the material of the Beta-Cath
System's delivery catheter, are designed to be very flexible, giving
the Beta-Cath System a very tight radius of curvature and the
capability of navigating tortuous coronary anatomies.

o Multiple-Use System. The radiation source train can be reused for
numerous patients, due to the long half-life of the isotope and
because the source train does not come into contact with the
patient's blood. As a result, inventory planning will be very
straightforward, procedure costs will be attractive and last minute
treatment decisions can be made.

o Ease and Accuracy of Dosing. Because of the long half-life of the
Company's radiation source, prescribed treatment times will remain
stable over the approved shelf life of the isotope. Intracoronary
radiation systems that utilize short half-life isotopes are likely
to require complex case-by-case dose calculations based on the
current decay state of the isotope.

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o Designed for Safety. The Beta-Cath System utilizes localized beta
radiation, which results in total body radiation exposure
significantly less than that received during routine x-ray during
PTCA. Other safety mechanisms include: a closed source train lumen,
special locking mechanisms to connect the delivery catheter to the
transfer device and sufficient shielding in the transfer device to
protect health care workers from radiation exposure.

The Novoste Business Strategy

The Company's objective is to become the leader in the commercialization of
intravascular radiation devices for the treatment of restenosis. Elements of the
Company's strategy include:

o Achieve First-to-Market Position in the United States. Novoste
intends to be the first to market an intracoronary beta radiation
device to treat coronary restenosis in the United States.

o Establish Beta Radiation Therapy as the Standard Therapy to Prevent
Restenosis. The Company's strategy is to introduce the Beta-Cath
System into the cath lab as standard therapy to reduce the frequency
of restenosis following PTCA, either on a stand-alone basis or in
conjunction with coronary stenting. The Company seeks to establish
interventional cardiologists as the primary providers of this
therapy and plans to target top-tier medical institutions for sale
of the Beta-Cath System. In addition, the Company intends to conduct
intensive physician training seminars to familiarize the
cardiologists and radiation oncologists with the use of the
Beta-Cath System.

o International Commercialization. The Company intends to seek
regulatory approval to commence marketing the Beta-Cath System in
Europe by submitting an application for a CE mark during the second
quarter of 1998. If such approval is obtained, the Company
anticipates marketing the Beta-Cath System in Europe through
international distributors or a corporate partner.

o Establish Radiation Therapy for Peripheral Vascular Applications.
Restenosis is common following angioplasty of the peripheral
arteries. In addition, a similar phenomena frequently occurs in
veins adjacent to an arterial-venous shunt used for patients
undergoing hemodialysis for end-stage renal disease. The Company
intends to leverage its core catheter and localized radiation
technologies to expand its product offerings to other vascular
markets where cell proliferation is of clinical significance.

o Protect and Enhance Proprietary Technology. The Company believes
that its patent position may offer a competitive advantage. On
November 4, 1997 the Company was issued United States Patent No.
5,683,345 on the Beta-Cath System. The Company has also filed a
counterpart application under the Patent Cooperation Treaty,
preserving the Company's right to file applications in the European
Patent Office and certain other countries. The Company intends to
obtain further protection of its proprietary technology and to
defend its intellectual property rights against infringement.

Product Development

Research and development activities are performed by a 25 person product
development team. The Company has also retained consultants to assist in many
research and development activities, including design and manufacture of the
Beta-Cath System, designing, conducting and monitoring the clinical trials
relating to the Beta-Cath System and advising on key aspects of radiation health
physics and dosimetry.

The focus of the Company's current development efforts is the design of future
generation components of the Beta-Cath System. The Company would like to
introduce a delivery catheter with a smaller outer diameter so that arteries
smaller than 2.7 millimeters could be treated, thereby expanding the Company's
market opportunity. Likewise, the transfer device will be modified to have a
more ergonomic design and to incorporate additional features. Additional future
development efforts will focus on modifying the Beta-Cath System for use in
peripheral applications, such as arterial-venous shunts and the femoral
arteries. In addition, the capability of modifying the length of the
radiation-

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source trains to correspond with varying lesion lengths is potentially a desired
feature of future systems. There can be no assurance that the Company will be
successful in developing these or other products.

Research and development expenses for the years ended December 31, 1997, 1996,
and 1995 were approximately $12.9 million, $4.6 million, $2.1 million,
respectively.

In addition to the resources dedicated to the product development process, the
Company has an internal regulatory affairs and clinical monitoring staff, which
has responsibility for establishing, monitoring, collecting and analyzing data
relating to clinical trials and regulatory approvals for the Beta-Cath System in
the United States and abroad.

Marketing and Distribution

The Company anticipates marketing the Beta-Cath System through a direct sales
force in the United States and through a combination of international
distributors and corporate marketing partners outside the United States. The
Company believes such distribution or corporate partnering arrangements will be
cost effective, will be implemented more quickly than a direct-sales force
established by the Company in such countries, and will enable the Company to
capitalize on local marketing expertise in such countries. If marketing approval
is obtained, the Company plans to focus its United States marketing efforts on a
top tier of approximately 200 hospitals, where the Company believes a vast
majority of the PTCA procedures in the United States are performed, and on
leading cardiologists and radiation oncologists at those institutions. Through
this effort the Company initially aims to identify well-respected clinical
supporters for the Beta-Cath System and to leverage their reputation in the
clinical community to generate wider demand. The Company will also conduct
seminars to educate physicians about the Beta-Cath System. The Company believes
that it can market the Beta-Cath System to these hospitals and cardiologists
with a moderately sized direct sales organization, initially consisting of the
Vice President of Sales and Marketing and approximately 18 to 24 sales
representatives, augmented by a small number of clinical specialists. The
Company's business and future operating results will depend in significant part
upon its ability to attract and retain skilled sales and marketing personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
Company's inability to attract and retain skilled sales and marketing personnel,
as needed, could materially adversely affect the Company's business, financial
condition and results of operations.

For all geographic markets, the Company intends to select one or more
established market leaders in the radiation-isotope business to inventory and
deliver the radiation sources and to provide related training, delivery, testing
and disposal services to the purchasing hospital. There can be no assurance that
the Company will be able to secure any arrangements with international
distributors, corporate marketing partners or radiation isotope providers on
satisfactory terms or at all.

Manufacturing and Materials

The Company soon will focus its manufacturing resources on the production of the
Beta-Cath System. The Company anticipates that it will manufacture the delivery
catheter component of the Beta-Cath System directly and manufacture the transfer
device jointly with third parties. The radiation source trains are being
supplied by a third party. The Company is in the process of validating its
manufacturing processes to commence manufacturing of its catheter in 1998. The
Company intends to manufacture its products at its 25,600-square-foot facility
in Norcross, Georgia.

The Company believes that, if marketing approvals of the Beta-Cath System are
obtained, it will be able to utilize its existing facility and the expertise of
its management to manufacture commercial quantities of the catheter based
components of the Beta-Cath System at a reasonable cost. However, to date the
Company has not yet commercialized any of its products, and its manufacturing
activities have consisted of building a small number of prototypes of the
Beta-Cath System for use in pre-clinical and clinical trials, and the Company
does not have experience in manufacturing the Beta-Cath System in commercial
quantities.

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The Company currently executes all critical assembly operations in
controlled-environment rooms, in which bacterial and airborne particulate levels
are monitored. The Company believes that its current space will be sufficient to
serve its needs through at least 1998. From time to time the Company could
experience shortages of certain supplied materials that could significantly
affect its ability to produce enough product to satisfy market demand. As the
Company grows, it will be required to scale up its production and to increase
its manufacturing capacity.

Any products of the Company, for which FDA clearances or approvals have been
obtained, must be manufactured and designed in accordance with Good
Manufacturing Practices ("GMP") regulations which would impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing and quality assurance activities. The Company will rely on
independent suppliers for certain components of the Beta-Cath System. Such
components are either standard throughout the industry or will be built to the
Company's specifications. All suppliers of such components also must be in
compliance with GMP regulations.

The Company has obtained all of its requirements of radiative sources pursuant
to an agreement, as amended (the "Supply Agreement"), with a single supplier,
Bebig Isotopentechnik und Umweltdiagnostik GmbH, a German corporation (the
"Supplier"). Under the Supply Agreement, the Company agreed to advance the
Supplier a monthly investment grant of 100,000 Deutsche Marks (approximately
$60,000) for a period of 15 months from November 1996 through January 1998 to
equip a new production line for the exclusive production of radioactive sources
for the Company. As of December 31, 1997, 14 payments totaling 1.4 million DM
(approximately $835,000) have been made. In June 1997 the Company also made a
milestone payment of 617,000 DM (approximately $360,000) to the Supplier upon
its meeting certain delivery requirements. The Company is further obligated to
make a payment of 737,000 DM (approximately $430,000) upon the Supplier meeting
certain production milestones by March 1998. This amount has been accrued at
December 31, 1997 and charged to research and development expense. Finally, the
Supplier has notified the Company of a 1 Million DM (approximately $550,000)
cost overrun related to the new production line, for which it seeks
reimubursement in 1998. The outcome of this matter and the amount of any related
payment are expected to be determined during March 1998.

The Supply Agreement has an initial term ending in the year 2000 and renews
automatically on a calendar year basis unless notice of termination is given six
months prior to the end of each calendar year. Under the Supply Agreement, the
Supplier has agreed not to sell, lease, license or otherwise transfer
radioactive sources of a similar isotope to any other party for use in the
treatment of restenosis. The Company, in turn, has agreed not to purchase,
lease, or otherwise acquire directly or indirectly more than 30% of its annual
requirement for radioactive sources of "like" isotope for use in the treatment
of restenosis from any other party unless the Supplier is unable to provide the
radioactive source materials required by the Company. The Supplier has agreed to
manufacture radiative sources at an agreed-upon base price. The Supplier is
required to comply with various regulatory requirements with respect to the
supply of radiation sources.

Although the Supply Agreement permits the Company to use an alternative source
for 30% of its annual isotope requirements, the Company believes that, because
of the technical expertise and capital investment required to manufacture the
radiative sources, it would be extremely time consuming and expensive to find an
alternate source of supply in the event that the Supplier is unable to provide
the materials. In addition, portions of the process used to manufacture the
materials may be proprietary to the Supplier, who has no obligation to make any
of its know-how or technology available to any potential alternate source of
supply.

The Company holds an option to purchase those tangible and intangible assets of
the Supplier used or useful in producing the radioactive sources sold to the
Company by the Supplier in connection with the Beta-Cath System. The option is
exercisable at any time on or prior to August 22, 2002, for $5,000,000, 50% of
which is payable upon exercise and the balance in 12 equal consecutive monthly
installments following such exercise, and provides that the $90,000 payment made
to obtain the option and the aforementioned aggregate investment grants of 1.5
million DM and 1.0 Million DM, respectively, to the extent paid at the time of
exercise, will be credited against the purchase price of the assets. Upon the
exercise of the option, the Supplier is obligated, for a period of up to three
months, to assign personnel to assist the Company in facilitating the transfer
of the assets, both for purposes of technical training and operations and for
administrative and regulatory matters relating to licensing and governmental

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approvals. Nevertheless, the exercise of such option and the transfer of the
required technology and expertise to the Company or an alternative source would
be costly, time consuming, and uncertain of success.

While the Company anticipates that the radiation source materials it purchases
from the Supplier will be able to be used for numerous patients, the inability
of the Supplier to provide radiation source materials would limit the Company's
ability to increase its business beyond its then existing inventory of such
radiation source material. As a result of the foregoing, any failure or
disruption in the ability of the Supplier to provide the radiation source
materials could have a material adverse effect on the business, financial
condition and results of operation of the Company.

