MICRO THERAPEUTICS INC, SB-2/A, 1997-02-13

MICRO THERAPEUTICS INC
SB-2/A, 1997-02-13
PHARMACEUTICAL PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997

REGISTRATION NO. 333-17345
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4

TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MICRO THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3841 33-0569235
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

1062 CALLE NEGOCIO #F,
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE WALLACE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICRO THERAPEUTICS, INC.
1062 CALLE NEGOCIO #F
SAN CLEMENTE, CALIFORNIA 92673
(714) 361-0616
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
BRUCE FEUCHTER, ESQ. STEPHEN M. TENNIS, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH MORRISON & FOERSTER LLP
660 NEWPORT CENTER DRIVE, SUITE 1600 755 PAGE MILL ROAD
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94304-1018
(714) 725-4000 (415) 813-5600
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.

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, 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. [ ]

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<PAGE> 2

PROSPECTUS

1,600,000 SHARES

LOGO

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

All of the 1,600,000 shares of Common Stock offered hereby are being sold
by Micro Therapeutics, Inc. ("MTI" or the "Company"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The shares of Common Stock have been approved
for quotation on the Nasdaq National Market under the symbol "MTIX."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 6.
------------------------

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.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
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Per Share.............................. $6.00 $0.42 $5.58
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Total(3)............................... $9,600,000 $672,000 $8,928,000
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</TABLE>

(1) For information concerning indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $533,314.

(3) The Company has granted to the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 240,000 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 will be $11,040,000, the Underwriting Discounts and
Commissions will be $772,800 and the Proceeds to the Company will be
$10,267,200. See "Underwriting."

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

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
, 1997.
------------------------

UBS SECURITIES VOLPE, WELTY & COMPANY

, 1997
<PAGE> 3

[PICTURES AND TEXT]

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 TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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<PAGE> 4

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, including the information under "Risk Factors." This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under "Risk Factors."

THE COMPANY

Micro Therapeutics, Inc. ("MTI" or the "Company") develops, manufactures
and markets minimally invasive medical devices for the diagnosis and treatment
of vascular disease. MTI focuses its efforts in two underserved markets: (i) the
treatment of neuro vascular disorders of the brain associated with stroke; and
(ii) the treatment of peripheral vascular disease, including blood clot therapy
in hemodialysis access grafts, arteries and veins. The Company's objective is to
provide physicians with new interventional treatment alternatives which improve
outcomes, reduce costs, shorten procedure times, reduce drug usage and allow
access to difficult-to-reach anatomical locations. The Company currently markets
more than forty products for the treatment of peripheral vascular disease and
will introduce products for the treatment of neuro vascular disease in 1997.

Vascular disease is the leading cause of death in the industrialized world,
and is responsible for over 40% of all deaths in the United States. Vascular
disease may occur in any blood vessel in the body, and is generally manifested
as an occlusion or rupture in a vessel. The vascular disease market consists of
three segments, defined by anatomical location: cardiovascular disease, or
disease in the coronary arteries; neuro vascular disease, or disease in the
vessels in the brain; and peripheral vascular disease, or disease in blood
vessels throughout the rest of the body. MTI is focused on the two segments it
believes to be underserved: neuro vascular and peripheral vascular disease.

The leading complication of neuro vascular disease is stroke, the
diminished blood flow to critical regions of the brain. The medical need for
effective stroke therapy exists because of the severity of the disorder, its
prevalence in society, the inadequacy of current therapies and the high cost of
treatment and care. There are approximately 500,000 cases of stroke per year in
the United States. Strokes are typically caused either by blockages
(vaso-occlusive stroke) or ruptures (hemorrhagic stroke) of arteries within or
leading to the brain. The most common type of vaso-occlusive stroke is caused by
the existence of a blood clot within an artery, blocking blood flow. Hemorrhagic
stroke is generally caused by the rupture of a blood vessel in the brain
resulting from a vascular defect such as an aneurysm or arteriovenous
malformation ("AVM"). While 30,000 stroke cases are related to ruptured
aneurysms, unruptured aneurysms may occur in approximately 2% to 5% of the
general population in the United States.

Approximately eight million people have been diagnosed with peripheral
vascular disease in the United States, of which an estimated one million are
treated annually. Vascular obstruction causes discernible clinical symptoms
including skin discoloration, pain, ulceration, swelling or a change in blood
chemistry, and can result in the loss of limb or even death.

The LES utilizes a material which is delivered as a liquid that fills and
conforms to the shape of an aneurysm or AVM. It then transforms into a solid
polymer cast. The Company believes these features will allow the physician to
fill such defects in a controlled fashion, leading to better outcomes. The
Company has been conducting preclinical studies of the LES and has initiated
human clinical trials outside of the United States.

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The Company's products in the peripheral vascular market designed for less
invasive treatment of blood clots include: (i) a broad offering of infusion
catheters, micro catheters and infusion wires; and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot. The Company's line of
catheters and infusion wires incorporate proprietary features, including the
Cragg MicroValve which allows for efficient sidehole infusion with or without a
guidewire in place.

The Cragg Thrombolytic Brush, currently in advanced clinical trials,
consists of a soft nylon brush mounted on a wire cable which is introduced
through a catheter and rotated with a motor as thrombolytic drugs are infused.
The rotation of the brush within the clot actively mixes the drug into the clot,
exposing more clot surface to the drug, thus accelerating the thrombolytic
process. A 510(k) market clearance application for the Cragg Thrombolytic Brush
was submitted to the FDA in September 1996.

The Company's goal is to be a leading provider of interventional solutions
for treatment of neuro vascular and peripheral vascular disease. The Company
intends to achieve this goal by: (i) focusing its efforts on developing products
for the treatment of vascular disease in the neuro vascular and peripheral
vascular markets, which the Company believes are currently underserved; (ii)
establishing early market presence through the development, rapid regulatory
approval and distribution of a broad product offering for the interventional
radiologist; and (iii) developing new interventional technologies such as the
LES and Cragg Thrombolytic Brush, which it believes will expand the pool of
patients who may be candidates for interventional therapy.

The Company was incorporated in California in 1993. The Company
reincorporated in Delaware by forming a wholly-owned Delaware subsidiary in July
1996, and merging into such subsidiary in November 1996. All references to "MTI"
or the "Company" in this Prospectus refer to Micro Therapeutics, Inc., a
Delaware corporation and its predecessor. The Company's headquarters and
principal place of business is located at 1062 Calle Negocio #F, San Clemente,
California 92673, and its telephone number is (714) 361-0616.
Cragg-McNamara(TM), Cragg MicroValve(TM), ProStream(TM), Patency(TM),
MicroPatency(TM), MicroMewi(TM), Cragg Thrombolytic Brush(TM), Katzen
Select(TM), LES(TM), EASY RIDER(TM) and the Company's logo are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. Risk factors of this Offering include, among others, early stage of
development, uncertain market acceptance, rapid technological change, new
product development and intense competition.

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<PAGE> 6

THE OFFERING

Common Stock offered by the Company... 1,600,000 shares

Common Stock to be outstanding after
the Offering.......................... 6,158,633 shares(1)

Use of proceeds....................... To fund research and development,
clinical trials, expansion of
marketing and sales activities, and
for working capital and other general
corporate purposes. See "Use of
Proceeds."

Nasdaq National Market Symbol......... MTIX.

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
JUNE 11, 1993 YEARS ENDED DECEMBER 31, NINE MONTHS
(DATE OF INCEPTION) ENDED SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales....................................... -- 26,978 316,404 161,261 1,115,658
--------- ---------- ---------- ---------- ----------
Gross profit (loss)................................. -- (749) (24,102) (26,177) (146,668)
Research and development expenses................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and administrative expenses........ 23,782 546,817 1,499,103 928,776 2,303,113
--------- ---------- ---------- ---------- ----------
Operating loss...................................... (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income (591) 16,590 201,578 161,327 117,713
(expense), net....................................
--------- ---------- ---------- ---------- ----------
Net loss............................................ $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= ========== ========== ========== ==========
Pro forma net loss per common and common equivalent $ (0.83) $ (1.16)
share (2).........................................
========== ==========
Pro forma weighted average common and common 3,390,000 3,379,000
equivalent shares outstanding (2).................
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, -------------------------------
BALANCE SHEET DATA: 1995 PRO FORMA(3) AS ADJUSTED(4)
------------ ------------ --------------
<S> <C> <C> <C>
Cash, cash equivalents and short term investments....................... $ 2,417,644 $ 6,065,067 $ 14,514,209
Working capital......................................................... 2,358,050 6,212,247 14,730,367
Total assets............................................................ 3,220,977 7,831,791 16,150,813
Accumulated deficit..................................................... (4,223,556) (8,144,780) (8,144,780)
Total stockholders' equity.............................................. 2,878,041 7,110,982 15,498,982
</TABLE>

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(1) Excludes: (i) 704,600 shares of Common Stock issuable upon exercise of
outstanding stock options as of February 6, 1997 at a weighted average
exercise price of $2.33 per share, of which options to purchase 230,898
shares were then exercisable; and (ii) 13,683 shares of Common Stock
issuable upon exercise of certain warrants at an exercise price of $5.22 per
share. See "Capitalization," "Description of Securities,"
"Management -- 1993 Stock Option Plan" and "-- 1996 Stock Incentive Plan."

(2) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.

(3) The pro forma data gives effect to the conversion of all outstanding shares
of convertible Preferred Stock into shares of Common Stock that will occur
in connection with the closing of the Offering as if such conversion had
occurred at the beginning of the period indicated.

(4) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 1,600,000 shares of Common Stock offered hereby at an initial public
offering price of $6.00 per share, and after deducting the estimated
underwriters discounts and commissions and estimated offering expenses
payable by the Company. See "Use of Proceeds," "Capitalization" and
"Selected Financial Data."

Unless otherwise indicated, all information in this Prospectus assumes: (i)
the Underwriters' over-allotment option is not exercised; (ii) a 0.65 for 1.0
reverse stock split of the outstanding shares of the Company's Common Stock,
which will be effective upon the closing of this Offering; (iii) the filing of
the Company's Certificate of Incorporation, authorizing 5,000,000 shares of
undesignated Preferred Stock and increasing the number of shares of authorized
Common Stock to 20,000,000, which will be effective upon the closing of this
Offering; and (iv) the conversion of all outstanding shares of Preferred Stock
into Common Stock prior to or effective upon the closing of this Offering. See
"Description of Capital Stock," "Capitalization" and "Underwriting."

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<PAGE> 7

RISK FACTORS

Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus.

Early Stage of Development. The Company has only recently commercially
introduced a number of products. Several of its key products are in the early
stage of development. The Liquid Embolic System ("LES") has not yet entered
clinical trials in the United States and the Company recently filed its 510(k)
market clearance application covering the Cragg Thrombolytic Brush.
Commercialization of the Company's products will depend on a number of factors,
including the Company's ability to demonstrate the safety and efficacy of such
products in the clinical setting. There can be no assurance that the Company's
products will be safe and effective in clinical trials or will ultimately be
cleared for marketing by U.S. or foreign regulatory authorities. Failure to
develop safe and effective products, which are approved for sale on a timely
basis would have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Government Regulation" and
"-- Products."

Uncertainty of Market Acceptance. Even if the Company is successful in
developing safe and effective products that have received marketing clearance,
there can be no assurance that the Company's products will gain market
acceptance. Acceptance of the Company's LES and Cragg Thrombolytic Brush will
require the Company to satisfactorily address the needs of potential customers.
The target customers for the Company's products are interventional radiologists
and interventional neuroradiologists. However, there can be no assurance that
acceptance of the Company's products by interventional radiologists and
interventional neuroradiologists will translate into sales. In addition, no
assurance can be given that the Company's market share for its existing products
will grow or that its products which have yet to be introduced will be accepted
in the market. If the Company is unable to gain market acceptance of its current
and future products, the Company's business, operating results and financial
condition would be materially adversely affected. See "Business -- Products,"
"-- Sales and Marketing" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Rapid Technological Change; New Product Development. The markets for the
Company's products are characterized by rapidly changing technologies and new
product introductions and enhancements. In addition to the risks associated with
market acceptance of the Company's products, the Company's success will depend
to a significant extent upon its ability to enhance and expand the utility of
its products and to develop and introduce innovative new products that gain
market acceptance. Moreover, the Company may encounter technical problems in
connection with its product development that could delay introduction of new
products or product enhancements. There can be no assurance that new
technologies, products or drug therapies developed by others will not reduce the
demand for the Company's products. The Company maintains research and
development programs to continually improve its product offerings, including
adding interventional devices. There can be no assurance however that such
efforts will be successful or that other companies will not develop and
commercialize products based on new technologies that are superior in either
performance or cost-effectiveness to the Company's products. See
"Business -- Research and Development," "-- Background" and "-- Sales and
Marketing."

Intense Competition. The medical technology industry is characterized by
intense competition. The Company's products will compete with other medical
devices, surgical procedures and pharmaceutical products. A number of the
companies in the medical technology industry, including manufacturers of neuro
vascular and peripheral vascular products, have substantially greater capital
resources, larger customer bases, broader product lines, greater marketing and
management resources, larger research and development staffs and larger
facilities than the Company. Such entities have developed, or may develop,
additional products competitive with the Company's products. There can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more readily accepted than those
developed or marketed by the Company or that such competing products would not
render the Company's technology and products obsolete or noncompetitive.
Although the Company believes that its products may offer certain advantages
over its competitors' currently-marketed products, earlier entrants in the
market often obtain and maintain significant market share relative to later
entrants. While the Company has designed its

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products to be cost effective and more efficient than competing technologies,
there can be no assurance that competitors will not provide better methods or
products at comparable or lower costs. The Company may experience competitive
pricing pressures that may adversely affect unit prices and sales levels and,
consequently, materially adversely affect the Company's business, operating
results and financial condition.

The Company also competes with other manufacturers of medical devices for
clinical sites to conduct human trials. The Company's ability to locate such
clinical sites on a timely basis could have a material adverse effect on the
Company's ability to conduct trials of its products which may be necessary to
obtain required FDA clearance or approval of such products. Such delays could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Competition."

