CARDIOVASCULAR DYNAMICS INC, S-1/A, 1996-05-17

CARDIOVASCULAR DYNAMICS INC
S-1/A, 1996-05-17
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996.
REGISTRATION NO. 333-4560

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO

FORM S-1
REGISTRATION STATEMENT
UNDER THE

SECURITIES ACT OF 1933

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CARDIOVASCULAR DYNAMICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3841 68-0328265
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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13900 ALTON PARKWAY, SUITE 122
IRVINE, CALIFORNIA 92718
(714) 457-9546
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL R. HENSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARDIOVASCULAR DYNAMICS, INC.
13900 ALTON PARKWAY, SUITE 122
IRVINE, CALIFORNIA 92718
(714) 457-9546
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C>
EDWARD M. LEONARD, ESQ. ALAN K. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP DAVID J. SEGRE, ESQ.
TWO EMBARCADERO PLACE WILSON, SONSINI, GOODRICH & ROSATI
2200 GENG ROAD PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94303 650 PAGE MILL ROAD
(415) 424-0160 PALO ALTO, CALIFORNIA 94306
(415) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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CARDIOVASCULAR DYNAMICS, INC.

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION
STATEMENT LOCATION IN PROSPECTUS
--------------------------------------------------- ----------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside
Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors;
The Company
4. Use of Proceeds.................................... Use of Proceeds
5. Determination of Offering Price.................... Underwriting
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Inapplicable
8. Plan of Distribution............................... Outside and Inside Front Cover
Pages; Underwriting
9. Description of Securities to be Registered......... Description of Capital Stock
10. Interests of Named Experts and Counsel............. Legal Matters
11. Information with Respect to the Registrant......... Inside and Outside Front Cover
Pages; Prospectus Summary; Risk
Factors; The Company; Use of
Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Stockholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Inapplicable
</TABLE>
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MAY 17, 1996

3,400,000 SHARES

LOGO

CARDIOVASCULAR DYNAMICS, INC.

COMMON STOCK
------------------------

All of the shares of Common Stock offered hereby are being offered by
CardioVascular Dynamics, Inc. ("CVD" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently anticipated that the initial public offering price of the Common Stock
will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion
of factors considered in determining the initial public offering price. Upon
completion of this offering, and assuming no exercise of the Underwriters'
over-allotment option, EndoSonics Corporation ("EndoSonics") will own
approximately 49% of the Company's outstanding Common Stock, and will be able to
effectively control those matters requiring stockholder approval. See "Certain
Transactions." Application has been made to have the Common Stock of the Company
approved for quotation on the Nasdaq National Market under the symbol "CCVD."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5-12.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
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Total(3)................................. $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses, payable by the Company, estimated at $770,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
510,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
VOLPE, WELTY & COMPANY
WESSELS, ARNOLD & HENDERSON
VECTOR SECURITIES INTERNATIONAL, INC.

The date of this Prospectus is , 1996
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[PICTURE]

The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and make
available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Bullett is a registered trademark of CardioVascular Dynamics, Inc.
Trademark applications are pending for the CVD logo, FACT, CAT, ARC, FOCUS, LYNX
and Periflow. All other trademarks and trade names referred to in this
Prospectus are the property of their respective owners.

2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results described in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed under the heading "Risk Factors." Except as set forth in the financial
statements or as otherwise specified herein, all information in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option, (ii)
reflects the conversion of the convertible obligation and all of the Company's
outstanding shares of Preferred Stock into shares of Common Stock as a
consequence of the offering made hereby, and (iii) reflects a 2-for-1 split of
the Common Stock, effected May 2, 1996. See "Underwriting" and "Description of
Capital Stock."

THE COMPANY

CardioVascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters used to treat certain vascular diseases. The
Company's catheters are used in conjunction with angioplasty and other
interventional procedures such as vascular stenting and drug delivery. The
Company's proprietary FOCAL and Multiple Microporous Membrane ("M3")
technologies enable physicians to deliver therapeutic radial force, stents,
drugs or contrast media accurately and effectively to the treatment site, and
also allow the perfusion of blood during an interventional procedure. The
Company believes that the combination of these technologies on a
multiple-purpose catheter enables physicians to effectively perform challenging
interventional procedures, resulting in improved treatment outcomes and lower
costs. The Company has five issued and four allowed U.S. patents covering
certain aspects of its catheter technologies. Since commencing commercial sales
in 1994, the Company has sold more than 12,000 catheters.

Cardiovascular disease, the leading cause of death in the United States, is
caused principally by atherosclerosis. Atherosclerosis is a progressive and
degenerative vascular disease in which cholesterol and other fatty materials are
deposited on the walls of blood vessels, forming a build-up known as plaque.
Treatments for atherosclerosis include drug therapy and open-heart bypass
surgery. In addition, cardiologists are increasingly utilizing minimally
invasive catheter-based treatments such as balloon angioplasty, atherectomy and
laser angioplasty to treat atherosclerosis.

Although catheter-based interventional therapies are generally successful
in initially increasing blood flow, studies indicate that within twelve months
after a traditional coronary balloon angioplasty between 30% and 50% of treated
patients experience restenosis (generally defined as a 50% or greater reduction
in the lumen diameter of the treated vessel). In addition, 5% to 8% of coronary
balloon angioplasty patients experience acute reclosure of the treated vessel.
Studies also indicate that 15% to 20% of atherosclerosis patients suffer from
chronic total occlusions, a disease indication which in many such cases limits
treatment options to bypass surgery. The Company believes that these challenges
are inadequately addressed with existing, single function, uniform diameter
angioplasty balloons.

CVD has utilized its core proprietary technologies to develop catheters
that provide clinical and cost benefits in the treatment of vascular diseases.
The Company's catheters are designed to address three principal challenges
facing cardiologists: restenosis of a treated vessel, chronic total occlusions
and acute reclosure of a vessel during or soon after a procedure. The Company's
patented FOCAL technology combines compliant and non-compliant balloon materials
on a single catheter, creating an angioplasty balloon that has an adjustable,
larger center diameter with fixed, smaller diameters at each end. These
characteristics allow a single balloon to expand to multiple diameters, enabling
the physician to perform interventional procedures in vessels of varying
diameters and anatomical locations. The Company's proprietary M3 technology
combines multiple membranes of polymeric balloon material to form a single
balloon that enables the accurate delivery of drugs or contrast agents to the
lesion or thrombus site. The M3 technology can also be utilized to provide
perfusion of blood during an interventional procedure. The Company believes that
the FOCAL and M3 technologies may enable physicians to cost-effectively treat
vascular diseases by reducing the cost of those procedures which require more
than one catheter.

3
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THE OFFERING

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<S> <C>
Common Stock offered by the Company................. 3,400,000 shares
Common Stock to be outstanding after the offering... 8,262,500 shares(1)
Use of proceeds..................................... Product development, capital
expenditures, clinical trials and
studies, working capital, direct sales
and marketing and repayment of amounts
owed to EndoSonics.
Proposed Nasdaq National Market symbol.............. CCVD
</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
MARCH 16, 1992 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ----------------
1992(2) 1993(2) 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................... $ -- $ 126 $ 2,389 $ 4,103 $ 409 $2,033
Charge for acquired in-process
research and development(3)... -- (2,001) -- (488) -- --
Loss from operations............ (323) (2,878) (1,022) (2,976) (664) (404)
Net loss........................ $ (313) $(2,849) $ (971) $(2,874) $ (625) $ (377)
Pro forma net loss per
share(4)...................... $ (0.25) $ (0.65) $(0.14) $(0.08)
Shares used in computing pro
forma net loss per share(4)... 3,860 4,425 4,389 4,469
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash............................................................... $ 8,655 $ 45,829
Working capital.................................................... 6,748 43,922
Total assets....................................................... 11,770 48,944
Convertible obligation............................................. 750 --
Accumulated deficit................................................ (6,802) (6,802)
Total stockholders' equity......................................... 6,551 44,475
</TABLE>

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(1) Based on shares outstanding at March 31, 1996. Includes the Common Stock to
be outstanding upon conversion of the convertible obligation at an assumed
initial public offering price of $12.00 (the "Convertible Obligation"). Does
not include 977,000 shares reserved for issuance under options outstanding
at March 31, 1996 at a weighted average price per share of $1.21, and
223,000 shares reserved for grant of future options under the Company's 1996
Stock Option/Stock Issuance Plan. Also excludes 80,000 common shares
issuable upon exercise of a warrant outstanding at March 31, 1996 at an
exercise price of $3.29 per share and 40,000 common shares issuable upon
exercise of a warrant issued subsequent to March 31, 1996 at an exercise
price of $3.29 per share. See Notes 2, 9 and 11 of Notes to Financial
Statements.

(2) The period from March 16, 1992 (inception) to December 31, 1992 and the
period from January 1, 1993 to June 9, 1993 reflect the operations of the
predecessor to the Company. See Note 1 of Notes to Financial Statements.

(3) The charge for acquired in-process research and development reflects a
change in the basis of the Company's assets and liabilities as a result of
the acquisition by EndoSonics which has been allocated to the Company. See
Note 1 of Notes to Financial Statements.

(4) See Note 1 of Notes to Financial Statements for information regarding the
calculation of pro forma net loss per share.

(5) Adjusted to give effect to the conversion of the Convertible Obligation and
the sale of 3,400,000 shares of Common Stock by the Company in the offering
made hereby at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

4
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RISK FACTORS

In evaluating the Company's business, prospective investors should consider
carefully the following risk factors in addition to the other information
presented in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results described in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the following risk factors.

History of Operating Losses; Anticipated Future Losses; Future Capital
Requirements. The Company was founded in 1992 and has experienced annual
operating losses since its inception. Its net loss in 1995 was $2.9 million. The
Company's accumulated deficit at March 31, 1996 was $6.8 million. The Company
expects to continue to incur operating losses through at least 1997 and there
can be no assurance that the Company will ever be able to achieve or sustain
profitability in the future. The Company expects to incur substantial additional
costs related to, among other things, clinical testing, product development,
manufacturing scale-up and sales and marketing activities. The Company
anticipates that its existing capital resources, including the net proceeds from
this offering and the interest earned thereon, will be sufficient to fund its
operations through 1997. The Company's future capital requirements will depend
on many factors, including its research and development programs, the scope and
results of clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents or any
litigation by third parties regarding intellectual property, the status of
competitive products, the establishment and scale-up of manufacturing capacity,
the establishment of sales and marketing capabilities, the establishment of
collaborative relationships with other parties and costs related to the
acquisition of new technologies and product development. The Company may require
additional funds to finance these activities and for working capital
requirements. The Company may seek such funds through additional financings,
including private or public equity or debt offerings and collaborative
arrangements with corporate partners. There can be no assurance that funds will
be raised on favorable terms, if at all. If adequate funds are not available,
the Company may be required to delay, scale back or eliminate one or more of its
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would not
otherwise relinquish. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Limited Sales to Date; Uncertainty of Market Acceptance. The Company's
catheters are used in conjunction with angioplasty and other intravascular
procedures such as vascular stenting and drug delivery. Although the Company has
received regulatory clearance for a total of thirty-two products, only eight of
such products have been marketed. Of those products which have been marketed,
many have been marketed only in limited quantities or in certain markets, or are
allowed to be marketed only in certain countries. In addition, while
interventional catheters are widely used technologies, the Company's catheter
designs are relatively new. The commercial success of the Company's products
will depend upon their acceptance by the medical community as useful,
cost-effective components of interventional cardiovascular and peripheral
vascular procedures, including the acceptance by the medical community of stents
and the availability and acceptance of therapeutic drugs for use in
interventional procedures. The Company currently relies upon relationships with
certain prominent doctors and researchers in the medical community to promote
the uses and acceptance of its approved products. There can be no assurance that
the Company will be able to maintain such relationships or establish additional
relationships in the future. The erosion or loss of any such relationship could
detrimentally affect the market acceptance of the Company's products. Failure of
the Company's products to achieve such market acceptance would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products."

Dependence Upon New Products; Rapid Technological Change. The medical
device industry generally, and the interventional catheter market in particular,
are characterized by rapid technological change, changing customer needs, and
frequent new product introductions. As a result, the useful lives of both the
technology and products for the treatment of cardiovascular and peripheral
vascular diseases are limited, in some instances to as little as twelve months.
The Company's future success will depend upon its ability to develop,
manufacture and introduce new products that address the needs of its customers.
There can be no assurance

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that the Company will be successful in developing and marketing new products
that achieve market acceptance or that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new products. In addition, there can be no
assurance that the Company's existing products will not be rendered obsolete as
a result of technological developments or that the products that the Company has
under development will not be rendered obsolete prior to the introduction of
such products. See "Business -- Products."

Fluctuations in Quarterly Operating Results. CVD's results of operations
have varied significantly from quarter to quarter. The Company has experienced
an operating loss for each of the last three years. Quarterly operating results
will depend upon several factors, including the timing and amount of expenses
associated with expanding the Company's operations, the conduct of clinical
trials and the timing of regulatory approvals, new product introductions both in
the United States and internationally, the mix between pilot production of new
products and full-scale manufacturing of existing products, the mix between
domestic and export sales, variations in foreign exchange rates, changes in
third-party payors' reimbursement policies and healthcare reform. The Company
does not operate with a significant backlog of customer orders, and therefore
revenues in any quarter are significantly dependent on orders received within
that quarter. In addition, the Company cannot predict ordering rates by
distributors, some of whom place infrequent stocking orders. The Company's
expenses are relatively fixed and difficult to adjust in response to fluctuating
revenues. As a result of these and other factors, the Company expects to
continue to experience significant fluctuations in quarterly operating results,
and there can be no assurance that the Company will be able to achieve or
maintain profitability in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

Reliance on Patents and Proprietary Technology; Risk of Patent
Infringement. While the Company owns certain issued and allowed U.S. patents
and has additional U.S. and foreign patent applications pending, there can be no
assurance that the Company's patent applications will issue as patents or that
any issued patents will provide competitive advantages for the Company's
products or will not be successfully challenged or circumvented by its
competitors. The interventional cardiovascular market in general and the market
for balloon angioplasty catheters (including the type of catheters offered by
CVD) in particular has been characterized by substantial litigation regarding
patent and other intellectual property rights. Although the Company believes
that its products do not infringe other parties' patents and proprietary rights,
there can be no assurance that its products do not infringe such patents or
rights. In the event that any such third parties assert claims against the
Company for patent infringement and such patents are upheld as valid and
enforceable, the Company could be prevented from utilizing the subject matter
claimed in such patents, or would be required to obtain licenses from the owners
of any such patents or redesign its products or processes to avoid infringement.
There can be no assurance that such licenses would be available or, if
available, would be so on terms acceptable to the Company or that the Company
would be successful in any attempt to redesign its products or processes to
avoid infringement. In addition, foreign intellectual property laws may not
provide protection commensurate with that provided by U.S. intellectual property
laws, and there can be no assurance that foreign intellectual property laws will
adequately protect the Company's intellectual property rights abroad. The
Company also relies on trade secrets and proprietary technology and enters into
confidentiality and non-disclosure agreements with its employees, consultants
and advisors. There can be no assurance that the confidentiality of such trade
secrets or proprietary information will be maintained by employees, consultants,
advisors or others, or that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently developed by
competitors in such a manner that the Company has no practical recourse.
Litigation may be necessary to defend against claims of infringement or
invalidity, to enforce patents issued to the Company or to protect trade
secrets, and there can be no assurance that any such litigation would be
successful. Any litigation could result in substantial costs to, and diversion
of resources by, the Company and its officers, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Patents and Proprietary Information."

Significant Competition. Competition in the market for devices used in the
treatment of cardiovascular and peripheral vascular disease is intense, and is
expected to increase. The interventional cardiology market is characterized by
rapid technological innovation and change, and the Company's products could be
rendered obsolete as a result of future innovations. The Company's catheters
compete or will compete with catheters marketed by a number of manufacturers,
including Advanced Cardiovascular Systems, Inc., a subsidiary of

6
<PAGE> 9

Guidant Corporation ("ACS"), SCIMED Life Systems, Inc., a subsidiary of Boston
Scientific Corporation ("SCIMED"), Johnson & Johnson Interventional Systems
("JJIS") and Cordis Corporation, subsidiaries of Johnson & Johnson, Medtronic,
Inc., C.R. Bard, Inc. and Schneider USA, a subsidiary of Pfizer, Inc. In
addition, the Company faces competition from manufacturers of other
catheter-based devices, vascular stents and pharmaceutical products intended to
treat vascular disease. Such companies have significantly greater financial,
management and other resources, established market positions, and significantly
larger sales and marketing organizations than does the Company. In addition, the
Company believes that many of the customers and potential customers of the
Company's products prefer to purchase catheter products from a single source.
Accordingly, many of the Company's competitors, because of their size and range
of product offerings, have a competitive advantage over the Company. There can
be no assurance that the Company's competitors will not succeed in developing or
marketing technologies or products that are more clinically effective or cost
effective than any that are being marketed or developed by the Company, or that
such competitors will not succeed in obtaining regulatory approval for
introducing or commercializing any such products prior to the Company. See
"Business -- Competition."

Limited Manufacturing Experience. The Company's success will depend in
part on its ability to manufacture its products in compliance with ISO 9001, the
FDA's Good Manufacturing Practices ("GMP") regulations, California Department of
Health Services ("CDHS") licensing and other regulatory requirements, in
sufficient quantities and on a timely basis, while maintaining product quality
and acceptable manufacturing costs. The Company began manufacturing certain of
its products at its facilities in July 1995. Accordingly, the Company has very
limited experience in manufacturing its products. In addition, the Company
currently intends to introduce a significant number of new products in 1996. The
Company has also undergone and expects to continue to undergo regular GMP
inspections in connection with the manufacture of its products at the Company's
facilities. The Company's success will depend, among other things, on its
ability to efficiently manage the simultaneous manufacture of different products
and to integrate the manufacture of new products with existing products. There
can be no assurance that the Company will not encounter difficulties in scaling
up production of new products, including problems involving production yields,
quality control and assurance, component supply and shortages of qualified
personnel. The Company's failure to successfully commence the manufacturing of
these new products, or to increase production volumes of new or existing
products in a timely manner, would materially adversely affect the Company's
business, financial condition and results of operations. Failure to increase
production volumes in a timely or cost-effective manner or to achieve or
maintain compliance with ISO 9001, GMP regulations, CDHS licensing or other
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company purchases many standard and custom built components from
independent suppliers and subcontracts certain manufacturing processes from
independent vendors. Most of these components and processes are available from
more than one vendor. However, certain manufacturing processes are currently
performed by single vendors. While the Company believes that there are other
vendors available to perform these processes, an interruption of performance by
any of these vendors could have a material adverse effect on the Company's
ability to manufacture its products until a new source of supply was qualified
and, as a result, could have an adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing"
and "Business -- Government Regulation."

Management of Growth. The Company has historically relied on EndoSonics to
perform certain activities on its behalf, including manufacturing, financial,
regulatory and administrative functions. Since July 1995, CVD has conducted its
manufacturing operations at its facilities in Irvine and also currently performs
the financial, regulatory and administrative functions previously performed by
EndoSonics. Accordingly, the Company has experienced a period of significant
expansion of its operations that has placed a significant strain upon its
management systems and resources. The Company has recently implemented a number
of new financial and management controls, reporting systems and procedures. In
addition, the Company has recently hired a significant number of employees and
plans to further increase its total headcount. The Company also plans to expand
the geographic scope of its customer base and operations. This expansion has
resulted and will continue to result in substantial demands on the Company's
management resources. The Company's ability to manage future expansion of its
operations will require the Company to

7
<PAGE> 10

continue to improve its financial and management controls, reporting systems and
procedures on a timely basis and to expand, train and manage its employee work
force. There can be no assurance that the Company will be able to do so
successfully. The failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.

Limited Marketing and Sales Resources; Dependence Upon Strategic
Partners. CVD intends to rely primarily on certain strategic relationships,
medical device distributors and its direct sales organization to distribute its
products. The Company's ability to distribute its products successfully depends
in part on the marketing capabilities of its strategic partners. In recent years
there has been significant consolidation among medical device suppliers as the
major suppliers have attempted to broaden their product lines in order to
respond to cost pressures from health care providers. This consolidation has
made it increasingly difficult for smaller suppliers, such as the Company, to
effectively distribute their products without a relationship with one or more of
the major suppliers. The Company is currently marketing certain of its products
through licensing agreements with SCIMED and ACS. In addition, Fukuda Denshi
Company, Ltd. ("Fukuda") is the Company's exclusive distributor in Japan for
certain of the Company's products. Fukuda is also responsible for obtaining
regulatory approval for the Company's products in Japan. The Company's revenue
from these relationships is dependent upon the efforts made by such parties and
there can be no assurance that such efforts will be successful. There can be no
assurance that the Company will be able to maintain or expand its relationships
with its strategic partners or to replace its strategic partners in the event
any such relationship were terminated. In the event of such a termination, the
Company's ability to distribute its products would be materially adversely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations.

CVD currently has a limited marketing and sales staff. The Company intends
to expand its direct sales force to market the Company's products, and intends
to use a portion of the net proceeds from this offering to fund this expansion.
However, there can be no assurance that CVD will successfully expand its direct
sales and marketing organization, or that if expanded, such organization will be
able to effectively distribute CVD's products. If CVD is unable to achieve
distribution of its products through its direct sales organization, the
Company's business, financial condition and results of operations would be
materially adversely affected.

The Company also has product development relationships with SCIMED and ACS.
SCIMED currently funds certain research and development efforts undertaken by
CVD in the area of combined drug delivery and coronary angioplasty. ACS conducts
development work on the Company's perfusion technology. If CVD is unable to
maintain its relationships with these or future strategic partners its product
development efforts could be materially adversely affected, which would
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales" and
"Business -- Strategic Relationships."

Government Regulation. The manufacturing and marketing of the Company's
products are subject to extensive and rigorous government regulation in the
United States and in other countries. The Company believes that its success will
be significantly dependent upon commercial sales of improved versions of its
catheter products. The Company will not be able to market these new products in
the United States unless and until the Company obtains approval or clearance
from the FDA. Foreign and domestic regulatory approvals, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed.

If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device that the FDA has not called for a premarket
approval ("PMA"), the manufacturer may seek clearance from the FDA to market the
device by filing a premarket notification with the FDA under Section 510(k) of
the Federal Food, Drug, and Cosmetic Act ("510(k)"). All of the 510(k)
clearances received for the Company's catheters were based on substantial
equivalence to legally marketed devices. There can be no assurance that 510(k)
clearance for any future product or significant modification of an existing
product will be granted or that the process will not be unduly lengthy. In
addition, if the FDA has concerns about the safety or effectiveness of any of
the Company's products, it could act to withdraw approval or clearances of those
products or request that the Company present additional data. Any such actions
would have a material adverse effect on the Company's business, financial
condition and results of operations.