Patents and Proprietary Technology

The Company's policy is to protect its proprietary position by, among other
methods, filing United States and foreign patent applications. On November 4,
1997 the Company was issued United States Patent No. 5,683,345 on the Beta-Cath
System. The Company also has filed a related United States continuation-in-part
application (which is jointly owned by Novoste and Emory University), and has a
related United States continuation application and another United States
application pending covering aspects of its Beta-Cath System. With respect to
U.S. Patent No. 5,683,345, Novoste has counterpart applications pending in the
European Patent Office and certain other countries. With respect to the
continuation-in-part and other applications, Novoste has filed counterpart
applications under the Patent Cooperation Treaty, preserving the Company's right
to file applications in the European Patent Office and certain other countries.

There can be no assurance that United States Patent No. 5,683,345 will offer any
protection to the Company or that it will not be reexamined, invalidated or
circumvented. In addition, there can be no assurance that any claims under the
other pending applications will be allowed, or if allowed, will offer any
protection or that they will not be rejected, challenged, reexamined,
invalidated or circumvented. In addition, there can be no assurance that
competitors will not obtain patents that will prevent, limit or interfere with
the Company's ability to make, use or sell its products in either the United
States or international markets.

The Company received a letter from NeoCardia, L.L.C. ("NeoCardia"), dated July
7, 1995, in which NeoCardia notified the Company that NeoCardia is the exclusive
licensee of U.S. Patent No. 5,199,939 (the "Dake Patent") and requested that the
Company confirm that its products did not infringe the claims of the Dake
Patent. The Company concluded, based upon advice of patent counsel, that the
Company's Beta-Cath System would not infringe any valid claim of the Dake
Patent. On August 22, 1995, on behalf of the Company, its patent counsel
responded that the Company did not infringe the Dake Patent.

In June 1997 the USPTO issued a final Office Action with respect to two
consolidated reexamination requests relating to the Dake Patent. In the final
Office Action, the patent examiner upheld the patentability of some of the
original claims and certain new claims for the Dake Patent but rejected other
claims. In August 1997 the holder of the Dake Patent filed an amendment in
response to the final Office Action seeking, among other things, to add certain
additional new claims, which appear to have been written in an attempt to cover
the Beta-Cath System. In October 1997 the USPTO rejected these particular new
claims, because they improperly attempted to broaden the scope of the Dake
Patent and were inconsistent with the original patent claims. Later in October
1997, the holder of the Dake Patent filed an amendment canceling those rejected
claims and also requesting reconsideration of the rejection. The USPTO responded
with a final action on January 27, 1998 rejecting once again any attempt to
broaden the original claims.

The holder of the Dake Patent has the right to appeal any final rejection of any
claims presented. The validity of patent claims which survive a reexamination
procedure may be more difficult to challenge in a later dispute than claims
which have never been reexamined to the extent that the same prior art is relied
upon. The Company continues to believe, based upon advice of counsel, that the
Beta-Cath System would not infringe any valid claim of the Dake Patent. However,
there can be no assurance that the Company's products will not infringe any
original, amended or new claims of the Dake Patent which survive reexamination
proceedings.

In May 1997 Guidant Corporation ("Guidant") acquired NeoCardia together with the
rights under the Dake Patent. Guidant is a New York Stock Exchange-listed,
medical device company, which is a competitor of Novoste. Guidant

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has significantly greater capital resources than the Company. There can be no
assurance that Guidant will not sue the Company for patent infringement and
obtain damages from the Company and/or injunctive relief restraining the Company
from commercializing the Beta-Cath System in the U.S., or that the Company will
not be required to obtain a license from Guidant to market the Beta-Cath System
in the U.S., any of which could have a material adverse effect on the Company's
business, financial condition and results of operations, or could result in
cessation of the Company's business.

The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly and
time consuming. Litigation may be necessary to enforce patents issued to the
Company, to protect trade secrets or know-how owned by the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Any litigation or interference proceedings will result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties or require the Company to redesign its
products or processes to avoid infringement or prevent the Company from selling
its products in certain markets, if at all. Although patent and intellectual
property disputes regarding medical devices have often been settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and could include ongoing royalties. Furthermore, there can be no
assurance that the necessary licenses would be available to the Company on
satisfactory terms, if at all, or that the Company could redesign its products
or processes to avoid infringement. Any adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
the Company from manufacturing and selling its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

The Company has developed certain of its patent and proprietary rights relating
to the Beta-Cath System in conjunction with Emory University Hospital, a leader
in the research of intravascular radiation therapy. To obtain the exclusive
rights to commercialize the Beta-Cath System for the treatment of restenosis,
the Company entered into a license agreement with Emory, under which Emory
assigned to the Company all of Emory's rights to one pending U.S. patent
application, as to which Emory made no representation or warranty with respect
to its ownership thereof, and licensed other technology thereunder relating to
the Beta-Cath System, but made only limited representations as to the ownership
of such other technology. Under the agreement Emory will be entitled to royalty
payments based upon net sales of the Beta-Cath System. The term of the agreement
runs through the later of (i) the date the last patent covered by the agreement
expires or (ii) January 2016 (unless earlier terminated as provided in the
agreement). Any inventions developed jointly by personnel of the Company and
Emory during the term of the license agreement are owned jointly by the Company
and Emory.

If the agreement were terminated by Emory as a result of the Company's failure
to pay such royalties or any other breach of its obligations under such
agreement, the Company's rights to use jointly owned patents (including any
patent issuing from the continuation-in-part application which has been filed)
would become non-exclusive, it would have no rights to use future patents owned
exclusively by Emory, and the Company could be required by Emory to cooperate in
licensing the pending U.S. patent application and its foreign counterparts to
third parties so that they would be able to commercialize and sell the Beta-Cath
System.

All of the physicians on staff at Emory who were involved in the development of
the Beta-Cath System, including Spencer B. King, III M.D., have assigned their
rights in the technology, if any, to Novoste and/or Emory. In

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addition, the Company has entered into a license agreement with Dr. King
pursuant to which Dr. King is entitled to receive a royalty on the net sales of
the Beta-Cath System (excluding consideration paid for the radioactive isotope),
subject to a maximum of $5,000,000 to be paid to Dr. King, in exchange for the
right granted thereunder to the Company to use his name in connection with sales
and marketing of the Beta-Cath System.

The Company employs a full time manager of intellectual property to prepare
invention records and to coordinate the prosecution of new intellectual
property. The Company typically obtains confidentiality and invention assignment
agreements in connection with employment, consulting and advisory relationships.
These agreements generally provide that all confidential information developed
or made known to the individual by the Company during the course of the
individual's relationship with the Company, is to be kept confidential and not
disclosed to third parties, except in specific circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company in the event of unauthorized use, transfer or
disclosure of such information or inventions. Furthermore, no assurance can be
given that competitors will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's proprietary technology, or that the Company can meaningfully protect
its rights in unpatented proprietary technology.

Competition

Competition in the medical device industry, and specifically the markets for
cardiovascular devices and devices to improve the outcome of coronary
revascularization procedures, is intense. Several companies are developing
devices to improve the outcome of coronary revascularization procedures,
including several that have various radiation therapy products under development
to reduce the frequency of restenosis. The radiation therapy devices under
development by Novoste's competitors include intracoronary radiation therapy
delivered through a variety of means, including: (i) a radioactive-tipped
guidewire, (ii) a radioactive stent or (iii) a radioactive fluid-filled balloon.
In addition, the radiation sources being developed by the Company's competition
vary between gamma, beta and x-ray.

Most of the companies developing radioactive guidewires, which may use either
gamma or beta radiation, have also developed specialized computerized equipment
to automatically calculate treatment times, control movement of the guidewire,
and to store the guidewire when not in use (an "afterloader"). This equipment
may be large, complex, and expensive. Guidewires with gamma-emitting radioactive
tips have been used for some time in cancer therapy, and some researchers have
used them in clinical trials to deliver intracoronary radiation to prevent
restenosis. Gamma radiation is more penetrating and therefore more hazardous
than beta radiation. As an example, during administration of gamma radiation,
health care workers must leave the cath lab to ensure their safety by limiting
their ongoing exposure to gamma radiation. Some companies are also investigating
the use of beta-emitting wires, which would be more easily shielded and safer to
use, although these are also used in conjunction with afterloaders. Companies
using the guidewire approach include Neocardia, which is owned by Guidant, Best
Medical, Inc., which is currently conducting a multicenter clinical trial of a
gamma-emitting radioactive guidewire, U.S. Surgical and Pfizer through its
Schneider AG subsidiary.

Novoste is also aware of one company, Isostent, Inc., developing a beta-emitting
stent. In theory, such a stent would address both elastic recoil and vascular
remodeling and inhibit longer-term hyperplasia. However, this method retains the
problems inherent in leaving a permanent implant in the coronary artery. In
addition, this approach might not effectively treat areas of the artery beyond
the ends of the stent, areas which have been known to be restenotic. Finally,
because it is a permanent implant, a radioactive stent would likely require the
use of a radiation source with a short half-life. As a result, a hospital would
have difficulty keeping an inventory of stents that have sufficient
radioactivity at the time of implant. Another method of delivering intraluminal
radiation being investigated by a number of physicians and companies is a
radioactive fluid-filled balloon catheter. This approach would involve injecting
a short half-life radioactive liquid down a catheter to inflate a balloon. The
main disadvantages of this approach are the risk of balloon rupture and disposal
of the catheter and fluid as radioactive waste. Many of the Company's
competitors and potential competitors have substantially greater capital
resources than does the Company and also have greater resources and expertise in
the areas of research and development, obtaining regulatory approvals,
manufacturing and marketing. There can be no assurance that the Company's
competitors and

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potential competitors will not succeed in developing, marketing and distributing
technologies and products that are more effective than those developed and
marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. Additionally, there is no assurance that
the Company will be able to compete effectively against such competitors and
potential competitors in terms of manufacturing, marketing and sales.

Any product developed by the Company that gains regulatory clearance or approval
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, gain regulatory approval and reimbursement acceptance and supply
commercial quantities of the product to the market are expected to be important
competitive factors. In addition, the Company believes that the primary
competitive factors for products addressing restenosis include safety, efficacy,
ease of use, reliability, suitability for use in cath labs, service and price.
The Company also believes that physician relationships, especially relationships
with leaders in the interventional cardiology community, are important
competitive factors. Although the Company believes that it is the first in the
United States to have initiated an FDA-approved human clinical trial of a
radiation system for reducing the frequency of restenosis, there can be no
assurance that the Company will be first to market such a system in the United
States or to market such a system effectively.

Government Regulation

United States

The Company's Beta-Cath System is regulated in the United States as a medical
device. As such, the Company is subject to extensive regulation by the FDA and
by foreign governments. The FDA regulates the clinical testing, manufacture,
labeling, distribution and promotion of medical devices. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing approvals, a recommendation by the
FDA that the Company not be permitted to enter into government contracts, and
criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

In the United States, medical devices are classified into one of three classes
(Class I, II or III) on the basis of the controls deemed necessary by the FDA to
reasonably assure their safety and efficacy. Under FDA regulations Class I
devices are subject to general controls (for example, labeling, premarket
notification and adherence to GMPs) and Class II devices are subject to general
and special controls (for example, performance standards, patient registries,
and FDA guidelines). Generally, Class III devices are those that must receive
premarket approval by the FDA after evaluation of their safety and efficacy (for
example, life-sustaining, life-supporting and implantable devices, or new
devices that have not been found substantially equivalent to other Class II
legally marketed devices). The Beta-Cath System is a Class III device, which
will require premarket approval ("PMA") by the FDA prior to its
commercialization.