Limited Operating History; Absence of Profitability. The Company was
incorporated in 1993. To date, the Company's business has generated limited
product sales. From its inception through September 30, 1996, the Company
incurred cumulative losses of approximately $8.1 million. The Company expects to
incur additional losses as it expands its research and development,
manufacturing and marketing efforts. No assurance can be given that the Company
will achieve significant sales of its products or that such sales will lead to
profitability. There can be no assurance that the Company will not encounter
substantial delays and unexpected expenses related to the introduction of its
current and future products, or the Company's research and development,
manufacturing and marketing efforts. Such delays or expenses could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Products" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Possible Need for Additional Funds; Uncertainty of Additional
Financing. The Company's operations to date have consumed substantial amounts
of cash, and the Company expects its capital and operating expenditures to
increase. The Company believes that its existing capital resources and
anticipated cash flow from planned operations, together with the net proceeds of
this Offering and the interest earned thereon, should be adequate to satisfy its
capital requirements for at least the next eighteen months. There can be no
assurance, however, that the Company will not need additional capital before
such time. The Company's need for additional financing will depend upon numerous
factors, including the extent and duration of the Company's future operating
losses, the level and timing of future revenues and expenditures, market
acceptance of new products, the results and scope of ongoing research and
development projects, competing technologies, and market and regulatory
developments. The Company currently has no committed external sources of funds.
To the extent that existing resources are insufficient to fund the Company's
activities, the Company may seek to raise additional funds through public or
private financing. There can be no assurance that additional financing will be
available or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then-existing stockholders may result. If adequate funds are not available, the
Company's business, operating results and financial condition may be materially
adversely affected. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business."

Dependence on Patents and Proprietary Technology. The success of the
Company will depend, in part, on its ability to obtain and maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of others. The patent position of a
medical device company may involve complex legal and factual issues. As of
November 30, 1996, the Company held eight issued U.S. patents, one issued
foreign patent and has seventeen U.S. and eight foreign patent applications
pending. The Company's issued U.S. patents cover technology underlying the Cragg
MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid Embolic System and
carotid and intra-cerebral stent products. The expiration dates of these patents
range from February 2009 to December 2015. The pending claims cover various
aspects of its infusion catheter, infusion wire, Thrombolytic Brush, micro
catheter, Liquid Embolic System, carotid and intra-cerebral stent technologies
and non-vascular liquid embolic products. Each product area the Company is
pursuing is covered by at least one issued and pending patent. One of the
patents used by the Company is currently licensed by the Company from Andrew
Cragg, M.D. There can be no assurance that issued patents will provide
significant proprietary protection, that pending patents will be issued, or that
products incorporating the technology in issued patents or pending applications
will be free of challenge from competitors. There also can be no assurance that
patents belonging to competitors will not require the

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<PAGE> 9

Company to alter its technology and products, pay licensing fees or cease to
market or develop its current or future technology and products. The Company
also relies on trade secrets to protect its proprietary technology, and no
assurance can be given that others will not independently develop or otherwise
acquire equivalent technology or that the Company can maintain such technology
as trade secrets. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as the laws of the United
States. The failure of the Company to protect its intellectual property rights
could have a material adverse effect on its business, operating results and
financial condition. See "Business -- Patents and Proprietary Rights."

The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. There can be no
assurance that infringement, invalidity, right to use or ownership claims by
third parties will not be asserted against the Company in the future. Although
patent and intellectual property disputes in the medical device industry have
often been settled through licensing or similar arrangements, costs associated
with such arrangements may be substantial and there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, should the Company decide to litigate such claims, such litigation
could be expensive and time consuming, could divert management's attention from
other matters and could have a material adverse effect on the Company's
business, operating results and financial condition, regardless of the outcome
of the litigation.

Limited Marketing Experience; Lack of Distribution. The Company's sales
force consists of nine people in the United States and one person in Europe all
of whom have been with the Company for a limited time. The Company believes it
will have to increase the number of sales personnel to fully cover its target
markets. Recently, there has been an increase in competition for sales personnel
experienced in interventional medical device sales and, as a result, the Company
has experienced significant turnover in its sales force. There can be no
assurance that the Company will be able to successfully respond to this
competition and attract, motivate and retain qualified sales personnel. The
Company intends to market and sell its products outside the United States
principally through distributors and believes that it will need to significantly
expand its distributor network or develop its own sales force. The Company's
ability to market its products in certain areas may depend on strategic
alliances with marketing partners. There can be no assurance that the Company
will be able to enter into distribution agreements on acceptable terms or at
all, that such agreements will be successful in developing the Company's
marketing capabilities or that the Company will be able to successfully develop
a direct sales force. Such failure could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Sales and Marketing."

Limited Manufacturing Experience. The Company's experience in
manufacturing its products is limited. The Company anticipates that it will be
necessary to expand its manufacturing capacity in connection with the continued
commercialization of its products. Such commercialization may require the
additional commitment of capital resources for facilities, tooling and equipment
and for leasehold improvements. The Company expects that the expansion of its
manufacturing capacity within the next eighteen months will be achieved from
improved efficiencies, automation and the acquisition of additional tooling and
equipment. The Company does not expect to require any expansion of its
manufacturing facilities during the next eighteen months. Any delay or inability
in expanding its manufacturing capacity or in obtaining the commitment of such
resources could materially adversely affect the Company's manufacturing ability,
business, operating results and financial condition. See "Business -- Sales and
Marketing" and "-- Manufacturing."

Government Regulation. The development, testing, manufacturing and
marketing of MTI's products in the United States are regulated by the U.S. Food
and Drug Administration ("FDA") as well as various state agencies. The FDA
requires governmental clearance of such products before they are marketed. The
process of obtaining FDA and other required regulatory clearances is lengthy,
expensive and uncertain. Moreover, regulatory clearance, if granted, may include
significant limitations on the indicated uses for which a product may be
marketed. Failure to comply with applicable regulatory requirements can result
in, among other things, warning letters, fines, suspensions of approvals,
product seizures, injunctions, recalls of products, operating

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<PAGE> 10

restrictions and criminal prosecutions. The restriction, suspension or
revocation of regulatory approvals or any other failure to comply with
regulatory approvals or requirements would have a material adverse effect on the
Company's business, financial condition and results of operations. The offer and
sale of the Company's current products required the submission of information to
the FDA in the form of a 510(k) pre-market notification to substantiate label
claims and to demonstrate "substantial equivalence" to a legally marketed Class
I or II medical device or a Class III medical device for which the FDA has not
called for premarket approvals ("PMAs"). Although the Company has received FDA
clearance for many of these products, there can be no assurance that the Company
will be able to obtain the necessary regulatory clearance for the manufacture
and marketing of enhancements to its existing products or future products either
in the United States or in foreign markets on a timely basis or at all. The
Company has made modifications which affect 17 of its products covered under
three 510(k) clearances, which modifications, the Company believes, do not
affect the safety or efficacy of the products and thus, under FDA guidelines, do
not require the submission of new 510(k) notices. There can be no assurance,
however, that the FDA would agree with any of the Company's determinations not
to submit a new 510(k) notice for any of these changes or would not require the
Company to submit a new 510(k) notice for any of the changes made to a device.
If the FDA requires the Company to submit a new 510(k) notice for any device
modification, the Company may be prohibited from marketing the modified device
until the 510(k) notice is cleared by the FDA. Utilization of the Company's LES
and its Cragg Thrombolytic Brush may require submission of a PMA application to
the FDA, which generally involves a substantially longer and less certain review
process than that of a 510(k) pre-market notification. In either event, such
approvals or clearances may require human clinical testing prior to any action
on such products by the FDA. Based on the information presented by the Company
regarding the material composition of the LES, the Company believes the LES
would be regulated as a device. There can be no assurance, however, that upon
more detailed review of the LES, the FDA will not at a later date determine that
the LES should be regulated as a drug. Such a change could significantly delay
the commercial availability of the LES and have a material adverse effect on the
Company's business, operating results and financial condition. Delays in receipt
of, or failure to receive, regulatory approvals or clearances to market such
products, or loss of previously received approvals or clearances, would
materially adversely affect the marketing of such products and the Company's
business, operating results and financial condition.

In the European Union, the Company will be required to obtain the
certifications necessary to affix the CE Mark to its products by mid-1998 in
order to continue sales in member countries of the European Union. Although the
CE Mark requirement for medical devices does not become effective until June
1998, the Company's experience to date in European Union countries is that the
CE Mark is already necessary to achieve meaningful sales. The Company intends to
acquire the certifications necessary to affix the CE Mark to its products;
however, there can be no assurance that the Company will be able to obtain such
certifications in a timely manner, if at all. In addition, federal, state, local
and international government regulations regarding the manufacture and sale of
health care products and diagnostic devices are subject to future change and
additional regulations may be adopted which may materially adversely affect the
Company's business, operating results and financial condition.

Commercial distribution and clinical trials in most foreign countries also
are subject to varying government regulations which may delay or restrict
marketing of the Company's products. Any inability or delay in obtaining
approvals would materially adversely affect the Company's business, operating
results and financial condition.

Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed Good
Manufacturing Practices requirements, which include testing, control and
documentation requirements. The Company's manufacturing processes also are
subject to stringent federal, state and local regulations governing the use,
generation, manufacture, storage, handling and disposal of certain materials and
wastes. Although the Company believes that it has complied in all material
respects with such laws and regulations, the Company is subject to periodic
inspection to ensure its compliance with such laws and regulations. There can be
no assurance that the Company will not be required to incur significant costs in
the future in complying with manufacturing and environmental regulations, or
that the

9
<PAGE> 11

Company will not be required to cease operations in the event of its continued
failure to effect compliance. See "Business -- Government Regulation."

Risk of Product Liability Claims. The nature of the Company's business
exposes it to risk from product liability claims. The risk of such claims has
increased in light of a U.S. Supreme Court decision in 1996 concluding that the
FDA regulatory framework does not necessarily preempt personal injury actions
against medical device manufacturers. The Company currently maintains product
liability insurance for its products, with limits of $2 million per occurrence
and an annual aggregate maximum of $2 million. However, such coverage is
becoming increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at acceptable rates. Any losses that the Company may suffer from any liability
claims, and the effect that any product liability litigation may have upon the
reputation and marketability of the Company's products, may divert management's
attention from other matters and may have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Product Liability and Insurance."

Dependence on Single Source Suppliers; Independent Contract
Manufacturers. The Company purchases certain components used in its products
and receives certain services with respect to its products from third parties.
The Company's dependence on third-party suppliers involves several risks,
including limited control over pricing, availability, quality and delivery
schedules. Any delays in delivery of such components or provision of such
services or shortages of such components could cause delays in the shipment of
the Company's products, which could cause the Company's business, operating
results and financial condition to be adversely affected. The Company's
single-source components are generally acquired pursuant to purchase orders
placed in the ordinary course of business, and the Company has no guaranteed
supply arrangements with any of its single-source suppliers. Because of the
Company's reliance on these vendors, the Company may also be subject to
increases in component costs which could have a material adverse effect on its
business, operating results and financial condition. There can be no assurance
that the Company will not experience quality control problems, supply shortages
or price increases with respect to one or more of these components in the
future. The establishment of additional or replacement suppliers for certain of
these components may delay accessibility of such components as the Company
qualifies such suppliers. Any quality control problems, interruptions in supply
or component price increases with respect to one or more components could have a
material adverse effect on the Company's business, operating results and
financial condition.

The Company relies on independent contract manufacturers for the
manufacture and assembly of certain of its products and components. Reliance on
independent contract manufacturers involves several risks, including the
potential inadequacy of capacity, the unavailability of or interruptions in
access to certain process technologies and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Such manufacturers have
possession of and at times title to molds for certain manufactured components of
the Company's products. Shortages of raw materials, production capacity
constraints or delays by the Company's contract manufacturers could negatively
affect the Company's ability to meet its production obligations and result in
increased prices for affected parts. Any such reduction, constraint or delay may
result in delays in shipments of the Company's products or increases in the
prices of components, either of which could have a material adverse effect on
the Company's business, operating results and financial condition. The Company
has no supply agreements with its current contract manufacturers and utilizes
purchase orders which are subject to supplier acceptance. The unanticipated loss
of any of the Company's contract manufacturers could cause delays in the
Company's ability to deliver product while the Company identifies and qualifies
a replacement manufacturer. There can be no assurance that current or future
independent contract manufacturers will be able to meet the Company's
requirements for manufactured products. Such an event would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Manufacturing."

Dependence Upon Key Personnel. The Company is dependent to a significant
extent upon the contributions, experience and expertise of its founders, certain
members of its management team and key consultants. The Company maintains a
key-man life insurance policy in the amount of $1 million on the life of George
Wallace, the Company's President and Chief Executive Officer, however, there can
be no assurance that the

10
<PAGE> 12

Company's insurance is adequate. In addition, the Company's success will depend
upon its ability to attract and retain additional highly qualified management,
sales, technical, clinical and consulting personnel, particularly as the Company
increases its manufacturing capability. The loss of the services of any of such
key personnel or the inability to attract and retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Management."

Third-Party Reimbursement. In the United States, health care providers
such as hospitals and physicians that purchase medical devices generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of therapeutic and
diagnostic procedures. With the implementation of Medicare's Prospective Payment
System for hospital inpatient care (Diagnosis Related Groups or "DRGs") in the
1980s, public and private payors began to reimburse providers on a fixed payment
schedule for patients depending on the nature and severity of the illness. Many
tests and procedures that would have been performed under cost-plus
reimbursement formulas are subject to scrutiny and must be justified in terms of
their impact on patient outcomes. As a result, the incentives are now to conduct
only those tests that will optimize cost-effective care.

The Company could be materially adversely affected by changes in
reimbursement policies of governmental (both domestic and international) or
private healthcare payors to the extent any such changes affect reimbursement
for therapeutic or diagnostic procedures in which the Company's products are
used. Adverse changes in governmental and private third party payors' policies
toward reimbursement for such procedures would have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Third-Party Reimbursement."

Risks Associated with International Sales. To date, the Company has
derived very little revenue from international sales. The Company believes that
its future performance will be dependent in part upon its ability to increase
international sales. Although the perceived demand for certain products may be
lower outside the United States, the Company intends to continue to expand its
international operations and to enter additional international markets, which
will require significant management attention and financial resources. There can
be no assurance, however, that the Company will be able to successfully expand
its international sales. The Company's success in international markets will
depend on its ability to establish and maintain agreements with suitable
distributors, or establish a direct sales presence.