8
<PAGE> 11

If substantial equivalence cannot be established, or if the FDA determines
that the device or the particular application for the device requires a more
rigorous review to assure safety and effectiveness, the FDA will require that
the manufacturer submit a PMA application that must be reviewed and approved by
the FDA prior to sales and marketing of the device in the United States. The PMA
process is significantly more complex, expensive and time consuming than the
510(k) clearance process and always requires the submission of clinical data. It
is expected that certain of the Company's products under development will be
subject to this PMA process. The Company currently has a non-exclusive,
royalty-free right to submit PMA supplement applications utilizing an EndoSonics
PMA as a reference and to manufacture and distribute CVD products as a
supplement to the EndoSonics PMA. This agreement may be terminated in the event
of breach upon 60 days notice by the non-breaching party, subject to the
breaching party's right to cure. In the event of termination, the Company would
be prohibited from submitting new PMA supplements referencing the EndoSonics PMA
and would be required to seek independent FDA approval for any such products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company is also required to register as a medical device manufacturer
with the FDA and maintain a license with certain state agencies, such as the
CDHS. As such, the Company is inspected on a routine basis by both the FDA and
the CDHS for compliance with GMP regulations. These regulations require that the
Company manufacture its products and maintain related documentation in a
prescribed manner with respect to manufacturing, testing and control activities.
The Company has also undergone and expects to continue to undergo regular GMP
inspections in connection with the manufacture of its products at the Company's
facilities. Further, the Company is required to comply with various FDA
requirements for labeling. The Medical Device Reporting laws and regulations
require that the Company provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its devices, as well as
product malfunctions that would likely cause or contribute to death or serious
injury if the malfunction were to recur. In addition, the FDA prohibits an
approved device from being marketed for unapproved applications. CVD has
received FDA approval to market the FACT catheters, which utilize the FOCAL
technology, for coronary balloon angioplasty. These catheters are marketed
outside the United States for use in stent deployment. However, without specific
FDA approval for stent deployment, these catheters may not be marketed by the
Company in the United States for such use.

Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution. In addition, government regulations may
be established in the future that could prevent or delay regulatory clearance or
approval of the Company's products. Delays in receipt of clearances or
approvals, failure to receive clearances or approvals or the loss of previously
received clearances or approvals would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company is also subject to other federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices. The extent of government regulation that might
result from any future legislation or administrative action cannot be accurately
predicted. Failure to comply with regulatory requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products" and "Business -- Government Regulation."

International sales of the Company's products are subject to the
registration requirements of each country. The regulatory review process varies
from country to country and may in some cases require the submission of clinical
data. The Company typically relies on its distributors in such foreign countries
to obtain the requisite regulatory approvals. There can be no assurance,
however, that such approvals will be obtained on a timely basis or at all. In
addition, the FDA must approve the export to certain countries of devices that
require a PMA but are not yet approved domestically.

9
<PAGE> 12

products receive by mid-1998 the right to affix the CE mark, an international
symbol of adherence to quality assurance standards and compliance with
applicable European medical device directives. ISO 9001 certification is one of
the CE mark certification requirements. Failure to receive the right to affix
the CE mark will prevent the Company from selling its products in member
countries of the European Union. While the Company is in the process of becoming
ISO 9001 certified, there can be no assurance that the Company will be
successful in meeting these or any other certification requirements on a timely
basis, or at all.

Limitations on Third-Party Reimbursement. In the United States, the
Company's products are purchased primarily by medical institutions, which then
bill various third-party payors, such as Medicare, Medicaid, and other
government programs and private insurance plans, for the health care services
provided to patients. Government agencies, private insurers and other payors
determine whether to provide coverage for a particular procedure and reimburse
hospitals for medical treatment at a fixed rate based on the diagnosis-related
group ("DRG") established by the U.S. Health Care Financing Administration
("HCFA"). The fixed rate of reimbursement is based on the procedure performed,
and is unrelated to the specific devices used in that procedure. If a procedure
is not covered by a DRG, payors may deny reimbursement. In addition, some payors
may deny reimbursement if they determine that the device used in a treatment was
unnecessary, inappropriate or not cost-effective, experimental or used for a
non-approved indication. Reimbursement of interventional procedures utilizing
the Company's products is currently covered under a DRG. There can be no
assurance that reimbursement for such procedures will continue to be available,
or that future reimbursement policies of payors will not adversely affect the
Company's ability to sell its products on a profitable basis. In addition,
reimbursement may be denied if the product use is not in accordance with
approved FDA labeling. Failure by hospitals and other users of the Company's
products to obtain reimbursement from third-party payors, or changes in
government and private third-party payors' policies toward reimbursement for
procedures employing the Company's products, would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Third-Party Reimbursement."

Dependence Upon International Sales. The Company derives, and expects to
continue to derive, a significant portion of its revenue from international
sales. In 1995 and the three months ended March 31, 1996, the Company's
international sales were $2.1 million and $1.1 million, respectively, or 59% and
64%, respectively, of product sales. The Company expects to continue to derive
significant revenue from international sales and therefore a significant portion
of the Company's revenues will continue to be subject to the risks associated
with international sales, including economic or political instability, shipping
delays, changes in applicable regulatory policies, inadequate protection of
intellectual property, fluctuations in foreign currency exchange rates and
various trade restrictions, all of which could have a significant impact on the
Company's ability to deliver products on a competitive and timely basis. Future
imposition of, or significant increases in the level of, customs duties, import
quotas or other trade restrictions, could have an adverse effect on the
Company's business, financial condition and results of operation. In foreign
countries, the Company's products are subject to governmental review and
certification. The regulation of medical devices, particularly in the European
Union, continues to expand and there can be no assurance that new laws or
regulations will not have an adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

Control by Existing Stockholder; Limitations on Pooling-of-Interests
Accounting. After this offering, EndoSonics will own approximately 49% of the
Company's outstanding Common Stock. EndoSonics will be able to elect at least
two members to the Company's five person board of directors and will have the
ability to effectively control the Company and influence its affairs and the
conduct of its business. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company. In
accordance with applicable accounting standards, the Company would be prohibited
from accounting for a merger transaction, of or by the Company, as a
pooling-of-interests for a period of two years following the date on which
EndoSonics controls less than 50% of the outstanding voting Common Stock of the
Company.

10
<PAGE> 13

other matters, an analysis of the tax consequences to EndoSonics and its
stockholders. Any such distribution or transfer may result in a change of
control of CVD. Notwithstanding EndoSonics' stated intent, EndoSonics is not
obligated to make any such distribution or transfer nor is it obligated to take
any action or refrain from taking any action with respect to the shares of CVD
which it will hold upon completion of this offering. See "Certain Transactions."

Dependence Upon Key Personnel. The Company depends to a significant extent
upon key management and technical personnel. The Company's growth and future
success will depend in large part upon its ability to hire, motivate and retain
highly qualified personnel. Competition for such personnel is intense and there
can be no assurance that the Company will be successful in hiring, motivating or
retaining such qualified personnel. The loss of key personnel or the inability
to hire or retain qualified personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Marketing and Sales," "Business -- Employees" and "Management."

Potential Product Liability; Limited Insurance. The Company faces the risk
of financial exposure to product liability claims. The Company's products are
often used in situations in which there is a high risk of serious injury or
death. Such risks will exist even with respect to those products that have
received, or in the future may receive, regulatory approval for commercial sale.
The Company is currently covered under EndoSonics' product liability insurance
policy with coverage limits of $2.0 million per occurrence and $2.0 million per
year in the aggregate. However, this coverage will terminate when the Company
ceases to be a majority-owned subsidiary of EndoSonics. Accordingly, following
this offering, the Company expects to obtain product liability insurance with
similar coverage limits. There can be no assurance that the Company's product
liability insurance is adequate or that such insurance coverage will remain
available at acceptable costs. There can be no assurance that the Company will
not incur significant product liability claims in the future. A successful claim
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, adverse product liability actions could
negatively affect the reputation and sales of the Company's products and the
Company's ability to obtain and maintain regulatory approval for its products
and substantially divert the time and effort of management away from the
Company's operations.

No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market will develop or be sustained. The
initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters based upon several factors,
and may not be indicative of the market price of the Common Stock after this
offering. The trading price of the Common Stock could also be subject to
significant fluctuations in response to variations in quarterly results of
operations, any future litigation involving the Company, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory action, other developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions, and other factors. See "Underwriting."

Shares Eligible for Future Sale. Sales of Common Stock in the public
market after this offering could adversely affect the market price of the Common
Stock. The 3,400,000 shares sold in this offering will be freely tradable
without restriction. Beginning 180 days following the date of this offering (or
earlier with the consent of Volpe, Welty & Company), approximately 4,000,000
shares will be eligible for sale, representing 3,240,000 shares held by
EndoSonics and 760,000 shares held by SCIMED. The Company intends to register
approximately 1,200,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option/Stock Issuance Plan and 200,000 shares under the
Company's Employee Stock Purchase Plan as soon as practicable following the date
of this Prospectus. As of March 31, 1996, there were outstanding options under
the Company's stock option plans to acquire 977,000 shares, all of which are
subject to 180-day lock-up agreements with the Underwriters. After the
expiration of the 180-day lock-up period, SCIMED will be entitled to certain
demand and piggyback registration rights with respect to its shares. If SCIMED,
by exercising its demand registration rights, causes a large number of shares to
be registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. If the Company were required to
include in a Company-initiated registration shares held by SCIMED pursuant to

11
<PAGE> 14

the exercise of its piggyback registration rights, such sales may have an
adverse effect on the Company's ability to raise needed capital. See "Shares
Eligible for Future Sale."

Effect of Certain Charter Provisions; Anti-takeover Effects of Certificate
of Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the Company. Further, certain provisions of
the Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company, which could adversely affect the market price of the Company's
Common Stock. See "Description of Capital Stock."

Absence of Dividends; Dilution. The Company has never paid any cash
dividends on the Common Stock and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. Purchasers of the Common Stock
offered hereby will incur immediate substantial dilution in the net tangible
book value per share of Common Stock. See "Dividend Policy" and "Dilution."

THE COMPANY

The Company was originally incorporated in California in March 1992 and
became a Delaware corporation in June 1993 after being acquired by EndoSonics.
The Company's principal executive offices are located at 13900 Alton Parkway,
Suite 122, Irvine, California 92718 and its telephone number is (714) 457-9546.

USE OF PROCEEDS

The net proceeds from the sale of the 3,400,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
are estimated to be $37,174,000 ($42,866,000 if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company.

The Company anticipates that the net proceeds of this offering will be used
for the continued development of its products and product candidates, capital
expenditures, clinical trials and working capital. The Company also intends to
use a portion of the proceeds from this offering to pay the $2.6 million payable
to EndoSonics, and to expand its direct marketing and sales force. The Company
may also spend a portion of the proceeds to license or acquire products or
technologies complementary to its business, to conduct additional research and
development programs and for other general corporate purposes. Pending such
uses, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

The exact allocation of the proceeds for the purposes set forth above and
timing of the expenditures may vary significantly depending upon numerous
factors, including research and development programs, the scope and results of
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in obtaining and enforcing patents or any litigation by third
parties regarding intellectual property, the status of competitive products, the
establishment of manufacturing capacity or third-party manufacturing
arrangements, the establishment of sales and marketing capabilities, the
establishment of collaborative relationships with other parties, and the costs
of manufacturing scale-up. There can be no assurance that the proceeds of this
offering, after deducting cash used in the Company's operations will be adequate
to fund these activities. If adequate funds are not available, the Company may
be required to delay, scale back or eliminate one or more of its development
programs or obtain funds through arrangements with collaborative partners or

12
<PAGE> 15

others that may require the Company to relinquish rights to certain
technologies, product candidates or products that the Company would not
otherwise relinquish.

The Company anticipates that its existing capital resources, including the
net proceeds of this offering and the interest earned thereon will be sufficient
to fund its operations through 1997. However, there can be no assurance that the
Company will not be required to seek additional financing sooner or that such
financing, if required, will be available on terms satisfactory to the Company.
See "Risk Factors -- History of Operating Losses; Anticipated Future Losses;
Future Capital Requirements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

DIVIDEND POLICY

The Company has not paid dividends since its inception. The Company
currently intends to retain all earnings, if any, for use in the expansion of
its business and therefore does not anticipate paying any dividends in the
foreseeable future.

13
<PAGE> 16

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of March 31, 1996 and the capitalization as adjusted to reflect the receipt of
the estimated net proceeds from the sale of 3,400,000 shares of Common Stock at
an assumed initial public offering price of $12.00 pursuant to this offering and
the conversion of all outstanding shares of Preferred Stock into Common Stock
upon the closing of this offering:

<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Convertible obligation................................................ $ 750 $ --
Stockholders' equity:
Preferred Stock: $.001 par value, 7,560,000 shares authorized
actual;
5,000,000 authorized as adjusted; 2,400,000 shares issued and
outstanding actual; none issued and outstanding as adjusted...... 2 --
Common Stock: $.001 par value, 30,000,000 shares authorized;
no shares issued and outstanding actual; 8,262,500 shares
issued and outstanding as adjusted(1)............................ -- 8
Additional paid-in capital.......................................... 13,720 51,638
Deferred compensation............................................... (369) (369)
Accumulated deficit................................................. (6,802) (6,802)
------- -------
Total stockholders' equity....................................... 6,551 44,475
------- -------
Total capitalization........................................... $ 7,301 $44,475
======= =======
</TABLE>

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

(1) Includes the Common Stock to be outstanding upon conversion of the
Convertible Obligation. Excludes 977,000 shares of Common Stock issuable
upon exercise of stock options outstanding as of March 31, 1996 at a
weighted average exercise price of $1.21 per share, 223,000 shares of Common
Stock reserved for grant of future options under the Company's 1996 Stock
Option/Stock Issuance Plan. Also excludes 80,000 shares of Common Stock
issuable upon exercise of a warrant outstanding as of March 31, 1996 at an
exercise price of $3.29 per share and 40,000 common shares issuable upon
exercise of a warrant issued subsequent to March 31, 1996 at an exercise
price of $3.29 per share. See "Management -- 1996 Stock Option/Stock
Issuance Plan," and Notes 2, 9 and 11 of Notes to Financial Statements.

14
<PAGE> 17

DILUTION

The net tangible book value of the Company's Common Stock as of March 31,
1996 was $6,551,000, or approximately $1.35 per share. Net tangible book value
per share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by 4,862,500 shares of Common Stock outstanding after
giving effect to the conversion of the Convertible Obligation and all
outstanding shares of Preferred Stock into Common Stock upon completion of this
offering. After giving effect to the sale of 3,400,000 shares of Common Stock in
this offering at an assumed initial public offering price of $12.00 and the
application of the estimated net proceeds therefrom, the net tangible book value
of the Company as of March 31, 1996 would have been $44,475,000 or $5.38 per
share. This represents an immediate increase in net tangible book value of $3.97
per share to existing stockholders and an immediate dilution in net tangible
book value of $6.67 per share to purchasers of Common Stock in this offering.
Investors participating in this offering will incur immediate, substantial
dilution. This is illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Net tangible book value per share as of March 31, 1996........... $ 1.35
Increase per share attributable to new investors................. 4.03
-----
Net tangible book value per share after the offering............... 5.38
------
Dilution per share to new investors................................ $ 6.62
======
</TABLE>

As of March 31, 1996, there were options outstanding to purchase a total of
977,000 shares of Common Stock at a weighted average exercise price of $1.21 per
share under the Company's 1995 Stock Option Plan and a warrant outstanding to
purchase a total of 80,000 shares of Common Stock at an exercise price of $3.29
per share. Subsequent to March 31, 1996 the Company issued an additional warrant
to purchase a total of 40,000 shares of Common Stock at an exercise price of
$3.29 per share. To the extent outstanding options and warrants are exercised,
there will be further dilution to new investors.

The following table sets forth as of March 31, 1996, after giving effect to
the conversion of the Convertible Obligation and all outstanding shares of
Preferred Stock into Common Stock upon the closing of this offering, the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors purchasing shares in this
offering at an assumed initial public offering price of $12.00 per share and
before deducting underwriting discounts and estimated offering expenses payable
by the Company:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 4,862,500 58.8% $11,250,000 21.9% $ 2.31
New stockholders.............. 3,400,000 41.2 40,800,000 78.1 12.00
--------- ----- ----------- -----
Total....................... 8,262,500 100.0% $51,300,000 100.0%
========= ===== =========== =====
</TABLE>

15
<PAGE> 18

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the Company's Financial Statements and Notes thereto and with Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are included elsewhere in this Prospectus. The statement of operations data for
the years ended December 31, 1993, 1994 and 1995, and the balance sheet data at
December 31, 1994 and 1995, are derived from the financial statements which have
been audited by Ernst & Young LLP, independent auditors, included elsewhere in
this Prospectus. The balance sheet data at December 31, 1992 and 1993 and the
statement of operations data for the period from March 16, 1992 (inception) to
December 31, 1992 are derived from audited financial statements not included in
this Prospectus. The statement of operations data for the three month periods
ended March 31, 1995 and 1996, and the balance sheet data at March 31, 1996 are
derived from unaudited financial statements included elsewhere in this
Prospectus and include, in the opinion of the Company, all adjustments
consisting of only normal recurring adjustments necessary for a fair
presentation of the Company's results of operations for those periods and
financial position at that date. The results for the three month period ended
March 31, 1996 are not necessarily indicative of the results to be obtained in
any future period.

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16,
1992
(DATE OF THREE MONTHS
INCEPTION) ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ----------------
1992(1) 1993(1) 1994 1995 1995 1996
------------ ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Sales............................................... $ -- $ 126 $ 1,169 $ 3,462 $ 199 $1,783
License fee and other from related party............ -- -- 1,220 641 210 100
Contract............................................ -- -- -- -- -- 150
------ ------- ------- ------- ------ ------
Total revenue......................................... -- 126 2,389 4,103 409 2,033
Costs and expenses:
Cost of sales....................................... -- 79 848 2,051 118 942
Charge for acquired in-process research and
development(2).................................... -- 2,001 -- 488 -- --
Research and development............................ 294 734 1,228 1,683 432 627
Marketing and sales................................. -- 94 748 1,526 255 577
General and administrative.......................... 29 96 587 1,331 268 291
------ ------- ------- ------- ------ ------
Total operating costs and expenses.................... 323 3,004 3,411 7,079 1,073 2,437
------ ------- ------- ------- ------ ------
Loss from operations.................................. (323) (2,878) (1,022) (2,976) (664) (404)
Other income.......................................... 10 29 51 102 39 27
------ ------- ------- ------- ------ ------
Net loss.............................................. $ (313) $(2,849) $ (971) $(2,874) $ (625) $ (377)
======= ======== ======== ======= ====== ======
Pro forma net loss per share(3)....................... $ (0.25) $ (0.65) $(0.14) $(0.08)
======== ======== ====== ======
Shares used in computing pro forma net loss per
share(3)............................................ 3,860 4,425 4,389 4,469
======== ======== ====== ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996
------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................... $ 650 $ 547 $ 3,379 $ 1,568 $ 8,655
Working capital (deficit).......................... 583 (75) 1,366 (774) 6,748
Total assets....................................... 678 690 4,340 4,002 11,770
Convertible obligation............................. -- -- -- 750 750
Accumulated deficit................................ (313) (2,580) (3,551) (6,425) (6,802)
Total stockholders' equity (net capital
deficiency)...................................... 607 (241) 1,288 (1,098) 6,551
</TABLE>
- ---------------

(1) The period from March 16, 1992 (inception) to December 31, 1992 and the
period from January 1, 1993 to June 9, 1993 reflect the operations of the
predecessor to the Company. See Note 1 of Notes to Financial Statements.

(2) The charge for acquired in-process research and development reflects a
change in the basis of the Company's assets and liabilities as a result of
the acquisition by EndoSonics which has been allocated to the Company. See
Note 1 of Notes to Financial Statements.

(3) See Note 1 of Notes to Financial Statements for information regarding the
calculation of pro forma net loss per share.

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
and trends as a result of the risk factors commencing on page 5 as well as other
factors described below and elsewhere in this Prospectus.

OVERVIEW

CVD designs, develops, manufactures and markets catheters used to treat
certain vascular diseases. The Company's patented catheters utilize its FOCAL
and M3 technologies to deliver therapeutic radial pressure, stents, drugs or
contrast media and improved blood flow during angioplasty and stent placement
procedures. To date, the majority of the Company's revenue has been derived from
sales of its angioplasty and angioplasty-related catheters.

From inception (March 16, 1992) through the first quarter of 1994, the
Company operations were limited and consisted primarily of research and
development and other start-up activities. On June 15, 1992, EndoSonics acquired
a 40% interest in CVD in exchange for $0.5 million in cash. Pursuant to an
Agreement and Plan of Reorganization between EndoSonics and CVD signed on June
9, 1993, EndoSonics acquired all of the outstanding capital stock of CVD in
exchange for $0.3 million in cash and 250,000 shares of EndoSonics' Common Stock
with an aggregate market value of $1.6 million. The acquisition by EndoSonics
resulted in a new basis for CVD's assets and liabilities. Accordingly, the
purchase price paid by EndoSonics has been allocated to CVD's identifiable
assets and liabilities, including $2.0 million to acquired in-process research
and development, which was immediately expensed, as no CVD products had received
regulatory approval and the technology did not have alternative future uses.
Pursuant to the terms of the Agreement and Plan of Reorganization, in June 1995,
EndoSonics became obligated to issue 50,000 shares of its Common Stock with an
aggregate market value of $0.5 million, to the former shareholders of CVD
because the market price of EndoSonics' stock did not exceed a specified price
for a specified period during the two-year period following the acquisition. The
fair value of such shares was charged to acquired in-process technology. In
addition, EndoSonics recently purchased 400,000 shares of CVD's Series B
Preferred Stock for a purchase price of $8.0 million, which will convert into
800,000 shares of Common Stock upon the consummation of this offering. See
"Certain Transactions -- Relationship with EndoSonics Corporation."

In September 1994, CVD and SCIMED entered into a Stock Purchase and
Technology License Agreement to develop and license CVD's patented combination
balloon angioplasty/site-specific drug delivery technology (the Transport
product line) for use in the coronary vessels. Through March 31, 1996 the
Company had received in the aggregate approximately $2.0 million in license
fees, research and development funding and technical assistance from SCIMED
under this agreement. SCIMED also purchased a 19% equity position in the Company
for a purchase price of $2.5 million. See "Business -- Strategic Relationships."