A PMA application must be supported by valid scientific evidence, which
typically includes extensive data, including preclinical and human clinical
trial data to demonstrate safety and efficacy of the device. If human clinical
trials of a device are required and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) is required to file an IDE application with the FDA prior to commencing
human clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.

The PMA application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission should include the
proposed labeling, advertising literature and training methods (if required).
Upon receipt of a PMA application, the FDA makes a

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threshold determination as to whether the application is sufficiently complete
to permit such substantive review. If the FDA determines that the PMA
application is sufficiently complete to permit a substantive review, the FDA
will accept the application for filing and begin an in-depth review of the PMA
application. An FDA review of a PMA application generally takes one to two years
from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information previously
submitted. During the review period an advisory committee, primarily comprised
of clinicians, will likely be convened to review and evaluate the application
and provide recommendations to the FDA as to whether the device should be
approved. The FDA is not bound by those recommendations. During the review
process of the PMA application, the FDA generally will conduct an inspection of
the manufacturer's facilities to ensure that the facilities are in compliance
with the applicable GMP requirements.

If the FDA's evaluations of the PMA application is favorable, the FDA will
either issue an approval letter or an "approvable letter," containing a number
of conditions which must be satisfied in order to secure the final approval of
the PMA application. When and if those conditions have been fulfilled to the
satisfaction of the FDA, the agency will issue a letter approving a PMA
application authorizing commercial marketing of the device for certain
indications. If the FDA's evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable letter." The FDA may also determine that additional
clinical trials are necessary, in which case approval of the PMA application
could be delayed for several years while additional clinical trials are
conducted and submitted in an amendment to the PMA application. The PMA
application process can be expensive, uncertain and lengthy, and a number of
devices for which FDA approval has been sought by other companies have never
been approved for marketing.

On July 19, 1995, 29 days after submission of the application, the Company
obtained an IDE to conduct a clinical feasibility trial to collect data
necessary to gain FDA approval to begin the multicenter, randomized, prospective
clinical trial needed to support a PMA application. The trial initially
commenced at Emory University Hospital. On April 18, 1996, 31 days after
submission of an application to broaden that IDE, the Company was granted the
authority to begin enrolling patients also at Rhode Island Hospital. Then in
July 1997, 29 days after submission of the Company's application for an IDE for
a multicenter trial using a modified transfer device, the FDA approved an IDE
for the multicenter trial currently in progress. There can be no assurance as to
when, or if, the Company will complete clinical trials of its Beta-Cath System
or that data from such trials, if completed, will be adequate to support
approval of a PMA application. Furthermore, there can be no assurance that the
Company will be able to obtain approval of its PMA application on a timely
basis, or at all, and delays in the receipt of, or failure to receive, such
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations, and could result in cessation of
the Company's business.

Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and certain
state agencies, and are subject to periodic inspections by the FDA and those
state agencies. The FDA requires devices to be manufactured in accordance with
GMP regulations, which impose certain procedural and documentation requirements
upon the Company with respect to manufacturing and quality-assurance activities.

Because the Beta-Cath System uses radiation sources, its manufacture,
distribution, transportation, import/export, use and disposal will also be
subject to federal, state and/or local laws and regulations relating to the use
and handling of radioactive materials. Specifically, even if approval of a PMA
application is obtained, approval by the U.S. Nuclear Regulatory Commission
("NRC"), or an equivalent state agency, of the Company's radiation sources for
certain medical uses will be required to distribute commercially the radiation
sources to licensed recipients in the United States. In addition, the Company
and/or its supplier of radiation sources must obtain a license from the NRC to
commercially distribute such radiation sources as well as to comply with all
applicable regulations. The Company and/or its supplier of radiation sources
must also comply with NRC and U.S. Department of Transportation regulations on
the labeling and packaging requirements for shipment of radiation sources to
hospitals or other users of the Beta-Cath System. In addition, hospitals may be
required to obtain or expand their licenses to use and handle Strontium 90
radiation prior to receiving radiation sources for use in the Beta-Cath System.
Comparable, or perhaps

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more stringent, requirements and/or approvals regulating radiation are
anticipated in markets outside the United States. If any of the foregoing
approvals are significantly delayed or not obtained, the Company's business,
financial condition and results of operations could be materially adversely
affected.

The Company is also subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations now or in the future, or that such laws or regulations will not have
a material adverse effect upon the Company's ability to do business.

Changes in existing requirements or adoption of new requirements or policies
could adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition or
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws and regulations will not have a material adverse effect upon
the Company's business, financial condition or results of operations.

International

Sales of the Beta-Cath System outside the United States are subject to
regulatory requirements that vary from country to country. The time required to
obtain approval for sale in foreign countries may be longer or shorter than that
required for FDA approval, and the requirements may differ. In addition, there
may be foreign regulatory barriers other than premarket approval (including
regulations concerning the distribution, use and handling of the radiation
sources), and the export of devices must be in compliance with FDA regulations.
Commencing in 1998 the Company will be required to obtain certifications
necessary to enable the CE mark to be affixed to the Beta-Cath System, to market
the Beta-Cath System throughout the European Union. Additionally, to market
products in Europe, the Company may choose to maintain ISO 9001 and is required
to maintain EN 46001 certification subject to periodic surveillance audits.
Using data from its feasibility studies, the Company intends to submit an
application during the first half of 1998 for a CE mark to commence marketing of
the Beta-Cath System in Europe.

Other countries in which the Company intends to market the Beta-Cath System may
adopt regulations in the future that could prevent the Company from marketing
its Beta-Cath System in those countries. In addition, the Company may be
required to spend significant amounts of capital in order to respond to requests
for additional information by foreign regulatory bodies, or may otherwise be
required to spend significant amounts of capital in order to obtain foreign
regulatory approvals. Any such events could substantially delay or preclude the
Company from marketing the Beta-Cath System in foreign countries.

Third-Party Reimbursement

The Beta-Cath System, if approved for commercial sale, will be purchased
primarily by hospitals. Hospitals and physicians bill various third-party
payors, such as government health programs, private health insurance plans,
managed care organizations and other similar programs, for the health care
services provided to their patients. The FDA has classified the Beta-Cath System
as an experimental device and accordingly its use in the human clinical trials
will not be reimbursable under the Medicare program or by private insurers until
after the PMA approval is achieved, if ever. The classification of the Beta-Cath
System as experimental will materially increase the costs of conducting clinical
trials in the United States, and such costs could have a material adverse effect
on the Company's business, financial condition and results of operations. Even
if the Beta-Cath System were to receive approval for marketing by the FDA, there
can be no assurance that third-party payors will cover the Beta-Cath System, or,
if covered, that third-party payors will not place certain restrictions on the
circumstances in which coverage will be available. In addition, payors may deny
reimbursement if they determine that a product was not used in accordance with
established payor protocol regarding cost-effective treatment methods, or was
used for an unapproved indication. Third-party payors are also increasingly
challenging the prices charged for medical products and services and, in some
instances, have put pressure on medical device suppliers to lower their prices.
The Company is unable to predict what changes will be made in the reimbursement
methods used by third-party health care payors. There

17
<PAGE>

can be no assurance that the Beta-Cath System will be considered cost effective
by third-party payors, that reimbursement for the Beta-Cath System will be
available or, if available, that payors' reimbursement levels will not adversely
affect the Company's ability to sell the Beta-Cath System on a profitable basis.
In addition, the cost of health care has risen significantly over the past
decade, and there have been and may continue to be proposals by legislators,
regulators and third-party payors to curb these costs. Failure by hospitals and
physicians to obtain reimbursement from third-party payors, changes in
third-party payors' policies toward reimbursement for the Beta-Cath System or
legislative action could have a material adverse effect on the Company's
business, financial condition and results of operations.

Reimbursement systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must be obtained on
a country-by-country basis. Many international markets have government managed
health care systems that control reimbursement for new devices and procedures.
In most markets there are private insurance systems as well as government
managed systems. There can be no assurance that reimbursement for the Company's
products will be available in international markets under either government or
private reimbursement systems.

Product Liability and Insurance

The business of the Company entails the risk of product liability claims.
Although the Company has not experienced any product liability claims to date,
there can be no assurance that such claims will not be asserted or that the
Company will have sufficient resources to satisfy any liability resulting from
such claims. Through December 31, 1997 the Company maintained product liability
insurance with coverage of an annual aggregate maximum of $4 million. Effective
January 1998 this insurance was increased to $8 million. There can be no
assurance that product liability claims will not exceed such insurance coverage
limits, that such insurance will continue to be available on commercially
reasonable terms or at all, or that a product liability claim would not
materially adversely affect the business, financial condition or results of
operations of the Company.

Facilities

The Company leases approximately 25,600 square feet of space in an office park
in Norcross, Georgia under a five-year lease expiring in 2000. All of the
Company's operations (other than clinical research activities and services of
its consultants) are conducted in that facility. The Company believes that its
facility is adequate to serve its needs through at least 1998, but additional
facilities may be needed thereafter to commercialize the Beta-Cath System.

Employees and Consultants

As of December 31, 1997 the Company directly employed 45 full-time individuals.
Most of the Company's employees have prior experience with medical device or
pharmaceutical companies. The Company believes it maintains good relations with
its employees. None of the Company's employees is represented by a union or
covered by a collective bargaining agreement. The Company's success will depend
in large part upon its ability to attract and retain qualified employees. The
Company faces competition in this regard from other companies, research and
academic institutions and other organizations.

The Company maintains continuing relationships with a number of independent
consultants that have contributed to the development of the Company's products
and work on specific development projects. These relationships are integral to
the continued success of the Company and the generation of new products from the
research and development departments.

Executive Officers of the Company

The executive officers of the Registrant, who are elected by the Board of
Directors, are as follows:

18
<PAGE>

Name Age Position
- - - ---- --- --------
Thomas D. Weldon.........42 President, Chief Executive Officer and Director
Charles E. Larsen........46 Senior Vice President, Chief Technical Officer and
Director
David N. Gill............43 Chief Operating Officer, Vice President of Finance
and Treasurer
Thomas K. Brooks.........41 Vice President, Sales and Marketing
Joan M. Macdonald, Ph.D..40 Vice President, Regulatory and Clinical Affairs
Cheryl R. Johnson........35 Vice President, Investor Relations and Business
Development and Secretary

Thomas D. Weldon. Mr. Weldon co-founded the Company and has served as its
President and Chief Executive Officer and as a Director since its capitalization
in May 1992. Mr. Weldon co-founded and was President, Chief Executive Officer
and a Director of Novoste Puerto Rico Inc. ("Novoste Puerto Rico"), a
manufacturer of disposable cardiovascular medical devices, from 1987 to May
1992, prior to its sale. Previous responsibilities included management positions
at Arthur Young & Company and Key Pharmaceuticals. Mr. Weldon received a B.S. in
Industrial Engineering from Purdue University and an M.B.A. in Operations and
Systems Management from Indiana University.

Charles E. Larsen. Mr. Larsen co-founded the Company and has served as its
Senior Vice President and as a Director since its capitalization in May 1992.
Since February 28, 1997, Mr. Larsen has been Chief Technical Officer of the
Company, having served from May 1992 through February 1997 as its Chief
Operating Officer. Mr. Larsen co-founded and was Vice President and Director of
Novoste Puerto Rico from 1987 to May 1992. From 1983 through 1987, Mr. Larsen
was a manager of manufacturing engineering at Cordis Corporation. Mr. Larsen
received a B.S. in Mechanical Engineering from New Jersey Institute of
Technology.