Furthermore, international sales in general are subject to inherent risks,
including unexpected changes in regulatory requirements, fluctuating exchange
rates, difficulties in staffing and managing foreign sales and support
operations, additional working capital requirements, customs, duties, tariff
regulations, export license requirements, political and economic instability,
potentially limited intellectual property protection and difficulties with
distributors. In addition, sales and distribution of the Company's products
outside the United States are subject to extensive foreign government
regulation. The Company has in the past avoided losses due to fluctuating
exchange rates associated with international sales by selling its products in
U.S. dollars; however, the Company expects to sell products in selected markets
in local currency and thus be subject to currency exchange risks in association
with such sales. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, operating results and financial
condition. See "Business -- Government Regulation -- International" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Large-scale market acceptance of the Company's products will depend on the
availability and level of reimbursement in international markets targeted by the
Company. Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Obtaining reimbursement approvals in each country
can require 12-18 months or longer.

Substantial and Immediate Dilution; Absence of Dividends. Purchasers of
the shares of Common Stock offered hereby will incur immediate dilution of
approximately $3.50 per share in net tangible book value (at an initial public
offering price of $6.00). The exercise of existing options and warrants may also

11
<PAGE> 13

have a dilutive effect on the interests of the investors in this Offering. See
"Dilution." The Company has not paid any dividends on its Common Stock since its
inception and does not contemplate or anticipate paying any dividends in the
foreseeable future. It is currently anticipated that earnings, if any, will be
used to finance the development and expansion of the Company's business. See
"Dividend Policy."

Broad Discretion of Management to Allocate Offering Proceeds. The Company
expects that the proceeds of this Offering will be used for research and
development, sales and manufacturing activities, working capital and general
corporate purposes. The Company is not currently able to estimate precisely the
allocation of the proceeds among such uses, and the timing and amount of
expenditures will vary depending upon numerous factors. The Company's management
will have broad discretion to allocate the proceeds of this Offering and to
determine the timing of expenditures. See "Use of Proceeds."

Anti-Takeover Provisions. The Company's Certificate of Incorporation
provides for 5,000,000 authorized shares of Preferred Stock, the rights,
preferences, qualifications, limitations and restrictions of which may be fixed
by the Board of Directors without any further vote or action by the
stockholders. In addition, the Company's stock option plans provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company.
Further, Section 203 of the General Corporation Law of Delaware prohibits the
Company from engaging in certain business combinations with interested
stockholders. These provisions may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders, and
therefore could materially adversely affect the price of the Company's Common
Stock. See "Description of Capital Stock."

Absence of Public Trading Market; Possible Volatility of Stock
Price. Prior to this Offering, there has been no public market for the
Company's Common Stock, and there can be no assurance that a significant public
trading market will develop or be sustained after the Offering. The initial
public offering price will be determined by negotiations among the Company and
the Underwriters. See "Underwriting." The negotiated initial public offering
price may not be indicative of the market price for the Common Stock after the
Offering. The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may materially adversely
affect the market price of the Company's Common Stock. In addition, the market
price of the shares of Common Stock is likely to be highly volatile. Factors
such as fluctuations in the Company's results of operations, failure of such
results of operations to meet the expectations of public market analysts and
investors, timing and announcements of technological innovations or new products
by the Company or its competitors, FDA and foreign regulatory actions,
developments with respect to patents and proprietary rights, timing and
announcements of developments, including clinical trials related to the
Company's products, public concern as to the safety of technology and products
developed by the Company or others, changes in health care policy in the United
States and internationally, changes in stock market analyst recommendations
regarding the Company, the medical device industry generally and general market
conditions may have a material adverse effect on the market price of the Common
Stock. In addition, it is likely that during a future quarterly period, the
Company's results of operations will fail to meet the expectations of stock
market analysts and investors and, in such event, the Company's stock price
could be materially and adversely effected.

Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and persons and entities beneficially
owning 5% or more of the Company's Common Stock immediately prior to this
Offering will, in the aggregate, beneficially own approximately 64% of the
Company's outstanding Common Stock following completion of this Offering. These
stockholders, if acting together, would be able to control substantially all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal Stockholders."

Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after the Offering could adversely affect the
prevailing market price of the Common Stock. In addition to the 1,600,000 shares
of Common Stock offered hereby, there will be 4,158,633 shares of Common Stock
outstanding as of the effective date of this Prospectus, assuming no exercise of
outstanding options after

12
<PAGE> 14

February 6, 1997. There are 2,925 shares which relate to vested options
exercisable at February 6, 1997 by former employees and former consultants of
the Company. All such shares are "restricted shares" (the "Restricted Shares")
under the Securities Act of 1933, as amended (the "Securities Act"). Beginning
180 days after the date of this prospectus, 2,456,726 Restricted Shares will
become eligible for sale in the public market pursuant to the expiration of
certain lock-up agreements with the Company, subject to the volume and other
restrictions of Rule 144 promulgated under the Securities Act. If public sales
of these shares occur contemporaneously in substantial amounts, they could
materially adversely affect the trading prices of the Common Stock. In addition,
the Company entered into an Amended and Restated Investors' Rights Agreement
(the "Investors' Rights Agreement") with the holders of its then outstanding
Common Stock and convertible Preferred Stock, which, subject to the 180-day
lock-up agreements, requires the Company to register an offering of Common Stock
held by such persons or their transferees at their request, subject to certain
conditions and restrictions. The Investors' Rights Agreement also allows the
parties thereto and their transferees to include their Common Stock in a
registered offering of Common Stock initiated by the Company or by another
stockholder of the Company. There can be no assurance as to what effect, if any,
the availability of such shares for sale may have on the market price for the
Common Stock or on the ability of the Company to raise additional capital. See
"Shares Eligible for Future Sale" and "Description of Capital Stock --
Registration Rights."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,600,000 shares of
Common Stock offered by the Company hereby at an initial public offering price
of $6.00 per share are estimated to be $8,388,000 ($9,727,200 assuming the
Underwriters' over-allotment is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company.

The Company expects to use approximately $4 million of the net proceeds
from this Offering to fund research and development, including clinical trials
and approximately $4 million to fund the expansion of the Company's sales and
marketing force to commercially market its products in the United States and
internationally. The balance of the net proceeds will be used for working
capital and other general corporate purposes. These amounts are estimates, and
the amount and timing of the expenditures of the net proceeds for these purposes
will depend on numerous factors, including the status of the Company's product
development efforts, the results of clinical trials, the regulatory approval
process, competition, manufacturing activities and the market acceptance of the
Company's products. See "Risk Factors -- Broad Discretion of Management to
Allocate Offering Proceeds." Pending such uses, the Company plans to invest the
net proceeds from this Offering in short-term, investment-grade,
interest-bearing securities.

DIVIDEND POLICY

The Company has not paid a dividend on its capital stock and does not
anticipate paying any dividends in the foreseeable future.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on a pro forma basis to give effect to the conversion of
outstanding shares of convertible Preferred Stock into shares of Common Stock
upon the closing of this Offering; (ii) to reflect an amendment to the Company's
Certificate of Incorporation that will be effective upon the closing of this
Offering increasing the number of authorized shares of Common Stock to
20,000,000 and authorizing the issuance of up to 5,000,000 shares of Preferred
Stock; and (iii) as adjusted to reflect the sale by the Company of 1,600,000
shares of Common Stock at an initial public offering price of $6.00 per share
and after deducting the underwriting discount and estimated offering expenses.
This table should be read in conjunction with the Financial Statements and Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------
PRO FORMA AS ADJUSTED
----------- --------------
<S> <C> <C>
Long-term portion of equipment line of credit.................... $ 152,011 $ 152,011
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized
pro forma and as adjusted; no shares outstanding, pro forma
and as adjusted............................................. -- --
Common stock, $0.001 par value; 20,000,000 shares authorized,
pro forma and as adjusted; 4,503,487 shares issued and
outstanding, pro forma; 6,103,487 shares issued and
outstanding, as adjusted(1)................................. 4,503 6,103
Additional paid-in capital..................................... 15,664,544 24,050,944
Unearned compensation.......................................... (413,285) (413,285)
Accumulated deficit............................................ (8,144,780) (8,144,780)
----------- -----------
Total stockholders' equity................................ 7,110,982 15,498,982
----------- -----------
Total capitalization................................... $ 7,262,993 $ 15,650,993
=========== ===========
</TABLE>

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

(1) Excludes: (i) 624,650 shares of Common Stock issuable pursuant to the
exercise of stock options outstanding as of September 30, 1996, at a
weighted average exercise price of $1.18 per share, of which 229,364 shares
were then exercisable under such options and of which 55,146 of such options
have been exercised subsequent to September 30, 1996; and (ii) 13,683 shares
of Common Stock issuable upon exercise of certain warrants at a weighted
average exercise price of $5.22 per share. See Notes 6, 10 and 15 to Notes
to Financial Statements. As of February 6, 1997, there were 704,600 shares
of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $2.33 per share, of which 230,898 shares
were then exercisable under such options.

14
<PAGE> 16

DILUTION

The pro forma net tangible book value of the Company as of September 30,
1996 was approximately $6,892,000, or $1.53 per share of Common Stock. "Pro
forma net tangible book value" per share represents the amount of total tangible
assets of the Company less total liabilities, divided by the pro forma number of
shares of Common Stock outstanding. After giving effect to the sale of 1,600,000
shares of Common Stock offered hereby and the receipt by the Company of the
estimated net proceeds therefrom, based on an initial public offering price of
$6.00 per share and after deducting the underwriting discount and the estimated
offering expenses, the pro forma net tangible book value of the Company as of
September 30, 1996, would have been approximately $15,280,000, or $2.50 per
share. This represents an immediate increase in the net tangible book value of
$0.97 per share to existing stockholders and an immediate dilution of $3.50 per
share to new investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $ 6.00
Pro forma net tangible book value per share as of September 30,
1996........................................................... $1.53
Increase per share attributable to new investors.................. 0.97
------
Pro forma net tangible book value per share after the Offering...... 2.50
------
Dilution per share to new investors................................. $ 3.50
======
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing stockholders and by investors purchasing shares of Common Stock in this
Offering (based on an initial public offering price of $6.00 per share and
before deducting the underwriting discount and the estimated offering expenses).

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............... 4,503,487 73.8% $15,255,762 61.4% $ 3.39
New Investors....................... 1,600,000 26.2% 9,600,000 38.6% 6.00
--------- ----- ----------- ------
Total..................... 6,103,487 100.0% $24,855,762 100.0%
========= ===== =========== ======
</TABLE>

The foregoing table assumes no exercise of outstanding options or warrants
to purchase Common Stock after September 30, 1996. At September 30, 1996, there
were: (i) 624,650 shares of Common Stock issuable upon exercise of outstanding
stock options granted under the Company's stock option plans at a weighted
average exercise price of $1.18 per share, of which 229,364 shares were then
exercisable under such options; and (ii) 13,683 shares of Common Stock issuable
upon exercise of certain warrants at a weighted average exercise price of $5.22
per share.

15
<PAGE> 17

SELECTED FINANCIAL DATA

The following table contains certain selected financial data and is
qualified by, and should be read in conjunction with, the Financial Statements
and the related Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus. The selected statement of operations data
for the periods ended December 31, 1993, 1994 and 1995 and the balance sheet
data at December 31, 1995 are derived from the Company's financial statements
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected financial data at September 30, 1996 and for the nine-month periods
ended September 30, 1995 and 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. Operating results for the
nine month period ended September 30, 1996 are not necessarily indicative of
operating results for any subsequent period.

<TABLE>
<CAPTION>
JUNE 11, 1993 NINE MONTHS
(DATE OF INCEPTION) YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
TO DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ -- $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................. -- 26,978 316,404 161,261 1,115,658
--------- ----------- ----------- ----------- -----------
Gross profit (loss)........... -- (749) (24,102) (26,177) (146,668)
Research and development
expenses.................... 92,421 768,788 1,485,371 947,184 1,589,156
Selling, general and
administrative expenses..... 23,782 546,817 1,499,103 928,776 2,303,113
--------- ----------- ----------- ----------- -----------
Operating loss................ (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Interest and other income
(expense), net.............. 209 17,390 202,378 161,327 118,513
--------- ----------- ----------- ----------- -----------
Loss before income taxes...... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Income tax expense............ 800 800 800 -- 800
--------- ----------- ----------- ----------- -----------
Net loss...................... $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= =========== =========== =========== ===========
Pro forma net loss per common
and common equivalent
share(1).................... $ (0.83) $ (1.16)
=========== ===========
Pro forma weighted average
common and common equivalent
shares(1)................... 3,390,000 3,379,000
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
DECEMBER 31, -------------
1995
------------ (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments................. $ 2,417,644 $ 6,065,067
Working capital................................................... 2,358,050 6,212,247
Total assets...................................................... 3,220,977 7,831,791
Long-term portion of equipment line of credit..................... -- 152,011
Accumulated deficit............................................... (4,223,556) (8,144,780)
Stockholders' equity.............................................. 2,878,041 7,110,982
</TABLE>

- ---------------
(1) See Note 2 of Notes to Financial Statements for information regarding
calculation of pro forma net loss per share.

16
<PAGE> 18

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."

OVERVIEW

Since its inception in June 1993, MTI has been primarily engaged in the
design, development and marketing of minimally invasive devices for treatment of
neuro vascular and peripheral vascular disease. The Company has a limited
history of operations and has experienced significant operating losses since
inception. Operating losses are expected to continue as the Company expends
substantial resources to fund research and development, clinical trials,
regulatory approvals and increased marketing and sales activities.

The Company commenced U.S. commercial shipments of its first infusion
catheters in November 1994, but did not generate significant revenues until it
established a direct domestic sales force in the second half of 1995. The
Company currently sells its products in international markets through a limited
number of distributors. During September 1996, four of the Company's seven sales
representatives left the Company to join three other companies. The Company has
hired four sales representatives to replace them and has hired a sales
representative to cover an additional territory. The temporary reduction of the
sales force had the effect of reducing the rate of growth of sales during the
fourth quarter of 1996. The Company plans to increase its direct sales force in
the United States and has hired a Director of International Operations based in
Europe to establish a sales presence outside North America. Any increase in the
Company's direct sales force will require significant expenditures of capital
and additional management resources.