In January 1995, the Company and ACS entered into an agreement pursuant to
which the Company acquired the exclusive worldwide rights to ACS' SmartNeedle
Technology, subject to the payment of certain royalties. The parties
subsequently confirmed their understanding with respect to certain matters in a
second agreement dated March 4, 1996 (collectively, the "ACS Agreements").
Pursuant to the ACS Agreements, ACS was granted the option to acquire the
exclusive worldwide rights to certain CVD perfusion technology, which ACS
exercised on February 14, 1996. In exchange for this perfusion technology, ACS
is obligated to make milestone and minimum annual royalty payments to CVD, and
also has certain obligations to develop and market the perfusion technology.
Through March 31, 1996 the Company had received approximately $0.2 million in
milestone payments under the ACS Agreements. See "Business -- Strategic
Relationships."

The Company currently sells its products through a combination of medical
device distributors and a limited number of direct sales personnel. The Company
is a party to three agreements for the U.S. distribution of products
incorporating its FOCAL and M3 technologies. CVD distributes certain products in
Japan through an exclusive distribution agreement with Fukuda. CVD also has
distribution agreements with 18 companies covering 35 countries outside the
United States and Japan. See "Business -- Strategic Relationships."

17
<PAGE> 20

Based on the Company's limited operations in 1993, the Company believes
that a year-to-year comparison of 1994 to 1993 is not meaningful and has not
included such a comparison in the discussion that follows.

RESULTS OF OPERATIONS

Years Ended December 31, 1994 and December 31, 1995

Sales Revenue. Sales revenue increased to $3.5 million in 1995 from $1.2
million in 1994, representing an increase of 196%. Sales revenue in 1994
resulted primarily from sales of the Company's Transport products, which were
subsequently licensed to SCIMED in 1995. The Company no longer receives sales
revenue for the Transport. Sales revenue in 1995 was due to sales of the
Company's CAT catheter, which was introduced in the first quarter of 1995, and
sales of the SmartNeedle vascular access products beginning in the second
quarter of 1995. Sales of products in Japan through the Company's exclusive
distribution relationship with Fukuda accounted for 18% of the Company's revenue
in 1995. In addition, sales to JJIS accounted for 12% of the Company's revenue
in 1995.

License Fee and Other Revenue from Related Party. License fee and other
revenue represents amounts earned under the aforementioned agreement with
SCIMED. The 1994 amount consists of a $1.0 million license fee and $0.2 million
of development and other revenue. The 1995 amount consists of $0.6 million of
development and other revenue. Future revenue under this agreement will be
derived primarily from royalties earned on SCIMED's sales of the Transport.

Cost of Sales. Cost of sales increased to $2.1 million in 1995 from $0.8
million in 1994, representing an increase of 142%. This increase resulted
primarily from increased manufacturing volumes related to increased product
sales. In July 1995, the Company transferred its product manufacturing from
EndoSonics' facility to the Company's facility in Irvine, California.

Charge for Acquired In-process Research and Development. The Company
incurred a charge of $0.5 million in 1995 in connection with the 1995 payment by
EndoSonics of additional consideration related to the original acquisition by
EndoSonics of CVD stock. The excess of the purchase price of CVD over the fair
market value of the net assets acquired was recorded as in-process research and
development. The acquired in-process research and development was immediately
written off as CVD was in the development stage and had not yet received
regulatory approval for any of its products at the time of the acquisition.

Research and Development. Research and development expenses increased to
$1.7 million in 1995 compared to $1.2 million in 1994, representing an increase
of 37%. This increase was due primarily to increased expenditures related to
development of the Company's FOCAL and M3 technology products. These expenses
also increased due to clinical trials and studies related to the FOCAL
technology products. The Company believes that it must maintain a substantial
commitment to research and development to remain competitive and expects
expenditures related to research and development to increase.

Marketing and Sales. Marketing and sales expenses increased to $1.5 million
in 1995 from $0.7 million in 1994, representing an increase of 104%. This
increase resulted from the development and expansion of the Company's U.S. sales
organization and marketing expenses related to the product launch of the
SmartNeedle products. The Company expects to expand its marketing and sales
force and expects expenses associated with marketing and sales to increase in
the future.

General and Administrative. General and administrative expenses increased
to $1.3 million in 1995 from $0.6 million in 1994, representing an increase of
127%. This increase resulted from expenses incurred as the Company commenced
operations as an independent entity, rather than as a division of EndoSonics,
and included the addition of a full-time Chief Executive Officer, increased
legal and accounting expenses, increased support staff and increased travel
expenses.

Other Income. Total other income remained relatively constant from 1994 to
1995.

18
<PAGE> 21

Three Months Ended March 31, 1995 and March 31, 1996

Sales Revenue. Sales revenue increased to $1.8 million in the three months
ended March 31, 1996 from $0.2 million in the three months ended March 31, 1995,
representing increased sales of the Company's FOCAL catheters, and the
introduction of additional products. Sales of products in Japan through the
Company's exclusive distribution relationship with Fukuda accounted for 22% of
the Company's revenue in the three months ended March 31, 1996.

License Fees and Other Revenue. License fees and other revenue from SCIMED
decreased to $0.1 million in the three months ended March 31, 1996 from $0.2
million in the three months ended March 31, 1995 due to scheduled payment
reductions in accordance with the provisions of the licensing agreement with
SCIMED.

Contract Revenue. Contract revenue was $0.2 million in the three months
ended March 31, 1996 and results from amounts earned under the ACS Agreements.
The Company had no such revenues in 1995.

Cost of Sales. Cost of sales increased to $0.9 million in the three months
ended March 31, 1996 from $0.1 million in the comparable period in 1995. This
increase resulted primarily from increased manufacturing volumes related to
increased product sales. In July 1995, the Company transferred its product
manufacturing from EndoSonics' facility to the Company's facility in Irvine,
California.

Research and Development. Research and development increased to $0.6
million in the three months ended March 31, 1996 compared to $0.4 million in the
three months ended March 31, 1995, representing an increase of 45%. This
increase resulted primarily from expenditures on the development of FOCAL
technology and vascular access products. The Company believes that it must
maintain a substantial commitment to research and development to remain
competitive and expects expenditures related to research and development to
increase.

Marketing and Sales. Marketing and sales expenses increased to $0.6
million in the three months ended March 31, 1996 from $0.3 million in the
comparable period in 1995, representing an increase of 126%. This increase
resulted mainly from the expansion of the Company's direct sales force in the
United States and marketing expenses related to the product launch of the FACT
catheter. The Company expects to expand its marketing and sales resources and
expects expenses associated with these activities to increase in the future.

General and Administrative. General and administrative expenses remained
unchanged at approximately $0.3 million in both the three months ended March 31,
1996 and 1995.

Other Income. Other income, principally interest income, remained
unchanged in both the three months ended March 31, 1996 and 1995.

The Company has experienced an operating loss for each of the last three
years. The Company expects to continue to incur operating losses through at
least 1997 and there can be no assurance that the Company will ever be able to
achieve or sustain profitability in the future. CVD's results of operations have
varied significantly from quarter to quarter. Quarterly operating results will
depend upon several factors, including the timing and amount of expenses
associated with expanding the Company's operations, the conduct of clinical
trials and the timing of regulatory approvals, new product introductions both in
the United States and internationally, the mix between pilot production of new
products and full-scale manufacturing of existing products, the mix between
domestic and export sales, variations in foreign exchange rates, changes in
third-party payors' reimbursement policies and healthcare reform. The Company
does not operate with a significant backlog of customer orders, and therefore
revenues in any quarter are significantly dependent on orders received within
that quarter. In addition, the Company cannot predict ordering rates by
distributors, some of whom place infrequent stocking orders. The Company's
expenses are relatively fixed and difficult to adjust in response to fluctuating
revenues. As a result of these and other factors, the Company expects to
continue to experience significant fluctuations in quarterly operating results,
and there can be no assurance that the Company will be able to achieve or
maintain profitability in the future.

19
<PAGE> 22

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily from the
sale of its equity securities, advances from EndoSonics, licensing its
technologies and through international product distribution agreements. From
inception through March 31, 1996, the Company raised approximately $11.4 million
from the private sales of Preferred and Common Stock and $2.6 million in working
capital from EndoSonics. The Company intends to repay EndoSonics with a portion
of the proceeds from this offering. The Company has also received $0.2 million
and $2.0 million in licensing and contract revenue from ACS and SCIMED,
respectively, as well as $0.8 million from Fukuda in connection with an
exclusive distribution agreement. For the years ended December 31, 1995 and
1994, the Company's net cash used in operating activities was $2.1 million and
$1.5 million, respectively. The increase was primarily due to funding of
operating losses.

On March 31, 1996, the Company had cash, cash equivalents and short-term
investments of $8.7 million. The Company expects to incur substantial costs
related to, among other things, clinical testing, product development, marketing
and sales expenses, and increased working capital, prior to achieving positive
cash flow from operations. The Company anticipates that its existing capital
resources, together with the net proceeds from this offering and the interest
earned thereon, will be sufficient to fund its operations through 1997. The
Company's future capital requirements will depend on many factors, including its
funding requirements, research and development programs, the scope and results
of clinical trials, the regulatory approval process, the costs involved in
intellectual property rights enforcement or litigation, competitive products,
the establishment of manufacturing capacity, the establishment of sales and
marketing capabilities, and the establishment of collaborative relationships
with other parties. The Company may need to raise funds through additional
financings, including private or public equity offerings and collaborative
arrangements with existing or new corporate partners. There can be no assurance
that funds will be raised on favorable terms, or at all. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its development programs or obtain funds through arrangements with
collaborative partners or others that may require the Company to grant rights to
certain technologies or products that the Company would not otherwise grant.

20
<PAGE> 23

BUSINESS

OVERVIEW

CardioVascular Dynamics, Inc. ("CVD" or the "Company") designs, develops,
manufactures and markets catheters used to treat certain vascular diseases. The
Company's catheters are used in conjunction with angioplasty and other
interventional procedures such as vascular stenting and drug delivery. The
Company's proprietary FOCAL and Multiple Microporous Membrane ("M3")
technologies enable physicians to deliver therapeutic radial force, stents,
drugs or contrast media accurately and effectively to the treatment site, and
also allow the perfusion of blood during an interventional procedure. The
Company believes that the combination of these technologies on a multiple
purpose catheter enables physicians to more effectively perform challenging
interventional procedures, which may result in improved treatment outcomes and
lower costs. The Company's catheters are designed to address three principal
challenges facing cardiologists: restenosis of a treated vessel, chronic total
occlusions and acute reclosure of a vessel during or soon after a procedure. The
Company has five issued and four allowed U.S. patents covering certain aspects
of its catheter technologies. Since commencing commercial sales in 1994, the
Company has sold more than 12,000 catheters.

INDUSTRY BACKGROUND

Cardiovascular disease, the leading cause of death in the United States, is
caused principally by atherosclerosis. Atherosclerosis is a progressive and
degenerative vascular disease in which cholesterol and other fatty materials are
deposited on the walls of blood vessels, forming a build-up known as plaque. The
accumulation of plaque narrows the interior of the blood vessels, thereby
reducing blood flow. Atherosclerosis in the coronary arteries can lead to heart
attack and death. In peripheral vessels, atherosclerosis can lead to decreased
mobility, loss of function and other complications of the affected limb.

Traditional treatments for atherosclerosis include drug therapy and
open-heart bypass surgery. Currently available drug therapies may alleviate some
of the symptoms of atherosclerosis but may be ineffective with severe disease
and may cause adverse side effects. Traditional open-heart bypass surgery
involves opening a patient's chest, cutting through the sternum, connecting the
patient to a heart/lung machine and grafting a blood vessel to redirect blood
flow around the occluded portion of an artery. Such a procedure is costly and
generally requires up to a week of hospitalization and an extensive recovery
period. In addition, certain companies are developing methods and devices for
performing bypass surgery using minimally invasive techniques.

The need for less invasive and less costly treatments for atherosclerosis
has led to the development of minimally invasive catheter-based treatments such
as balloon angioplasty ("PTCA" in the coronary arteries and "PTA" in the
peripheral arteries), atherectomy and laser angioplasty. These treatments
involve making a small incision in a patient's leg to access an artery and
inserting a catheter. Balloon angioplasty is a procedure in which a
balloon-tipped catheter is guided to the lesion (the site of the plaque) and
then inflated and deflated several times, delivering therapeutic radial force,
which cracks or reshapes the plaque and increases blood flow. Balloons used to
perform such procedures are characterized by their response to pressure as
either compliant (balloon diameter increases with increased pressure) or
non-compliant (balloon diameter remains relatively constant with increasing
pressure). Conventional balloon technology only allows the balloon to expand to
a single, uniform diameter along the length of the balloon. Because of
variations in vessel diameters at the lesion site, multiple catheters are often
required to treat a single lesion. In addition, conventional catheter
technologies often are unable to limit the delivery of therapeutic radial force
specifically to the lesion site and may damage the adjacent vessel wall.
Conventional catheter technology also interrupts blood flow when the balloon is
inflated, which may cause tissue damage, heart attack or death, particularly if
the balloon inflation required is of significant duration. Existing catheters
that do not perfuse blood require cardiologists to inflate and deflate the
balloon multiple times which may reduce the clinical effectiveness of the
treatment.

21
<PAGE> 24

Other treatments include the use of atherectomy catheters, which cut or grind
away the plaque, and laser angioplasty catheters, which deliver laser energy to
break down the plaque.

Although catheter-based interventional therapies are generally successful
in initially increasing blood flow, they may not offer prolonged efficacy.
Studies indicate that, within twelve months after traditional coronary balloon
angioplasty, between 30% and 50% of the treated patients suffer restenosis
(generally defined as a 50% or greater reduction in the lumen diameter of the
treated vessel). In addition, 5% to 8% of coronary balloon angioplasty patients
experience acute reclosure of the treated vessel. These conditions may occur
because of the damage inflicted on the vessel during an interventional
procedure. The Company believes that this damage may result because the balloons
used to treat the patient were of inappropriate length or size for a particular
lesion. Studies also indicate that 15% to 20% of atherosclerosis patients suffer
from chronic total occlusions, a disease indication which limits treatment
options in many such cases to bypass surgery.

Coronary stents have recently emerged as an additional minimally invasive
device for the treatment of atherosclerosis. Stents were used initially for
treating failed angioplasty procedures and acute or threatened vessel closures.
However, improved techniques for the deployment and assessment of stents,
changes in accompanying drug therapy and advancements in stent technology have
led to the increased use of stents to treat restenosis. After an angioplasty,
atherectomy or other catheter-based treatment, a stent, which is a small metal
prostheses, is then advanced along a guidewire to the desired position, expanded
against the inside of the vessel wall and left in place. While certain stents
are self-expanding, most are deployed through the expansion of a compliant or
semi-compliant balloon. Following this deployment, physicians have increasingly
adopted the technique of using a second, high pressure non-compliant balloon to
further expand the stent. Despite advancements in stent technology, existing
compliant or semi-compliant balloons used for stent delivery are designed to
achieve a uniform diameter along the length of the balloon, and their use may
result in sub-optimal stent deployment or damage of the vessel adjacent to the
lesion.

Although there continue to be significant technological and clinical
advances in the treatment of cardiovascular disease, challenges remain in
cost-effectively treating certain conditions, including restenosis of a treated
vessel, chronic total occlusions and acute reclosure of a vessel during or soon
after a procedure. The Company believes that these challenges are inadequately
addressed with existing, single function, uniform diameter angioplasty balloons.

THE CARDIOVASCULAR DYNAMICS SOLUTION

CVD has utilized its core proprietary technologies to develop catheters
that provide clinical and cost benefits in the treatment of vascular disease.
The Company's proprietary FOCAL and M3 technologies, which may be utilized alone
or in combinations on a single catheter, enable physicians to deliver
therapeutic radial force, stents, drugs or contrast media accurately to the
treatment site, and also allow the perfusion of blood during an interventional
procedure. The Company believes that the combination of these technologies on a
single catheter enables physicians to cost-effectively treat vascular diseases
by reducing the cost of those procedures that require more than one catheter.

The Company's patented FOCAL technology combines compliant and
non-compliant balloon materials on a single catheter, creating a balloon that
has an adjustable, larger center diameter with fixed, smaller diameters at each
end. This characteristic allows a single balloon to expand to multiple
diameters, enabling the physician to perform interventional procedures in
vessels of varying diameters and anatomical locations. In particular, the FOCAL
technology enables cardiologists to incrementally increase the angioplasty
balloon's center diameter during a procedure to enhance the effectiveness of the
treatment in vessels that have uncertain or varying diameters or irregular
plaque deposits. Use of conventional catheter technology in these situations may
require multiple catheters to achieve a similar outcome. The FOCAL technology
may also reduce the incidental damage to the artery wall adjacent to the lesion,
as the therapeutic radial force is applied more accurately to the treatment
site.

The Company's proprietary M3 technology combines multiple membranes of
polymeric balloon material to form a single balloon that enables the accurate
delivery of drugs or contrast agents to the lesion or thrombus

22
<PAGE> 25

site. Drugs are utilized by cardiologists to reduce the occurrence of restenosis
and acute reclosure, and to dissolve blood clots. Typically, therapeutic drug
delivery is accomplished by means of a bolus intravenous injection, a method
that requires larger amounts of drug than is clinically required because the
drug is diffused throughout the body. The accurate delivery of drugs to the
treatment site may enhance the effectiveness of these pharmacological agents,
thereby reducing the quantity of drug required to achieve an acceptable clinical
outcome and potentially reducing the incidence of acute reclosure and
restenosis. In addition, the Company has developed M3 catheters with multiple
inner lumens, providing the cardiologist with flexibility in drug treatment
regimens. The multiple lumens of the catheter may also be used to deliver
contrast media for angiographic viewing when advancing a catheter along a
totally occluded vessel. Traditional catheters must be removed to inject
contrast media into a total occlusion. Finally, the M3 technology can be
utilized to provide perfusion of blood during an interventional procedure. The
interruption in blood flow caused by a conventional angioplasty balloon may
cause tissue damage, heart attack or death, particularly if the balloon
inflation required is of significant duration. Existing catheters that do not
perfuse blood require cardiologists to inflate and deflate the balloon multiple
times for shorter periods which may reduce the clinical effectiveness of the
treatment.

STRATEGY

The Company's objective is to be a leader in the design, development and
commercialization of clinically effective solutions for certain vascular
diseases. Following are the key elements of CVD's strategy.

Maintain Technological Leadership and Product Technology
Advantages. CVD's strategy is to be a technological leader in the treatment
of vascular diseases through product innovation. The Company believes that
its products have significant performance advantages over alternative
catheter technologies. The Company intends to maintain and advance its
position of technology leadership through aggressive research, development
and clinical testing programs. The Company owns five issued and four
allowed U.S. patents related to key aspects of its catheter technologies
and has applied for additional U.S. patents as well as foreign patent
protection.

Market Products through Independent Distributors and a Direct
Salesforce. The Company currently markets its products through a
combination of independent distributors and a dedicated salesforce. The
Company currently employs nine direct sales people who target the more
densely-populated regions of the United States, and plans to significantly
expand its direct sales force over the next eighteen months. CVD utilizes
independent distributors internationally and in selected U.S. markets.

Establish Relationships with Clinical Opinion Leaders. The Company
believes that establishing relationships with clinical opinion leaders in
the field of interventional cardiology may raise the awareness of the
clinical and cost benefits of the Company's products. CVD is currently
conducting or planning three post-marketing clinical studies with certain
of such leaders. In addition, the Company consults with certain
cardiologists who assist the Company in ongoing product and technology
development.

Target International Markets. CVD seeks to commercialize its products
in those international markets where regulatory approval can be obtained
more quickly than in the United States. This enables CVD to generate
revenue more quickly from its product development efforts, to fund its
operations and increase awareness of its products within the international
interventional cardiology community.

Establish Strategic Partnerships. The Company attempts to identify and
evaluate potential strategic relationships where such relationships may
complement and expand the Company's research, development, sales and
marketing capabilities. The Company believes that such strategic
relationships may facilitate the market acceptance of the Company's
products.

23
<PAGE> 26
PRODUCTS

Catheter Products

The Company has utilized its FOCAL and M3 technologies to develop catheter
products that address the challenges physicians experience in treating vascular
diseases. These technologies are available in various combinations on a
multiple-purpose catheter, thereby enabling physicians to cost-effectively treat
vascular disease. The Company's products are designed to be low profile (small,
uninflated diameter), enabling cardiologists to advance them along narrow
vessels, and flexible and trackable, enabling cardiologists to advance and
control them accurately within the vasculature.

The following table lists CVD's currently marketed products:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
INTENDED U.S. FIRST
PRODUCTS APPLICATIONS REGULATORY STATUS COMMERCIAL SALE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
FOCAL CATHETERS
CAT/CAT 15 PTCA or N/A1 Q1 1995
Rail design Stent Delivery2
FACT/FACT 15 PTCA or PMA Supplement Q1 1996
Over-the-wire design Stent Delivery2 Approved
FOCUS PTA 510(k) Clearance Q3 1995
Over-the-wire design
M3 CATHETERS
Bullett Hi-Flo Total Occlusion 510(k) Clearance Q2 1996
Over-the-wire design Drug Delivery
(coronary)
Bullett F/X Total Occlusion 510(k) Clearance Q2 1996
Rail design Drug Delivery
(coronary)
Periflow Small-Vessel PTA/Drug Delivery 510(k) Clearance Q1 1996
Over-the-wire design
- ----------------------------------------------------------------------------------------------
</TABLE>

(1) Available only outside the United States due to patent restrictions.

(2) Not approved in the United States for stent delivery. The marketing of this
product in the United States for such use will require the Company to obtain
a PMA supplement approval. The Company is not currently seeking such
approval.

FOCAL Catheters. The Company's FOCAL products have a catheter balloon that
has an adjustable, larger center diameter and smaller, fixed, distal and
proximal diameters. This characteristic provides increased utility in a variety
of therapeutic treatments and anatomical locations. Existing uniform diameter
catheters require cardiologists to use multiple balloons to treat vessels of
varying diameters, resulting in unnecessary costs. In addition, the FOCAL
catheters may deliver stents more effectively by focusing the radial deployment
force on the stented section, rather than along the entire balloon, which may
reduce the damage to the adjacent vessel.