David N. Gill. Mr. Gill has served as the Company's Vice President of Finance,
Chief Financial Officer and Treasurer since July 1996 and as Chief Operating
Officer since February 28, 1997. From August 1995 to June 1996, Mr. Gill served
as Chief Financial Officer of SPEA Software AG, prior to its sale. From 1992 to
1995 Mr. Gill served as President and Director of Dornier Medical Systems, Inc.
and from 1990 to 1992 as its Vice President of Finance. Mr. Gill received an
M.B.A. from Emory University and a B.S. degree in Accounting from Wake Forest
University.

Thomas K. Brooks. Mr. Brooks has served as the Company's Vice President, Sales,
Marketing and Business Development from January 1995 to July 1996 and as Vice
President, Sales and Marketing since July 1996. From 1986 through December 1994,
Mr. Brooks served in various sales, marketing, and business development
positions with Boston Scientific Corporation, a manufacturer of medical devices,
most recently as manager of new business development. From 1983 through 1986,
Mr. Brooks held various sales positions for Ethicon Endo-Surgery Division of
Johnson & Johnson. Mr. Brooks received a B.A. in Business Administration from
Monmouth College.

Joan M. Macdonald, Ph.D. Dr. Macdonald joined the Company in January 1994, as
its Director of Regulatory Affairs, and has been its Vice President, Regulatory
and Clinical Affairs since January 1996. From February 1991 through September
1993, Dr. Macdonald worked for CIBA Vision Corporation, a manufacturer of
ophthalmic products, having served most recently as Director, Worldwide
Regulatory Strategy. Dr. Macdonald received a Ph.D. degree in Physiology from
the Medical College of Wisconsin, and M.S. and B.S. degrees in Zoology from the
University of Wisconsin.

Cheryl R. Johnson. Ms. Johnson joined the Company in July 1992 as Director of
Marketing and Business Development and Secretary, served as Director of
Administration and Business Development of the Company from January 1996 until
July 1996 and as Vice President, Investor Relations and Business Development
from July 1996. From August 1989 to June 1992, Ms. Johnson worked in planning
and business development capacities at BOC Health Care (Ohmeda), most recently
as its business development manager. Ms. Johnson received an M.B.A. from the
Kellogg School at Northwestern University and a B.S. degree in Chemical
Engineering from the Georgia Institute of Technology.

19
<PAGE>

Additional Risk Factors

LIMITED OPERATING HISTORY. The Company has a limited history of operations.
Since its inception in May 1992 the Company has been primarily engaged in
research and development of its Beta-Cath System. The Company has generated only
limited revenue and does not have experience in manufacturing, marketing or
selling its products in quantities necessary for achieving profitability. There
can be no assurance that the Company's product systems will be commercialized or
that the Company will achieve significant revenues from either international or
United States sales. In addition, there can be no assurance that the Company
will achieve or sustain profitability in the future.

HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES. The Company has experienced
significant operating losses since inception and as of December 31, 1997 had an
accumulated deficit of $27.6 million. The development and further
commercialization of the Company's current products and other new products, if
any, will require substantial development, clinical, regulatory, manufacturing
and other expenditures. The Company expects its operating losses to continue for
at least the next two years as the Company continues to expand its product
development, clinical trials, and marketing efforts.

FLUCTUATIONS IN OPERATING RESULTS. The Company's results of operations may
fluctuate significantly from quarter to quarter and will depend upon numerous
factors, including product development efforts, actions relating to regulatory
and reimbursement matters, progress of clinical trials, the extent to which the
Company's products gain market acceptance, and competition.

DEPENDENCE ON BETA-CATH SYSTEM. The Company anticipates that for the foreseeable
future it will be solely dependent on the successful development and
commercialization of the Beta-Cath System. The Beta-Cath System will require
further development, as well as regulatory clearance or approval, before it can
be marketed in the United States or internationally. There can be no assurance
that the Company's development efforts will be successful or that the Beta-Cath
System will be shown to be safe or effective, cleared or approved by regulatory
authorities, capable of being manufactured in commercial quantities at
acceptable costs, approved by payors for reimbursement or successfully marketed.
In addition, there can be no assurance that demand for the Beta-Cath System will
be sufficient to allow profitable operations. Failure of the Beta-Cath System to
be successfully commercialized would have a material adverse effect on the
Company's business, financial condition and results of operations.

EARLY STAGES OF CLINICAL TRIALS; NO ASSURANCE OF SAFETY AND EFFICACY. The
Beta-Cath System is in an early stage of clinical testing, and there can be no
assurance as to when, if ever, its safety and efficacy in reducing the frequency
of restenosis will be demonstrated. The Company has commenced a randomized,
triple-masked, placebo-controlled, multicenter, human clinical trial under an
Investigational Device Exemption ("IDE") granted by the U.S. Food and Drug
Administration ("FDA") to determine the clinical safety and efficacy of the
Beta-Cath System for use in coronary arteries. The Company anticipates
completing enrollment in the clinical trial by December 31, 1998. Various
factors, including difficulties in enrolling patients or physicians, could delay
completion for an indeterminate amount of time.

The multicenter trial will require the treatment of a statistically significant
number of patients, and clinical follow-ups with such patients after eight
months. It is only after completion of these trials that the Company would apply
for the regulatory approvals required to commence marketing of the Beta-Cath
System, subsequent experience may uncover unforeseen problems with the therapy
which could require removal of the product from the market or additional
testing. There can be no assurance that the Beta-Cath System or any of the
Company's other products will prove to be safe and effective in clinical trials
or ultimately will be approved for marketing by the United States or foreign
regulatory authorities. The Company does not expect to submit an application for
pre-market approval ("PMA") for its Beta-Cath System until the second half of
1999, and there can be no assurance that the Company will ever submit a PMA or
that, if submitted, such PMA will be approved by the FDA. If the Beta-Cath
System does not prove to be safe and effective in clinical trials, the Company's
business, financial condition and results of operations will be materially
adversely affected and could result in cessation of the Company's business. In
addition, the clinical trials may identify significant technical or other
obstacles to be overcome prior to obtaining

20
<PAGE>

necessary regulatory approvals. Even if such obstacles are identified and
overcome, commercialization of the Beta-Cath System may be delayed.

LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE. At present the Company has
no sales and a limited marketing capability. The Company intends to sell its
products in the United States directly and outside the United States through
international distributors and/or corporate partners. There can be no assurance
that the Company will be able to recruit and train adequate sales and marketing
personnel to successfully commercialize the Beta-Cath System in the United
States. The inability to recruit or retain suitable international distributors
or corporate partners could also have a material adverse effect on the Company's
business, financial condition and results of operations. The Company intends to
select one or more established market leaders in the radioisotope business to
inventory and deliver the radiation sources and provide related training,
testing and support services to hospitals in both the United States and
international markets. The inability to recruit or retain one or more such
entities for this purpose could have a material adverse effect on the Company's
business, financial condition and results of operations.

RISK OF INADEQUATE FUNDING. The Company anticipates that its operating losses
will continue through at least 1999 because it plans to expend substantial
resources in funding clinical trials in support of regulatory approvals and
continues to expand research and development and marketing activities. Novoste
believes that current cash balances and short-term investments, together with
interest thereon, will be sufficient to meet the Company's operating and capital
requirements through 1999. However, the Company's future liquidity and capital
requirements will depend upon numerous factors, including the progress of the
Company's clinical research and product development programs; the receipt of and
the time required to obtain regulatory clearances and approvals; the resources
required to gain approvals; the resources the Company devotes to the
development, manufacture, and marketing of its products; the resources required
to hire and develop a direct sales force in the United States, develop
distributors internationally, and to expand manufacturing capacity; facilities
requirements; market acceptance and demand for its products; and other factors.
Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.

DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon a number of key
management and technical personnel. The loss of the services of one or more key
employees could have a material adverse effect on the Company. The Company's
success will also depend on its ability to attract and retain additional highly
qualified management and technical personnel. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. Furthermore, the Company relies on the
services of several medical and scientific consultants, all of whom are employed
on a full-time basis by hospitals or academic or research institutions. Such
consultants are therefore not available to devote their full time or attention
to the Company's affairs.

POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, FDA and international regulatory actions, actions with respect to
reimbursement matters, developments with respect to patents or proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and internationally,
changes in stock market analyst recommendations regarding the Company, other
medical device companies or the medical device industry generally and general
market conditions may have a significant effect on the market price of the
Common Stock.

21
<PAGE>

Item 2. PROPERTIES

The Company leases approximately 25,600 square feet of office and laboratory
space in an office park in Norcross, Georgia under a five-year lease expiring in
2000. All of the Company's operations (other than clinical research activities
and services of its consultants) are conducted in that facility. The Company
believes that its facility is adequate to serve its needs through at least 1998,
but additional facilities may be needed thereafter to commercialize the
Beta-Cath System.

Item 3. LEGAL PROCEEDINGS

None.

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

Not applicable.

22
<PAGE>

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock has been traded on the Nasdaq National Market (Nasdaq
symbol: NOVT). The number of record holders of the Company's Common Stock at
February 27, 1998 was 141, excluding beneficial owners of shares registered in
nominee or street name. The Company has not paid any dividends since its
inception, other than the distribution of the Shareholder Rights described in
Note 5 of the Notes to the Financial Statements, and does not intend to pay any
dividends in the foreseeable future.

The range of high and low closing sale prices for the Common Stock is as
follows:

Quarter Ended High Low
- - - ------------------------------------------------------ ------- -------
Year Ended December 31, 1996
June 30, 1996 (from May 23, 1996) $ 15.50 $ 8.75
September 30, 1996 $ 13.75 $ 7.00
December 31, 1996 $ 16.75 $11.875
Year Ended December 31, 1997
March 31, 1997 $ 19.00 $ 13.00
June 30, 1997 $17.125 $ 13.25
September 30, 1997 $ 17.50 $14.875
December 31, 1997 $ 26.00 $ 16.00

On February 27, 1998 the last reported sale price for the Common Stock was
$29.625.

Item 6. SELECTED FINANCIAL DATA

The following table sets forth selected statement of operations and balance
sheet data as of and for the fiscal years ended December 31, 1997, 1996, 1995,
1994 and 1993, and for the period from inception through December 31, 1997. The
selected financial data for each such fiscal year listed below has been derived
from the financial statements of the Company for those years, which have been
audited by Ernst & Young LLP, independent auditors, whose report on the
Company's financial statements as of December 31, 1997 and 1996, for each of the
three years in the period ended December 31, 1997 and for the period from
inception (May 22, 1992) through December 31, 1997 is included elsewhere herein.
The following data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with the
Financial Statements and related Notes and other financial information included
herein.