To date virtually all the Company's revenues have been derived from sales
of its initial infusion catheters, wires and related accessories. The Company
expects sales of these and similar products to provide the majority of the
Company's revenues at least through 1997. Clinical trials of the Cragg
Thrombolytic Brush are currently underway and market introduction is expected in
1997. However, there can be no assurance that FDA approval will be obtained or,
if obtained, that the Company will be successful in generating sales of this or
other future products. In addition, the Company expects to generate only minimal
revenues in the European Community nations until it obtains CE Mark notification
for its products.

The Company's infusion catheters, sidehole infusion wires and Cragg
Thrombolytic Brush are currently manufactured by the Company at its facility in
San Clemente, California. Certain other products and components are manufactured
by contract manufacturers. The Company recently expanded its manufacturing
facilities in order to provide sufficient capacity for future products and to
better control product costs and quality. Future revenues and results of
operations may fluctuate significantly from quarter to quarter and will depend
upon, among other factors, actions relating to regulatory and reimbursement
matters, the extent to which the Company's products gain market acceptance, the
rate at which the Company establishes its domestic and international sales and
distribution network, the progress of clinical trials and the introduction of
competitive products for diagnosis and treatment of neuro vascular and
peripheral vascular disease. The Company's limited operating history makes
accurate prediction of future operating results difficult or impossible.
Although the Company has experienced sales growth in recent periods, there can
be no assurance that the Company will sustain sales growth or gain profitability
on a quarterly or annual basis or that its growth will be consistent with
predictions made by securities analysts in the future.

The Company currently manufactures product for stock and ships product
shortly after the receipt of orders and anticipates that it will do so in the
future. Accordingly, the Company has not developed a significant backlog and
does not anticipate that it will develop one in the future.

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<PAGE> 19

RESULTS OF OPERATIONS

Nine months ended September 30, 1996 and 1995

Net sales for the nine months ended September 30, 1996 increased to
$969,000 from $135,000 for the same period in 1995. The increase was the result
of the growth in sales of its infusion products. Substantially all of the growth
occurred in the domestic market due to the establishment of a domestic sales
force in the second half of 1995.

Cost of sales for the nine months ended September 30, 1996 increased to
$1.1 million from $161,000 for the same period in 1995. The increase was
attributable to the increase in sales as well as additional fixed production
costs and inefficiencies associated with the rapid increase and expansion of
production operations, including low production yields, and to the expansion of
the Company's manufacturing facilities in conjunction with its move to a new
facility in November 1995 and a subsequent expansion thereof in July 1996. The
Company continues to incur high manufacturing overhead costs relative to sales
and does not expect to achieve positive gross margins until 1997.

Research and development expenses, which include clinical and regulatory
expenses, for the nine months ended September 30, 1996 increased to $1.6 million
from $947,000 for the same period in 1995. The increase was primarily
attributable to increases in the number of employees, increased expenditures
related to development of the Liquid Embolic System ("LES") and commencement of
clinical trials of the Cragg Thrombolytic Brush. The Company expects to
significantly increase research and development expenditures in 1997,
particularly for human clinical trials of the LES and completion of development
of the Cragg Thrombolytic Brush.

Selling, general and administrative expenses for the nine months ended
September 30, 1996 increased to $2.3 million from $929,000 for the same period
in 1995. The increase was primarily the result of the growth of a direct sales
force in the United States, marketing expenses associated with the initial
promotion of the Company's products, facility expansion costs, hiring of
additional administrative personnel and the amortization of non-cash deferred
compensation charges associated with stock option grants to employees.

Net interest and other income decreased to $119,000 for the nine months
ended September 30, 1996 from $161,000 for the same period ended in 1995. This
difference was attributable to lower average cash balances versus the prior
year.

As a result of the items discussed above, the Company had a net loss of
$3.9 million for the nine months ended September 30, 1996 compared to a net loss
of $1.7 million for the same period in 1995.

Years ended December 31, 1995 and 1994

Net sales for the year ended December 31, 1995 increased to $292,000 from
$26,000 for the year ended December 31, 1994. The increase was the result of the
U.S. market launch of the Cragg-McNamara valved tip infusion catheters.
Substantially all of the growth occurred in the U.S. market due to the
establishment of a domestic sales force in the second half of 1995.
International sales represented 12% of total sales for the year ended December
31, 1995, versus 71% of total sales for the year ended December 31, 1994.

Cost of sales for the year ended December 31, 1995 increased to $316,000
from $27,000 for the year ended December 31, 1994. The increase was attributable
to the increase in sales as well as non-recurring production costs and
inefficiencies associated with the transition from contracting manufacturing to
in-house production operations, and the expansion of the Company's manufacturing
facilities in conjunction with its move to a new facility in November 1995.

Research and development expenses, which include regulatory and clinical
expenses, for the year ended December 31, 1995 increased to $1.5 million from
$769,000 for the year ended December 31, 1994. The increase was primarily
attributable to increases in the number of employees and increased expenditures
related to development of the LES and the Cragg Thrombolytic Brush.

Selling, general and administrative expenses increased for the year ended
December 31, 1995 to $1.5 million from $547,000 for the year ended December 31,
1994. This increase was primarily attributable to the establishment of a direct
sales force in the United States, the addition of administrative personnel and
the development of marketing programs and materials in support of new product
introductions.

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<PAGE> 20

Net interest and other income for the year ended December 31, 1995
increased to $202,000 from $17,000 for the year ended December 31, 1994. This
difference was attributable to higher average cash balances in 1995 due to the
$5.2 million private placement of equity in February 1995.

As a result of the items discussed above, the Company had a net loss of
$2.8 million for the year ended December 31, 1995 compared to a net loss of $1.3
million for the year ended December 31, 1994.

INFLATION

The Company does not believe that inflation has had a significant impact on
the Company's operating results to date.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $8.1 million at
September 30, 1996. The Company has funded its operations since inception
primarily through the private placement of equity securities, as well as through
interest income and equipment financing. Through September 30, 1996, the Company
has raised approximately $15.2 million from a series of private placements of
equity securities.

As of September 30, 1996, the Company had cash equivalents and short-term
investments of $6.1 million compared to $2.4 million at December 31, 1995, and
$457,000 at December 31, 1994. The balance at December 31, 1994 is primarily the
result of the private placement of $1.1 million of equity securities in July
1994. The increase during 1995 was due primarily to the private placement of
$5.2 million of equity securities in February 1995. The increase from December
31, 1995 to September 30, 1996 was due to the private placement of $8.2 million
of equity securities in May and June 1996.

Cash used in the Company's operations increased to $4.0 million for the
nine months ended September 30, 1996 from $1.8 million for the same period in
1995. This cash was used primarily to fund increasing levels of research and
development of the Company's products, clinical trials, the initial marketing of
the products in the United States and general and administrative expenses to
support increased operations. The Company's capital expenditures during the
first nine months of 1996 were $458,000, which included equipment purchased
under a lease-line of credit. The Company's lease-line of credit permits the
Company to finance qualified equipment purchases through June 15, 1997 up to a
maximum amount of $900,000, at an interest rate of 14.23% for a term of 48
months. As of September 30, 1996, a total of $191,174 was outstanding under the
Company's lease-line of credit. The Company plans to finance its capital and
operational needs principally from the net proceeds of the recent private
placement of equity securities and this Offering, including interest thereon,
its existing capital resources, and, to the extent available, from bank and
lease financing.

MTI believes that the anticipated net proceeds from this Offering together
with interest thereon and the Company's existing capital resources will be
sufficient to fund its operations for at least eighteen months. However, the
Company's future liquidity and capital requirements will depend upon numerous
factors, including the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain regulatory
clearances and approvals, and the resources the Company devotes to developing,
manufacturing and marketing its products. The Company's capital requirements
will also depend on, among other things, (i) the resources required to expand
its direct sales force in the United States and increase its marketing and sales
presence internationally, (ii) the resources required to expand manufacturing
capacity and facilities requirements and (iii) the extent to which the Company's
products gain market acceptance. The Company does not have commitments for any
further expansion of its manufacturing facilities nor are any expected during
the following eighteen months. However, there can be no assurance that the
Company will not require additional financing within this time frame and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the Company,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.

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<PAGE> 21

BUSINESS

The Company's products and products under development in the neuro vascular
market designed to address stroke include: (i) a range of infusion micro
catheters incorporating shaft designs and innovative materials, which allow
access to the smallest, most remote blood vessels; and (ii) the Liquid Embolic
System ("LES"), which combines a unique material and special purpose micro
catheters designed to treat aneurysms and arteriovenous malformations ("AVMs").
The Company's products in the peripheral vascular market, designed for less
invasive treatment of blood clots, include: (i) a broad offering of infusion
catheters, micro catheters and infusion wires; and (ii) the Cragg Thrombolytic
Brush designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the clot.

BACKGROUND

Vascular disease is, by Company estimates, the leading cause of death in
the industrialized world, and, according to Medical Data International, Inc.
("MDI"), is responsible for over 40% of all deaths in the United States.
Vascular disease may occur in any blood vessel in the body, and is generally
manifested as an occlusion or rupture in a vessel. The vascular disease market
consists of three segments, defined by anatomical location: cardiovascular
disease, or disease in the coronary arteries; neuro vascular disease, or disease
in the vessels in the brain; and peripheral vascular disease, or disease in
blood vessels throughout the rest of the body. MTI is focused on the two
segments it believes to be underserved: neuro vascular and peripheral vascular
disease.

Neuro Vascular Disease

The Company believes that the leading complication of neuro vascular
disease is stroke, the diminished blood flow to critical regions of the brain. A
significant need for effective stroke therapy exists because of the severity of
the disorder, its prevalence in society, the inadequacy of current therapies and
the high cost of treatment and care. Acute stroke is the third leading cause of
death in the United States and a major cause of long-term disability, with,
according to the National Stroke Association, an estimated annual cost of over
$30 billion. There are approximately 500,000 cases of stroke per year in the
United States, of which approximately one-third of the victims die as a result
of the event and another one-third become severely and permanently disabled,
according to the National Stroke Association. Over three million people in the
United States are stroke survivors and stroke is the leading cause of disability
among adults, according to an article published in Neurology. The disabilities
caused by stroke include paralysis, coma, impaired cognition, reduced
coordination, loss of visual acuity, loss of speech, loss of sensation or a
combination of these effects. Currently, no medical intervention exists that can
reverse the brain damage resulting from stroke.

Strokes are typically caused either by blockages (vaso-occlusive stroke) or
ruptures (hemorrhagic stroke) of vessels within or leading to the brain.
According to the American Heart Association, the most common type of
vaso-occlusive stroke, thromboembolic stroke, is caused by the existence of a
blood clot, or thrombus, within an artery, blocking blood flow. These blood
clots can originate in the heart or a peripheral vascular site and travel into
the neuro vasculature. The other type of vaso-occlusive stroke, atherosclerotic
stroke, results from blockage of blood flow by plaque in a vessel. The majority
of atherosclerotic strokes result from blockage in the carotid artery in the
neck. According to MDI, the annual number of cases of thromboembolic and
atherosclerotic stroke in the United States is 325,000 and 95,000, respectively.

20
<PAGE> 22

Hemorrhagic stroke is generally caused by the rupture of a blood vessel in
the brain resulting from a vascular defect such as an aneurysm or AVM. According
to MDI, there are approximately 80,000 cases of hemorrhagic stroke per year in
the United States.

An aneurysm is a balloon-shaped structure which forms at a weak point in
the vessel wall and fills with blood. Aneurysms typically grow over time and,
due to pressure placed on the wall of the aneurysm, are prone to rupture. Burst
aneurysms result in massive intracranial bleeding and often death. Patients with
unruptured aneurysms may experience symptoms such as blurred vision, headaches
or dizziness; however, the large majority of these patients are asymptomatic.
While 30,000 hemorrhagic stroke cases are related to ruptured intracranial
aneurysms, autopsy studies have suggested that unruptured aneurysms may occur in
approximately 2% to 5% of the general population in the United States, according
to the American Association of Neurological Surgeons. The Company believes that
with the development of new diagnostic and interventional technologies, the pool
of candidate patients may be expanded to include those with unruptured aneurysms
discovered in conjunction with other examinations.

In an AVM, the flow of blood between arteries and veins, which normally
occurs through capillary vessels, is shortcut by the development of larger
vessels connecting directly from arteries to veins. The higher pressure on the
arterial side makes these vessels highly prone to rupture.

The Company believes that, while the interventional treatment of stroke in
the United States is estimated by MDI to be approximately 30,000 procedures
today, this market will grow significantly, driven by the development of
improved diagnostic, imaging and interventional technologies; conversion from
surgical to interventional procedures; the acceptance of preventive treatment of
unruptured aneurysms; the increasing number of trained interventional
neuroradiologists; the continued development of stroke centers; and the impact
of stroke public awareness programs.

Peripheral Vascular Disease

According to MDI, approximately eight million people have been diagnosed
with peripheral vascular disease in the United States, of which an estimated one
million are treated annually. Generally, these patients suffer from degenerative
atherosclerosis or blood clots, the same process that produces coronary artery
disease. For patients diagnosed with peripheral vascular disease, there is
currently no therapy of which the Company is aware, able to halt the
degenerative process.

Vascular obstruction, or the resulting lack of blood flow, can lead to skin
discoloration, pain, ulceration, swelling or a change in blood chemistry, and
can result in the loss of limb and even death. These symptoms are most often
present in the legs and arms and may also develop in the neck and torso.

Thrombosis, or the stagnation and clotting of blood, most often occurs at
locations in blood vessels where the flow of blood has become restricted. This
is most evident in vascular grafts placed to augment blood flow and in native
arteries where the vessel bifurcates or atherosclerosis has narrowed the channel
through which blood flows. Blood clots may form at the point of narrowing or may
originate elsewhere in the cardiovascular system, break off, travel downstream
and lodge in a smaller peripheral vessel, decreasing or completely blocking
flow. Unless this condition is alleviated, tissue ischemia and gangrene can
occur.

One common site for vascular obstruction is in hemodialysis access grafts.
According to the Health Care Financing Administration, hemodialysis access
grafts have been surgically implanted in approximately 140,000 kidney dialysis
patients in the United States. These grafts are used as the access site for
dialysis needles which are inserted to withdraw and return blood from a
dialyzer, a procedure performed every 2-3 days for each such patient. These
hemodialysis access grafts occlude over time and, according to an article
published in the Journal of Surgical Research, fail approximately every 5-10
months, requiring treatment, generally surgery.