24
<PAGE> 27

M3 Catheters. The Company's M3 catheters offer cardiologists the ability to
deliver drugs or contrast media to the treatment site accurately, and enable the
perfusion of blood during angioplasty procedures. These capabilities may be
combined on an interventional catheter to provide cardiologists the
functionality of multiple catheters, in a single, cost-effective device. The
accurate delivery of drugs to the treatment site may enhance the effectiveness
of these pharmacological agents and may reduce the quantity of drug required to
achieve an acceptable outcome. Drugs are utilized by cardiologists to reduce the
occurrence of restenosis and acute reclosure, and to dissolve blood clots.
Typically, therapeutic drug delivery is accomplished by means of a bolus
intravenous injection, a method that requires larger amounts of drug than is
clinically required because the drug is diffused throughout the body. The
Company's M3 technology enables cardiologists to deliver drugs directly to the
treatment site through a catheter's lumen. While CVD's M3 site-specific drug
delivery catheters are currently marketed internationally, they can only be used
in the United States to administer drugs specifically approved by the FDA for
administration by such catheters. The multiple lumens of the catheter may also
be used to deliver contrast media for angiographic viewing when advancing the
catheter along a totally occluded vessel. Traditional catheters must be removed
to inject contrast media into a total occlusion. Finally, the M3 technology can
be utilized to provide perfusion of blood during an interventional procedure.
This perfusion capability allows the balloon to be inflated for longer durations
and reduces the number of inflations and deflations required in certain
procedures, and may increase the clinical effectiveness of the treatment.

Vascular Access Products

The Company's vascular access products utilize patented technology to
provide rapid, accurate access to the body's vascular system for guidewire and
catheter entry. The principal current product, called the SmartNeedle, was
acquired from ACS and is based on Doppler ultrasound technology. A miniaturized
ultrasound chip is placed at the tip of a disposable ultrasonic probe which is
then placed inside a conventional vascular access needle. The probe is then
connected to a separate reusable monitor. Once placed in the body as a part of
the access needle, the Doppler chip emits an audible signal which enables the
physician to more accurately determine whether or not the needle resides in the
proper location within the intended arterial or venous lumen. Once positioned
properly, the probe is removed, leaving the conventional access needle in place
within the artery or vein. Since introduction, the SmartNeedle's primary use has
been in interventional cardiology and radiology procedures.

25
<PAGE> 28
NEW PRODUCT DEVELOPMENT

The Company focuses its research and development efforts on utilizing the
Company's proprietary processes and patented technologies to develop
cost-effective products that address existing and emerging clinical demands. The
Company's strategy is to refine its existing technologies and to enhance the
performance of its existing product offerings, including efforts to make its
FOCAL and M3 products lower profile, more flexible and trackable, and operable
at a broader range of inflation pressures. In addition, the Company is
developing additional products utilizing combinations of its technologies that
may provide cardiologists greater therapeutic applicability in a single device.
The Company is also in the process of developing unique catheter designs
intended to provide enhanced delivery of therapeutic radial force and
pharmacological agents. The Company will be required to seek FDA approval for
any new product and it is expected that some of these products will be subject
to the PMA process. The Company's current new product development efforts are
summarized in the table below.

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
PRODUCTS INTENDED APPLICATIONS U.S. REGULATORY
STATUS
- ----------------------------------------------------------------------------------------------
FOCAL CATHETERS
ARC PTCA PMA Supplement
Over-the-wire design Submitted
ARC II PTCA or Development Stage
Over-the-wire design Stent Delivery
Lynx PTCA or Development Stage
Rail design Stent Delivery
Facilitated Force Controlled Plaque Incision and PTCA Development Stage
Angioplasty
FOCALSTENT Coronary Stent Development Stage
M3 CATHETERS
Transport1 PTCA/Drug Delivery Development Stage
Periflow Large-Vessel PTA/Drug Delivery 510(k) Clearance
MicroMembrane Radiation Delivery of Radioactive Materials Development Stage
for Restenosis Prevention
MAC I2 Perfusion/PTCA Development Stage
MAC II Perfusion/Drug Delivery Development Stage
MAC III Perfusion/PTCA/Drug Delivery Development Stage
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>

(1) Licensed to SCIMED. See "-- Strategic Relationships."
(2) Licensed to ACS. See "-- Strategic Relationships."

The M3 technology is being utilized in various experimental clinical
programs to administer the site-specific delivery of therapeutic agents
following angioplasty or stent delivery for the purpose of reducing or
eliminating restenosis. The Company is also using M3 technology in its
MicroMembrane Radiation Therapy development program for restenosis prevention.
This program is evaluating CVD's M3 technology to more accurately deliver
radioactive substances specifically to the treatment site.

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<PAGE> 29

TECHNOLOGY

The Company has developed proprietary material manufacturing processes that
it has utilized to develop patented interventional catheters. Traditional
balloon extrusion technology does not enable the combination of compliant and
non-compliant materials, resulting in a catheter that can be inflated only to a
uniform diameter. The Company's FOCAL technology bonds a membrane between
compliant and non-compliant materials, resulting in a balloon with a large
center diameter and smaller, fixed diameters at each end. The center compliant
section of the FOCAL catheter enlarges predictably at a rate of 0.1mm per
atmosphere of pressure when inflation pressures exceed six atmospheres. The ends
of the balloon remain at their nominal diameters and do not expand with
increased pressure. The FOCAL capability enables cardiologists to deliver stents
or therapeutic radial force accurately to the treatment site, while minimizing
the force applied to adjacent tissue. Conventional uniform diameter catheters
may damage healthy vessel sections, as these sections receive as much radial
force as do the diseased sites. It is widely believed that vessel wall damage
may lead to acute reclosure of the vessel or restenosis.

The Company's M3 technology creates a membrane by applying mechanical and
radiation treatment to standard polymeric balloon material during the extrusion
process. Microporous holes are then drilled in the resulting material by
proprietary mechanical or laser drilling processes. CVD's M3 technology also
enables blood to flow through a coil lumen or inner shaft of the catheter,
allowing perfusion to the distal vessels during angioplasty or drug delivery.
Prior to inflation, the balloon acts as a shaft for the distal portion of the
catheter. Once the balloon is inflated, the cardiologist advances a coil into
and through the inner lumen of the inflated balloon. The coil supports the
balloon during balloon angioplasty or drug delivery and facilitates the
perfusion of the distal vessels. The M3 technology enables the Company to
combine balloon angioplasty and perfusion capabilities on a single catheter in a
profile comparable to standard balloon angioplasty catheters without perfusion
capability. The Company believes that the M3 technology also enables it to
combine PTCA and perfusion capabilities on a single catheter with a lower
profile than any currently marketed catheter with similar capabilities.

MANUFACTURING

With the exception of certain final assembly and sterilization procedures
for those products designed to be sold only outside the United States, and the
manufacture of those products which the Company has licensed to third parties,
all of the Company's products are produced in its facilities in Irvine,
California. The Company fabricates certain proprietary components, then
assembles, inspects, tests and packages all components into finished products.
By designing and assembling its catheter products, the Company believes it is
better able to control quality and costs, limit third-party access to its
proprietary technology, and manage manufacturing process enhancements and new
product introductions. In addition, the Company purchases many standard and
custom-built components from independent suppliers and subcontracts certain
processes from independent vendors. Most of these components and processes are
available from more than one vendor. However, certain manufacturing processes
are currently performed by single vendors. While the Company believes that there
are other vendors available to perform these processes, an interruption of
performance by any of these vendors could have a material adverse effect on the
Company's ability to manufacture its products until a new source of supply were
qualified and, as a result, could have an adverse effect on the Company's
business, financial condition and results of operations.

The Company's success will depend in part upon its ability to manufacture
its products in compliance with ISO 9001, the FDA's GMP regulations, CDHS
licensing and other regulatory requirements, in sufficient quantities and on a
timely basis, while maintaining product quality and acceptable manufacturing
costs. The Company began manufacturing certain of its products at its facilities
in July 1995. Accordingly, the Company has very limited experience in
manufacturing its products. In addition, the Company currently intends to
introduce a significant number of new products in 1996. The Company's success
will depend, among other things, upon its ability to efficiently manage the
simultaneous manufacture of different products and to integrate the manufacture
of new products with existing products. There can be no assurance that the
Company will not encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. The

27
<PAGE> 30

Company's failure to successfully commence the manufacturing of these new
products, or to increase production volumes of new and existing products in a
timely manner, would materially adversely affect the Company's business,
financial condition and results of operations. Failure to increase production
volumes in a timely or cost-effective manner or to maintain compliance with ISO
9001, GMP regulations, CDHS or other regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Limited Manufacturing Experience."

MARKETING AND SALES

The Company's products are sold in the United States and international
markets, principally Europe and Japan. However, certain of the Company's
products are not available in each market due to regulatory and intellectual
property restrictions. The Company currently sells its products through a
combination of strategic partners, medical device distributors and nine direct
sales personnel. The Company is a party to three agreements for the U.S.
distribution of products incorporating its FOCAL and M3 technologies. CVD also
has distribution agreements with 18 companies covering 35 countries outside the
United States and Japan. CVD distributes certain products in Japan through an
exclusive distribution agreement Fukuda. Sales of the Company products through
Fukuda accounted for 18% and 22% of the Company's revenue in 1995 and the first
three months of 1996, respectively. In addition, sales to JJIS accounted for 12%
of revenue in 1995. The Company intends to expand its sales and marketing
capability and to distribute selected new products through strategic
partnerships. See "Risk Factors -- Limited Marketing and Sales Resources;
Dependence Upon Strategic Relationships."

In 1993, 1994, 1995 and the first three months of 1996, total export sales
were $101,000, $970,000, $2,054,000 and $1,138,000, respectively, or
approximately 80%, 83%, 59% and 64%, respectively, of total product sales. In
1993, 1994, 1995 and the first three months of 1996 sales to Europe accounted
for $101,000, $255,000, $1,179,000 and $411,000, respectively; sales to Japan
represented $0, $715,000, and $744,000 and $455,000, respectively; and sales to
Latin America represented $0, $0, $131,000 and $272,000, respectively. The
Company expects to continue to derive significant revenue from international
sales and therefore a significant portion of the Company's revenues will
continue to be subject to the risks associated with international sales,
including economic or political instability, shipping delays, changes in
applicable regulatory policies, inadequate protection of intellectual property,
fluctuations in foreign currency exchange rates and various trade restrictions,
all of which could have a significant impact on the Company's ability to deliver
products on a competitive and timely basis. Future imposition of, or significant
increases in the level of, customs duties, export quotas or other trade
restrictions, could have an adverse effect on the Company's business, financial
condition and results of operation. In foreign countries, the Company's products
are subject to a wide variety of governmental review and certification. The
regulation of medical devices, particularly in the European Community, continues
to expand and there can be no assurance that new laws or regulations will not
have an adverse effect on the Company. See Note 1 of Notes to Financial
Statements. See "Risk Factors -- Dependence Upon International Sales."

POST-MARKETING CLINICAL STUDIES

The Company has completed the clinical trials required for FDA approval of
those products which are marketed in the United States. In addition to those
trials, the Company is also sponsoring two controlled, randomized, multicenter
clinical studies in the United States and overseas to continue to evaluate the
clinical and economic value of its core technologies. Data from these studies
are being accumulated and analyzed to support the marketing of the Company's
current products.

In a Comparative Performance and Pathological Study conducted by the
Division of Cardiology at the University of Texas Department of Medicine, the
Company's FACT catheter was compared with conventional PTCA catheters from other
leading manufacturers in an animal study. The investigators concluded that the
use of the FACT catheter resulted in reduced arterial damage without reduction
in catheter performance as determined by catheter preparation, trackability,
pushability, inflation/deflation and angiographic visualization.

A second study is comparing the FOCAL PTCA catheter with conventional PTCA
catheters. The FOCAL Lesion Expansion Optimizes Results Study ("FLEXOR Study")
will evaluate the efficacy of FOCAL technology in improving clinical results
following angioplasty procedures. Success will be measured

28
<PAGE> 31

based on the ability of FOCAL technology to improve the minimal lumen diameter
("MLD") of the arterial opening, to increase safety and to reduce the number of
catheters necessary for PTCA procedures. Results will be interpreted in light of
any procedure-related vascular complications, restenosis and occurrences of
other major clinical adverse cardiac events. MLD is a commonly-used measurement
of the ability of a therapeutic tool to open a blocked artery and reestablish
required blood flow. The FLEXOR Study protocol is being finalized and is
expected to begin during the third quarter of 1996. Completion is expected in
1997.

Certain of the Company's products which utilize FOCAL technology have
received FDA approval for PTCA and PTA indications. However, none of these
products has received FDA approval for use in stent delivery. An
investigator-controlled study is currently testing the Company's FOCAL
technology with respect to stent implantation. The Optimal Stent Implantation
Study ("OSTI-2 Study") is evaluating the ability of stent delivery with FOCAL
technology compared with conventional delivery techniques to reduce acute
outcomes and restenosis rates. The study is being conducted using two patient
subgroups of approximately 100 patients each divided according to vessel size.
In the first group, stent delivery is being evaluated in vessels greater than
three millimeters in diameter; in the second group stent delivery is being
evaluated in vessels less than three millimeters in diameter. Each subgroup
presents different clinical issues related to stent delivery and the OSTI-2
Study protocol is evaluating the efficacy of FOCAL technology in each subgroup.
The OSTI-2 Study began in February 1996 and is expected to be completed in 1997.

The Company also intends to sponsor additional studies from time to time to
assess the value of, and to expand clinical indications of, its existing and new
technologies. The Company is planning a clinical study to expand the clinical
uses of its FOCAL technology catheters to include balloon dilatation of
previously deployed stents in order to properly implant the stent in the
arterial wall. The Company is finalizing the clinical protocol for this study
and expects to begin this study prior to the end of 1996. This study will
include approximately 100 patients and is expected to be completed in 1997.

STRATEGIC RELATIONSHIPS

The Company evaluates on an ongoing basis potential strategic relationships
with corporate and other partners where such relationships may complement and
expand CVD's research, development, sales and marketing capabilities. The
Company is currently a party to four such agreements, described below.

Advanced Cardiovascular Systems, Inc.. In January 1995, the Company entered
into a license agreement with ACS. The parties subsequently confirmed their
understanding with respect to certain matters in a second agreement dated March
4, 1996 (collectively, the "ACS Agreements"). Under the ACS Agreements, the
Company acquired the exclusive worldwide rights to ACS' SmartNeedle technology,
subject to the payment of certain royalties. ACS was granted the option to
acquire the exclusive worldwide rights to certain CVD perfusion technology,
which ACS exercised on February 14, 1996. As a result, ACS has an exclusive
worldwide right to develop, manufacture and market the Company's MAC I product
line. In exchange for this technology, ACS is obligated to make milestone and
minimum annual royalty payments to CVD, and also has certain obligations to
develop and market the technology. In addition, in the event that CVD develops a
product which combines coronary balloon angioplasty, perfusion and drug delivery
technology on the same catheter, ACS will have certain rights to license such
product. The ACS Agreements may be terminated upon 60 days notice in the event
of a breach by the other party, subject to the breaching party's right to cure,
or by ACS upon 30 days notice without cause.

SCIMED Life Systems, Inc. The Company has entered into a Stock Purchase and
Technology License Agreement, dated September 10, 1994, with SCIMED (the "SCIMED
Agreement"). Pursuant to the SCIMED Agreement, SCIMED purchased a 19% equity
position in the Company. SCIMED was also granted an exclusive worldwide license
to certain combined site-specific drug delivery and coronary angioplasty
technology, including the Company's Transport products, for use in the
cardiovascular field in exchange for license and royalty fees. The SCIMED
Agreement also requires CVD to provide certain technical assistance and to
perform additional research and development relating to the licensed technology
in exchange for fees and reimbursement of expenses. In the event that CVD's
SCIMED-funded research and development efforts result in improvements to the
licensed technology, SCIMED will have an exclusive worldwide license to the
technology in the cardiovascular field and a non-exclusive license outside the
cardiovascular field, both of which are subject to the payment of royalties. The
SCIMED Agreement may be

29
<PAGE> 32

terminated in the event of breach on 90 days notice by the non-breaching party
(or on 30 days notice in certain limited circumstances) or by SCIMED upon 180
days notice.

Fukuda Denshi Co., Ltd. The Company has entered into a Distribution
Agreement, dated May 28, 1993, with Fukuda Denshi Co., Ltd. (the "Fukuda
Agreement"), whereby Fukuda serves as CVD's exclusive distributor for certain of
the Company's products in Japan. In exchange for this exclusive distributorship,
Fukuda paid a fee to CVD in addition to payments owing upon the purchase of the
products. Fukuda also agreed to undertake all necessary clinical trials to
obtain approval from Japanese regulatory authorities for the sale of the
products in Japan. Fukuda's purchases under the Fukuda Agreement are subject to
certain minimum requirements. The initial term of the Fukuda Agreement expires
on May 31, 1998, subject to a five-year extension. The Fukuda Agreement may also
be terminated in the event of breach upon 90 days notice by the non-breaching
party. In July 1995 and May 1996, the distribution agreement with Fukuda was
amended to grant Fukuda exclusive distribution rights to additional CVD
products. Under these amendments, the Company received a $750,000 investment
which is convertible by Fukuda into Common Stock upon the consummation of this
offering (the "Convertible Obligation").

EndoSonics Corporation. The Company has entered into a license agreement
with EndoSonics, dated December 22, 1995 (the "EndoSonics Agreement"), pursuant
to which CVD granted EndoSonics the non-exclusive, royalty-free right to CVD's
FOCAL technology for the development and sale of a combined FOCAL/Ultrasound
product. In exchange, CVD received the non-exclusive, royalty-free right to
submit PMA supplement applications utilizing an EndoSonics PMA as a reference
and to manufacture and distribute CVD products as a supplement to the EndoSonics
PMA. The EndoSonics Agreement may be terminated in the event of breach upon 60
days notice by the non-breaching party, subject to the breaching party's right
to cure. In the event of termination, the Company would be prohibited from
submitting new PMA supplements referencing the EndoSonics PMA and would be
required to seek independent FDA approval for such products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, EndoSonics recently purchased 400,000 shares
of CVD's Series B Preferred Stock for a purchase price of $8,000,000, which will
convert into 800,000 shares of Common Stock upon the consummation of this
offering. See "Certain Transactions -- Relationship with EndoSonics
Corporation."

PATENTS AND PROPRIETARY INFORMATION

The Company's policy is to protect its proprietary position by, among other
methods, filing U.S. and foreign patent applications to protect technology,
inventions and improvements that are important to the development of its
business. The Company has five issued and four allowed U.S. patents covering
certain aspects of its catheter technology and licenses additional patents
relating to the vascular access technology. Eleven additional patent
applications have been submitted to the U.S. Patent Office and additional patent
applications have been submitted to international agencies for review. No
assurance can be given that pending patent applications will be approved, or
that any issued patents will provide competitive advantages for the Company's
products, or that they will not be challenged or circumvented by competitors.

The interventional cardiovascular market in general and the balloon
angioplasty catheter market (including the type of catheters offered by CVD) in
particular have been characterized by substantial litigation regarding patent
and other intellectual property rights. Although the Company believes that its
products do not infringe other parties' patents and proprietary rights, there
can be no assurance that its products do not infringe such patents or rights. In
the event that any such third-parties assert claims against the Company for
patent infringement and such patents are upheld as valid and enforceable, the
Company could be prevented from utilizing the subject matter claimed in such
patents, or would be required to obtain licenses from the owners of any such
patents or redesign its products or processes to avoid infringement. There can
be no assurance that such licenses would be available or, if available, would be
so on terms acceptable to the Company or that the Company would be successful in
any attempt to redesign its products or processes to avoid infringement. In
addition, foreign intellectual property laws may not provide protection
commensurate with that provided by U.S. intellectual property laws, and there
can be no assurance that foreign intellectual property laws will adequately
protect the Company's intellectual property rights abroad. The Company also

30
<PAGE> 33

relies on trade secrets and proprietary technology and enters into
confidentiality and non-disclosure agreements with its employees, consultants
and advisors. There can be no assurance that the confidentiality of such trade
secrets or proprietary information will be maintained by employees, consultants,
advisors or others, or that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently developed by
competitors in such a manner that the Company has no practical recourse.
Litigation may be necessary to defend against claims of infringement or
invalidity, to enforce patents issued to the Company or to protect trade
secrets. There can be no assurance that any such litigation would be successful.
Any litigation could result in substantial costs to, and diversion of resources
by, the Company and its officers, which would have a material adverse effect on
its business, financial condition and results of operations. See "Risk
Factors -- Reliance on Patents and Proprietary Technology; Risk of Patent
Infringement."

COMPETITION

The Company believes that the primary competitive factors in the market for
interventional cardiology devices are: clinical effectiveness, product safety,
catheter size, flexibility and trackability, ease of use, reliability, price and
availability of third party reimbursement. In addition, a company's distribution
capability and the time in which products can be developed and receive
regulatory approval are important competitive factors. The Company believes it
competes favorably with respect to the foregoing factors. The Company also
believes that its competitive position is dependent upon its ability to continue
to develop innovative new catheter technologies and obtain rapid regulatory
approval.

Competition in the market for devices used in the treatment of
cardiovascular and peripheral vascular disease is intense, and is expected to
increase. The interventional cardiology market is characterized by rapid
technological innovation and change, and the Company's products could be
rendered obsolete as a result of future innovations. The Company's catheters
compete or will compete with catheters marketed by a number of manufacturers,
including ACS, SCIMED, JJIS and Cordis Corporation, subsidiaries of Johnson &
Johnson, Medtronic, Inc., C.R. Bard, Inc. and Schneider USA, a subsidiary of
Pfizer, Inc. In addition, the Company faces competition from manufacturers of
other catheter-based atherectomy devices, vascular stents and pharmaceutical
products intended to treat vascular disease. Such companies have significantly
greater financial, management and other resources, established market positions,
and significantly larger sales and marketing organizations than does the
Company. In addition, the Company believes that many of the purchasers and
potential purchasers of the Company's products prefer to purchase catheter
products from a single source. Accordingly, many of the Company's competitors,
because of their size and range of product offerings, have a competitive
advantage over the Company. There can be no assurance that the Company's
competitors will not succeed in developing or marketing technologies and
products that are more clinically effective or cost effective than any that are
being marketed or developed by the Company, or that such competitors will not
succeed in obtaining regulatory approval for introducing or commercializing any
such products prior to the Company. See "Risk Factors -- Significant
Competition."