23
<PAGE>

<TABLE>
<CAPTION>
Period from
inception
(May 22, 1992)
Year Ended December 31, through
------------------------------------------------------- December 31,
1997 1996 1995 1994 1993 1997
-----------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues $ 29 $ -- $ 17 $ 73 $ -- $ 320
Costs and expenses:
Research and
development 12,873 4,647 2,089 1,404 545 21,760
General and
administrative 1,736 1,575 466 526 785 5,824
Marketing 1,022 581 659 292 -- 2,554
--------------------------------------------------------------------
Loss from
operations (15,602) (6,803) (3,197) (2,149) (1,330) (29,818)
Net interest income
(expense) 1,389 864 (21) (47) 5 2,199
--------------------------------------------------------------------
Net loss $(14,213) $ (5,939) $ (3,218) $ (2,196) $ (1,325) $(27,619)
====================================================================
Net loss per
share (1) $ (1.64) $ (0.91) $ (0.87) $ (0.77) $ (0.59)
========================================================
Shares used to
compute basic and
diluted net loss
per share (1) 8,665 6,543 3,679 2,837 2,248
</TABLE>

(1) In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted loss per share with basic and diluted loss per share. Unlike primary
loss per share, basic loss per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted loss per share is very similar to
the previously reported fully diluted loss per share. Additionally, in 1998 the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 98 (SAB
98). SAB 98 removes the Company's need to consider common stock issued and stock
options and warrants granted during the twelve month period preceding an initial
public offering. All loss per share amounts for all periods have been presented
and, where appropriate, restated to conform to the provisions of Statement 128
and SAB 98. See Note 1 of the Notes to the Financial Statements for an
explanation of the method used to determine the number of shares to compute net
loss per share.

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 46,064 $26,849 $ (906) $(1,267) $ (149)
Total assets 49,796 29,255 2,057 982 1,583
Total liabilities 2,427 821 1,739 1,396 976
Deficit accumulated during development stage (27,619) (13,406) (7,467) (4,249) (2,053)
Total shareholders' equity (deficit) 47,369 28,434 318 (413) 608
</TABLE>

24
<PAGE>

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

The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many uncertainties and risks which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties and risks include, but are not limited to, whether the Beta-Cath
System, the Company's primary product in development, will prove safe and
effective; the speed of patient enrollment in the Company's clinical trials;
whether and when the Company will obtain approval of the Beta-Cath System from
the United States Food and Drug Administration (FDA) and corresponding foreign
agencies; the Company's need to achieve manufacturing scale-up in a timely
manner, and its need to provide for the efficient manufacturing of sufficient
quantities of its products; the Company's dependence on the Beta-Cath System as
the primary source of future revenue; the lack of an alternative source of
supply for the radiation source materials used in the Beta-Cath System; the
Company's patent and intellectual property position; the Company's need to
develop the marketing, distribution, customer service and technical support and
other functions critical to the success of the Company's business plan; the
effectiveness and ultimate market acceptance of the Beta-Cath System;
limitations on third party reimbursement; and competition between rival
developers of restenosis reduction products. Additional risk factors include
those discussed in the section entitled "Item 1 - Business" as well as those
that may be set forth in reports filed by the Company from time to time on Forms
10-Q and 8-K. The Company does not undertake any obligation to update any
forward-looking statements.

Overview

Novoste commenced operations as a medical device company in May 1992. Commencing
in 1994, the Company has devoted substantially all of its efforts to developing
the Beta-Cath System, an intraluminal beta radiation catheter delivery system
designed to reduce the frequency of restenosis subsequent to percutaneous
transluminal coronary angioplasty ("PTCA").

For the period since its capitalization through December 31, 1997 the Company
has earned minimal non-recurring revenues and experienced significant losses in
each period. At December 31, 1997 the Company had an accumulated deficit of
approximately $27.6 million. Novoste expects to continue to incur significant
operating losses through at least 1999 as the Company continues research and
development projects, conducts its clinical trials in the United States, Canada
and Europe, seeks regulatory approval or clearance for its products, expands its
sales and marketing efforts in contemplation of product introduction and market
development, and increases its administrative activities to support growth of
the Company.

There can be no assurance that the Company's research and development efforts
will be successfully completed. There can be no assurance that clinical trials
will be completed in a timely fashion or demonstrate the safety and efficacy of
the Beta-Cath System. Additionally, there can be no assurance that the Beta-Cath
System will be approved by the FDA or any domestic or foreign governmental
agency, or that the Beta-Cath System or any other product developed by Novoste
will be successfully introduced or attain any significant level of market
acceptance. There can be no assurance that the Company will ever achieve either
significant revenues from sales of its Beta-Cath System or ever achieve or
sustain profitability.

25
<PAGE>

Results of Operations

YEARS ENDED DECEMBER 31, 1997 AND 1996

Net loss for the year ended December 31, 1997 was $14,213,000, or ($1.64) per
share, as compared to $5,939,000 or ($0.91) per share for the year earlier. The
increase in net loss for the year ended December 31, 1997 compared to the year
earlier was due primarily to increased spending for research and development as
well as increased marketing, general and administrative expenses related to the
Company's development of its Beta-Cath System, offset by increased interest
income earned from the investment of the net proceeds from the initial public
offering in May 1996 and the secondary public offering in November 1997.

Revenues. Miscellaneous revenues were $29,000 for the year ended December 31,
1997. No revenue was earned in the year earlier. This revenue related to the
sale of the blood containment device product line in May 1997 for cash and a
continuing royalty.

Research and Development Expenses. Research and development expenses increased
177%, to $12,873,000 for the year ended December 31, 1997 from $4,647,000 for
the year ended December 31, 1996. These increases were primarily a result of (a)
the cost of manufacturing the Beta-Cath System for the clinical trials, (b) the
cost of conducting the multicenter clinical trial in the United States in
addition to follow-up costs associated with the initial clinical feasibility
studies, (c) a milestone payment of 617,000 DM ($360,000) in June 1997 to the
Company's radioactive-isotope supplier upon meeting delivery requirements, (d)
the accrual of an additional 737,000 DM (approximately $430,000) to be paid
prior to March 31, 1998 to the same supplier upon meeting certain production
volumes, (e) twelve monthly reimbursements of approximately 100,000 DM
($60,000), to the same supplier of costs to increase production capacity, (f)
the increased size of the Company's research and development staff, (g) the
legal and filing costs associated with domestic and foreign patent applications,
and (h) services provided by outside consultants in the development of the
Beta-Cath System. The Company expects research and development expenses to
continue to increase in the immediate future as the Company conducts clinical
trials of its Beta-Cath System in both the U.S. and selected foreign countries,
and it continues the development and design of the Beta-Cath System and
component parts.

General and Administrative Expenses. General and administrative expenses
increased 10% to $1,736,000 for the year ended December 31, 1997 from $1,575,000
for the year ended December 31, 1996. These increases were primarily a result of
additional personnel, higher salaries and increased costs associated with being
a public company such as director and officer liability insurance, legal and
accounting fees. The Company expects general and administrative expenses to
increase in the future in support of a higher level of operations.

Marketing Expenses. Marketing expenses increased 76% to $1,022,000 for the year
ended December 31, 1997 from $581,000 for the year ended December 31, 1996.
These increases were primarily the result of increased trade show costs,
consulting fees and higher salaries. The Company expects marketing expenses to
significantly increase in the future as the Company prepares for
commercialization of the Beta-Cath System in the U.S. and other countries.

Interest Income. Interest income increased 61% to $1,389,000 for the year ended
December 31, 1997 from $864,000 for the year ended December 31, 1996. The
increase in net interest income was primarily due to larger average cash
equivalents and short-term investment balances after the Company's initial
public offering in May 1996 and secondary public offering in November 1997.

26
<PAGE>

YEARS ENDED DECEMBER 31, 1996 AND 1995

Net loss for the year ended December 31, 1996 was $5,939,000, or ($0.91) per
share, as compared to $3,218,000, or ($0.87) per share, for the year ended
December 31, 1995. The increase in net loss for the year ended December 31, 1996
compared to the year earlier is due to increased spending for research and
development and general and administrative expenses related to the Company's
development of its Beta-Cath System, offset by increased interest income earned
from the investment of the net proceeds of the initial public offering in May
1996.

Revenues. No revenues were earned in the year ended December 31, 1996 as
compared to $16,507 of miscellaneous sales in the year ended December 31, 1995.

Research and Development Expense. Research and development expenses increased
122% to $4,647,000 for the year ended December 31, 1996 from $2,089,000 for the
year ended December 31, 1995. These increases were primarily a result of
continued product development and the Company's Phase I clinical trials of the
Beta-Cath System, which were initiated in 1996.

General and Administrative Expense. General and administrative expenses
increased 238% to $1,575,000 for the year ended December 31, 1996 from $466,000
for the year ended December 31, 1995. These increases were primarily a result of
increased personnel, higher salaries, accrued severance and increased costs
associated with being a public company such as director and officer liability
insurance.

Marketing Expense. Marketing expenses decreased 12% to $581,000 for the year
ended December 31, 1996 from $659,000 for the year ended December 31, 1995 due
to a start-up bonus and relocation allowance paid in 1995 to a new management
employee.

Interest Income and Expense. Net interest income was $864,000 for the year ended
December 31, 1996 whereas net interest expense of $21,000 was incurred during
the year ended December 31, 1995. The increase in interest income was primarily
due to investing the proceeds of the Company's initial public offering in cash
equivalents and short-term investments.

Liquidity and Capital Resources

The Company financed its activities since inception up to May 29, 1996, the date
of the Company's initial public offering, through private placements of its
Common Stock, Class B Common Stock and promissory notes. Since inception through
December 31, 1997, the Company obtained funds aggregating approximately $71.1
million in net proceeds from the issuance of Common Stock and Class B Common
Stock (including approximately $30.6 million in net proceeds from its initial
public offering which closed in May 1996 and approximately $32.2 million in net
proceeds from its secondary public offering which closed in November 1997), in
addition to approximately $1.8 million in net proceeds from the issuance of
convertible promissory notes.

During the years ended December 31, 1997 and 1996, the Company used cash to fund
operations of $11.7 million and $5.0 million, respectively. Cash used to fund
operations since inception was approximately $22.5 million. The increases in
cash used in operations were due primarily to higher expenses associated with
increased research and development activities, initiation of marketing
activities and increased general and administrative expenses to support
increased operations. The Company's expenditures for equipment and improvements
have aggregated $2.0 million since inception. Future cash needs for operating
activities are anticipated to be higher than historical levels because of the
development, manufacturing scale-up and commercialization of the Beta-Cath
System, subject to the factors discussed above.

The Company's principal source of liquidity at December 31, 1997 consisted of
cash, cash equivalents and short-term investments of $48.4 million. The Company
did not have any credit lines available or outstanding borrowings at December
31, 1997.

27
<PAGE>

The Company anticipates that its operating losses will continue through 1999 as
it expends substantial resources in funding clinical trials in support of
regulatory approvals, and continues to expand research and development and
marketing activities. Novoste believes that current cash balances and short-term
investments, together with interest thereon, will be sufficient to meet the
Company's operating and capital requirements through 1999. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including: the progress of the Company's clinical research and product
development programs; the receipt of and the time required to obtain regulatory
clearances and approvals; the resources required to gain approvals; the
resources the Company devotes to the development, manufacture and marketing of
its products; the resources required to hire and develop a direct sales force in
the United States, develop distributors internationally, and to expand
manufacturing capacity; market acceptance and demand for its products; and other
factors. Novoste may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. There can be
no assurance that additional financing, if required, will be available on
satisfactory terms, or at all.

Impact of Year 2000

The Company's financial software program was written using two digits rather
than four to define the applicable year. As a result, this program has
time-sensitive software that recognize a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.

In anticipation of in-house manufacturing, in January 1998 the Company purchased
a complete manufacturing software package that includes integrated financial
modules that will replace the Company's existing financial software program. The
contract for the purchase of the new software package requires year 2000
compliance.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, with the report of the independent auditors, listed in
Item 14, are included in this Annual Report on Form 10-K.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE

Not applicable.

28
<PAGE>

PART III

Certain information required by Part III is omitted from this Report on Form
10-K in that the Registrant will file a definitive proxy statement within 120
days after the end of its fiscal year pursuant to Regulation 14A with respect to
the 1998 Annual Meeting of Stockholders (the "Proxy Statement") to be held on
May 1, 1998 and certain information included therein is incorporated herein by
reference.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item relating to directors is incorporated by
reference in the information under the caption Election of Directors in the
Proxy Statement. See also Item 1 - Business - "Executive Officers of the
Company."