According to MDI, thrombosis in peripheral arteries affects approximately
500,000 people per year in the United States. Approximately 200,000 of these
patients receive surgical or interventional treatment, as estimated by the
Company.

Clotting of the deep veins in the lower extremities and torso is commonly
referred to as deep venous thrombosis ("DVT"). DVT and other venous thrombosis
associated with superficial veins are, according to an

21
<PAGE> 23

article published in Cardiology Clinics, responsible for approximately 250,000
hospitalizations annually in the United States and approximately 600,000
additional cases result from long-term hospital stays, according to the American
Medical Association and an article published in American Family Physician.
Currently, virtually all treatment is systemic infusion of anticoagulant drug
over a seven day period or longer on an inpatient basis, followed by an oral
medication regimen for the remainder of the patient's life. This treatment only
stops the progression of the clotting and does not remove the clot. Surgical
removal of the obstruction is not considered to be a desirable treatment
alternative for DVT because of the potential injury to the vein.

The Company estimates that the interventional market of peripheral blood
clots in the United States is approximately 100,000 procedures per year, and
believes this market will grow significantly, driven by the conversion from
surgical to interventional procedures and the development of advanced
technologies that decrease overall procedure costs.

BUSINESS STRATEGY

MTI's goal is to be a leading provider of interventional solutions for
treatment of neuro vascular and peripheral vascular disorders. The Company's
strategy is composed of the following key elements:

- Focus on Underserved Markets. MTI is focusing on the development of
products for treatment of neuro vascular disorders associated with stroke
and peripheral vascular disorders, two market segments which the Company
believes are underserved. The Company works closely with leading
interventional radiologists and neuroradiologists worldwide who are
committed to advancing interventional techniques for treating these
disorders.

- Establish Early Market Presence. The Company has established an early
presence in the U.S. peripheral blood clot therapy market through the
development and rapid regulatory approval of a broad offering of
catheters and infusion wires for the interventional radiologist, and by
distributing these products through a direct sales force focused on this
specialty. The Company believes that this early market penetration
strategy has enabled it to establish a strong foundation in the
peripheral vascular therapy market and facilitate the introduction of new
technologies.

- Expand Interventional Therapy Alternatives. Through its development
efforts MTI is addressing the key issues to growth in interventional
vascular therapies, including ease of vessel access, ease of therapeutic
delivery, completeness and efficacy of therapy, conversion from an
inpatient to an outpatient setting, and reduction of procedure time and
cost. In so doing, MTI is expanding the pool of patients who may be
candidates for interventional therapy.

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<PAGE> 24

PRODUCTS

The following table sets forth the Company's principal products and
products under development and their current status:

<TABLE>
<CAPTION>
PRODUCT LINE U.S. STATUS INTERNATIONAL STATUS
- ---------------------------------------- --------------------------- ----------------------
<S> <C> <C>

NEURO VASCULAR - STROKE THERAPY

Micro Catheters
EASY RIDER Valved Tip Sidehole 510(k) submission 1997 Submission for CE Mark
Infusion expected 1997

EASY RIDER Endhole Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997

Flow Directed Infusion 510(k) submission 1997 Submission for CE Mark
expected 1997

Liquid Embolic System Preclinical Clinical trials

PERIPHERAL VASCULAR - BLOOD CLOT THERAPY

Infusion Catheters

Cragg-McNamara Valved Tip Sidehole 510(k) approved; 21 models Marketed in 7
currently marketed; countries
6 models to be launched in
first half 1997

Patency Sidehole and Endhole 510(k) approved; 10 models Marketed in 7
countries
currently marketed

MicroMewi Sidehole 510(k) approved; 2 models Submission for CE Mark
currently marketed expected first half
1997

MicroPatency Endhole 510(k) approved; 3 models Marketed in 7
countries
currently marketed

Katzen Select Variable Infusion 510(k) approved Submission for CE Mark
Length expected 1997

Infusion Wires

ProStream Multiple Sidehole 510(k) approved; 4 models Submission for CE Mark
currently marketed expected first half
1997

ProStream Endhole 510(k) approved; 2 models Submission for CE Mark
currently marketed expected first half
1997

Cragg Thrombolytic Brush 510(k) submitted Approved 2 countries;
September 1996 Submission for CE Mark
expected first half
1997
</TABLE>

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<PAGE> 25

NEURO VASCULAR -- STROKE THERAPY PRODUCTS

Micro Catheters

The Company has developed multiple lines of micro catheters incorporating
unique shaft designs and innovative materials which allow access to small,
remote blood vessels in the brain. These micro catheters may be used for
infusion of drugs to dissolve blood clots associated with thromboembolic stroke.

The conventional treatment for neuro vascular blood clots involves the
systemic delivery of thrombolytic drugs capable of dissolving the clot.
Interventional thrombolytic therapy for neuro vascular occlusions involves the
use of subselective micro catheters to reach the site of the occlusion, followed
by the local infusion of thrombolytic drugs to dissolve the blood clot. The
Company believes that site-specific delivery of thrombolytic drugs may prove to
be more effective than traditional intravenous systemic administration by
requiring less drug, which may lead to reduced side effects such as bleeding in
other parts of the body.

Of the 325,000 patients who experience thromboembolic stroke each year, the
Company estimates that 150,000 of these patients could be treated by
interventional procedures with early intervention, patient selection and
improved micro catheters. One line of the Company's micro catheters is designed
for endhole infusion of thrombolytic drugs to dissolve short clots. Another
line, designed for longer clots, incorporates the Cragg MicroValve at the tip of
the catheter, which, when closed, forces fluid out infusion side holes over the
length of the clot.

The Company expects to submit 510(k) applications for its neuro micro
catheters and to introduce these products in 1997. Neuro micro catheters
historically have gained market clearance via the 510(k) process. Clinical data
has not been provided in support of neuro micro catheter 510(k) submissions.

Liquid Embolic System

The Company's proprietary LES, currently under development, is designed for
rapid and controlled embolization of aneurysms and AVMs. The LES consists of
unique biomaterials and special purpose micro catheters. The micro catheters are
used to deliver the material, in liquid form, to small remote blood vessels in
the brain where it fills a vascular defect and transforms into a solid polymer
cast. The LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke.

The conventional treatment of hemorrhagic stroke requires highly-invasive
neurosurgery, in which a portion of the skull is removed and brain tissue is
manipulated to gain access to the diseased vessel. This type of surgery
generally involves extensive blood loss and prolonged hospitalization.

Interventional treatment of aneurysms currently involves advancing a micro
catheter through the cerebral vasculature to the aneurysm site. Tiny metal coils
attached to a delivery wire are passed, one at a time, through the catheter and
into the aneurysm. The coil is then released from the delivery wire, the wire is
removed and the next coil is advanced through the catheter. This process is
repeated until approximately 30% of the volume of the aneurysm is filled with
coils. The presence of these coils in the aneurysm disrupts blood flow, leading
to the formation of thrombus in the spaces within the coil mass. Numerous
embolization coils are required to fill an aneurysm, a procedure which generally
takes two to three hours to complete.

Surgical treatment of AVMs includes both open neurosurgery and
radiosurgery. The Company estimates that 75% of AVM surgical procedures are
preceded by interventional embolization of the AVM. In the United States,
interventional AVM embolization, either as stand-alone treatment or as a bridge
to surgery, involves depositing polyvinyl alcohol ("PVA") particles, coils or
other embolic material into the AVM to reduce or stop blood flow. Embolization
with PVA particles is challenging due to the difficulty of placing the particles
into the proper location, the inability to visually confirm the placement of the
particles and the tendency for embolized vessels to reopen. Outside the United
States, the most widely used embolization technique for AVMs is the injection of
acrylic-based glues which have not been approved for use in the United States.
Glues have multiple drawbacks, such as lack of control in delivery and extreme
adhesion to all surfaces, including the delivery catheter.

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<PAGE> 26

In an LES procedure, the micro catheter is positioned at the embolization
site and the material is delivered with a single injection. The LES material is
visible under fluoroscopy and thus the interventionalist is able to see and
continuously monitor the penetration and location of the material. When the
vascular defect is completely filled with the polymer cast, the delivery
catheter is removed. Since the LES material is nonadhesive, the controlled
injection and filling of the vascular defect can take place over a 30-second or
longer period, whereas a glue injection must be instantaneous to avoid gluing
the delivery catheter in place.

(SKETCH OF AN ANEURYSM, BEFORE AND AFTER TREATMENT
USING LES AND AN AVM BEFORE AND AFTER TREATMENT USING LES)

The Company believes that its LES will allow the interventionalist to fill
defects in a controlled fashion, leading to better outcomes for aneurysm and AVM
therapy by:

- Providing a means to fill an aneurysm or AVM with a single delivery
through a micro catheter, thereby reducing the catheter/guidewire
manipulation, exchange time and procedure time;

- Completely filling the vascular defect, rather than inducing formation of
thrombus; and

- Reducing potential for reformation of an aneurysm or AVM resulting from
inadequate filling.

The Company has been conducting preclinical studies of the LES and has
initiated human clinical trials outside of the United States. The Company
expects an investigational device exemption ("IDE") to conduct human clinical
trials in the United States to be filed in the first half of 1997. The Company
anticipates that the first indicated use of the LES for which it will seek an
IDE is the treatment of AVMs. There can be no assurance, however, that the
Company will be successful in obtaining an IDE. Additional potential uses for
the LES include tumor embolization, urinary incontinence and reproductive
sterilization. The Company does not intend to devote significant resources to
these applications, although it has undertaken preliminary animal testing.

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<PAGE> 27

PERIPHERAL VASCULAR -- BLOOD CLOT THERAPY PRODUCTS

Catheters and Infusion Wires

MTI is introducing to the market a broad offering of less invasive
interventional catheters, micro catheters and infusion wires capable of
efficient delivery of thrombolytic agents for the dissolution of blood clots.
MTI's current offering of Cragg-McNamara valved tip infusion catheters and
ProStream infusion wires represents advanced technology in thrombolytic therapy
for the three peripheral vascular market subsegments: hemodialysis access
grafts, arteries and veins.

Surgical embolectomy is the most common procedure for removing blood clots
from the vascular system, including hemodialysis access grafts. In this
procedure, a surgical incision is made down to the occluded vessel,
the vessel is cut open and a balloon catheter is used to remove the clot through
the incision.

Vascular bypass surgery with native vessels or synthetic grafts is also
performed. In this procedure, either a native vessel, usually a vein surgically
harvested from the patient's leg, or an artificial graft is surgically connected
above and below the occlusion. Blood can then flow around, or bypass, the
occlusion.

These surgical procedures require an operating room and attendant staff,
anesthesia, intensive care and associated in-hospital recovery facilities and
supplies. If the surgery is performed on an occluded graft through which the
patient had been receiving hemodialysis, the dialysis therapy must be
discontinued at the site of the graft for approximately two weeks and an
alternate access site established for hemodialysis.

Thrombolysis, or the dissolving of blood clots, can be performed
interventionally, often on an outpatient basis, by delivering thrombolytic drugs
through an infusion catheter directly into the clot. Various techniques are used
in these procedures including the "pulse-spray" infusion technique where boluses
of the drug are repeatedly hand injected into the thrombus with high pressure
syringes, and the "weep" infusion technique where the drug is slowly infused
into the clot over a longer period of time. In coaxial infusion systems, a micro
catheter or infusion wire is placed through a larger catheter, and infusion is
performed through both devices. This technique allows simultaneous infusion into
small, distal vessels and larger, proximal vessels.

Available treatments for blood clots in veins are much more limited than
those for arteries. Currently, virtually all treatment for DVT is systemic
infusion of anticoagulant drugs over a seven day period, or longer, on an
inpatient basis, followed by an oral medication regimen for the rest of the
patient's life. This treatment only stops the progression of the clotting and
does not remove the clot already present. Surgical embolectomy is not considered
to be a treatment alternative for DVT because of the potential for injury to the
veins.

Recently, a number of high profile interventional radiology centers in the
United States have begun treating DVT with the infusion of thrombolytic drugs at
the site of the clot through sidehole infusion catheter and infusion wire
systems. The Company believes the interventional treatment of DVT with its
catheters and infusion wires may represent a significant opportunity to expand
the patient population for interventional therapy.

Of the 140,000 hemodialysis access graft treatments currently performed
each year in the United States, the Company estimates that one third are treated
interventionally. Of the 200,000 arterial blood clot treatments currently
performed each year in the United States, the Company estimates that 45,000 are
interventional. The Company also estimates that an additional 10,000 vein
procedures are performed interventionally each year in the United States for a
total of 100,000 interventional treatments for peripheral blood clots.

Cragg-McNamara Valved Tip Catheters. These catheters incorporate the
Company's Cragg MicroValve which allows a catheter to be advanced over a
guidewire, and when the wire is removed, the valve at the tip of the catheter
closes completely. This valve technology allows the use of the entire catheter
lumen for sidehole fluid delivery as compared to competitive products which
require a wire to be in place to occlude the catheter tip during sidehole
infusion.

26
<PAGE> 28

Patency Sidehole and Endhole Catheters. The Company's Patency catheters
provide sidehole or endhole infusion in the peripheral vasculature. These
catheters can be used alone or as the outer catheter of a coaxial infusion
system.

MicroMewi Sidehole Micro Catheters. The Company's MicroMewi micro
catheters provide sidehole infusion in small, distal vessels of the peripheral
vasculature. These catheters incorporate a two-section design which adds
pushability to the proximal segment and flexibility to the distal end. The
MicroMewi can be used either alone or as the inner catheter of a coaxial
infusion system.

MicroPatency Endhole Micro Catheters. These endhole micro catheters
provide infusion in small, distal vessels of the peripheral vasculature. They
incorporate a two-section design which adds pushability to the proximal segment
and flexibility to the distal end. The MicroPatency endhole micro catheters can
be used alone or as the inner catheter of a coaxial infusion system.

Katzen Select Variable Infusion Length Catheters. With the introduction of
the Katzen Select variable infusion length catheters, the Company will expand
the interventionalist's capability in thrombolytic therapy by offering, for the
first time, the ability to change the desired infusion characteristics while the
catheter is in the patient. With this catheter, the physician has the option of
changing the desired infusion length to match changing anatomical needs as the
blood clot dissolves. This unique sidehole infusion capability is made possible
by the proprietary Cragg MicroValve.