THIRD-PARTY REIMBURSEMENT

In the United States, the Company's products are purchased primarily by
medical institutions, which then bill various third-party payors, such as
Medicare, Medicaid, and other government programs and private insurance plans,
for the health care services provided to patients. Government agencies, private
insurers and other payors determine whether to provide coverage for a particular
procedure and reimburse hospitals for medical treatment at a fixed rate based on
the diagnosis-related group ("DRG") established by the U.S. HCFA. The fixed rate
of reimbursement is based on the procedure performed, and is unrelated to the
specific devices used in that procedure. If a procedure is not covered by a DRG,
payors may deny reimbursement. In addition, some payors may deny reimbursement
if they determine that the device used in a treatment was unnecessary,
inappropriate or not cost-effective, experimental or used for a non-approved
indication. Reimbursement of interventional procedures utilizing the Company's
products is currently covered under a DRG. There can be no assurance that
reimbursement for such procedures will continue to be available, or that future
reimbursement policies of payors will not adversely affect the Company's ability
to sell its products on a

31
<PAGE> 34

profitable basis. Failure by hospitals and other users of the Company's products
to obtain reimbursement from third-party payors, or changes in government and
private third-party payors' policies toward reimbursement for procedures
employing the Company's products, would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Limitations on Third-Party Reimbursement."

GOVERNMENT REGULATION

The manufacturing and marketing of the Company's products are subject to
extensive and rigorous government regulation in the United States and in other
countries. The Company believes that its success will be significantly dependent
upon commercial sales of improved versions of its catheter products. The Company
will not be able to market these new products in the United States unless and
until the Company obtains approval or clearance from the FDA. Foreign and
domestic regulatory approvals, if granted, may include significant limitations
on the indicated uses for which a product may be marketed.

If a medical device manufacturer can establish that a newly developed
device is "substantially equivalent" to a legally marketed Class I or Class II
device, or to a Class III device that the FDA has not called for a PMA, the
manufacturer may seek clearance from the FDA to market the device by filing a
premarket notification with the FDA under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act. All of the 510(k) clearances received for the Company's
catheters were based on substantial equivalence to legally marketed devices.
There can be no assurance that 510(k) clearance for any future product or
significant modification of an existing product will be granted or that the
process will not be unduly lengthy. In addition, if the FDA has concerns about
the safety or effectiveness of any of the Company's products, it could act to
withdraw approval or clearances of those products or request that the Company
present additional data. Any such actions would have a material adverse effect
on the Company's business, financial condition and results of operations.

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<PAGE> 35

However, without specific FDA approval for stent deployment, these catheters may
not be marketed by the Company in the United States for such use.

The Company is in the process of implementing policies and procedures which
are intended to allow the Company to receive ISO 9001 certification of its
quality system. The ISO 9000 series of standards for quality operations has been
developed to ensure that companies know the standards of quality to which they
must adhere to receive certification. The European Union has promulgated rules
which require that medical products receive by mid-1998 the right to affix the
CE mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European medical device directives. ISO 9001
certification is one of the CE mark certification requirements. Failure to
receive the right to affix the CE mark will prevent the Company from selling its
products in member countries of the European Union. While the Company is in the
process of becoming ISO 9001 certified, there can be no assurance that the
Company will be successful in meeting these or any other certification
requirements on a timely basis, or at all.

PRODUCT LIABILITY

The Company faces the risk of financial exposure to product liability
claims. The Company's products are often used in situations in which there is a
high risk of serious injury or death. Such risks will exist even with respect to
those products that have received, or in the future may receive, regulatory
approval for commercial sale. The Company is currently covered under EndoSonics'
product liability insurance policy with coverage limits of $2.0 million per
occurrence and $2.0 million per year in the aggregate. However, this coverage
will terminate when the Company ceases to be a majority-owned subsidiary of
EndoSonics. Accordingly, following this offering, the Company expects to obtain
product liability insurance with similar coverage limits. There can be no
assurance that the Company's product liability insurance is adequate or that
such insurance coverage will remain available at acceptable costs. There can be
no assurance that the Company will not incur significant product liability
claims in the future. A successful claim brought against the Company in excess
of its insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, adverse
product liability actions could negatively affect the reputation and sales of
the Company's products and the Company's ability to obtain and maintain
regulatory approval for its products and substantially divert the time and
effort of management away from the Company's operations.

EMPLOYEES

As of April 30, 1996, the Company had 92 employees, including 56 in
manufacturing, 12 in research, development and regulatory affairs, 15 in sales
and marketing, 5 in administration and 4 in quality assurance.

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<PAGE> 36

The Company believes that the success of its business will depend, in part, on
its ability to attract and retain qualified personnel. The Company believes it
has good relations with its employees.

PROPERTIES

Currently, the Company leases facilities aggregating approximately 22,000
square feet in Irvine, California under lease agreements which expire beginning
in 1997. The Company believes that its facilities are adequate to meet its
requirements through 1997.

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<PAGE> 37

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company, and
their ages as of April 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --------- ---------------------------------------
<S> <C> <C>
Michael R. Henson................. 50 President, Chief Executive Officer and
Chairman of the Board of Directors
Dana P. Nickell................... 46 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Michael D. Crocker................ 39 Vice President, Engineering
Jeffrey F. O'Donnell.............. 36 Vice President, Sales and Marketing
Bart R. Navarro................... 50 Director of Manufacturing
Claire K. Walker.................. 49 Director of Clinical Affairs
George F. Kick.................... 50 Business Manager, Peripheral Products
Blair W. Breyne................... 37 Director of International Market
Development
Robert J. Imdieke................. 42 Manager, Quality Assurance
Mitchell Dann(1).................. 35 Director
William G. Davis(1)............... 64 Director
Gerard von Hoffmann(2)............ 40 Director
Edward M. Leonard(2).............. 54 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee

(2) Member of Audit Committee

Michael R. Henson joined the Company as President and Chief Executive
Officer in February 1995. Prior to joining CVD, Mr. Henson served as the Chief
Executive Officer of EndoSonics from 1988 to February 1995. He was appointed
Chairman of the Board of Directors of EndoSonics in February 1993. Between April
1983 and February 1988, Mr. Henson served as President and Chief Executive
Officer of Trimedyne, Inc., a manufacturer of medical lasers and catheters.
Prior to joining Trimedyne in 1983, Mr. Henson held positions as Vice President
for G.D. Searle & Company, Director of Marketing for the Hospital Products
Division of Abbott Laboratories, and Marketing Manager for Bristol Myers and
Company.

Dana P. Nickell joined the Company as Vice President, Finance and
Administration and Chief Financial Officer in December 1995 and was appointed
Secretary in May 1996. Prior to joining CVD he was Chief Financial Officer of
Innerspace Inc., a medical device manufacturer which filed for bankruptcy
protection in 1995, from May 1994 to April 1995. From August 1993 until April
1994, Mr. Nickell served as Chief Financial Officer of Masimo Corporation, a
developer of pulse oximeter technology. Between November 1988 and June 1993, Mr.
Nickell was Chief Financial Officer and Vice President, Finance, Administration
and Business Development of EndoSonics. He also served as Secretary of
EndoSonics from January 1990 to August 1992. Mr. Nickell is a Certified Public
Accountant.

Michael D. Crocker has served as Vice President, Engineering since the
incorporation of CVD in March 1992. From March 1991 to March 1992, Mr. Crocker
was involved with start-up activities related to CVD. From January 1989 to March
1991, Mr. Crocker provided product development consulting to the following
companies: Medtronic, Advanced Interventional Systems, Pilot Cardiovascular and
Imagyn Medical. From November 1986 to January 1989, he served in product
development at Trimedyne, and from March 1983 to November 1986 in product
development and manufacturing at ACS.

Jeffrey F. O'Donnell has served as Vice President, Sales & Marketing at the
Company since November 1995. Prior to joining CVD, Mr. O'Donnell served as
President and Vice President of Marketing and Business Development of Kensey
Nash Corporation, a medical device manufacturer, from January 1994 to May 1995.

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<PAGE> 38

From 1988 to 1994 Mr. O'Donnell held various sales and regional management
positions at ACS. Prior to working at ACS, Mr. O'Donnell held senior sales and
marketing positions with Boston Scientific and Johnson & Johnson.

Bart R. Navarro joined the Company in February 1995 as Director of
Manufacturing. From September 1989 to February 1995, Mr. Navarro served as
Director of Manufacturing for Eclipse Surgical Technologies, Inc. From March
1985 to September 1989, Mr. Navarro served as Manager of Manufacturing for MCM
Laboratories, Inc., a medical device manufacturer. From June 1981 to March 1985,
Mr. Navarro served as a Process Engineer for Manufacturing for ACS.

Claire K. Walker has served as Director of Clinical Affairs of the Company
since November 1994. From May 1992 to November 1994, Ms. Walker provided
clinical marketing consulting services to CVD. From September 1990 to November
1992, Ms. Walker served as a principal of CKW and Associates providing project
specific consulting services to InterVentional Technologies, Inc., a medical
device company. From July 1981 to August 1988, Ms. Walker was employed by ACS as
a clinical specialist and from 1984 through 1988 worked as a direct sales
representative. Ms. Walker also worked as a cardiovascular catheterization
laboratory nurse.

George F. Kick joined the Company in March 1995 and served as Director of
U.S. Marketing until December 1995 when he became the Business Manager,
Peripheral Products. From January 1992 to March 1995, Mr. Kick worked as a
consultant and project manager at NeuroNavigational, a medical device
manufacturer, developing minimally invasive vascular surgical systems for
arterial bypass in the leg. From February 1979 to December 1991, he served as
President of Dynamic Concepts, a cardiovascular distribution company,
representing Trimedyne, Telectronics, CryoLife and other high tech start-up
companies.

Blair W. Breyne joined the Company in January 1994 and has served as
Director of International Market Development for the Company since January 1995.
From January 1994 through December 1994, Ms. Breyne served as Manager of
International Market Development. Prior to joining the Company, Ms. Breyne was
employed by EndoSonics from May 1990 through December 1993 as Manager and
National Manager of Sales and Clinical Applications.

Robert J. Imdieke joined the Company as Manager of Quality Assurance in
January 1995. Prior to joining CVD Mr. Imdieke served as Manager, Quality
Assurance at Imagyn Medical, Inc. from June 1991 to January 1995. From December
1989 until February 1991, he served as Quality Control Supervisor at Advanced
Interventional Systems. Mr. Imdieke also served as Quality Assurance Manager at
Trimedyne, Inc. from November 1984 through May 1989.

Edward M. Leonard was appointed as a director in April 1996. He has been a
partner in the law firm of Brobeck, Phleger & Harrison LLP since 1977. Mr.
Leonard is a member of Brobeck's Policy Committee and founded and served as
Managing Partner of Brobeck's Palo Alto office from January 1980 through January
1996. He also served as head of Brobeck's Corporate Practice Group from 1988
through 1992. Mr. Leonard is also a director of EndoSonics.

Mitchell Dann joined the Company as a director in April 1996. Since April
1991, Mr. Dann has been a President of M. Dann & Co., Inc., a venture capital
advisory firm. From October 1982 to April 1991, he co-founded and held the
position of Managing Partner at IAI Venture Capital Group, the venture capital
division of Investment Advisors, Inc. Mr. Dann is Chairman of the Board of
Urologix, Inc.

William G. Davis joined the Company as a director in January 1995. Mr.
Davis is an independent business consultant. From 1957 to 1984, Mr. Davis was
associated with Eli Lilly and Company. He served as Executive Vice President,
Eli Lilly International Corporation, from 1972 to 1975, Executive Vice
President, Pharmaceutical Division, from 1975 to 1982, and President, Medical
Instrument Systems Division, from 1982 until his retirement in 1984. Mr. Davis
is also a director of ALZA Corporation, Collagen Corporation, EndoSonics and
Target Therapeutics, Inc.

Gerard von Hoffmann joined the Company as a director in April 1996. He has
been with the law firm of Knobbe, Martens, Olson & Bear since 1986 and has been
a partner since 1989.

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<PAGE> 39

The Company currently has authorized five directors. Each director holds
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified. The officers serve at the discretion of the Board of
Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee establishes salaries, incentives and
other forms of compensation for directors, officers and other employees of CVD,
administers the various incentive compensation and benefit plans (including the
Company's stock plans) of CVD and recommends policies relating to such incentive
compensation and benefit plans. The Audit Committee reviews the need for
internal auditing procedures and the adequacy of internal controls and meets
periodically with management and the independent auditors. The Board of
Directors may establish additional committees from time to time.

EXECUTIVE COMPENSATION

The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer whose salary and bonus for 1995 was in
excess of $100,000 (the "Named Officer") for services rendered in all capacities
to the Company for that fiscal year. No other executive officer was paid salary
and bonus in excess of $100,000 for the 1995 fiscal year. No executive officer
who would have otherwise been includable in such table on the basis of salary
and bonus earned for 1995 resigned or terminated employment during that year.
See "Certain Transactions -- Relationship with EndoSonics Corporation."

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION SALARY BONUS OPTIONS
- -------------------------------------------------------- -------- ------- -------------
<S> <C> <C> <C>
Michael R. Henson....................................... $189,850 $70,000 250,000
President and Chief Executive Officer
</TABLE>

37
<PAGE> 40

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the stock option grants
made to the Named Officer in 1995. No stock appreciation rights were granted to
this individual during such year.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PRICE APPRECIATION
UNDERLYING % OF TOTAL OPTIONS FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---------- ------------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Henson......... 200,000(5) 20.90% $1.00 05/14/2005 $125,779 $318,748
50,000(6) 5.22 1.50 12/18/2005 47,167 119,531
</TABLE>

- ---------------
(1) Each of the options listed in the table was granted under the Company's 1995
Stock Option Plan. Each such option will be incorporated into the 1996 Stock
Option/Stock Issuance Plan.

(2) Based upon options granted for an aggregate of 957,000 shares to employees
in 1995, including the Named Officer.

(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise. The Compensation Committee of the
Board of Directors, as the Plan Administrator of the Company's 1996 Stock
Option/Stock Issuance Plan, has the discretionary authority to reprice the
options through the cancellation of those options and the grant of
replacement options with an exercise price based on the fair market value of
the option shares on the grant date.

(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
option term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
executive officers.

(5) The option was granted on May 15, 1995 and has a maximum term of ten years
measured from the grant date, subject to earlier termination upon the
optionee's termination of service with the Company. Each option is
immediately exercisable subject to a repurchase right in favor of the
Company which lapses in a series of annual and monthly installments over the
optionee's period of service with the Company. The Company's repurchase
right lapses as to 25% of the option shares upon the optionee's completion
of one year of service measured from November 21, 1994 and as to the balance
of the option shares in a series of successive equal monthly installments
upon the optionee's completion of each additional month of service over the
next 36 months thereafter.

(6) The option was granted on December 19, 1995 and has a maximum term of ten
years measured from the grant date, subject to earlier termination upon the
optionee's termination of service with the Company. Each option is
immediately exercisable subject to a repurchase right in favor of the
Company which lapses in a series of annual and monthly installments over the
optionee's period of service with the Company. The Company's repurchase
right lapses as to 25% of the option shares upon the optionee's completion
of one year of service measured from the grant date and as to the balance of
the option shares in a series of successive equal monthly installments upon
the optionee's completion of each additional month of service over the next
36 months thereafter.

38
<PAGE> 41

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning option exercises and
option holdings for 1995 with respect to the Named Officer. No stock
appreciation rights were exercised during such year or were outstanding at the
end of that year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END(#)(1) FY-END(2)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael R. Henson............................ 54,167 195,833 $27,084 $72,916
</TABLE>

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

(1) Options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company at the original exercise price per share upon the optionee's
cessation of service. Shares subject to repurchase are shown under the
"Unexercisable" column.

(2) Based on the fair market value of the Company's Common Stock at year-end,
$1.50 per share (as determined by the Company's Board of Directors), less
the exercise price payable for such shares.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board was formed in May 1996,
and the members of the Compensation Committee are Messrs. Davis and Dann.
Neither of these individuals was at any time during the fiscal year ended
December 31, 1995, or at any other time, an officer or employee of the Company.
No member of the Compensation Committee of the Company serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.

1996 STOCK OPTION/STOCK ISSUANCE PLAN

The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") is
intended to serve as the successor equity incentive program to the Company's
1995 Stock Option Plan (the "Predecessor Plan"). The 1996 Plan was adopted by
the Board of Directors and approved by the stockholders on May 1, 1996, (the
"Effective Date"). Under the 1996 Plan, 1,200,000 shares of Common Stock have
been authorized for issuance. This share reserve is comprised of the shares
which remained available for issuance under the Predecessor Plan as of the
Effective Date, including the shares subject to outstanding options thereunder.
Those outstanding options will be incorporated into the 1996 Plan on the
Effective Date, and no further option grants will be made under the Predecessor
Plan. The incorporated options will continue to be governed by their existing
terms, unless the Plan Administrator elects to extend one or more features of
the 1996 Plan to those options. However, except as otherwise noted below, the
outstanding options under the Predecessor Plan contain substantially the same
terms and conditions specified below for the Discretionary Option Grant Program
in effect under the 1996 Plan. In no event may any one participant in the 1996
Plan receive option grants or direct stock issuances for more than 800,000
shares in the aggregate over the term of the Plan.

The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price not less than 85% of their fair market value
on the grant date, (ii) the Stock Issuance Program under which such individuals
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services and (iii) the Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to 100% of their fair market value on the grant date.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times

39
<PAGE> 42

when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.

Under the 1996 Plan, upon an acquisition of the Company by merger or asset
sale or a hostile take-over of the Company, each outstanding option and unvested
stock issuance will be subject to accelerated vesting under certain
circumstances. The options granted under the Predecessor Plan will be assumed or
replaced in a merger or asset sale but do not include any acceleration
provisions in connection with a merger or asset-sale or upon a hostile
take-over, although such options may be accelerated at the discretion of the
Plan Administrator.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. No stock appreciation rights exist with
respect to options currently outstanding under the Predecessor Plan.

The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.

Under the Automatic Option Grant Program, each individual serving as a
non-employee Board member on the date the Underwriting Agreement for this
offering is executed will receive an option grant on such date for 5,000 shares
of Common Stock, provided such individual has not otherwise been in the prior
employ of the Company. Each individual who first becomes a non-employee Board
member thereafter will receive a 5,000-share option grant on the date such
individual joins the Board provided such individual has not been in the prior
employ of the Company. In addition, at each Annual Stockholders Meeting held
after the date of this offering, each individual who is to continue to serve as
a non-employee Board after the meeting will receive an additional option grant
to purchase 5,000 shares of Common Stock whether or not such individual has been
in the prior employ of the Company.

Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase should the optionee's
service as a non-employee Board member cease prior to vesting in the shares. The
initial 5,000-share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional annual
5,000-share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.

The Board may amend or modify the 1996 Plan at any time. The 1996 Plan will
terminate on April 30, 2006, unless sooner terminated by the Board.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the stockholders on May 1,
1996. The Purchase Plan is designed to allow eligible employees of the Company
and participating subsidiaries to purchase shares of Common Stock, at semi-
annual intervals, through their periodic payroll deductions under the Purchase
Plan, and a reserve of 200,000 shares of Common Stock has been established for
this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of twenty-four months. The initial
offering period will begin on the day the Underwriting Agreement is executed
based on the initial public offering price and will end on the last business day
in July 1998. Each offering period will be comprised of successive purchase
intervals, each of a duration of six months. However,

40
<PAGE> 43

the first purchase interval under the initial offering period may be of a
duration in excess of six months. Shares of Common Stock will be purchased for
each participant at the end of each purchase interval during the offering
period. If the fair market value of the Common Stock on any purchase date in the
offering period is less than the fair market value of the Common Stock at the
start of the offering period, then that offering period will terminate and a new
offering period will automatically commence on the next business day following
that purchase date.

Payroll deductions may not exceed 10% of base salary for each purchase
interval. The purchase price per share will be 85% of the lower of (i) the fair
market value of the Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase date.
In no event may any participant purchase more than 950 shares of Common Stock on
any purchase date.

The Board may terminate the Purchase Plan at any time. The Purchase Plan
will terminate in all events on the last business day in July 2006.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a director of a corporation will not be personally liable for monetary
damages for breach of such individual's fiduciary duties as a director except
for liability (i) for any breach of such director's duty of loyalty to the
corporation, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which a director derives an improper personal benefit.

The Company's Bylaws provide that the Company will indemnify its directors
and may indemnify its officers, employees and other agents to the full extent
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence on the part of an indemnified
party and permits the Company to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
such party's status or service as a director, officer, employee or other agent
of the Company upon an undertaking by such party to repay such advances if it is
ultimately determined that such party is not entitled to indemnification.

The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among other
things, to indemnify such director or officer against expenses (including
attorneys's fees), judgments, fines and settlements (collectively,
"Liabilities") paid by such individual in connection with any action, suit or
proceeding arising out of such individual's status or service as a director or
officer of the Company (other than Liabilities arising from willful misconduct
or conduct that is knowingly fraudulent or deliberately dishonest) and to
advance expenses incurred by such individual in connection with any proceeding
against such individual with respect to which such individual may be entitled to
indemnification by the Company. The Company believes that its Certificate of
Incorporation and Bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers.

At present the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company does not presently have any employment contracts in effect with
any of its executive officers.

The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and any
other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.

41
<PAGE> 44

CERTAIN TRANSACTIONS

RELATIONSHIP WITH ENDOSONICS CORPORATION

On June 15, 1992, EndoSonics acquired a 40% interest in CVD in exchange for
$568,000 in cash. Upon completion of this investment, EndoSonics' President and
Chief Executive Officer owned a 19% equity interest in CVD and served as
Chairman of the Board. Pursuant to an Agreement and Plan of Reorganization
between EndoSonics and CVD signed on June 9, 1993, EndoSonics acquired all of
the outstanding capital stock of CVD in exchange for $335,000 in cash and
250,000 shares of EndoSonics' Common Stock with an aggregate market value of
$1,563,000. Pursuant to the terms of the Agreement and Plan of Reorganization,
in June 1995, EndoSonics became obligated to issue 50,000 shares of its Common
Stock with an aggregate market value of $488,000, to the former shareholders of
CVD because the market price of EndoSonics' stock did not exceed a specified
price for a specified period during the two-year period following the
acquisition. On March 29, 1996, EndoSonics acquired 400,000 shares of Series B
Preferred Stock for a purchase price of $8,000,000, which will convert into
800,000 shares of Common Stock upon the consummation of this offering.

During 1994 and 1995, EndoSonics manufactured certain of the Company's
catheter products. Total purchases from EndoSonics during 1994 and 1995 amounted
to $0.8 million and $0.2 million, respectively. In addition, during 1994
EndoSonics performed certain billing and collection services for the Company in
return for a fee per invoice which amounted to $10,000. In addition, since
August 1993, certain of EndoSonics' corporate expenses, including Mr. Henson's
salary, were paid by EndoSonics and accounting, cash management and other
administrative services were performed by EndoSonics. Pursuant to this
arrangement, the Company paid EndoSonics an aggregate of $290,000, $340,000,
$54,000 and $48,000 for 1993, 1994, 1995 and the three months ended March 31,
1996, respectively. In addition, EndoSonics paid Mr. Henson's bonus for 1995.
See "Management -- Executive Compensation."