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information under the caption Executive Compensation in the Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information under the caption Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

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

(a)(1) The following financial statements of the Company and Report of Ernst &
Young LLP, Independent Auditors are included in this report:

Report of Independent Auditors

Balance Sheets as of December 31, 1997 and 1996

Statements of Operations for the Years Ended December 31, 1997, 1996, and
1995 and from Inception (May 22, 1992) through December 31, 1997

Statements of Shareholders' Equity from Inception (May 22, 1992) through
December 31, 1997

Statements of Cash Flows for the Years Ended December 31, 1997, 1996, and
1995 and from Inception (May 22, 1992) through December 31, 1997

Notes to Financial Statements

29
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Novoste Corporation

We have audited the accompanying balance sheets of Novoste Corporation (a
Development Stage Company) (the "Company") as of December 31, 1997 and 1996, and
the related statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1997 and for
the period from inception (May 22, 1992) through December 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 the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 and for the period from
inception (May 22, 1992) through December 31, 1997 in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Atlanta, Georgia
January 30, 1998

30
<PAGE>

NOVOSTE CORPORATION
(A Development Stage Company)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 35,993,933 $ 19,954,827
Short-term investments 12,408,785 7,588,693
Prepaid expenses 88,099 126,349
------------ ------------
Total current assets 48,490,817 27,669,869

Property and equipment, net 1,061,526 1,128,031
License agreements, net 139,758 153,396
Other assets 103,855 303,642
------------ ------------
$ 49,795,956 $ 29,254,938
============ ============

Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 523,678 $ 155,946
Accrued expenses and taxes withheld 1,903,276 665,175
------------ ------------
Total current liabilities 2,426,954 821,121
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
10,332,042 and 8,257,967 shares issued, respectively 103,320 82,580
Additional paid-in capital 74,908,631 41,772,791
Deficit accumulated during the development stage (27,619,109) (13,405,714)
------------ ------------
47,392,842 28,449,657
Less treasury stock, 5,780 and 5,280 shares of common stock,
respectively, at cost (23,840) (15,840)
------------ ------------
Total shareholders' equity 47,369,002 28,433,817
------------ ------------
$ 49,795,956 $ 29,254,938
============ ============
</TABLE>

See accompanying notes.

31
<PAGE>

NOVOSTE CORPORATION
(A Development Stage Company)

Statements of Operations

Operating expenses:
Research and development 12,872,867 4,646,583 2,088,822 21,759,899
General and administrative 1,736,333 1,574,678 465,670 5,823,874
Marketing 1,021,990 581,280 659,361 2,554,101
------------ ------------ ------------ ------------
15,631,190 6,802,541 3,213,853 30,137,874
Loss from operations (15,601,877) (6,802,541) (3,197,346) (29,817,674)
Interest income 1,388,482 950,791 15,427 2,380,324
Interest expense -- (87,331) (36,107) (181,759)
------------ ------------ ------------ ------------
Net loss $(14,213,395) $ (5,939,081) $ (3,218,026) $(27,619,109)
============ ============ ============ ============
Basic and diluted net loss per share $ (1.64) $ (0.91) $ (0.87)
============ ============ ============
Weighted average shares outstanding 8,665,345 6,543,129 3,679,361
============ ============ ============
</TABLE>

See accompanying notes.

32
<PAGE>

NOVOSTE CORPORATION
(A Development Stage Company)

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

For the period from inception (May 22, 1992) through December 31, 1997

<TABLE>
<CAPTION>
Deficit
Accumulated
Class B Additional During the
Common Stock Common Stock Paid-in Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
--------- ------- --------- ------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of stock for license
agreement at $.25 per share ........ 746,894 $ 7,469 -- $ -- $ 179,255 $ -- $ -- $ 186,724
Sale of stock at $1.00 per share ..... 820,000 8,200 -- -- 811,800 -- -- 820,000
Sale of stock at $3.00 per share ..... 86,667 867 -- -- 259,133 -- -- 260,000
Exercise of stock options at
$.25 per share ..................... 205,000 2,050 -- -- 49,200 -- -- 51,250
Issuance of stock for consulting
services, 117,500 shares at
$.25 per share, 88,500 shares
at $1.00 per share and 37,585
shares at $3.00 per share .......... 243,585 2,435 -- -- 228,195 -- -- 230,630
Issuance of stock to employees
for settlement of obligation
for consulting services, at
$3.00 per share .................... 10,000 100 -- -- 29,900 -- -- 30,000
Net loss ............................. -- -- -- -- -- (727,688) -- (727,688)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1992 ......... 2,112,146 21,121 -- -- 1,557,483 (727,688) -- 850,916
Sale of stock at $3.20 per
share, net of $138,932 of
offering costs ..................... 331,250 3,312 -- -- 917,756 -- -- 921,068
Exercise of stock options at
$.25 to $1.00 per share ............ 67,875 679 -- -- 23,790 -- -- 24,469
Issuance of stock for consulting
services, at $3.00 per share ....... 50,862 509 -- -- 152,077 -- -- 152,586
Repurchase of stock at $3.00 per
share .............................. (5,280) -- -- -- -- -- (15,840) (15,840)
Net loss ............................. -- -- -- -- -- (1,325,230) -- (1,325,230)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1993 ......... 2,556,853 25,621 -- -- 2,651,106 (2,052,918) (15,840) 607,969
Sale of stock at $3.20 per share ..... 312,500 3,125 -- -- 996,875 -- -- 1,000,000
Exercise of stock options at
$.25 to $1.00 per share ............ 35,500 355 -- -- 12,270 -- -- 12,625
Issuance of stock for consulting
services, at $3.20 per share ....... 50,626 506 -- -- 161,494 -- -- 162,000
Net loss ............................. -- -- -- -- -- (2,195,689) -- (2,195,689)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1994 ......... 2,955,479 29,607 -- -- 3,821,745 (4,248,607) (15,840) (413,095)
Sale of stock at $3.75 per
share, net of $191,274 of
offering costs ..................... -- -- 986,269 9,863 3,497,372 -- -- 3,507,235
Exercise of stock options at
$.25 per share ..................... 9,300 93 -- -- 2,232 -- -- 2,325
Issuance of stock for consulting
services, at $3.20 per share ....... 27,813 278 -- -- 88,724 -- -- 89,002
Issuance of stock for
compensation to an employee,
at $3.20 per share ................. 16,000 160 -- -- 51,040 -- -- 51,200
Conversion of debt to common ......... 93,750 938 -- -- 299,062 -- -- 300,000
Exchange of common for Class B
common ............................. (625,000) (6,250) 625,000 6,250 -- -- -- --
Net loss ............................. -- -- -- -- -- (3,218,026) -- (3,218,026)
--------- ------- --------- ------- ---------- ----------- -------- -----------
Balance at December 31, 1995 ......... 2,477,342 24,826 1,611,269 16,113 7,760,175 (7,466,633) (15,840) 318,641
--------- ------- --------- ------- ---------- ----------- -------- -----------
</TABLE>

33
<PAGE>

Net loss ..................... -- -- -- -- -- (5,939,081) -- (5,939,081)
---------- -------- ---------- ---------- ------------ ------------ --------- ------------
Balance at December 31, 1996 . 8,252,687 $ 82,580 -- -- 41,772,791 (13,405,714) (15,840) 28,433,817
---------------------------------------------------------------------------------------------------
Issuance of stock for
consulting services 6,250
shares at $14.50 per share . 6,250 62 -- -- 360,563 -- -- 360,625
Issuance of stock in secondary
offering at $19.50 per
share, net of issuance costs
of $2,306,422 .............. 1,770,000 17,700 -- -- 32,190,878 -- -- 32,208,578
Exercise of stock options at
$0.25 to $14.00 per share .... 297,825 2,978 -- -- 584,399 -- -- 587,377
Repurchase of stock at $16.00
per share .................. (500) -- -- -- -- -- (8,000) (8,000)
Net loss ..................... -- -- -- -- -- (14,213,395) -- (14,213,395)
---------- -------- ---------- ---------- ------------ ------------ --------- ------------
Balance at December 31, 1997 . 10,326,262 $103,320 -- $ -- $ 74,908,631 $(27,619,109) $(23,840) $ 47,369,002
===================================================================================================
</TABLE>

See accompanying notes.

34
<PAGE>

NOVOSTE CORPORATION
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
From inception
(May 22, 1992)
Year ended December 31, through December 31,
1997 1996 1995 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(14,213,395) $(5,939,081) $(3,218,026) $(27,619,109)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 422,863 316,082 227,373 1,300,738
Issuance of stock for services or compensation 270,000 408,038 140,202 1,217,318
Change in assets and liabilities:
Prepaid expenses and other 38,250 (111,721) 34,041 (95,558)
Accounts payable 367,732 (61,597) 95,386 523,678
Accrued expenses and taxes withheld 1,238,101 577,098 59,230 2,297,783
Other 220,719 (226,418) (113,779) (135,318)
------------ ----------- ----------- ------------
Net cash used by operations (11,655,730) (5,037,599) (2,775,573) (22,510,468)
------------ ----------- ----------- ------------
Cash flows from investing activities
Purchase of short-term investments (4,820,092) (7,588,693) -- (12,408,785)
Purchase of property and equipment, net (273,027) (449,730) (484,346) (2,025,453)
------------ ----------- ----------- ------------
Net cash used by investing activities (5,093,119) (8,038,423) (484,346) (14,434,238)
------------ ----------- ----------- ------------
Cash flows from financing activities
Proceeds from issuance of notes payable -- 2,561,700 1,358,450 4,770,150
Repayment of notes payable -- (1,800,150) (870,000) (2,970,150)
Proceeds from issuance of common stock 32,787,955 31,451,712 3,509,560 71,138,639
------------ ----------- ----------- ------------
Net cash provided by financing activities 32,787,955 32,213,262 3,998,010 72,938,639
------------ ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 16,039,106 19,137,240 738,091 35,993,933

Cash and cash equivalents at beginning of period 19,954,827 817,587 79,496 --
------------ ----------- ----------- ------------
Cash and cash equivalents at end of period $ 35,993,933 $19,954,827 $ 817,587 $ 35,993,933
============ =========== =========== ============
Supplemental disclosures of cash flow information
Cash paid for interest $ -- $ 101,312 $ 38,741 $ 165,137
============ =========== =========== ============
Conversion of fixed rate promissory notes to
related parties and accrued interest to common
stock $ 1,865,083 $ 1,865,083
=========== ============
Conversion of deferred compensation to
common stock $ 329,424 $ 329,424
=========== ============
</TABLE>

See accompanying notes.

35
<PAGE>

NOVOSTE CORPORATION
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies

Organization and Basis of Presentation

Novoste Corporation (the "Company") was incorporated on January 8, 1987 and
remained dormant until May 22, 1992 (date of inception) at which time it was
capitalized. The Company is a development stage enterprise that is engaged in
developing the Beta-Cath System, an intraluminal beta radiation catheter
delivery system designed to reduce restenosis subsequent to percutaneous
transluminal coronary angioplasty.