ProStream Infusion Wires. The Company's infusion wires can be inserted
into blood vessels, and navigated to the site of an obstruction to allow the
infusion of fluids through the wire to the distal anatomy. These infusion wires
can also be passed through infusion catheters to allow simultaneous infusion at
multiple sites.

MTI received 510(k) clearance of its Cragg-McNamara valved tip infusion
catheters in October 1994 and is currently marketing 21 models both domestically
and internationally. The Company received 510(k) clearance of the ProStream
sidehole infusion wires in January 1996, is currently marketing six models of
ProStream infusion wires in the United States and intends to begin selling
internationally in the first half of 1997. These products, together with MTI's
Patency, MicroPatency, MicroMewi and Katzen Select infusion catheter lines are,
or will be, marketed in the United States through its direct sales force and
internationally through a combination of direct sales and distributors.

Cragg Thrombolytic Brush

The Company believes that most treatments for blood clots in the peripheral
vasculature could be performed interventionally. However, in order for
interventional thrombolysis procedures to surpass surgical procedures as the
treatment of choice, three main issues need to be addressed, all of which have a
direct impact on procedure cost.

First, the length of time to achieve lysis of the clot must be shortened.
If a clot is relatively "fresh," that is, several hours old or less when
treated, dissolution time is quick and the procedure can be completed in a
single session in the catheterization or special procedures lab. If, however,
the clot becomes more "organized" in the vessel, dissolution time lengthens. In
these circumstances, thrombolysis starts in the catheterization lab and
continues in a hospital room for 24-72 hours, making it an inpatient procedure.
The patient is then moved back to the lab a second time for angiographic imaging
to determine whether the infusion has been successful. Even a single setting
thrombolytic procedure on a fresh clot can require the interventional
radiologist to administer the drug for a considerable length of time. Second,
the dissolution of the clot must be complete. An established clot is resistant
to complete dissolution and any residual clot becomes a site for repropagation
of new clot. Third, drug cost must be reduced. The cost of drugs for a long-term
thrombolytic infusion lasting several days is thousands of dollars.

MTI is conducting a controlled clinical evaluation of the Cragg
Thrombolytic Brush in hemodialysis access grafts, which addresses the clinical
issues that remain in standard thrombolysis. The Cragg Thrombolytic Brush is
designed for rapid interventional clot disruption and dissolution through
mechanical mixing of a thrombolytic drug with the blood clot. A cylindrical,
soft nylon brush mounted on a wire cable is introduced

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into the vessel through an infusion catheter. The cable drive is attached to a
battery powered, low speed motor drive. A side port on the catheter allows
thrombolytic drugs to be infused through the catheter immediately adjacent to
the brush. Once positioned in the clotted graft, infusion of thrombolytic drug
is begun and the motor is switched on, starting the brush rotation. The rotation
of the brush within the clot actively mixes the drug into the clot, exposing
more clot surface to the drug, thus accelerating the thrombolytic process. The
Company is developing an over-the-wire version of the Cragg Thrombolytic Brush
that the Company believes will further improve vascular access and ease of use.
Future studies using this design may include clinical evaluation in other
applications, including peripheral artificial grafts, arteries and veins.

In June 1994, the Company filed its original 510(k) market clearance
application with the FDA for the Cragg Thrombolytic Brush. The FDA requested
that MTI conduct clinical trials to support its substantial equivalence claim.
In September 1996, the Company filed a 510(k) with the requested clinical data.
Included in the application was statistical analysis covering the first 40
patients treated under an IDE clinical study. In this study, patients are
randomized to treatment with either the Cragg Thrombolytic Brush or conventional
pulse-spray thrombolytic infusion. The key clinical endpoints being measured in
the study are the length of time to reopen the occluded graft and the amount of
thrombolytic drug used. The results as of December 31, 1996, including 63
patients, demonstrate substantial improvements with reductions in both of these
clinical endpoints for the Cragg Thrombolytic Brush, as compared to conventional
pulse-spray thrombolytic infusion. See "Government Regulation."

SALES AND MARKETING

The primary users of the Company's products are interventional radiologists
and neuroradiologists. The Company estimates that approximately 1,500 hospitals
in the United States perform interventional radiology procedures and an
estimated 500 institutions provide some neuro vascular and peripheral vascular
therapy.

In order to achieve early adoption of its products, the Company believes it
will need to establish and maintain relationships with the key interventional
radiologists and neuroradiologists. The Company believes that these
relationships can only be formed through the presence of a direct sales
organization. Currently the Company's domestic sales force consists of eight
direct sales representatives covering the United States. To date, sales
representatives have concentrated their efforts on 200 selected interventional
radiology centers, which the Company believes account for a majority of the
total procedures. It is anticipated that the interventional radiology and
neuroradiology centers will overlap substantially, allowing for efficient
selling into the overall interventional marketplace.

The Company has established international distribution arrangements in
Germany, the United Kingdom, the Netherlands, Belgium, Japan, Australia and
Canada through a network of specialty medical device distributors. These
arrangements provide the Company with distributors experienced in the
interventional device markets who are able to access the top interventional
physicians and institutions worldwide. MTI's distributor network has initially
focused on the introduction and market penetration of peripheral vascular
products. The Company's Director of International Operations, based in Europe,
directs the Company's international sales efforts, oversees the existing
distributor network, evaluates new distribution opportunities, and acts as a
liaison for the Company's clinical investigation programs.

RESEARCH AND DEVELOPMENT

The Company is directing its research efforts towards development of
products which expand the therapeutic alternatives available to interventional
radiologists and interventional neuroradiologists for treatment of vascular
disease. The primary efforts are directed at further expansion of its catheter
and infusion wire product offerings to simplify access to the venous system for
treatment of DVT, and extension of the Cragg Thrombolytic Brush technology for
application in native vessel grafts, arteries and veins.

While the development efforts for the LES are focused on AVMs and aneurysms
in the neuro vasculature, the Company believes that the LES may also have
utility for a variety of procedures throughout the vascular system, including
embolization of certain types of tumors whose growth is dependent on adequate
blood supply, and the Company has performed studies on representative animal
models. In addition, the Company

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has filed patents related to certain non-vascular applications of the LES, and
is sponsoring preclinical studies of its use in certain urological and
gynecological procedures.

In addition to its work on the LES, the Company is actively investigating
alternative treatment modalities for disease associated with stroke. The primary
focus of this work is the application of stent technology in the head and neck.
Stents are small tubular frameworks introduced percutaneously and deployed to
reestablish blood flow in an occluded section of a vessel. In recent years
stents have been used increasingly in coronary and certain peripheral arteries
that are blocked by atherosclerotic plaque. The Company believes stents may
provide a viable alternative to surgery for exclusion of such plaque in the
carotid arteries and exclusion of certain types of aneurysms in cerebral
arteries.

Work performed to date in the Company's stent program has been directed
principally towards establishment of intellectual property rights in relevant
technologies, development of designs and fabrication of initial prototypes. The
Company has executed two license agreements covering four issued and several
pending U.S. patents for certain stent technology and has filed an additional
patent of its own. Should the early research further confirm the potential of
the Company's technologies, efforts in 1997 would be directed towards refinement
of designs and initiation of preclinical trials.

All of these research efforts are at an early stage, and there can be no
assurance that any products will be successfully developed from them, receive
regulatory approvals, be capable of being manufactured cost-effectively, be
successfully introduced or receive market acceptance. See "Risk Factors" for
additional information regarding risks generally applicable to development of
new products.

The Company's research and development staff consists of 20 full-time
engineers, technicians and regulatory personnel, and two full time consultants,
all of whom have substantial experience in medical device development. In
addition to these technical personnel, the Company's product development process
incorporates teams organized around each of the Company's core technologies or
product groups, with each team having representatives from marketing, regulatory
and clinical affairs, manufacturing and finance. Consultants are utilized where
additional specialized expertise is required. See "Management -- Other Key
Advisors."

MANUFACTURING

The Company manufactures its proprietary catheters, infusion wires and the
Cragg Thrombolytic Brush in a clean room setting at its facilities in San
Clemente, California. The Company has implemented quality control systems as
part of its manufacturing process, which comply with U.S. Good Manufacturing
Practices ("GMP") requirements. The Company has also been inspected by the
California Department of Health Services ("CDHS") on behalf of the State and
under contract with the FDA, and is registered with the State of California to
manufacture its medical devices. The Company believes that it is in compliance
with FDA GMP for medical devices. There can be no assurance, however, that the
Company will remain in compliance with GMP. Failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.

The Company is also in the process of implementing policies and procedures
which are intended to allow the Company to achieve ISO 9001/EN 46001
certification of its quality control systems in the first half of 1997. 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. In order to obtain the right to affix the CE
Mark to its products, the Company will need to obtain certification that its
processes meet the ISO 9001/EN 46001 quality standards and applicable medical
device directives promulgated by the European Union. Failure to receive the
right to affix the CE Mark will prohibit the Company from selling its products
in member countries of the European Union, and there can be no assurance that
the Company will be successful in meeting the European quality standards or
other certification requirements.

The Company has developed the necessary capabilities for micro valve
molding, hole drilling, bonding, catheter assembly, balloon fabrication,
infusion wire assembly, tip forming, packaging and testing, and has

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developed proprietary know-how and manufacturing expertise in several of these
areas. An endhole infusion wire and certain accessories are manufactured for the
Company on an OEM basis; all other fabrication and assembly operations are
performed in the Company's manufacturing facilities. The Company uses outside
contractors for extrusion, injection molding, hydrophilic coating, motor drive
componentry and sterilization. Outside services will be brought in-house as
necessary or appropriate to meet the Company's production, quality and
profitability objectives.

Raw materials are purchased from various qualified vendors, subjected to
stringent quality specifications and assembled by the Company into final
products. The Company routinely conducts quality audits of suppliers and has
adopted a vendor qualification program. Certain products are obtained by the
Company from single source suppliers. However, the Company believes that
alternative suppliers are available for its raw materials and other product
components and plans to qualify additional suppliers as sales volume warrants.
Although the Company intends to maintain sufficient levels of inventory to avoid
any material disruption resulting from increased manufacturing, there can be no
assurance that the Company will be able to manufacture and supply products to
meet potential demand.

COMPETITION

The medical device industry is characterized by rapidly evolving
technologies and significant competition. The Company expects competition in the
interventional radiology and interventional neuroradiology markets to increase
substantially. The Company believes that interventional procedures with products
like its own are substantially less costly than highly invasive surgical
procedures and may ultimately replace these procedures in certain applications.
In certain cases, the Company's products may be used in conjunction with
traditional surgical techniques.

The Company competes primarily with other producers of catheter and wire
based products for interventional treatment of neuro vascular and peripheral
vascular disease. In neuro vascular interventional applications Target
Therapeutics, Inc. is the market leader. The Company expects to compete against
Target Therapeutics and other recent entrants in the neuro vascular
interventional market including Boston Scientific, Inc., the Cordis, Inc.
subsidiary of Johnson & Johnson, and Medtronic Micro Interventional Systems. In
peripheral blood clot therapy applications the Company competes with the
MediTech division of Boston Scientific, Inc., Cook, Inc., Target Therapeutics
and the AngioDynamics division of E-Z-EM Corporation. All of these companies
have significantly greater financial, manufacturing, marketing, distribution and
technical resources, name recognition and experience than the Company. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than those developed by the
Company or that would render the Company's products obsolete or noncompetitive.
Additionally, there can be no assurance that the Company will be able to compete
effectively against such competitors based on its ability to manufacture, market
and sell its products.

The length of time required for product development and regulatory approval
plays an important role in a company's competitive position. Consequently, the
Company's success will depend in part on its ability to respond quickly to
medical and technological changes through the development, clinical evaluation
and commercialization of new products. Product development involves a high
degree of risk and there can be no assurance that the Company's research and
development efforts will result in commercially successful products.

MEDICAL ADVISORY BOARD

The Company has a group of physicians which advise it on medical matters in
areas of the Company's business. The Company's Medical Advisory Board (the
"MAB") includes experts in vascular disease diagnosis and therapy in
interventional radiology and interventional neuroradiology. The Company
regularly consults with members of the MAB regarding the Company's research and
development, preclinical trials and clinical trials.

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The Micro Therapeutics Medical Advisory Board is composed of the following
individuals:

<TABLE>
<S> <C>
Andrew H. Cragg, M.D........ Director, Interventional Vascular Medicine,
Chairman of MAB and a Fairview Riverside Medical Center and Clinical
Founder of the Company Associate Professor of Radiology, University of
Minnesota Hospitals
Flavio Castaneda, M.D. ..... Clinical Associate Professor of Radiology and
Surgery, and Radiology Research Director, University
of Illinois College of Medicine at Peoria
Bart Dolmatch, M.D. ........ Section Head, Vascular and Interventional Radiology,
The Cleveland Clinic Foundation
Barry Katzen, M.D. ......... Medical Director, Miami Vascular Institute, and
Clinical Professor of Radiology, University of Miami
School of Medicine
Thomas O. McNamara, M.D. ... Professor of Radiological Sciences, UCLA School of
Medicine, Vascular Interventional Radiology
Section, UCLA Medical Center for the Health
Sciences
Mark Mewissen, M.D. ........ Associate Professor of Radiology, Director of
Vascular/ Interventional Radiology, Medical College
of Wisconsin, Froedtert Memorial Lutheran Hospital
Alex Norbash, M.D. ......... Assistant Professor of Interventional
Neuroradiology, Stanford University Hospital
John Perl II, M.D. ......... Section of Neuroradiology, The Cleveland Clinic
Foundation
Cass Pinkerton, M.D. ....... Senior Consultant, Interventional Cardiology,
Nasser, Smith & Pinkerton Cardiology
Don F. Schomer, M.D. ....... Assistant Professor of Radiology, The University of
Texas, M.D. Anderson Cancer Center, Diagnostic
Radiology
Donald Schwarten, M.D. ..... Director of Interventional Radiology, St. Vincent's
Hospital
Tony Smith, M.D. ........... Professor of Radiology and Director of
Interventional Neuro and Peripheral Vascular
Radiology, Duke University Medical Center
Sidney Wallace, M.D. ....... Professor Emeritus, Deputy Division Head for
Research, Division of Diagnostic Imaging, The
University of Texas, M.D. Anderson Cancer Center
</TABLE>

All MAB members have entered into consulting agreements with the Company.
These agreements generally provide that all inventions conceived by such
consultants in the course of rendering service to the Company are the exclusive
property of the Company. These agreements further provide that performance of
such agreements will not conflict with any individual consultant's obligation to
maintain the secrecy of confidential information of any third parties and that
all confidential information developed or made known to such consultants by the
Company during the course of such relationships with the Company is to be kept
confidential and not disclosed to third parties.