The Company has entered into a license agreement with EndoSonics, dated
December 22, 1995 (the "EndoSonics Agreement"), pursuant to which CVD granted
EndoSonics the non-exclusive, royalty-free right to CVD's FOCAL technology for
the development and sale of a combined FOCAL/Ultrasound product. In exchange,
CVD received the non-exclusive, royalty-free right to submit PMA supplement
applications utilizing an EndoSonics PMA as a reference and to manufacture and
distribute CVD products as a supplement to the EndoSonics PMA. The EndoSonics
Agreement may be terminated in the event of breach upon 60 days notice by the
non-breaching party, subject to the breaching party's right to cure. In
addition, EndoSonics recently purchased 400,000 shares of CVD's Series B
Preferred Stock for a purchase price of $8,000,000, which will convert into
800,000 shares of Common Stock upon the consummation of this offering.

CVD and EndoSonics will enter into certain agreements for the purpose of
defining the ongoing relationship between the two companies. EndoSonics owned
approximately 84% of the outstanding voting capital stock of CVD prior to the
offering made hereby and will own approximately 49% of CVD's Common Stock after
the offering. Accordingly, these agreements are not the result of arm's-length
negotiations between independent parties.

Prior to the completion of this offering, CVD and EndoSonics will enter
into a Tax Allocation Agreement that will provide, among other things, for (i)
the allocation of tax liabilities and adjustments thereto as between the
business of the Company and other businesses conducted by EndoSonics and its
affiliates related to periods in which the Company is includable in consolidated
federal income tax returns filed by EndoSonics, (ii) the allocation of
responsibility for filing tax returns and (iii) the conduct of and
responsibility for taxes owed in connection with tax audits and various related
matters, as described below.

EndoSonics will agree to indemnify CVD for any federal and state income tax
liability arising out of any audit with respect to periods ending prior to the
closing of the offering hereby and for which CVD was included in EndoSonics'
consolidated federal income tax return or a state unitary or combined return. In
addition, with respect to periods for which CVD is included in EndoSonics'
federal consolidated or state unitary tax return, EndoSonics shall control the
filing of such returns and the conduct of any audits thereof. With respect to
periods following the closing of this offering, the Company will file its own
federal income tax return and will not be included in EndoSonics' federal
return. The Company will initially be included in

42
<PAGE> 45

certain unitary or combined returns for state tax purposes. To the extent this
occurs, this agreement generally will treat the Company as a separate taxpayer
and will charge the Company with its separate tax return liability.

EndoSonics and CVD will enter into a Stockholder Agreement providing that
all transactions between the Company and EndoSonics or any affiliate of
EndoSonics must be approved by a special committee of CVD's Board of Directors
comprised of two directors who are not officers, directors, employees or
affiliates of EndoSonics. The members of this committee are Mitchell Dann and
Gerard von Hoffmann. No transactions between the Company and EndoSonics are
currently contemplated. During the effective term of the Agreement, EndoSonics
may not vote to eliminate from the Company's Certificate of Incorporation
provisions requiring cumulative voting for the election of directors. The
provisions of the Agreement become effective upon the consummation of the
offering made hereby and terminate on the earlier of seven years from the date
of the Agreement or on the date EndoSonics beneficially owns less than 25% of
CVD's Common Stock.

EndoSonics has informed the Company that EndoSonics presently intends to
distribute or otherwise transfer to EndoSonics stockholders a portion of the CVD
shares it will hold on consummation of this offering. While EndoSonics indicated
that it may so distribute or transfer up to a majority of the shares it will
hold, it also indicated that the precise amount and timing of any such
distribution or transfer will depend upon, among other matters, an analysis of
the tax consequences to EndoSonics and its stockholders. Any such distribution
or transfer may result in a change of control of CVD. Notwithstanding
EndoSonics' stated intent, EndoSonics is not obligated to make any such
distribution or transfer nor is it obligated to take any action or refrain from
taking any action with respect to the shares of CVD which it will hold upon
completion of this offering.

OTHER TRANSACTIONS

On September 10, 1994, the Company entered into a Stock Purchase and
Technology License Agreement with SCIMED (the "SCIMED Agreement"). Pursuant to
the SCIMED Agreement, SCIMED purchased a 19% equity position in the Company for
a purchase price of $2,500,000. SCIMED was also granted an exclusive worldwide
license to certain site-specific drug delivery/PTCA technology for use in the
cardiovascular field in exchange for license and royalty fees. The SCIMED
Agreement also requires CVD to provide certain technical assistance and to
perform additional research and development relating to the licensed technology
in exchange for fees and reimbursement of expenses, respectively. In the event
that CVD's SCIMED-funded research and development efforts result in improvements
to the licensed technology, SCIMED will have an exclusive worldwide license to
the technology in the cardiovascular field and a non-exclusive license outside
the cardiovascular field, both of which are subject to the payment of royalties.
The SCIMED Agreement may be terminated in the event of breach on 90 days notice
by the non-breaching party (or on 30 days notice in certain limited
circumstances) or by SCIMED upon 180 days notice.

In connection with the adoption of the Predecessor Plan, the Company issued
a warrant to SCIMED in June 1995 to purchase 40,000 shares of Series A Preferred
Stock at an exercise price of $6.58 per share in exchange for a waiver of
SCIMED's anti-dilution rights under the SCIMED Agreement. The Company
subsequently issued a warrant for an additional 20,000 shares of Series A
Preferred at $6.58 per share in connection with an increase in the number of
shares reserved for issuance under the Predecessor Plan. Following the
consummation of this offering, these warrants shall be exercisable for 80,000
shares of Common Stock and 40,000 shares of Common Stock, respectively, at an
exercise price of $3.29 per share.

EndoSonics and SCIMED have entered into lock-up agreements with the Company
limiting sales of the Company's Common Stock during the 180-day period following
the date of this Prospectus. See "Shares Eligible for Future Sale."

CVD intends to extend a loan in the amount of $150,000, to Jeffrey F.
O'Donnell, the Company's Vice President of Sales and Marketing. The note, which
will be secured by a second deed of trust on Mr. O'Donnell's home, will have a
five-year term with interest compounding semi-annually at 6%. The principal and
interest will be due five years from the date of the note.

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<PAGE> 46

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.

44
<PAGE> 47

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1996 (after giving
effect to the conversion of all outstanding shares of the Company's Preferred
Stock into Common Stock upon the closing of this offering), and as adjusted to
reflect the 2-for-1 stock split of the Company's Common Stock immediately prior
to the effectiveness of this offering and the sale of the shares offered hereby
by (i) each person who is known by the Company to own beneficially more than
five percent of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the Named Officer, (iv) certain executive officers and (v) all
current officers and directors as a group.

<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
SHARES OWNED(1)(2)(3)
BENEFICIALLY ---------------------
OWNED(1)(2) BEFORE AFTER
NAME NUMBER OFFERING OFFERING
----------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
EndoSonics Corporation............................... 4,040,000 84.17% 48.90%
6616 Owens Drive
Pleasanton, CA 94588
SCIMED Life Systems, Inc.(4)......................... 880,000 17.89 10.65
One SCIMED Place
Maple Grove, MN 55311
Michael R. Henson(5)................................. 250,000 4.95 3.03
Mitchell Dann(6)..................................... -- -- --
William G. Davis(7).................................. 6,000 * *
Gerard von Hoffmann(8)............................... -- -- --
Edward M. Leonard(9)................................. -- -- --
Michael D. Crocker(10)............................... 100,000 2.08 1.21
Dana P. Nickell(11).................................. 56,000 1.17 *
Jeffrey F. O'Donnell(12)............................. 100,000 2.08 1.21
All directors and officers as a group (13
persons)(13)....................................... 658,000 12.06% 7.96%
</TABLE>

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

* Represents beneficial ownership of less than 1%.

(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock.

(2) The number of shares of Common Stock beneficially owned includes any shares
issuable pursuant to stock options that may be exercised within 60 days
after March 31, 1996. All options are immediately exercisable subject to a
repurchase right in favor of the Company. Shares issuable pursuant to such
options are deemed outstanding for computing the percentage of the person
holding such options but are not deemed to be outstanding for computing the
percentage of any other person.

(3) The number of shares of Common Stock outstanding after this offering
includes the 3,400,000 shares of Common Stock being offered for sale by the
company in this offering and the issuance of 62,500 shares of Common Stock
to Fukuda pursuant to the terms of the Amendment to Japanese Distribution
Agreements dated May 13, 1996 by and between CVD and Fukuda. The number of
shares of Common Stock outstanding after this offering assumes no exercise
of the Underwriters' over-allotment option. See "Underwriting."

(4) Includes warrants to purchase 120,000 shares of the Company's Common Stock.

(5) Includes options to purchase 250,000 shares of the Company's Common Stock.

(6) Mr. Dann will receive an option to purchase 5,000 shares of Common Stock on
the date the Underwriting Agreement for this offering is executed.

(7) Includes options to purchase 6,000 shares of the Company's Common Stock.
Mr. Davis will receive an option to purchase 5,000 shares of Common Stock
on the date the Underwriting Agreement for this offering is executed.

(8) Mr. von Hoffman will receive an option to purchase 5,000 shares of Common
Stock on the date the Underwriting Agreement for this offering is executed.

(9) Mr. Leonard will receive an option to purchase 5,000 shares of Common Stock
on the date the Underwriting Agreement for this offering is executed.

(10) Includes options to purchase 100,000 shares of the Company's Common Stock.

(11) Includes options to purchase 56,000 shares of the Company's Common Stock.

(12) Includes options to purchase 100,000 shares of the Company's Common Stock.

(13) Includes options to purchase 658,000 shares of the Company's Common Stock.

45
<PAGE> 48

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value, after giving effect to the amendment of the Company's Certificate of
Incorporation to delete references to Series A Preferred Stock and Series B
Preferred Stock following conversion of such Preferred Stock into Common Stock
upon the closing of this offering.

COMMON STOCK

As of March 31, 1996, there were 4,800,000 shares of Common Stock
outstanding that were held of record by 2 stockholders. There will be 8,262,500
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
overallotment option and assuming no exercise of options after March 31, 1996)
after giving effect to the sale of the shares of Common Stock to the public
offered hereby and the conversion of the Convertible Obligation and the
Company's Series A Preferred Stock and Series B Preferred Stock into Common
Stock.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefore. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW

Certificate of Incorporation and Bylaws

The Certificate of Incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The Bylaws provide that the Company's
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of the Company's capital stock. These
provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the

46
<PAGE> 49

Company's shares that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of the Company. See "Risk Factors -- Effect of Certain Charter Provisions;
Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law."

Delaware Takeover Statute

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Chemical Mellon
Shareholder Services. Its address is 50 California Street, 10th Floor, San
Francisco, CA 94111, and its telephone number is (415) 954-9529.

47
<PAGE> 50

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 8,262,500 shares of
Common Stock outstanding (assuming no exercise of options after March 31, 1996
and the conversion of the Convertible Obligation. Of these shares, the 3,400,000
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, except that any shares purchased
by "affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.

SALES OF RESTRICTED SHARES

The remaining 4,862,500 shares of Common Stock are deemed "Restricted
Shares" under Rule 144. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. On the date of this Prospectus, no shares
other than the 3,400,000 shares offered hereby will be eligible for sale.
Beginning 180 days after the date of this Prospectus (or earlier with the
consent of the Representatives of the Underwriters), 4,000,000 Restricted Shares
will become available for sale in the public market subject to certain
limitations of Rule 144 of the Securities Act. In addition, the Company intends
to register on a registration statement on Form S-8, approximately 30 days after
the effective date of this offering, a total of 200,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan and a
total of 1,200,000 shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's 1996 Stock Option/Stock Issuance Plan.
See "Certain Transactions -- Relationship with EndoSonics Corporation" and "Risk
Factors -- Control by Existing Stockholder; Limitations on Pooling-of-Interests
Accounting" for a discussion of possible distributions of CVD shares held by
EndoSonics to EndoSonics' stockholders.

In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares for at least two
years, including a person who may be deemed an Affiliate of the Company, is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company (approximately 82,625 shares after giving effect to
this offering) and the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding such sale. Sales
under Rule 144 of the Securities Act are subject to certain restrictions
relating to manner of sale, notice and the availability of current public
information about the Company. A person who is not an Affiliate of the Company
at any time during the ninety days preceding a sale, and who has beneficially
owned shares for at least three years, would be entitled to sell such shares
immediately following this offering without regard to the volume limitations,
manner of sale provisions or notice or other requirements of Rule 144 of the
Securities Act. However, the transfer agent may require an opinion of counsel
that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of such shares.

Prior to this offering, there has been no public market for the Common
Stock of the Company and no predictions can be made of the effect, if any, that
the sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of such shares in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.

OPTIONS

As of March 31, 1996, options to purchase a total of 977,000 shares of
Common Stock pursuant to the 1995 Stock Option Plan were outstanding and
exercisable. All of the shares subject to options are subject to Lock-up
Agreements. See "-- Lock-up Agreements." An additional 223,000 shares of Common
Stock were available as of May 1, 1996 for future option grants or direct
issuances under the 1996 Stock Option/Stock Issuance Plan. See
"Management -- 1996 Stock Option/Stock Issuance Plan," and Notes 9 and 11 of
Notes to Financial Statements.

48
<PAGE> 51

Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period. The Company intends to file one or
more registration statements on Form S-8 under the Securities Act to register
all shares of Common Stock subject to outstanding stock options and Common Stock
issued or issuable pursuant to the Company's 1996 Stock Option/Stock Issuance
Plan and Common Stock issuable pursuant to the Company's Employee Stock Purchase
Plan. The Company expects to file the registration statements covering shares
issuable pursuant to the Employee Stock Purchase Plan and 1996 Stock
Option/Stock Issuance Plan approximately 30 days after the closing of this
offering. Such registration statements are expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements, if
applicable.

LOCK-UP AGREEMENTS

Each of the Company's directors and officers and each stockholder of the
Company has agreed that they will not, without the prior written consent of the
Representatives of the Underwriters, offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock beneficially owned by them or any shares
issuable upon exercise of stock options for a period of 180 days from the
effective date of this offering. See "Underwriting."

REGISTRATION RIGHTS

After this offering, SCIMED, the holder of 760,000 shares of Common Stock
will be entitled upon expiration of a lock-up agreement with the Underwriters to
certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of the agreement between the Company and SCIMED,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other security holders
exercising registration rights, SCIMED is entitled to notice of such
registration and is entitled to include shares of such Common Stock therein.
SCIMED may also require the Company to file a registration statement under the
Securities Act at the Company's expense with respect to its shares of Common
Stock, and the Company is required to use its diligent reasonable efforts to
effect such registration. Further, SCIMED may require the Company to file
additional registration statements on Form S-3 at the Company's expense. These
rights are subject to certain conditions and limitations, among them the right
of the underwriters of an offering to limit the number of shares included in
such registration in certain circumstances.

49
<PAGE> 52

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of such Underwriters, for whom Volpe, Welty & Company,
Wessels, Arnold & Henderson, L.L.C. and Vector Securities International, Inc.
(together, the "Representatives") are acting as representatives, has agreed
severally to purchase from the Company, the respective number of shares of
Common Stock set forth opposite its name below. The Underwriters are committed
to purchase and pay for all shares if any shares are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------------------------------------------------------------- ----------
<S> <C>
Volpe, Welty & Company..........................................
Wessels, Arnold & Henderson, L.L.C..............................
Vector Securities International, Inc............................
---------
Total................................................. 3,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which $ may be
reallocated to other dealers. After the Offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.

The Company has granted the Underwriters an option for thirty days after
the date of this Prospectus to purchase, at the offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 510,000 additional shares of Common Stock at the same price
per share as the Company receives for the 3,400,000 shares of Common Stock
offered hereby, solely to cover over-allotments, if any. If the Underwriters
exercise their over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by each of
them, as shown in the foregoing table, bears to the 3,400,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
the over-allotments in connection with the sale of the 3,400,000 shares of
Common Stock offered hereby.

Each of the Company's directors and officers and each stockholder of the
Company, has agreed not to offer, sell, contract to sell or otherwise dispose of
Common Stock or securities convertible into or exchangeable for, or any rights
to purchase or acquire, Common Stock for a period of 180 days following the
Effective Date, without the prior written consent of Volpe, Welty & Company. The
Company also has agreed not to offer, sell,

50
<PAGE> 53

contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock for a period of 180 days following the date of this
Prospectus without the prior written consent of Volpe, Welty & Company, except
for the granting of options or the sale of stock pursuant to the Company's
existing stock and option plans. Volpe, Welty & Company, in its discretion, may
waive the foregoing restrictions in whole or in part, with or without a public
announcement of such action.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price of the
Common Stock, in addition to prevailing market conditions will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuations of companies
in related business.

The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. As of the date of this Prospectus, Edward M. Leonard, a member
of the firm of Brobeck, Phleger & Harrison LLP is a director of the Company and
will receive an option to purchase 5,000 shares of Common Stock on the date the
Underwriting Agreement for this offering is executed. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The financial statements of CardioVascular Dynamics, Inc. at December 31,
1994 and 1995, and for each of the two years in the period ended December 31,
1995, and the period from June 10, 1993 to December 31, 1993 and of the
predecessor company for the period from January 1, 1993 through June 9, 1993,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules to the Registration Statement. For further
information with respect to the Company and such Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part of the Registration Statement. Statements contained in this
Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Securities and Exchange Commission.

51
<PAGE> 54

CARDIOVASCULAR DYNAMICS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Equity (Net Capital Deficiency)........................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 55

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
CardioVascular Dynamics, Inc.

We have audited the accompanying balance sheets of CardioVascular Dynamics,
Inc. (a subsidiary of EndoSonics Corporation) as of December 31, 1994 and 1995,
and the related statements of operations, stockholders' equity (net capital
deficiency) and cash flows for the period from June 10, 1993 to December 31,
1993 and the years ended December 31, 1994 and 1995, and the statements of
operations, stockholders' equity and cash flows of the predecessor company for
the period from January 1, 1993 through June 9, 1993. 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 audit.

We conducted our audit 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 audit provides 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 CardioVascular Dynamics,
Inc. at December 31, 1994 and 1995, and the results of its operations and its
cash flows for the period from June 10, 1993 to December 31, 1993 and the
predecessor's results of operations and cash flow for the period from January 1,
1993 through June 9, 1993, in conformity with generally accepted accounting
principles.

Palo Alto, California
March 15, 1996, except for Note 11,
as to which the date is
May 13, 1996

F-2
<PAGE> 56

CARDIOVASCULAR DYNAMICS, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION> PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------ MARCH 31, MARCH 31,
1994 1995 1996 1996
------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 11)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................... $3,379 $ 1,568 $ 8,655
Accounts receivable, net of allowance for doubtful
accounts of $85, $180 and $180, respectively.... 727 1,117 1,584
Accounts receivable from related parties........... 125 -- 100
Inventories........................................ 50 754 752
Other current assets............................... 4 58 59
------ ------- -------
Total current assets................................. 4,285 3,497 11,150
Furniture and equipment.............................. 87 357 459
Leasehold improvements............................... 1 174 218
------ ------- -------
88 531 677
Less accumulated depreciation and amortization....... (33) (107) (152)
------ ------- -------
Furniture, fixtures and equipment, net............... 55 424 525
Other assets......................................... -- 81 95
------ ------- -------
Total assets......................................... $4,340 $ 4,002 $11,770
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses.............. $ 315 $ 1,684 $ 1,769
Payable to Parent.................................. 2,554 2,537 2,583
Deferred distributorship fee revenue, current
portion......................................... 50 50 50
------ ------- ------
Total current liabilities............................ 2,919 4,271 4,402
Deferred distributorship fee revenue................. 133 79 67
Convertible obligation............................... -- 750 750
Commitments
Stockholders' equity (net capital deficiency):
Convertible Preferred Stock, $.001 par value;
7,560,000 shares authorized, 2,000,000 and
2,400,000 shares issued and outstanding as of
December 31, 1995 and March 31, 1996,
respectively; none issued and outstanding at
December 31, 1994 and pro forma; aggregate
liquidation preference of $13,160,000 and
$21,160,000 as of December 31, 1995 and March
31, 1996, respectively.......................... -- 2 2 $ --
Common Stock, $.001 par value; 30,000,000 shares
authorized, 4,000,000 shares issued and
outstanding at December 31, 1994; no shares
issued or outstanding at December 31, 1995 or at
March 31, 1996; 4,862,500 shares issued and
outstanding pro forma........................... 4 -- -- 5
Additional paid-in capital......................... 4,835 5,670 13,720 14,467
Deferred compensation.............................. -- (345) (369) (369)
Accumulated deficit................................ (3,551) (6,425) (6,802) (6,802)
------ ------- ------ -------
Total stockholders' equity (net capital
deficiency)........................................ 1,288 (1,098) 6,551 $ 7,301
------ ------- ----- =======

Total liabilities and stockholders' equity (net
capital deficiency)................................ $4,340 $ 4,002 $11,770
====== ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 57

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------
JANUARY 1,
1993 JUNE 10, 1993 YEAR ENDED THREE-MONTH PERIOD
THROUGH THROUGH DECEMBER 31, ENDED MARCH 31,
JUNE 9, DECEMBER 31, ------------------ ------------------
1993 1993 1994 1995 1995 1996
------------------ ------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Sales (including $43 from a related
party in 1994)................... $ -- $ 126 $ 1,169 $ 3,462 $ 199 $ 1,783
License fee and other from related
party............................ -- -- 1,220 641 210 100
Contract........................... -- -- -- -- -- 150
------ ------------- ------- ------- ------- -------
Total revenue........................ -- 126 2,389 4,103 409 2,033
Operating costs and expenses:
Cost of sales...................... -- 79 848 2,051 118 942
Charge for acquired in-process
research and development......... -- 2,001 -- 488 -- --
Research and development (including
$99 for the period from June 10,
1993 through December 31, 1993
and $73 in 1994 paid to
Parent).......................... 245 489 1,228 1,683 432 627
Marketing and sales -- 94 748 1,526 255 577
General and administrative
(including $62 for the period
from June 10, 1993 through
December 31, 1993, and $227,
$340, $54 and $48 for the years
ended December 31, 1994 and 1995
and the three-month periods ended
March 31, 1995 and 1996,
respectively, paid to Parent).... 34 62 587 1,331 268 291
------ ------------- ------- ------- ------- -------
Total operating costs and expenses... 279 2,725 3,411 7,079 1,073 2,437
------ ------------- ------- ------- ------- -------
Loss from operations (279) (2,599) (1,022) (2,976) (664) (404)
Other income:
Interest income.................... 6 6 -- 42 22 11
Distributorship fees and other
income........................... 4 13 51 60 17 16
------ ------------- ------- ------- ------- -------
Total other income................... 10 19 51 102 39 27
------ ------------- ------- ------- ------- -------
Net loss............................. $ (269) $(2,580) $ (971) $(2,874) $ (625) $ (377)
============== =========== ======== ======== ======== ========
Pro forma net loss per share......... $ (.25) $ (.65) $ (.14) $ (.08)
======== ======== ======== ========
Shares used in computing pro forma
net loss per share................. 3,860 4,425 4,389 4,469
======== ======== ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 58