The majority of the Company's efforts to date have been in the organization of
the Company, establishing its management team, raising capital and initiating
product development and clinical trials. The Company's initial public offering
became effective on May 23, 1996 and closed on May 29, 1996 with the issuance of
2,400,000 shares of Common Stock and net proceeds (after underwriting discounts)
of $31,248,000 before related expenses of $622,000. The Company's secondary
public offering became effective on November 17, 1997 and closed on November 21,
1997 with the issuance of 1,770,000 shares of Common Stock and net proceeds
(after underwriting discounts) of $32,444,000 before related expenses of
$236,000. All revenues received to date have been from the sale of certain
patent rights, option payments made by a potential strategic partner to the
Company in exchange for the sole right for the potential partner to enter into
future agreements with the Company, contract fees and the sale of a particular
product line. To achieve profitable operations, the Company must successfully
complete the development and clinical trials of its product, obtain required
regulatory approvals and achieve market acceptance. There can be no assurance
that these efforts will be successful.

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.

Basic and Diluted Loss per Share

In 1997 the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted loss per share with basic and diluted loss per share. Unlike primary
loss per share, basic loss per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted loss per share is very similar to
the previously reported fully diluted loss per share. Additionally, in 1998 the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 98 (SAB
98). SAB 98 removes the effect on earnings per share of common stock issued and
stock options and warrants granted during the twelve month period preceding an
initial public offering. All loss per share amounts for all periods have been
presented, and where appropriate, restated to conform to the provisions of
Statement 128 and SAB 98. The basic and diluted loss per share is computed based
on the weighted average number of common shares outstanding. Common equivalent
shares are not included in the per share calculations where the effect of their
inclusion would be antidilutive. Options to purchase 1,648,363 shares of common
stock at exercise prices ranging from $0.25 to

36
<PAGE>

$24.00 per share were outstanding during 1997 but were not included in the
computation of diluted loss per share since the effect would be antidilutive.

Cash and Short-Term Investments

The Company maintains cash equivalents and investments in several large
well-capitalized financial institutions, and the Company's investment policy
disallows investment in any debt securities rated less than "investment-grade"
by national ratings services. Cash equivalents are comprised of certain highly
liquid investments with original maturities of less than three months. In
addition to cash equivalents, the Company has investments in commercial paper
that are classified as short-term (mature in more than 90 days but less than one
year). Such investments are classified as held-to-maturity, as the Company has
the ability and intent to hold them until maturity. Investments held-to-maturity
are carried at amortized cost, adjusted for the amortization or accretion of
premiums or discounts without recognition of gains or losses that are deemed to
be temporary. Premiums and discounts are amortized or accreted over the life of
the related instruments as an adjustment to yield using the straight-line
method, which approximates the effective interest method. Interest income is
recognized when earned. Fair value approximates carrying value for all cash
equivalents and investments.

Property and Equipment

Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from 5 to 7 years. Leasehold improvements are amortized over the
remaining term of the related lease using the straight-line method. Repairs and
maintenance are expensed as incurred.

Property and equipment is comprised of the following:

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

Furniture and fixtures $ 324,175 $ 303,958
Office equipment 541,566 356,269
Laboratory equipment 171,695 134,735
Leasehold improvements 480,946 454,016
Production equipment 429,026 482,334
-----------------------
1,947,408 1,731,312
Less: Accumulated depreciation and amortization (885,882) (603,281)
-----------------------
$1,061,526 $1,128,031
=======================

Other Assets

License agreements are amortized on a straight-line basis over periods ranging
from fifteen to twenty years. The amortization periods are based on the lives of
the license agreements or the approximate remaining lives of the related
patents, whichever is appropriate. Accumulated amortization on license
agreements at December 31, 1997 and 1996 totaled $70,745 and $65,368,
respectively.

37
<PAGE>

Miscellaneous Sales

On May 15, 1997 the Company sold all of the technology, intellectual property
and equipment relating to the "Pulse Plus" blood containment device product line
for $130,000 in cash and a continuing royalty. During each 12-month period
following the date of the first sale of the device (the "Royalty Period"), the
Company shall receive royalty equal to $.10 per unit on the initial 500,000
units sold and $.08 per unit on all units sold in excess of 500,000. The
purchaser guaranteed minimum royalty payments of $10,000 for the first Royalty
Period, $20,000 for the second Royalty Period and $30,000 for the third Royalty
Period. Royalties shall cease with the expiration of the last related patent.
The net book value of the equipment sold was $100,687 and the Company recorded a
$29,313 gain on the sale of miscellaneous revenue.

Research and Development and Patent Costs

All research and development costs are charged to operations as incurred. Legal
fees and other direct costs incurred in obtaining and protecting patents are
expensed as incurred.

Stock Based Compensation

The Company grants stock options generally for a fixed number of shares to
employees, directors, consultants and independent contractors with an exercise
price equal to the fair value of the shares at the date of grant. The Company
has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25 no compensation expense is
recognized for stock option grants for which the terms are fixed. Compensation
expense is recognized for increases in the estimated fair value of common stock
for any stock options with variable terms.

In October 1995 the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("Statement 123"), which changes
the accounting for stock based compensation to non-employees and provides an
alternative to APB 25 in accounting for stock-based compensation to employees.
However, the Company elected to continue to account for stock-based compensation
to employees in accordance with APB 25 and to disclose the impact of the
alternative accounting (see Note 5).

2. Consulting Agreements

The Company has agreements with the members of its Scientific Advisory Board,
various consultants and others with terms ranging from one to five years.
Substantially all of these agreements provide for stock grants on the agreement
dates with such shares valued at the fair market value on the date of grant and
include certain registration rights. During 1997, 1996 and 1995 approximately
$68,000, $46,000, and $21,000, respectively, were charged to operations as
amortization of the deferred compensation capitalized under these agreements
($256,000 from inception through December 31, 1997).

3. Commitments and Concentrations of Suppliers

The Company is committed under operating leases for its facility and various
office equipment. Rent expense was approximately $150,300, $143,192, and
$116,400 for 1997, 1996 and 1995, respectively ($566,681 from inception through
December 31, 1997). The total future minimum rental payments are as follows:

38
<PAGE>

1998 182,248
1999 173,125
2000 64,553
--------
$419,926
========

The Company has entered into a license agreement with a physician pursuant to
which he is entitled to receive a royalty on the net sales of the Beta-Cath
System (excluding consideration paid for the radioactive isotope), subject to a
maximum of $5,000,000, to be paid in exchange for the right granted thereunder
to the Company to use his name in connection with sales and marketing of the
Beta-Cath System.

On January 30, 1996 the Company entered into a license agreement whereby the
licensor assigned its claim to certain of the Company's technology back to the
Company for royalties based on net sales (as defined in the agreement) of
products derived from such technology, subject to certain minimum royalties. The
royalty agreement term is consistent with the life of the related patent and
applies to assignments of the patent technology to a third party. The royalty
agreement provides for a reduction of the royalty fees and term of the agreement
if the patent for the technology is not received within three years of execution
of the agreement.

The Company has obtained all of its requirements of radiation source materials
pursuant to an agreement, as amended (the "Supply Agreement"), with a single
German supplier. Under the Supply Agreement, as amended, the Company agreed to
advance the Supplier a monthly investment grant of 100,000 DM (approximately
$60,000) for a period of 15 months from November 1996 through January 1998, to
equip a production site for the exclusive production of radioactive materials
for the Company. Advances under this agreement as of December 31, 1997
aggregated $704,375 and have been charged to research and development expense in
the accompanying Statement of Operations. The Company is further obligated to
make a payment of 737,000 DM (approximately $430,000) upon the supplier meeting
certain production volumes by March 1998. This amount has been accrued at
December 31, 1997 and charged to research and development expense.

The Company had purchase commitments at December 31, 1997 of approximately $2
million for the purchase of radioactive materials, and $367,000 for the purchase
of production units.

Significant proportions of key components and processes relating to the
Company's products are purchased from single sources due to technology,
availability, price, quality, and other considerations. Key components and
processes currently obtained from single sources include isotopes, catheters,
protective tubing for catheters, proprietary connectors, and certain plastics
used in the design and manufacture of the transfer device. In the event a supply
of a key single-sourced material or component were delayed or curtailed, the
Company's ability to produce the related product in a timely manner could be
adversely affected. The Company attempts to mitigate these risks by working
closely with key suppliers regarding the Company's product needs and the
maintenance of strategic inventory levels.

4. 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 corresponding amounts used for income tax purposes. Significant
components of the Company's deferred tax assets for federal and state income
taxes are as follows:

39
<PAGE>

1997 1996
--------------------------
Deferred tax assets:
Net operating loss carryforwards $ 11,232,853 $ 5,095,822
R&D tax credit carryforwards 618,441 219,840
Other 34,274 102,272
--------------------------
11,885,568 5,417,934
Valuation allowance (11,885,568) (5,417,934)
--------------------------
$ -- $ --
==========================

At December 31, 1997 and 1996 no net deferred tax assets were recorded as their
future benefit is not assured. No income taxes were paid during 1997, 1996 or
1995. The Company has $29,525,000 of net operating losses for federal income tax
purposes available to offset future taxable income. Such losses expire $470,000
in 2007, $1,335,000 in 2008, $2,140,000 in 2009, $3,120,000 in 2010, $6,310,000
in 2011 and $16,150,000 in 2012 and are subject to certain limitations in the
event of a change in ownership. Net operating loss carryforwards aggregating
$2,374,000 will result in a credit to contributed capital when recognized.
Additionally, the Company has $618,000 in research and development tax credits
which expire $24,000 in 2008, $47,000 in 2009, $56,000 in 2010, $93,000 in 2011
and $398,000 in 2012 unless utilized earlier.

5. Shareholders' Equity

Recapitalization

On May 28, 1996 all of the 1,611,269 outstanding shares of Class B Common Stock
were converted on a one-for-one basis into shares of Common Stock and accrued
salaries of $320,624 were converted into 100,195 shares of Common Stock. In
addition, on May 28, 1996 the holders of warrants for 1,261,899 shares made
cashless exercises thereof to purchase an aggregate of 889,912 shares of Common
Stock (after giving effect to the conversion on a one-for-one basis of shares of
Class B Common Stock issued upon exercise of such warrants). Holders of
additional warrants exercised such warrants in full to purchase 62,104 shares of
Common Stock for $268,218 on or prior to May 28, 1996.

On May 28, 1996 the Company filed an amendment to its Articles of Incorporation
whereby the number of authorized shares of Common Stock was increased from
14,000,000 to 25,000,000, the Class B Common Stock was eliminated and 5,000,000
shares of Preferred Stock were authorized.

Shareholder Rights Plan

On October 25, 1996 the Company's Board of Directors declared a dividend of one
Right for each share of Common Stock held of record at the close of business on
November 25, 1996. The Rights are generally not exercisable until 10 days after
an announcement by the Company that a person has acquired at least 15% of the
Company's Common Stock. Each Right, should it become exercisable, will entitle
the owner to buy 1/100th of a share of new Series A participating preferred
stock at an exercise price of $85. The Rights, which do not have any voting
rights, may be redeemed by the Company at a price of $.01 per Right at any time
prior to a person's or group's acquisition of 15% or more of the Company's
common stock.

In the event the rights become exercisable as a result of the acquisition of at
least 15% of the Company's Common Stock, each Right will entitle the owner,
other than the acquiring person, to buy at the Rights' then current exercise

40
<PAGE>

price a number of shares of Common Stock with a market value equal to twice the
exercise price. In addition, unless the acquiring person owns more than 50% of
the outstanding shares of Common Stock, the Board of Directors may elect to
exchange all outstanding Rights (other than those owned by such acquiring person
or affiliates thereof) at an exchange ratio of one share of Common Stock per
Right. The Rights expire on November 25, 2006 unless they are earlier exercised,
redeemed, or exchanged. As a result of the adoption of the Shareholders' Rights
Plan, 1,000,000 shares of authorized preferred stock have been reserved and
designated as Series A Participating Preferred Stock.

Stock Option Plan

The Company's Board of Directors adopted on May 26, 1992 the Novoste Corporation
Stock Option Plan (the "Plan") under which options designated as either
incentive or non-qualified stock options may be issued to employees, officers,
directors, consultants and independent contractors of the Company or any parent,
subsidiary or affiliate of the Company. Options granted under the Plan are at
prices not less than the fair market value on the date of grant and may be
exercised for a period of ten years from the date of grant. Options granted
under the Plan have vesting periods ranging from immediately to four years. On
August 20, 1996 the Plan was amended to include a provision for options to
accelerate and become immediately and fully exercisable upon a 50% or more
change in control as defined in the Amended and Restated Stock Option Plan. The
Company has reserved 2,700,000 shares of Common Stock for issuance under the
Plan. As of December 31, 1997 there are 313,950 shares available for issuance.

On August 20, 1996 the Stock Option and Compensation Committee of the Board of
Directors of the Company adopted a Non-Employee Director Stock Option Plan.
Concurrently, stock options covering 52,500 shares were granted, which vest over
a three year period and exercises thereof are contingent upon the individuals'
continued service as directors. The Company has reserved 100,000 shares of
Common Stock for issuance under the Plan. As of December 31, 1997 there are
47,500 shares available for issuance. Activity under the Plans is summarized as
follows:

Price Per Weighted-
Number of Shares Share Average Price
---------------- --------------- -------------

Outstanding at January
1, 1995 1,444,625 $ .25 - 3.20
Options granted 359,750 3.20
Options exercised (9,300) .25
---------
Outstanding at December 31,
1995 1,795,075 .25 - 3.20
Options granted 209,250 8.00 - 14.00 $10.23
Options exercised (174,700) 3.00 - 3.25 3.19
Options forfeited (17,850) 3.25 3.20
---------
Outstanding at December 31,
1996 1,811,775 .25 - 14.00 2.29
Options granted 144,250 13.00 - 24.00 16.86
Options exercised (297,812) .25 - 14.00 1.97
Options forfeited (9,850) 3.20 - 16.00 5.51
=========
Outstanding at December 31,
1997 1,648,363 .25 - 24.00 3.60
=========
Exercisable at December 31,
1997 1,188,450 .25 - 14.00 1.21
=========

41
<PAGE>

The following table summarizes information concerning currently outstanding and
exercisable options:

Options Outstanding Options Exercisable
- - - ------------------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices of Shares Life (years) Price Exercisable Price
- - - -------------- --------- ------------ -------- ----------- --------
$ .25 - 3.20 1,307,550 5.2 $ 1.14 1,142,325 $ .85
8.00 - 9.75 135,188 8.6 8.89 31,875 8.90
12.25 - 16.63 178,125 9.0 14.52 14,250 13.32
19.25 - 24.00 27,500 10.0 23.83 -- --
--------- ---------
1,648,363 6.0 3.60 1,188,450 1.21
========= =========

On May 20, 1996 the Company amended an option to purchase 100,000 shares of
Common Stock at $3.20 per share of which options for 75,000 shares had not yet
become exercisable. As amended, options to purchase such 75,000 shares become
exercisable at the annual rate of 25,000 shares beginning May 20, 1997, subject
to acceleration upon the achievement of three specified milestones at the rate
of 25,000 shares per milestone. The Company is recording total non-cash
compensation expense of $810,000 ratably over the three year period ending May
19, 1999, subject to acceleration if the specified milestones are met at earlier
dates; $270,000 and $168,750 was expensed in 1997 and 1996, respectively,
relating to these options.

Pro forma information regarding net loss and net loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method prescribed by that Statement. The
fair value for options granted prior to the initial public offering was
estimated at the date of grant using the Minimum Value pricing model. The fair
value for options granted subsequent to the initial public offering was
estimated at the date of grant using the Black-Scholes option pricing model. The
following weighted-average assumptions were used in the appropriate models for
1997, 1996 and 1995: risk-free interest rates of 6.29%, 6.69% and 6.32%,
respectively; no dividend yields; volatility factor of the expected market price
of the Company's common stock of 0.666 and 0.928 in 1997 and 1996, respectively
(not applicable in 1995); and a weighted-average expected life of the option of
6 years.

The Black-Scholes option 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 option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options 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 employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

42
<PAGE>

1997 1996 1995
----------------------------------------
Pro forma net loss $(14,821,827) $(6,175,817) $(3,317,068)
Pro forma net loss per share $ (1.71) $ (0.94) $ (0.90)
Weighted-average fair value
of options granted $ 11.08 $ 6.97 $ 1.01

Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.

7. Employee Benefit Plan

Effective January 1, 1997, the Company adopted a Defined Contribution 401(k)
Plan in which all employees who are at least 21 years of age are eligible to
participate. Contributions of up to 15% of compensation to the 401(k) Plan may
be made by employees through salary withholdings. Company matching contributions
are discretionary. In 1997 the Company matched 25% of the first 6% of employee
contributions, aggregating $29,000.

Beta-Cath(TM) is a trademark of Novoste Corporation.

43
<PAGE>

14(a) 2. FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because they are not applicable or not required.

14(a) 3. EXHIBITS

See Index to Exhibits on page 48.

44
<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 27, 1998.

NOVOSTE CORPORATION

By: /s/ Thomas D. Weldon
--------------------------------------------
Thomas D. Weldon
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on February 27, 1998.

/s/ Norman R. Weldon Chairman of the Board and Director
- - - --------------------------
Norman R. Weldon, PhD.

/s/ Thomas D. Weldon President, Chief Executive Officer and Director
- - - -------------------------- (Principal Executive Officer)
Thomas D. Weldon

/s/ David N. Gill Vice President-Finance and Chief Financial Officer
- - - -------------------------- (Principal Financial and Accounting Officer)
David N. Gill

/s/ Charles E. Larsen Director
- - - --------------------------
Charles E. Larsen

/s/ J. Stephen Holmes Director
- - - --------------------------
J. Stephen Holmes

/s/ Richard M. Johnston Director
- - - --------------------------
Richard M. Johnston

/s/ Pieter J. Schiller Director
- - - --------------------------
Pieter J. Schiller

/s/ Jack R. Kelly, Jr. Director
- - - --------------------------
Jack R. Kelly, Jr.

/s/ William E. Whitmer Director
- - - --------------------------
William E. Whitmer

/s/ Stephen I. Shapiro Director
- - - --------------------------
Stephen I. Shapiro

45
<PAGE>

INDEX TO EXHIBITS

Exhibit
Numbers Description
------- -----------

3.1 Articles of Incorporation of Registrant, as amended.(1)

3.2 Form of Amended and Restated Articles of Incorporation of Registrant
filed on May 28, 1996.(1)

3.2(a) Copy of First Amendment to Amended and Restated Articles of
Incorporation of Novoste Corporation filed with the Department of
State of the State of Florida on November 1, 1996.(2)

3.3(a) Copy of Amended and Restated By-Laws of Registrant adopted December
20, 1996.(3)

4.1 Form of Specimen Common Stock Certificate of Registrant.(1)

4.2 Registration Rights Agreement, dated July 28, 1995, by and among
Registrant, Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen,
the Hillman Investors (as defined therein), Noro-Moseley
Partners-III, L.P. and Advanced Technology Ventures IV, L.P.(1)

4.3 Registration Rights Agreement, dated April 26, 1995, between
Registrant and ABS Employees' Venture Fund Limited Partnership.(1)

4.4 Registration Rights Agreement, dated September 20, 1995, between
Registrant and Karen C. Vinjamuri.(1)

4.17(a) Form of Rights Agreement, dated as of October 25, 1996, between
Novoste Corporation and American Stock Transfer & Trust Company,
which includes as Exhibit B thereto the Form of Right Certificate.
Pursuant to the Rights Agreement, the Right Certificates will not be
mailed until after the earlier of (i) the first date of a public
announcement that a person or group of affiliated or associated
persons has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding Common Shares, or (ii)
10 business days following the commencement of, or announcement of
an intention to commence, a tender or exchange offer the
consummation of which would result in a person or group beneficially
owning 15% or more of such outstanding Common Shares.(2)

4.17(b) Summary of Rights to Purchase Preferred Shares of Novoste
Corporation.(2)

*10.1 Copy of Stock Option Plan of Registrant, as amended (3)

H10.2 License Agreement, dated January 30, 1996, between Emory University
and Registrant.(1)

H10.3 Clinical Research Study Agreement, dated January 30, 1996, by Emory
University And Registrant.(1)

H10.4 License Agreement, dated January 31, 1996, between Spencer B. King
III, M.D. and Registrant.(1)

H10.5 Restenosis Therapy Project Development and Supply Agreement, dated
November 28, 1994, with Registrant, relating to the supply of
radioactive beta isotopes.(1)

10.6 Option to Purchase Assets Agreement dated August 22, 1995, with
Registrant relating to the purchase of assets of Registrant's
supplier of radioactive beta isotopes.(1)

10.7 License/Product Supply Agreement, dated as of May 11, 1992, by and
among Sumitomo Bakelite Co., Ltd., Sumitomo Plastics America, Inc.,
Norman R. Weldon, Thomas D. Weldon, Charles E. Larsen and
Registrant.(1)

10.8 Lease, dated July 9, 1992, between Weeks Master Partnership, L.P.
and Registrant, as amended.(1)

H10.10 Frame Agreement with Bebig Isotopentechnik und Umweltdiagnostik
GmbH regarding purchases and investment grant (3)

*10.12 Copy of Non-Employee Director Stock Option Plan

46
<PAGE>

Exhibit
Numbers Description
------- -----------

H10.13 Memorandum of Understanding between Registrant and Bebig
Isotopentechnik und Umweltdiagnostik GmbH regarding purchases and
investment grant dated April 23, 1997.(4)

23.1 Consent of Ernst & Young LLP relating to the Registrant's
Registration Statement on Form S-8 (File No. 333-12717)

27 Financial Data Schedule.

- - - -------------------
H Portions have been omitted and filed separately with the Securities and
Exchange Commission pursuant to an order granting confidential treatment.
(1) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form S-1 (File No. 333-4988).
(2) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form 8-A filed on November 5, 1996.
(3) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form 10-K filed on March 10, 1997.
(4) Filed as same numbered Exhibit to the Registrant's Registration Statement
on Form S-3 (File No.333-38573).
* Constitutes a compensatory plan, contract or arrangement.

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-12717) pertaining to the Novoste Corporation Stock Option Plan of
our report dated January 30, 1998 with respect to the financial statements of
Novoste Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1997.

ERNST & YOUNG LLP

Atlanta, Georgia
March 2, 1998

<ARTICLE> 5
<CIK> 0001012131
<NAME> Novoste Corporation

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 35,993,933
<SECURITIES> 12,408,785
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,490,817
<PP&E> 1,947,407
<DEPRECIATION> (885,881)
<TOTAL-ASSETS> 49,795,956
<CURRENT-LIABILITIES> 2,426,954
<BONDS> 0
0
0
<COMMON> 103,320
<OTHER-SE> 47,265,682
<TOTAL-LIABILITY-AND-EQUITY> 49,795,956
<SALES> 0
<TOTAL-REVENUES> 29,313
<CGS> 0
<TOTAL-COSTS> (15,631,190)
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,388,482
<INCOME-PRETAX> (14,213,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,213,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,213,395)
<EPS-PRIMARY> (1.64)
<EPS-DILUTED> (1.64)

</TABLE>