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK ADDITIONAL EQUITY
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIENCY)
---------- ------ ---------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992
(Predecessor Entity)....... 902,500 $ 893 1,000,000 $ 1 $ 26 $ -- $ (313) $ 607
Net loss through June 9,
1993 (Predecessor
Entity).................. -- -- -- -- -- -- (269) (269)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at June 9, 1993
(Predecessor Entity)....... 902,500 893 1,000,000 1 26 -- (582) 338
Effects of merger with
EndoSonics Acquisition
Corp. ................... (902,500) (893 ) 2,240,000 2 2,310 -- 582 2,001
Net loss from June 10, 1993
to December 31, 1993..... -- -- -- -- -- -- (2,580) (2,580)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at December 31,
1993....................... -- -- 3,240,000 3 2,336 -- (2,580) (241)
Sale of Common Stock to
corporate investor....... -- -- 760,000 1 2,499 -- -- 2,500
Net loss................... -- -- -- -- -- -- (971) (971)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at December 31,
1994....................... -- -- 4,000,000 4 4,835 -- (3,551) 1,288
Additional effects of
merger with EndoSonics
Acquisition Corp......... -- -- -- -- 488 -- -- 488
Issuance of Preferred Stock
in exchange for Common
Stock.................... 2,000,000 2 (4,000,000) (4) 2 -- -- --
Deferred compensation
resulting from grant of
options.................. -- -- -- -- 345 (345) -- --
Net loss................... -- -- -- -- -- -- (2,874) (2,874)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at December 31,
1995....................... 2,000,000 2 -- -- 5,670 (345) (6,425) (1,098)
Sale of Preferred Stock to
Parent (unaudited)....... 400,000 -- -- -- 8,000 -- -- 8,000
Deferred compensation
resulting from grant of
options (unaudited)...... -- -- -- -- 50 (50) -- --
Amortization of deferred
compensation
(unaudited).............. -- -- -- -- -- 26 -- 26
Net loss (unaudited)....... -- -- -- -- -- -- (377) (377)
---------- ----- ---------- --- ------- ----- ------- -------
Balance at March 31, 1996
(unaudited)................ 2,400,000 $ 2 -- $ -- $ 13,720 $ (369) $(6,802) $ 6,551
========== ===== ========== === ======= ===== ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 59

CARDIOVASCULAR DYNAMICS, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR ENTITY
------------------ THREE-MONTH
JANUARY 1, JUNE 10, 1993 YEAR ENDED PERIOD
1993 THROUGH DECEMBER 31, ENDED MARCH 31,
THROUGH DECEMBER 31, ------------------ -----------------
JUNE 9, 1993 1993 1994 1995 1995 1996
------------------ ------------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................... $ (269) $(2,580) $ (971) $(2,874) $ (625) $ (377)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 7 6 18 74 18 45
Amortization of deferred
compensation................. -- -- -- -- -- 26
Charge for acquired in-process
research and development..... -- 2,001 -- 488 -- --
Net changes in:
Trade accounts receivable,
net........................ -- (65) (662) (390) 329 (467)
Receivable from related
parties.................... -- -- (125) 125 99 (100)
Inventories.................. -- (36) (14) (704) (96) 2
Other assets................. -- -- -- (135) (68) (15)
Accounts payable and accrued
expenses................... 12 (41) 273 1,369 81 85
Deferred distributor fee
revenue.................... 246 (13) (50) (54) (16) (12)
----- ------- ------- ------- ------- -------
Net cash used in operating
activities...................... (4) (728) (1,531) (2,101) (278) (813)
INVESTING ACTIVITIES
Capital expenditures for
furniture, fixtures and
equipment....................... (17) (10) (35) (443) (122) (146)
----- ------- ------- ------- ------- -------
Net cash used in investing
activities...................... (17) (10) (35) (443) (122) (146)
FINANCING ACTIVITIES
Proceeds from issuance of
convertible obligation.......... -- -- -- 750 -- --
Proceeds from sale of Common
Stock........................... -- -- 2,500 -- -- --
Proceeds from sale of Preferred
Stock to Parent................. -- -- -- -- -- 8,000
Payable to Parent, net............ -- 656 1,898 (17) (212) 46
----- ------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............ -- 656 4,398 733 (212) 8,046
----- ------- ------- ------- ------- -------
Net increase (decrease) in cash... (21) (82) 2,832 (1,811) (612) 7,087
Cash, beginning of period......... 650 629 547 3,379 3,379 1,568
----- ------- ------- ------- ------- -------
Cash, end of period............... $ 629 $ 547 $ 3,379 $ 1,568 $ 2,767 $8,655
===== ======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 60

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Business and Basis of Presentation

CardioVascular Dynamics, Inc. (the "Predecessor") was incorporated on March
16, 1992 in the State of California. The Predecessor, and its successor
corporation discussed below, develops, manufactures and markets proprietary
therapeutic catheters used to treat certain vascular diseases.

In June 1992, EndoSonics Corporation ("EndoSonics" or "Parent") acquired a
40% preferred interest in the Predecessor. EndoSonics, a Delaware corporation,
develops, manufactures, and markets intravascular ultrasound imaging systems and
diagnostic, therapeutic and imaging catheters for the treatment of coronary and
peripheral vascular disease.

In June 1993, EndoSonics acquired all of the remaining Preferred and Common
Stock of the Predecessor. The acquisition was accomplished through a merger
between the Predecessor and EndoSonics Acquisition Corp., a wholly owned
subsidiary of EndoSonics (which then changed its name to CardioVascular
Dynamics, Inc.). The merger was treated as a tax-free reorganization for income
tax purposes. The accompanying financial statements present the results of
operations, cash flows and changes in stockholders' equity for the Predecessor
through June 9, 1993, and of CardioVascular Dynamics, Inc. (hereinafter referred
to as "CVD" or the "Company") thereafter. For practical purposes the actual
cut-off date was June 30, 1993; however, the activity between June 10, 1993 and
June 30, 1993 was not material.

The acquisition by EndoSonics resulted in a new basis for the CVD assets
and liabilities. Accordingly, the purchase price paid by EndoSonics has been
allocated to the identifiable assets and liabilities, including in-process
research and development, which was immediately expensed as no CVD products had
received regulatory approval and the technology did not have identifiable
alternative uses. The amount by which the purchase price exceeded the
Predecessor's net book value has been reflected as paid-in capital in the
accompanying financial statements. Pursuant to the terms of the original merger
agreement, in June 1995 EndoSonics issued an additional 50,000 shares of its
Common Stock to the former shareholders of the Predecessor. The fair market
value of such shares of $488 has been reflected in the accompanying financial
statements as an additional charge for acquired in-process technology.

Subsequent to the acquisition, EndoSonics began performing certain services
for CVD (see Note 3), including general management, accounting, cash management,
and other administrative and engineering services. The amounts charged to CVD
for such services have been determined based on proportional cost allocations
and have been agreed to by the management of CVD and EndoSonics. In the opinion
of CVD's management, the allocation methods used are reasonable. Such
allocations, however, are not necessarily indicative of costs that would have
been incurred had CVD continued to operate independent of EndoSonics. No formal
agreement currently exists which specifies the nature of services to be provided
by EndoSonics to CVD, or the charges for such services. Therefore, the 1995
amounts are not necessarily indicative of the future charges to be incurred by
CVD.

In 1994, the Board of Directors of CVD approved a 16,200-for-1 Common Stock
split which has been reflected retroactively for all periods subsequent to the
merger in the accompanying financial statements (See Note 11).

Interim Results

The accompanying balance sheet as of March 31, 1996 and the statements of
operations, stockholders' equity and cash flows for the three months ended March
31, 1995 and 1996 are unaudited. In the opinion of

F-7
<PAGE> 61

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

management, the statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results of
interim periods. The data disclosed in these notes to the financial statements
for these periods are unaudited.

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 reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Inventories

Inventories are comprised of raw materials, work-in-process and finished
goods and are stated at the lower of cost, determined on an average cost basis,
or market value.

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over the lesser of the estimated useful lives of the assets
or the lease term. The estimated useful lives range from three to five years.

Concentrations of Credit Risk and Significant Customers

The Company maintains its cash in deposit accounts at a major financial
institution.

The Company sells its products primarily to medical institutions and
distributors worldwide. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral from
customers. Management believes that an adequate allowance for doubtful accounts
has been provided.

During 1994 and 1995, product sales to Fukuda Denshi Co., Ltd., ("Fukuda"),
the Company's Japanese distributor (see Note 4), comprised 61% and 18% of total
revenue. Accounts receivable from Fukuda represented 78% and 15% of net accounts
receivable at December 31, 1994 and 1995, respectively.

During the period from June 10, 1993 to December 31, 1993, product sales to
another of the Company's international distributors comprised 57% of total
revenue. One customer comprised 12% of revenues for the year ended December 31,
1995 and 14% of accounts receivable at December 31, 1995.

Export Sales

The Company had export sales by region as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 10,
1993 YEAR ENDED THREE-MONTH
TO DECEMBER 31, PERIOD ENDED
DECEMBER 31, --------------- MARCH 31,
1993 1994 1995 1996
------------ ---- ------ -------------
<S> <C> <C> <C> <C>
Europe.................................. $101 $255 $1,179 $ 411
Japan................................... -- 715 744 455
Latin America........................... -- -- 131 272
---- ---- ------ -------
$101 $970 $2,054 $ 1,138
==== ==== ====== =======
</TABLE>
F-8
<PAGE> 62

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Revenue Recognition and Warranty

The Company recognizes revenue from the sale of its products when the goods
are shipped to its customers. Reserves are provided for anticipated product
returns and warranty expenses at the time of shipment.

Accounting for Stock-Based Compensation

In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") was issued and is
effective for the Company's 1996 year end. The Company intends to continue to
account for employee stock options in accordance with APB Opinion No. 25 and
will make the pro forma disclosures required by SFAS 123 beginning in 1996.

Income Taxes

Since June 1993, the Company's results of operations have been included in
consolidated tax returns filed by EndoSonics. There was no income tax provision
for the consolidated tax group during the periods covered by these financial
statements. All net operating loss and credit carryforwards and deferred tax
assets and liabilities have been disclosed herein on a separate company basis
for CVD.

Pro Forma Net Loss Per Share

Pro forma net loss per share is computed using the weighted average number
of shares of Common Stock, convertible Preferred Stock (using the
as-if-converted method) and Common Stock issuable upon conversion of the
Convertible Obligation, outstanding. Common equivalent shares from stock options
and warrants are not included as the effect is anti-dilutive, except that in
accordance with Securities and Exchange Commission Staff Accounting Bulletins,
common equivalents shares issued by the Company at prices substantially below
the anticipated initial public offering price during the period beginning one
year prior to the proposed public offering have been included in the calculation
as if they were outstanding for all periods presented (using the treasury stock
method and the estimated initial public offering price).

Net loss per share information calculated in accordance with APB Opinion
No. 15 for the periods from January 1, 1993 to June 9, 1993 (predecessor entity)
and from June 10, 1993 to December 31, 1993 has not been presented as such
information is not meaningful as a result of the changes in the Company's
capital structure during those periods.

2. SCIMED LIFE SYSTEMS, INC.

In September 1994, CVD and EndoSonics entered into a Stock Purchase and
Technology License Agreement with SCIMED Life Systems, Inc. ("SCIMED"). SCIMED
acquired a 19% interest in CVD in exchange for $2,500 in cash. If the Company
has not completed an initial public offering, or in certain other circumstances,
at the three year anniversary of the agreement, SCIMED may exchange its shares
of CVD Series A Preferred Stock for shares of EndoSonics Common Stock at a
guaranteed conversion rate such that the value of the EndoSonics shares issued
will not be less than $2,500. The Company also granted SCIMED the right, through
the earlier of December 31, 1997 or the effective date of an initial
registration, and offering of CVD shares to the public, to maintain its 19%
ownership interest ("anti-dilution right").

CVD also granted SCIMED an exclusive license to certain patents in the
cardiovascular field of use, which allows SCIMED to manufacture the Transport
PTCA infusion catheter (the "Transport") developed by CVD in exchange for a
$1,000 license fee that was paid in 1994. SCIMED will pay royalties to CVD on

F-9
<PAGE> 63

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

sales of the Transport and other products which use this patented technology.
CVD retains rights to this technology and the associated patents for use outside
of the cardiovascular field.

During June 1995, the Company issued a warrant to SCIMED to purchase up to
40,000 shares of Series A Preferred Stock at an exercise price of $6.58 per
share in exchange for a waiver of SCIMED's anti-dilution right. The warrant
expires in September 1997.

SCIMED also paid CVD $220 and $641 in 1994 and 1995, respectively, on a
cost reimbursement basis to fund continuing development of the technology and
for other support. Additionally, the Company recorded $43 in product sales to
SCIMED during 1994 (none in 1995) and had accounts receivable from SCIMED
totaling $125 as of December 31, 1994, none at December 31, 1995 and $100 at
March 31, 1996.

3. RELATED PARTY TRANSACTIONS

The following is a summary of significant transactions between CVD and
EndoSonics:

- During 1994 and a portion of 1995, EndoSonics manufactured certain of the
Company's catheter products at cost plus a mark-up of 30%. Total
purchases from EndoSonics during 1994 and 1995 amounted to $843 and $172,
respectively. In addition, during 1994 EndoSonics performed certain
billing and collection services for CVD in return for a fee per invoice
which aggregated to $10.

- Beginning in August 1993, certain EndoSonics corporate expenses,
primarily related to executive management time, accounting, cash
management, and other administrative and engineering services, have been
allocated to the Company. Total expenses allocated were $161 for the
period from June 10, 1993 to December 31, 1993, and $290, $340, $54 and
$48 for the years ended December 31, 1994 and 1995 and for the
three-month periods ended March 31, 1995 and 1996, respectively.

No interest expense has been charged on the net payable due to EndoSonics.
The following is an analysis of the payable to EndoSonics:

<TABLE>
<CAPTION>
PERIOD FROM
JUNE 10, THREE-MONTH
1993 YEAR ENDED PERIOD ENDED
TO DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- -----------------
1993 1994 1995 1995 1996
------------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Beginning balance................. $ -- $ 656 $2,554 $2,554 $2,537
Inventory purchases............... 105 843 172 166 --
Corporate cost allocations........ 161 300 340 54 48
Cash disbursements made by
EndoSonics on behalf of CVD..... 430 1,730 312 82 --
Cash collections made by
EndoSonics on behalf of CVD..... (39) (318) (700) (524) --
Cash payments to EndoSonics....... -- (549) -- -- --
Cash disbursements made by CVD on
behalf of EndoSonics and
other........................... (1) (108) (141) 10 (2)
---- ------ ------ ------ ------
Ending balance.................... $656 $2,554 $2,537 $2,342 $2,583
==== ====== ====== ====== ======
Average balance during period..... $280 $1,750 $2,551 $2,448 $2,566
==== ====== ====== ====== ======
</TABLE>

(See Notes 5 and 11)

F-10
<PAGE> 64

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

4. AGREEMENTS WITH FUKUDA

The Company has executed a distribution agreement with Fukuda. The
agreement provides Fukuda with exclusive distribution rights relative to certain
of the Company's products in Japan for periods extending through May 1999, which
may be extended at the option of the parties. Distribution fee revenue received
from Fukuda are deferred and are being recognized as revenue over the initial
periods covered by the respective agreements.

In July 1995 and May 1996, the distribution agreement with Fukuda was
amended. In exchange for the exclusive distribution rights to additional CVD
products, the Company received $750 which is convertible into Common Stock upon
the consummation of this offering. The Company has accounted for this as a
convertible obligation payable as of December 31, 1995.

5. LICENSE AGREEMENTS

In January 1995 the Company entered into a license agreement with Advanced
Cardiovascular Systems, Inc. ("ACS") under which the Company acquired the
exclusive worldwide rights to ACS' SmartNeedle technology. ACS currently
manufactures the product for the Company. The Company is obligated to assume
responsibility for manufacturing the product in 1996, subject to the payment of
royalties. ACS was granted an option, which was exercised in February 1996, to
obtain exclusive worldwide rights to certain CVD perfusion technology. In
exchange for the perfusion technology, ACS is obligated to make milestone and
minimum royalty payments to CVD, and also has certain obligations to develop and
market the perfusion technology. An initial milestone of $150 was earned in the
three-months ended March 31, 1996.

The Company has entered into a license agreement with EndoSonics pursuant
to which CVD granted EndoSonics the non-exclusive, royalty-free right to certain
technology for use in the development and sale of certain products. In exchange,
CVD received the non-exclusive, royalty-free right to utilize certain of
EndoSonics' product regulatory filings to obtain regulatory approval of CVD
products.

6. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
---- ---- -----------
<S> <C> <C> <C>
Raw materials.......................................... $ -- $162 $ 274
Work in process........................................ -- 330 223
Finished goods......................................... 50 262 255
---- ---- ----
$ 50 $754 $ 752
==== ==== ====
</TABLE>

F-11
<PAGE> 65

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
---- ------ -----------
<S> <C> <C> <C>
Accounts payable..................................... $122 $ 962 $ 967
Accrued payroll and related expenses................. 86 352 344
Accrued warranty..................................... 20 113 113
Other accrued expenses............................... 87 257 345
---- ------ ------
$315 $1,684 $ 1,769
==== ====== ======
</TABLE>

8. COMMITMENTS

Operating Leases

The Company leases its administrative, research and manufacturing
facilities and certain equipment under long-term, noncancelable lease agreements
that have been accounted for as operating leases. Certain of these leases
include scheduled rent increases and renewal options as prescribed by the
agreements.

Future minimum payments by year under long-term, noncancellable operating
leases were as follows as of December 31:

Rental expense charged to operations for all operating leases during the
periods from January 1, 1993 to June 9, 1993, June 10, 1993 to December 31, 1993
and the years ended December 31, 1994 and 1995, was approximately $10, $10, $60,
and $171, respectively.

9. SHAREHOLDERS EQUITY

Preferred Stock

In February 1995, every two shares of the Company's outstanding Common
Stock was exchanged for one share of Series A Preferred Stock with a liquidation
preference of $6.58 per share. In March 1996, the Company issued 400,000 shares
of Series B Preferred Stock to EndoSonics at $20.00 per share for aggregate
proceeds of $8,000.

F-12
<PAGE> 66

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Authorized and outstanding Preferred Stock and its principal terms are as
follows at March 31, 1996:

<TABLE>
<CAPTION>
PER SHARE
-----------------------
LIQUIDATION
SERIES AUTHORIZED OUTSTANDING DIVIDEND PREFERENCE
- ------------ ---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
A 2,060,000 2,000,000 $ 0.50 $ 6.58
B 500,000 400,000 $ 1.50 $20.00
Undesignated 5,000,000 -- -- --
--------- ---------
7,560,000 2,400,000
========= =========
</TABLE>

The holders of Preferred Stock are entitled to receive dividends when and
if declared by the Board of Directors. These dividends are in preference to any
declaration or payment of any dividends or distributions with respect to the
Company's Common Stock. As of December 31, 1995, no dividends have been
declared.

Preferred stockholders have voting rights equivalent to the number of
shares of Common Stock into which their shares are convertible. Subject to
certain antidilution provisions and other adjustments, each share of Series A
and Series B Preferred Stock is convertible, at the holder's option, into two
shares of Common Stock. All shares of Preferred Stock convert automatically to
Common Stock upon the earlier of a public offering of the Company's Common Stock
with an aggregate offering price of $7,500 or upon the date which the Company
obtains the consent of the holders of a majority of the then-outstanding shares
of Preferred Stock.

Stock Option Plan

Under the terms of the Company's 1995 Stock Option Plan (the "1995 Plan")
eligible key employees, directors, and consultants can receive options to
purchase shares of the Company's Common Stock at a price not less than 100% for
incentive stock options and 85% for nonqualified stock options of the fair value
on the date of grant, as determined by the Board of Directors. The Company has
authorized 977,000 shares of Common Stock for issuance under the 1995 Plan. The
options granted under the 1995 Plan are exercisable over a maximum term of ten
years from the date of grant and generally vest over a four year period. Shares
underlying the exercise of unvested options are subject to various restrictions
as to resale and right of repurchase by the Company which lapses over the
vesting period.

Through December 31, 1995 the Company had granted options to purchase
957,000 shares of Common Stock with exercise prices ranging from $1.00 to $1.50.
An additional 20,000 options were granted during the three-month period ended
March 31, 1996 at an exercise price of $2.50 per share. No options have been
exercised and 125,000 options were exercisable at December 31, 1995 (184,458 at
March 31, 1996).

During 1995, the Company recorded deferred compensation of approximately
$345 for financial reporting purposes to reflect the difference between the
exercise price of certain options and the deemed fair value, for financial
statement presentation purposes, of the Company's shares of Common Stock. An
additional $50 of deferred compensation was recorded during the three-month
period ended March 31, 1996. Deferred compensation is being amortized over the
vesting period of the related options.

F-13
<PAGE> 67

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

10. INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:

<TABLE>
<CAPTION>
1994 1995
----------------- -----------------
FEDERAL STATE FEDERAL STATE
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net operating loss carryforward.................. $ 641 $ 55 $ 1,322 $ 60
Research and development credits................. -- -- 97 25
Inventory write-downs............................ -- -- 73 13
Capitalized research and development............. -- -- -- 150
Deferred revenue................................. 64 11 45 8
Bad debt reserve................................. 30 5 63 11
Other............................................ 16 3 20 3
----- ---- ------- -----
Gross deferred tax assets........................ 751 74 1,620 270
Valuation allowance.............................. (745) (73) (1,620) (270)
----- ---- ------- -----
Total deferred tax assets........................ 6 1 -- --
Other............................................ (6) (1) -- --
----- ---- ------- -----
Gross deferred tax liabilities................... (6) (1) -- --
----- ---- ------- -----
Net deferred tax assets.......................... $ -- $ -- $ -- $ --
===== ==== ======= =====
</TABLE>

The Company believes that, based on a number of factors including the lack
of an earnings history, there is uncertainty regarding the realizability of the
deferred tax assets such that a full valuation allowance has been recorded. The
valuation allowance increased by $317, $391 and $1,072 in 1993, 1994 and 1995,
respectively.

At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $3,800, which expire in the years
2006 through 2010 and net operating loss carryforwards for state tax purposes of
approximately $1,000 which expire in the years 1997 through 2000.

Because of the "change of ownership" provision of the Tax Reform Act of
1986, utilization of the Company's net operating loss carryforwards may be
subject to an annual limitation against taxable income in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future income tax liabilities.

11. SUBSEQUENT EVENTS

In May 1996, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
authorizing the issuance of 3,400,000 shares of Common Stock to the public (the
"offering"). If the offering is consummated under the terms presently
anticipated, each share of convertible Preferred Stock outstanding will convert
into two shares of Common Stock and the Convertible Obligation will convert into
62,500 shares of Common Stock (assuming an initial public offering price of
$12.00 per share). Unaudited pro forma stockholders' equity, as adjusted for the
assumed conversion of the convertible Preferred Stock and Convertible Obligation
described above, is set forth on the accompanying balance sheet.

In anticipation of the offering, the Company effected a 2-for-1 stock split
of all outstanding shares of Common Stock and options and changed the conversion
ratio of Preferred Stock to two shares of Common Stock for each Preferred share.
All Common share and per share amounts included in the accompanying

F-14
<PAGE> 68

CARDIOVASCULAR DYNAMICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

financial statements have been retroactively adjusted to reflect the stock split
as well as the change in the Preferred Stock conversion ratio.

In May 1996 the Company adopted the 1996 Stock Option/Stock Issuance Plan
(the "1996 Plan") which is the successor to the Company's existing 1995 Plan
(see Note 9). A total of 1,200,000 shares of Common Stock have been reserved for
future issuance under the 1996 Plan including those shares previously reserved
under the 1995 Plan. The 1996 Plan provides for the grant of stock options or
issuances of stock to employees, consultants and directors of the Company.

In May 1996, the Company also adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 200,000 shares of Common Stock are reserved
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions at a price equal
to the lower of 85% of the fair market value of the Company's Common Stock at
the beginning or end of the applicable offering period.

During May 1996, the Company agreed to issue an additional warrant to
SCIMED to purchase up to 20,000 shares of Series A Preferred Stock at an
exercise price of $6.58 per share in exchange for a waiver of SCIMED's
anti-dilution right related to the shares to be issued under the 1996 Plan. (See
Note 2).

In connection with the offering, CVD and EndoSonics will enter into a Tax
Allocation Agreement that will provide, among other things, for (i) the
allocation of tax liabilities and adjustments thereto as between the business of
the Company and other businesses conducted by EndoSonics and its affiliates
related to periods in which the Company is includable in consolidated federal
income tax returns filed by EndoSonics, (ii) the allocation of responsibility
for filing tax returns and (iii) the conduct of and responsibility for taxes
owed in connection with tax audits and various related matters.

EndoSonics and CVD will also enter into a Stockholder Agreement providing
that all transactions between the Company and EndoSonics or any affiliate of
EndoSonics must be approved by a special committee of CVD's Board of Directors
comprised of two directors who are not officers, directors, employees or
affiliates of EndoSonics. The provisions of this agreement will become effective
upon the consummation of the offering and will terminate on the earlier of seven
years from the date of the agreement or on the date EndoSonics beneficially owns
less than 25% of CVD's Common Stock.

F-15
<PAGE> 69

[ART WORK]
<PAGE> 70
- ------------------------------------------------------
- ------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANY ONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
The Company........................... 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 35
Certain Transactions.................. 42
Principal Stockholders................ 45
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 48
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Additional Information................ 51
Index to Financial Statements......... F-1
------------------------
</TABLE>
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------

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

3,400,000 SHARES

LOGO

COMMON STOCK
------------------------
PROSPECTUS
------------------------

VOLPE, WELTY & COMPANY
WESSELS, ARNOLD & HENDERSON
VECTOR SECURITIES INTERNATIONAL, INC.

, 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 71

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.

<TABLE>
<S> <C>
SEC Registration fee.................................................... $ 17,778
NASD fee................................................................ 5,583
Nasdaq National Market listing fee...................................... 43,075
Printing and engraving.................................................. 120,000
Legal fees and expenses................................................. 225,000
Accounting fees and expenses............................................ 150,000
Blue sky fees and expenses.............................................. 15,000
Transfer agent fees..................................................... 10,000
Directors' and Officers' Liability Insurance............................ 150,000
Miscellaneous........................................................... 33,564
---------
Total.............................................................. $ 770,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VIII of the Registrant's Bylaws
provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.1 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is also made to the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant
against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since June 1993, the Registrant has issued and sold the following
securities:

1. On September 10, 1994, the Company issued and sold an aggregate of
380,000 shares of Common Stock (subsequently recapitalized into Series A
Preferred Stock) to SCIMED for an aggregate purchase price of $2,500,000.

II-1
<PAGE> 72

2. On July 17, 1995, the Company issued a $750,000 convertible
obligation to Fukuda. The convertible obligation will convert into Common
Stock at the public offering price upon the consummation of this offering.

3. On June 30, 1995 and May 2, 1996, the Company issued warrants to
SCIMED to purchase 40,000 shares of Series A Preferred Stock and 20,000
shares of Series A Preferred Stock, respectively, each at an exercise price
of $6.58 per share. The warrants were issued in connection with the waiver
of certain rights by SCIMED under the Stock Purchase and Technology License
Agreement dated September 10, 1994, as amended on September 29, 1995.

4. On March 29, 1996, the Company issued and sold an aggregate of
400,000 shares of Series B Preferred Stock to EndoSonics Corporation for an
aggregate purchase price of $8,000,000.

The issuances of the securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of such
Act as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ------------------------------------------------------------------------------
<S> <C>
1.1(1) Form of Underwriting Agreement.
2.1(2) Agreement and Plan of Reorganization dated as of June 9, 1993 among EndoSonics
Corporation ("EndoSonics"), EndoSonics Acquisition Corporation and
CardioVascular Dynamics, Inc. ("CVD").
2.2(2) First Amendment dated as of June 30, 1993 to the Agreement and Plan of
Reorganization among EndoSonics, EndoSonics Acquisition Corporation and CVD.
3.1(2) Certificate of Incorporation.
3.2(2) Amended Bylaws.
4.1(1) Specimen Certificate of Common Stock.
5.1(1) Opinion of Brobeck, Phleger & Harrison LLP.
10.1(2) Form of Indemnification Agreement to be entered into between the Registrant
and its directors and officers.
10.2(2) The Registrant's 1996 Stock Option Plan and forms of agreements thereunder.
10.3(2) The Registrant's Employee Stock Purchase Plan and forms of agreement
thereunder.
10.4(2) Series A Supplemental Stock Purchase Agreement dated June 5, 1992, by and
between the Company and CVD.
10.5(2) Stock Purchase Option Agreement dated June 5, 1992, by and between EndoSonics
and CVD.
10.6*(2) Japanese Distribution Agreement dated May 28, 1993, as amended on October 27,
1994 and July 17, 1995, (the "Japanese Distribution Agreements") by and
between CVD and Fukuda Denshi Co., Ltd. ("Fukuda")
10.7*(2) Stock Purchase and Technology License Agreement dated September 10, 1994, as
amended on September 29, 1995, by and among EndoSonics, CVD and SCIMED Life
Systems, Inc. ("SCIMED").
10.8(2) Waiver and Grant of Warrant dated June 30, 1995 by and between SCIMED, CVD and
EndoSonics.
10.9*(2) License Agreement dated January 15, 1995 by and between CVD and Advanced
Cardiovascular Systems, Inc. ("ACS").
10.10*(2) License Agreement dated March 4, 1996 by and between CVD and ACS.
10.11(2) Series B Stock Purchase Agreement dated March 29, 1996 by and between CVD and
EndoSonics.
10.12(2) License Agreement dated December 22, 1995 by and between CVD and EndoSonics.
10.13(1) Stockholder Agreement with EndoSonics.
</TABLE>

II-2
<PAGE> 73

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- ------------------------------------------------------------------------------
<S> <C>
10.14(1) Tax Allocation Agreement with EndoSonics.
10.15(2) Industrial Lease dated February 23, 1995 by and between the Irvine Company and
CVD.
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and between SCIMED, CVD and
EndoSonics.
10.17 Amendment to Japanese Distribution Agreements dated May 13, 1996 by and
between CVD and Fukuda.
11.1 Computation of Earnings Per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2(1) Consent of Brobeck, Phleger & Harrison LLP (Reference is made to Exhibit 5.1).
24.1(2) Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>

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

* Confidential treatment requested.

(1) To be filed by amendment.

(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 3, 1996.

(B) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 74

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Irvine, State of California, on this 16th day of May, 1996.

CARDIOVASCULAR DYNAMICS, INC.

By:/s/ DANA P. NICKELL
Dana P. Nickell
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
MICHAEL R. HENSON* President, Chief Executive Officer May 16, 1996
(Michael R. Henson) (Principal Executive Officer) and
Chairman

/s/ DANA P. NICKELL Vice President, Finance and May 16, 1996
(Dana P. Nickell) Administration, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)

WILLIAM G. DAVIS* Director May 16, 1996
(William G. Davis)

MITCHELL DANN* Director May 16, 1996
(Mitchell Dann)

GERARD VON HOFFMAN* Director May 16, 1996
(Gerard von Hoffman)

EDWARD M. LEONARD* Director May 16, 1996
(Edward M. Leonard)

*By: /s/ DANA P. NICKELL
(Dana P. Nickell, Attorney-in-Fact)
</TABLE>

II-4
<PAGE> 75

CARDIOVASCULAR DYNAMICS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
----------------------
COLUMN B ADDITIONS COLUMN E
---------- ---------------------- ----------
COLUMN A BALANCE AT CHARGES TO CHARGED COLUMN D BALANCE AT
- ------------------------------------------ BEGINNING COST AND TO OTHER ---------- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts......... $ 85 $ 95 $ -- $ -- $180
Accrued warranty expenses............... $ 20 $ 93 $ -- $ -- $113
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts......... $ -- $ 85 $ -- $ -- $ 85
Accrued warranty expenses............... $ -- $ 20 $ -- $ -- $ 20
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts......... $ -- $ -- $ -- $ -- $ --
Accrued warranty expenses............... $ -- $ -- $ -- $ -- $ --
</TABLE>

S-1
<PAGE> 76

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------- ------------
<S> <C> <C>
1.1(1) Form of Underwriting Agreement......................................
2.1(2) Agreement and Plan of Reorganization dated as of June 9, 1993 among
EndoSonics Corporation ("EndoSonics"), EndoSonics Acquisition
Corporation and CardioVascular Dynamics, Inc. ("CVD")...............
2.2(2) First Amendment dated as of June 30, 1993 to the Agreement and Plan
of Reorganization among EndoSonics, EndoSonics Acquisition
Corporation and CVD.................................................
3.1(2) Certificate of Incorporation........................................
3.2(2) Amended Bylaws......................................................
4.1(1) Specimen Certificate of Common Stock................................
5.1(1) Opinion of Brobeck, Phleger & Harrison LLP..........................
10.1(2) Form of Indemnification Agreement to be entered into between the
Registrant and its directors and officers...........................
10.2(2) The Registrant's 1996 Stock Option Plan and forms of agreements
thereunder..........................................................
10.3(2) The Registrant's Employee Stock Purchase Plan and forms of agreement
thereunder..........................................................
10.4(2) Series A Supplemental Stock Purchase Agreement dated June 5, 1992,
by and between the Company and CVD..................................
10.5(2) Stock Purchase Option Agreement dated June 5, 1992, by and between
EndoSonics and CVD..................................................
10.6*(2) Japanese Distribution Agreement dated May 28, 1993, as amended on
October 27, 1994 and July 17, 1995, (the "Japanese Distribution
Agreements") by and between CVD and Fukuda Denshi Co., Ltd.
("Fukuda")..........................................................
10.7*(2) Stock Purchase and Technology License Agreement dated September 10,
1994, as amended on September 29, 1995, by and among EndoSonics, CVD
and SCIMED Life Systems, Inc. ("SCIMED")............................
10.8(2) Waiver and Grant of Warrant dated June 30, 1995 by and between
SCIMED, CVD and EndoSonics..........................................
10.9*(2) License Agreement dated January 15, 1995 by and between CVD and
Advanced Cardiovascular Systems, Inc. ("ACS").......................
10.10*(2) License Agreement dated March 4, 1996 by and between CVD and ACS....
10.11(2) Series B Stock Purchase Agreement dated March 29, 1996 by and
between CVD and EndoSonics..........................................
10.12(2) License Agreement dated December 22, 1995 by and between CVD and
EndoSonics..........................................................
10.13(1) Stockholder Agreement with EndoSonics...............................
10.14(1) Tax Allocation Agreement with EndoSonics............................
10.15(2) Industrial Lease dated February 23, 1995 by and between the Irvine
Company and CVD.....................................................
10.16(1) Waiver and Grant of Warrant dated May 2, 1996 by and between SCIMED,
CVD and EndoSonics..................................................
10.17 Amendment to Japanese Distribution Agreements dated May 13, 1996 by
and between CVD and Fukuda..........................................
11.1(2) Computation of Earnings Per Share...................................
</TABLE>
<PAGE> 77

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- -------------------------------------------------------------------- ------------
<S> <C> <C>
23.1 Consent of Ernst & Young LLP, Independent Auditors..................
23.2(1) Consent of Brobeck, Phleger & Harrison LLP. Reference is made to
Exhibit 5.1.........................................................
24.1(2) Power of Attorney. .................................................
27.1 Financial Data Schedule.............................................
</TABLE>

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

* Confidential treatment requested.

(1) To be filed by amendment.

(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 3, 1996.
<PAGE> 78
APPENDIX

INSIDE FRONT COVER

Caption: The Next Generation...

[Graphic: FOCAL Technology catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: CVD's patented FOCAL Technology catheter balloons have smaller
end diameters and larger center diameters which target therapy directly to the
site of the coronary disease.

[Graphic: M(3) Technology catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: CVD's patented M(3) Technology combines multiple membranes of
polymeric balloon material to form a single balloon that enables balloon
angioplasty with local drug delivery and perfusion of blood on a single device.

GATEFOLD FOLLOWING INSIDE FRONT COVER

Caption: The Next Generation...

Caption: FOCAL Force Delivery

[Graphic: Atherosclerotic blockage in a coronary artery. This graphic was
previously filed with the Company's Registration Statement on Form S-1.]

Graphic Caption: This drawing depicts a typical atherosclerotic blockage in a
coronary artery (8-12mm length).

[Graphic: Inflated conventional angioplasty balloon. This graphic was previously
filed with the Company's Registration Statement on Form S-1.]

Graphic Caption: Conventional balloon angioplasty may cause significant damage
to the arterial wall surrounding the blockage.

[Graphic: Inflated FOCAL Technology balloon. This graphic was previously filed
with the Company's Registration Statement on Form S-1.]

Graphic Caption: FOCAL angioplasty directs therapeutic radial force at the
blockage with minimal damage to the adjacent arterial wall.

[Graphic: Stent positioned on FOCAL Technology balloon. This graphic was
previously filed with the Company's Registration Statement on Form S-1.]
<PAGE> 79
Graphic Caption: The Company's FOCAL and M(3) Catheters have not been approved
for stent delivery by the FDA for commercial sale in the United States. The
Company markets these catheters for stent delivery in international markets
only. There can be no assurance that these products will receive FDA approval
for stent delivery.

Caption: Vascular Stent Delivery

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: Pre-procedure angiogram showing blockage of an artery.

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: CVD FOCAL catheter delivering standard coronary stent to
disease site.

[Graphic: Angiogram. This graphic was previously filed with the Company's
Registration Statement on Form S-1.]

Graphic Caption: Post-procedure angiogram showing successful result.

Caption: Local Drug Delivery

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The crossing profile of the deflated drug delivery-PTCA
catheter is equal to or smaller than most conventional angioplasty catheters.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The catheter can be inflated with contrast media to perform
balloon angioplasty in total occlusions.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The M(3) membrane surrounds the angioplasty balloon and allows
controlled, uniform, site-specific delivery of drugs.

[Graphic: Drug delivery catheter. This graphic was previously filed with the
Company's Registration Statement on Form S-1.]

Graphic Caption: The Company's M(3) site-specific drug delivery technology can
be combined with stent delivery on a single catheter.
<PAGE> 80
INSIDE BACK COVER

Caption: Vascular Access Delivery

[Graphic: SmartNeedle Vascular Access Product. This graphic was previously filed
with the Company's Registration Statement on Form S-1.]

Graphic Caption: The Company's patented SmartNeedle vascular access technology
provides rapid, vascular access to the vasculature to facilitate interventional
procedures.

Caption: FOCAL Technology Products -- FOCUS, CAT, FACT ARC, LYNX
M(3) Technology Products -- Periflow, Bullett, Transport
Vascular Access Products -- SmartNeedle

Caption: The CAT, ARC, LYNX and Transport have not been approved by the FDA for
sale in the United States.

<PAGE> 1
EXHIBIT 10.17

Revised
Amendment to International Distribution Agreement

This Amendment Agreement is entered into this 13th day of May, 1996
between CardioVascular Dynamics, Inc., a Delaware corporation ("CVD"),
EndoSonics Corporation, a Delaware corporation ("Endosonics"), and Fukuda
Intervention Systems Co., Ltd., a subsidiary of Fukuda Denshi Co., Ltd., of
Japan (herefter "Distributor").

WHEREAS, the parties hereto are parties to an International
Distribution Agreement dated May 28, 1993, as amended on October 27, 1994 and
July 17, 1995 ( the "Distribution Agreement");

WHEREAS, the parties desire to include certain additional products of
CVD to be covered under the terms and conditions of the Distribution Agreement;

WHEREAS, in consideration for includinag such additional products,
Distributor has agreed to make a cash payment of U.S. $750,000 to CVD, which
payment shall be converted into capital stock of CVD on the terms set forth
herein;

NOW, THEREFORE, IT IS HEREBY AGREED:

1. The definition of "Products" in "Exhibit A" to the Distribution
Agreement is hereby amended to include those as expressly modified by this
Section 1, all other terms and conditions of the Distribution Agreement remain
in full force and effect.

2. Distributor shall make a cash payment to CVD in the amount
of U.S. $750,000 (the "Cash Payment") coincident with the
execution of this Agreement. The Cash Payment shall be converted
into capital stock of either CVD or EndoSonics on the terms set
forth below;

a. In the event that CVD issues and sells Common Stock in a
future round of equity financing in which CVD raises at least $750,000 from
persons or entities which are not, prior to such financing, equity holders of
CVD (the "Future Financing") subsequent to the date of this Amendment Agreement,
the Cash Payment paid pursuant to Section 2 hereof shall automatically be
converted into shares of Common Stock, such Common Stock having the same rights,
preferences and privileges and at the same price as the securities purchased by
the participants in the Future Financing.

b. In the event that EndoSonics or CVD shall consolidate,
merge, sell, convey or dispose of substantially all of CVD's shares before the
issuance of CVD's new shares in return for Fukuda's Cash Payment of $750,000 as
described in section 2(a) above, CVD will repay the $750,000 cash payment to
Fukuda, plus interest equal to eight (8) percent per year.
<PAGE> 2
c. If none of the events set forth in Sections 2 (a) of (b)
have occurred prior to the expiration of thirty (30) months from the date
hereof, CVD agrees to hire, at CVD's expense, an independent investment banker
to value CVD and determine the per share price at which the U.S. $750,000 shall
be converted into shares of CVD with terms comparable to CVD's outstanding
Common Stock, except for price related terms. The investment banker shall be
selected and agreed to by CVD and Distributor.

Immediately upon the occurrence of any of the events set forth
in Sections 2(a), (b) or (c) hereof, the remaining conversion rights set forth
in this Section 2 shall terminate.

3. a. This Amendment Agreement shall be governed by the
laws of California, without regard to its choice of laws or conflicts of law
provisions.

b. This Agreement may be executed in counterparts,
each copy of which shall for all purposes be deemed an original.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement
as of the date first above written.

FUKUDA INTERVENTION CO., LTD.
BY: /s/ KOTARO FUKUDA
TITLE: PRESIDENT

FUKUDA DENSHI CO., LTD.
BY: /s/ KOTARO FUKUDA
TITLE: PRESIDENT

CARDIOVASCULAR DYNAMICS, INC.
BY: /s/ MICHAEL R. HENSON
TITLE: PRESIDENT/CEO

ENDOSONICS CORPORATION
BY: /s/ MICHAEL R. HENSON
TITLE: CHAIRMAN
<PAGE> 4
Exhibit A

[CVD Interpoint Products for Peripheral Vascular, Neurovascular,
Gastrointestinal and Urology Applications]

<PAGE> 1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to use of our report dated March 15, 1996,
except for Note 11, as to which the date is May 13, 1996 in Amendment No. 1 to
the Registration Statement (Form S-1) and related Prospectus of CardioVascular
Dynamics, Inc. for the registration of 3,910,000 shares of its Common Stock.

Our audits also included the financial statement schedule of CardioVascular
Dynamics, Inc. listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Palo Alto, California
May 16, 1996

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CARDIOVASCULAR DYNAMICS, INC. FINANCIAL STATEMENTS AT DECEMBER 31, 1995 AND FOR
THE YEAR THEN ENDED AND AT MARCH 31, 1996 AND FOR THE 3 MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN
THE CARDIOVASCULAR DYNAMICS, INC. REGISTRATION STATEMENT ON FORM S-1.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 1,568 8,655
<SECURITIES> 0 0
<RECEIVABLES> 1,297 1,504
<ALLOWANCES> 180 180
<INVENTORY> 754 752
<CURRENT-ASSETS> 3,497 11,150
<PP&E> 531 677
<DEPRECIATION> 107 152
<TOTAL-ASSETS> 4,002 11,770
<CURRENT-LIABILITIES> 4,271 4,402
<BONDS> 750 750
0 0
2,000 2,400
<COMMON> 0 0
<OTHER-SE> 5,670 13,720
<TOTAL-LIABILITY-AND-EQUITY> 4,002 11,770
<SALES> 3,462 1,783
<TOTAL-REVENUES> 4,103 2,033
<CGS> 2,051 942
<TOTAL-COSTS> 7,079 2,437
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 180 180
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,976) (404)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,976) (404)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,874) (377)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (.65) (.08)

</TABLE>