Except for Dr. Cragg, who receives compensation and holds a significant
number of shares of the Company's Common Stock, all MAB members have been
granted options to purchase shares of the Company's Common Stock for their
services and are reimbursed for reasonable expenses, but receive no other
compensation. All of the members of the MAB are employed by employers other than
the Company and may have commitments to, or consulting or advisory agreements
with, other entities, including potential competitors of the Company, that may
limit their availability to the Company. Although these advisors may

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contribute significantly to the affairs of the Company, none, other than Dr.
Cragg, is expected to devote more than a small portion of his time to the
Company.

PATENTS AND PROPRIETARY RIGHTS

The Company's policy is to aggressively protect its proprietary position
by, among other things, filing U.S. and foreign patent applications to protect
technology, inventions and improvements that are important to the development of
its business. The Company's strategy includes extending the patent protection of
its licensed technology by filing procedure-specific method patents wherever
possible for the use of the Company's products in new clinical applications.

As of November 30, 1996, the Company held eight issued U.S. patents, one
issued foreign patent and has seventeen U.S. and eight foreign patent
applications pending. The Company's issued U.S. patents cover technology
underlying the Cragg MicroValve, infusion wire, Cragg Thrombolytic Brush, Liquid
Embolic System and carotid and intra-cerebral stent products. The expiration
dates of these patents range from February 2009 to December 2015. The pending
claims cover various aspects of its infusion catheter, infusion wire,
Thrombolytic Brush, micro catheter, Liquid Embolic Systems, carotid and
intra-cerebral stent technologies and non-vascular liquid embolic products.

Although the Company aggressively works to protect its technology, no
assurance can be given that any patents from pending patent applications or from
any future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to the
Company, that any of the Company's patents will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held by the Company. Furthermore, there can be no
assurance that others have not developed or will not develop similar products,
duplicate any of the Company's products or design around the Company's patents.
In addition, others may hold or receive patents or file patent applications
which contain claims having a scope that covers products developed by the
Company.

The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and many companies in
the industry have employed intellectual property litigation to gain a
competitive advantage. There can be no assurance that the Company will not
become subject to patent infringement litigation or an interference proceeding
declared by the U.S. Patent and Trademark Office ("PTO") to determine the
priority of inventions. The defense and prosecution of patent suits, PTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's trade secrets or know-how or to
determine the enforceability, scope and validity of the proprietary rights of
others.

Any litigation or interference proceedings involving the Company would
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to the Company on satisfactory terms, if at all. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company from manufacturing and selling its
products, which would have a material adverse effect on the Company's business,
operating results and financial condition.

In addition to patents, the Company relies on trade secrets and proprietary
know-how to compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with

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employees, consultants and others will not be breached, that the Company will
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.

GOVERNMENT REGULATION

United States

The research, development, manufacture, labeling, distribution and
marketing of the Company's products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. The Company's products are regulated in the United States as medical
devices by the FDA under the Federal Food, Drug, and Cosmetic Act (the "FDC
Act") and require clearance or approval by the FDA prior to commercialization.
In addition, significant changes or modifications to medical devices also are
subject to regulatory review and clearance or approval. Under the FDC Act, the
FDA regulates the research, clinical testing, manufacturing, safety, labeling,
storage, record keeping, advertising, distribution, sale and promotion of
medical devices in the United States. The testing for, preparation of and
subsequent review of applications by the FDA and foreign regulatory authorities
is expensive, lengthy and uncertain. Noncompliance with applicable requirements
can result in, among other things, warning letters, proceedings to detain
imported products, fines, injunctions, civil and criminal penalties against the
Company, its officers and its employees, recall or seizure of products, total or
partial suspension of production, refusal of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and a recommendation by the FDA that the Company not be permitted to enter into
government contracts.

In the United States, medical devices are classified into one of three
classes (Class I, II or III) on the basis of the controls deemed necessary by
the FDA to reasonably assure their safety and efficacy. Under FDA regulations,
Class I devices are subject to general controls (for example, labeling,
premarket notification and adherence to GMPs) and Class II devices are subject
to general and special controls (for example, performance standards, postmarket
surveillance, patient registries, and FDA guidelines). Generally, Class III
devices are those that must receive premarket approval ("PMA") by the FDA to
ensure their safety and efficacy (for example, life-sustaining, life-supporting
and implantable devices, or new devices that have not been found substantially
equivalent to legally marketed Class I or Class II devices).

The FDA also has the authority to require clinical testing of certain
medical devices as part of the clearance or approval process. If clinical
testing of a device is required and if the device presents a "significant risk,"
an IDE application must be approved prior to commencing clinical trials. The IDE
application must be supported by data, typically including the results of
laboratory and animal testing. If the IDE application is approved by the FDA,
clinical trials may begin at a specific number of investigational sites with a
maximum number of patients, as approved by the agency. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such costs do not exceed recovery of the costs of manufacture,
research, development and handling. The clinical trials must be conducted under
the auspices of investigational sites institutional review boards pursuant to
FDA regulations.

Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) submission or approval of a PMA application. If a medical device
manufacturer or distributor can establish, among other things, that a device is
"substantially equivalent" in intended use and technological characteristics to
a legally marketed Class I or Class II medical device, or to a Class III medical
device for which the FDA has not required a PMA, the manufacturer or distributor
may seek clearance from the FDA to market the device by filing a 510(k). The
510(k) submission must establish to the satisfaction of the FDA the claim of
substantial equivalence to the predicate device. In recent years, the FDA has
been requiring a more rigorous demonstration of substantial equivalence,
including the requirement for IDE clinical trials.

Following submission of the 510(k), the manufacturer or distributor may not
place the device into commercial distribution unless and until an order is
issued by the FDA finding the product to be substantially equivalent. In
response to a 510(k), the FDA may declare that the device is substantially
equivalent to another legally marketed device and allow the proposed device to
be marketed in the United States. The FDA, however, may require further
information, including clinical data, to make a determination regarding

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<PAGE> 35

substantial equivalence, or may determine that the proposed device is not
substantially equivalent and require a PMA. Such a request for additional
information including clinical trials or a determination that the device is not
substantially equivalent would delay market introduction of the products that
are the subject of the 510(k). It generally takes four to twelve months from the
date of submission to obtain 510(k) clearance, although it may take longer, in
particular if clinical trials are required.

If the manufacturer or distributor cannot establish that a proposed device
is substantially equivalent to a legally marketed Class I or II predicate
device, the manufacturer or distributor must seek premarket approval of the
proposed device through submission of a PMA application. A PMA application must
be supported by extensive data, including laboratory, preclinical and clinical
trial data to prove the safety and efficacy of the device, as well as extensive
manufacturing information. If the FDA determines, upon initial review, that a
submitted PMA application is sufficiently complete to permit substantive review,
the FDA will accept the PMA application for filing. FDA review of a PMA
application generally takes approximately two years or more from the date of
acceptance for filing, but review times vary depending upon FDA resources and
workload demands and the complexity of PMA submissions. There can be no
assurance that the FDA will review and approve the PMA in a timely manner, if at
all. Failure to obtain PMA approvals could have a material adverse effect on the
Company's business, operating results and financial condition. Additionally, as
one of the conditions for approval, the FDA will inspect the manufacturing
establishment at which the subject device will be manufactured to determine
whether the quality control and manufacturing procedures conform to GMP
regulations. If granted, the PMA approval may include significant limitations on
the indicated uses for which a product may be marketed.

As of November 30, 1996, the Company had received three 510(k) clearances
for certain diagnostic or therapeutic indications of its infusion catheters,
micro catheters and infusion wires which cover 40 products offered to the
market. The Company has made modifications which affect 17 of its products
covered under these 510(k) clearances, which modifications, the Company
believes, do not affect safety or efficacy of the products and thus, under FDA
guidelines, do not require the submission of new 510(k) notices. There can be no
assurance, however, that the FDA would agree with any of the Company's
determinations not to submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice for any of the
changes made to the device. If the FDA requires the Company to submit a new
510(k) notice for any device modification, the Company may be prohibited from
marketing the modified device until the 510(k) notice is cleared by the FDA.

The use of certain materials may require that the device be evaluated as a
drug rather than as a device, and thus the FDA's investigational new drug
("IND") and new drug application ("NDA") regulations would be applicable to the
clinical study and commercialization of the product. Otherwise the product will
be treated as a medical device. The steps required before a drug may be marketed
in the United States include preclinical and laboratory tests, the submission to
the FDA of an application for an IND which must become effective before clinical
trials may commence, adequate and well controlled clinical trials to establish
the safety and efficacy of the drug, the submission to the FDA of an NDA, and
FDA approval of the NDA prior to any commercial sale or shipment of the product.
In January 1996, the Company met with representatives of both the drug and
device divisions of the FDA to discuss their respective new product approval
requirements. Based on the information presented by the Company regarding the
material composition of the LES, the Company believes the LES would be regulated
as a device. There can be no assurance, however, that upon more detailed review
of the LES, the FDA will not at a later date determine that the LES should be
regulated as a drug. Such a change could significantly delay the commercial
availability of the LES and have a material adverse effect on the Company's
business, operating results and financial condition.

There can be no assurance that the Company will be able to obtain necessary
510(k) clearances or PMA or NDA approvals to market its products for the
intended uses on a timely basis, if at all, and delays in receipt of or failure
to receive such approvals, the loss of previously received approvals, or failure
to comply with existing or future regulatory requirements would have a material
adverse effect on the Company's business, operating results and financial
condition.

The Company is also required to register as a medical device manufacturer
with the FDA and state agencies, such as the CDHS and to list its products with
the FDA. As such, the Company will be inspected by

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<PAGE> 36

both the FDA and CDHS for compliance with GMP and other applicable regulations.
These regulations require that the Company manufacture its products and maintain
its documents in a prescribed manner. The Company has not yet been inspected by
the FDA for GMP compliance. In September 1995, the Company's original facility
in Aliso Viejo, California was inspected by the CDHS, acting on behalf of the
State and under contract with the FDA. The Company received no significant
inspection observations and was subsequently granted a California medical device
manufacturing license. In November 1995, the Company's present facility in San
Clemente was inspected by the CDHS, again acting on behalf of the State and
under contract with the FDA. No significant inspection observations were
received. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's ability to do business.

The Company is required to provide information to the FDA on death or
serious injuries that its medical devices have allegedly caused or contributed
to, 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
strictly prohibits the marketing of approved devices for uses other than those
specifically cleared for marketing by the FDA. If the FDA believes that a
company is not in compliance with the law or regulations, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against a company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, operating
results and financial condition.

Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses. The Company is also subject to regulation by the Occupational
Safety and Health Administration and by other government entities.

Regulations regarding the manufacture and sale of the Company's products
are subject to change. The Company cannot predict what impact, if any, such
changes might have on its business, operating results and financial condition.

International

Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain clearance required by foreign countries may be longer or
shorter than that required for FDA clearance, and requirements for licensing a
product in a foreign country may differ significantly from FDA requirements.
Some countries have historically permitted human studies earlier in the product
development cycle than regulations in the United States permit. Other countries,
such as Japan, have requirements similar to those of the United States. This
disparity in the regulation of medical devices may result in more rapid product
clearance in certain countries than in others.

The Company or its distributors have received registrations and approvals
to market its Cragg-McNamara and Patency infusion catheters in Germany, The
Netherlands, Belgium, the United Kingdom, Canada, Japan and Australia.

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. ISO 9000/EN 46001
certification is one of the CE Mark certification requirements. In order to
obtain the right to affix the CE Mark to its products, the Company will need to
obtain certification that its processes meet the ISO 9001/EN 46001 quality
standards and applicable medical device directives promulgated by the European
Union. Failure to receive the right to affix the CE Mark will prohibit the
Company from selling its products in member countries of the European Union and
there can be no assurance that the Company will be successful in meeting the
European quality standards or other certification requirements.

Exports of products subject to the 510(k) notification requirements, but
not yet cleared to market, are permitted without FDA export approval provided
certain requirements are met. Unapproved products subject to the PMA
requirements must receive prior FDA export approval unless they are approved for
use by any member country of the European Union and certain other countries,
including Australia, Canada, Israel, Japan, New Zealand, Switzerland and South
Africa, in which case they can be exported to any country without prior FDA
approval. To obtain FDA export approval, when it is required, certain
requirements must be met

35
<PAGE> 37

and information must be provided to the FDA, including documentation
demonstrating that the product is approved for import into the country to which
it is to be exported and, in some instances, safety data from animal or human
studies. The Company has received export approvals for the Cragg Thrombolytic
Brush in the Netherlands and Australia, and is seeking approvals for other key
European countries. There can be no assurance that the Company will receive FDA
export approval when such approval is necessary, or that countries to which the
devices are to be exported will approve the devices for import. Failure of the
Company to receive import approval from foreign countries, or to obtain
Certificates for Products for Export, meet FDA's export requirements, or obtain
FDA export approval when required to do so, could have a material adverse effect
on the Company's business, financial condition and results of operations.

THIRD-PARTY REIMBURSEMENT

In the United States, hospitals, catheterization laboratories, physicians
and other healthcare providers that purchase medical devices generally rely on
third-party payors, such as private health insurance plans, to reimburse all or
part of the costs associated with the treatment of patients.

The Company's success will depend upon, among other things, its customer's
ability to obtain satisfactory reimbursement from healthcare payors for its
products. Reimbursement in the United States for the Company's infusion catheter
and infusion wire products is currently available under existing procedure codes
from most third-party payors, including most major private health care insurance
plans, Medicare and Medicaid. The Company does not expect that third-party
reimbursement in the United States will be available for use of its other
products unless and until FDA clearance or approval is received. If FDA
clearance or approval is received, third-party reimbursement for these products
will be dependent upon decisions by individual health maintenance organizations,
private insurers and other payors. However, the Company believes that procedures
using its Cragg Thrombolytic Brush may be reimbursed in the United States under
existing procedure codes for diagnosis and re-establishment of patency of
hemodialysis access grafts and native vessels. Similarly, the Company believes
that procedures using its LES may be reimbursed in the United States under
existing procedure codes for diagnosis and treatment of aneurysms and AVMs.
However, there can be no assurance that such procedure codes will remain
available or that the reimbursement under these codes will be adequate. Given
the efforts to control and decrease health care costs in recent years, there can
be no assurance that any reimbursement will be sufficient to permit the Company
to achieve or maintain profitability.

Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Large-scale market acceptance of the Company's
thrombolytic infusion and other products will depend on the availability and
level of reimbursement in international markets targeted by the Company.
Currently, the Company has been informed by its international distributors that
its Cragg-McNamara and Patency infusions catheters have been approved for
reimbursement in countries in which the Company markets such products. Obtaining
reimbursement approvals can require 12-18 months or longer. There can be no
assurance that the Company will obtain reimbursement in any country within a
particular time, for a particular amount, or at all. Failure to obtain such
approvals could have a material adverse effect on the Company's sales, business,
operating results and financial condition.

Regardless of the type of reimbursement system, the Company believes that
physician advocacy of its products will be required to obtain reimbursement.
Availability of reimbursement will depend on the clinical efficacy and cost of
the Company's products. There can be no assurance that reimbursement for the
Company's products will be available in the United States or in international
markets under either government or private reimbursement systems, or that
physicians will support and advocate reimbursement for use of the Company's
systems for all uses intended by the Company. Failure by physicians, hospitals
and other users of the Company's products to obtain sufficient reimbursement
from health care payors or adverse changes in government and private third-party
payors' policies toward reimbursement for procedures employing the

36
<PAGE> 38

Company's products would have a material adverse effect on the Company's
business, operating results and financial condition.

PRODUCT LIABILITY AND INSURANCE

The Company's business involves an inherent risk of exposure to product
liability claims. The risk of such claims has increased in light of a U.S.
Supreme Court decision in 1996 concluding that the FDA regulatory framework does
not necessarily preempt personal injury actions against medical device
manufacturers. Although the Company has not experienced any product liability
claims to date, there can be no assurance that the Company will be able to avoid
significant product liability claims and potential related adverse publicity.
The Company maintains product liability insurance with coverage limits of $2
million per occurrence and an annual aggregate maximum of $2 million, which the
Company believes is comparable to that maintained by other companies of similar
size serving similar markets. However, there can be no assurance that product
liability claims will not exceed such insurance coverage limits, which could
have a material adverse effect on the Company, or that such insurance will
continue to be available on commercially reasonable terms, or at all.

FACILITIES

The Company occupies approximately 19,000 square feet in a multi-user
complex in San Clemente, California. The facility is subject to a lease which
expires in May 1997, with two one-year renewal options. The current monthly rent
is approximately $13,300. The Company believes that this space is adequate for
its immediate needs, and that it will be able to renew its lease or obtain
additional space if necessary.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceeding.

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<PAGE> 39

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth certain information concerning the executive
officers, directors and key employees of the Company as of November 30, 1996:

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ------------------------------------------------
<S> <C> <C>
George Wallace...................... 38 Chief Executive Officer, President, Director
Thomas Berryman..................... 41 Chief Financial Officer
George (Robert) Greene, Jr.......... 43 Vice President -- Research & Development
William M. McLain................... 46 Vice President -- Operations
Glenn Latham........................ 42 Vice President -- Sales
John L. Gehrich, Ph.D............... 60 Vice President -- Regulatory & Clinical Affairs
Karen L. Davis...................... 37 Director of Marketing
Martine Forissier................... 47 Director of International Operations
Helene Spencer...................... 49 Director of Quality and Compliance
H. DuBose Montgomery(2)............. 47 Chairman of the Board, Director
Dick Allen(1)(2).................... 52 Director
Wende Hutton(1)(2).................. 37 Director
</TABLE>

- ---------------
(1) Member of Audit Committee

(2) Member of Compensation Committee

Mr. Wallace is a founder of the Company and has served as President and
Chief Executive Officer since the Company's formation in June 1993. From 1989 to
1993, Mr. Wallace was with Applied Medical Resources (AMR) holding a number of
positions, the last of which was the General Manager of its Applied Vascular and
Applied Urology Divisions. AMR is a manufacturer of specialty surgical products
used in general, vascular and urologic surgery. From 1986 to 1989, Mr. Wallace
was Vice President of Marketing and Sales for Vaser, Inc., a laser angioplasty
company with peripheral and coronary laser angioplasty systems. From 1980 to
1986, Mr. Wallace held various positions in sales, sales management, marketing
and marketing management at Edwards Laboratories, a division of American
Hospital Supply and later Baxter International. Mr. Wallace holds a B.S. in
Marketing from Arizona State University.

Mr. Berryman initially served as a consultant to the Company beginning in
December 1993, and joined the Company as Chief Financial Officer on a full time
basis in January 1995. During 1994, Mr. Berryman served as Chief Financial
Officer of Oncotech, Inc., a biotechnology company focused on the oncology
market. From June 1988 to December 1993, Mr. Berryman was Chief Financial
Officer of Advanced Surgical Intervention, Inc., a medical device company
focused on the urology market. From March 1985 through June 1988, Mr. Berryman
was Chief Financial Officer of VLI Corporation, a publicly held manufacturer of
women's healthcare products. Mr. Berryman holds an M.B.A. from the University of
California, Irvine and a B.S. in Accounting from California State Polytechnic
University, Pomona. Mr. Berryman is a licensed CPA in the State of California.

Mr. Greene joined the Company in October 1995 as Vice
President -- Operations and became Vice President -- Research & Development in
September 1996. From January 1994 to September 1995, he served as Vice President
of Operations of Vesica Medical, Inc., a medical device company focused on
developing and manufacturing products for urological applications, with
responsibilities including research, development and manufacturing. From May
1987 to September 1993, Mr. Greene served as Vice President of Manufacturing at
Advanced Surgical Intervention, Inc., a medical device company focused on the
urology market. From May 1979 to May 1987, Mr. Greene served as Senior
Manufacturing Engineer for Shiley, Inc., a division of Pfizer, Inc. and
manufacturer of artificial heart valves. Mr. Greene holds a B.S. in Industrial
Technology from California State University, Long Beach.

38
<PAGE> 40

Mr. McLain joined the Company in September 1996 as Vice
President -- Operations. From January 1990 until joining the Company, Mr. McLain
held several positions at Applied Medical Resources, including Vice President of
Operations from January 1994 until January 1995, Director of Materials and
Planning, Director of Product Development for Laparoscopy and Director of
Process Development from January 1990 until January 1994. From 1976 to 1990, Mr.
McLain held various engineering and management positions with C.R. Bard,
American Hospital Supply, and Allergan, Inc. Mr. McLain holds an M.B.A. from
Pepperdine University and a B.S. in Physics from the University of Colorado.

Mr. Latham joined the Company in May 1995 as National Sales Manager and
became Vice President -- Sales in January 1996. From 1981 to 1995, Mr. Latham
held various sales and marketing positions with Cordis, Inc., a medical device
manufacturer, serving most recently as Sales Manager for its Cordis Endovascular
Systems subsidiary, specializing in the development and marketing of
interventional radiology and neuroradiology devices. From 1978 to 1981, Mr.
Latham held positions in market research and sales administration with Althin
Medical (formerly Cordis Dow Corporation), a manufacturer of hemodialysis
disposable products. Mr. Latham holds a B.S. in Chemistry and an M.B.A. in
Marketing from the University of Florida.

Mr. Gehrich joined the Company in December 1996 as Vice
President -- Regulatory & Clinical Affairs. From 1981 to 1996, Mr. Gehrich was
with Cardiovascular Devices, Inc. (CDI), a division of 3M Healthcare, holding a
number of positions, the last of which was Vice President, R&D and Scientific
and Regulatory Affairs. CDI, which Mr. Gehrich co-founded, is a manufacturer of
products for real time measurement of blood gases. From 1978 to 1981, Mr.
Gehrich was Manager, Product Evaluation and Planning for the Edwards
Laboratories division of American Hospital Supply, a manufacturer of
cardiovascular catheters and artificial heart valves. Mr. Gehrich holds a Ph.D.
in Electrical/Biomedical Engineering from the University of Southern California
(USC), an MSEE from USC, and BSEE from the University of Dayton.

Ms. Davis joined the Company in April 1995 as Marketing Manager and became
Director of Marketing in July 1995. From 1992 to 1994, Ms. Davis was Product
Director for Applied Medical Resources. From 1989 to 1992, Ms. Davis was a Vice
President in Corporate Finance for Needham & Company, Inc., an investment
banking firm based in New York City. From 1984 to 1988, Ms. Davis was an
Associate in Corporate Finance for Merrill Lynch Capital Markets. Ms. Davis
holds an M.B.A. from Stanford University and a B.A. in Mathematics from The
Colorado College, Colorado Springs.

Ms. Forissier joined the Company in August 1996, as a Director of
International Operations. From 1993 to 1996, Ms. Forissier served as
International Clinical Manager with Cyberonics, Inc., a manufacturer of a vagus
nerve stimulation devices for epilepsy patients. From 1990 to 1993, she was
Manager of Trade Marketing and Sales for Magneti Marelli Distribution, a
division of Group FIAT. From 1986 to 1990, Ms. Forissier was Area Sales Manager
with Valeo, a major supplier to Renault. From 1975 to 1986, she held various
positions in marketing management with Renault. Ms. Forissier holds a D.U. in
International Management from the University of Paris -- Val de Marne.

Ms. Spencer joined the Company in January 1996, as the Director of Quality
and Compliance. From 1993 to 1995, Ms. Spencer was the Director of Regulatory
Affairs and Quality Assurance for Vesica Medical, Inc., a medical device company
focused on developing and manufacturing products for urological applications,
which was acquired by Boston Scientific, Inc. From 1992 to 1993, she held the
same position at Pilot Cardiovascular Systems, Inc., a manufacturer of
angioplasty guidewires, which was acquired by C.R. Bard. Prior to 1992, Ms.
Spencer directed quality assurance and regulatory functions of start-up
companies, including Directed Energy, Inc. and Orange Medical Instruments, Inc.
Ms. Spencer holds a B.S. in Chemistry from the University of California at Santa
Barbara.

Mr. Montgomery has served as Chairman of the Board of the Company since
December 1993. Since 1976, Mr. Montgomery has been a general partner of Menlo
Ventures, a venture capital firm in Menlo Park, California. Mr. Montgomery is a
director of EndoVascular Technologies, Inc. and Infoseek Corporation, as well as
several private companies. Mr. Montgomery holds a B.S. in Electrical Engineering
and Management Science and an M.S. in Electrical Engineering from M.I.T. and an
M.B.A. from the Harvard University Graduate School of Business.

39
<PAGE> 41

Mr. Allen has been a director of the Company since June 1994. He is the
President of DIMA Ventures, Inc., a private investment firm providing seed
capital and board-level support for start-up companies in the healthcare field
which he founded in 1987. He was a founder of Caremark, Inc., a home infusion
therapy company, and served as a Vice President from its inception in 1979 until
1986. From 1968 to 1978, Mr. Allen held various management positions with Baxter
International. Mr. Allen also served as a Lecturer in Management at the Stanford
University Graduate School of Business from 1989 to 1992. He was a founder and
Director of Pyxis Corporation (recently acquired by Cardinal Health Inc.) and a
member of the boards of Hoag Memorial Hospital Presbyterian and several private
companies. Mr. Allen holds a B.S. from Yale University and an M.B.A. from
Stanford University Graduate School of Business.

Ms. Hutton has been a director of the Company since February 1995. From
July 1993 until March 1995, Ms. Hutton was a venture partner, and since March
1995 has been a general partner of Mayfield Fund VIII, a venture capital firm,
in Menlo Park, California. Since August 1993, Ms. Hutton has served as a
director of Heartstream where she served as Vice President of Marketing from
February 1993 until November 1993. From March 1991 to January 1993 she was
General Manager of the Transgenic Laboratory products division of GenPharm
International, Inc., a biotechnology company. From August 1986 to March 1991,
Ms. Hutton was employed by Nellcor, Inc., where she held various senior
positions in international marketing and business development. Ms. Hutton holds
a B.A. in Human Biology from Stanford University and an M.B.A. from Harvard
University Graduate School of Business.

OTHER KEY ADVISORS

Ms. Linda D'Abate joined the Company in August 1994 as Vice
President -- Regulatory & Clinical Affairs. Starting in January 1997, Ms.
D'Abate became a consultant for the Company, focusing her efforts on regulatory
and clinical support for the Liquid Embolic System.

Richard Greff, Ph.D. began consulting for the Company in August 1994. Dr.
Greff has focused on the development and clinical evaluation of the Company's
Liquid Embolic System.

Jay Lenker, Ph.D. began consulting for the Company in August 1996. Dr.
Lenker has focused on the development and clinical evaluation of the Company's
carotid and intracerebral stent technology.

EXECUTIVE COMPENSATION

The following table sets forth summary information concerning compensation
paid or accrued for services rendered to the Company in all capacities during
the year ended December 31, 1996, to the Company's Chief Executive Officer, and
the Company's other most highly compensated executive officers whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------------
----------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION(1)
- -------------------------------------------- -------- ------ --------------------- ---------------
<S> <C> <C> <C> <C>
George Wallace.............................. $159,000 $ -- -- $ --
Chief Executive Officer and President
Thomas Berryman............................. 113,250 -- 9,750 --
Chief Financial Officer
Robert Greene, Jr........................... 107,333 -- 3,250 --
Vice President -- Research & Development
Glenn Latham................................ 100,875 7,025(2) 22,750 50,855(3)
Vice President -- Sales
</TABLE>

- ---------------
(1) Does not reflect certain personal benefits, which in the aggregate are less
than 10% of each Named Executive Officer's salary and bonus.

(2) Performance bonus based upon achieving certain revenue amounts.

(3) Consists of an automobile allowance of $6,000 and a moving expense
reimbursement of $44,855 to reimburse Mr. Latham for his expenses incurred
in moving from Florida to Southern California.

40
<PAGE> 42

OPTION GRANTS TABLE

The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in fiscal year 1996 to the
Named Executive Officers.

STOCK OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED (#)(1) FISCAL YEAR(%)(2) ($ PER SHARE) EXPIRATION DATE
- ------------------------------------ -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
George Wallace...................... -- -- -- --
Thomas Berryman..................... 9,750 2.9 1.54 5/23/02
Robert Greene, Jr................... 3,250 1.0 1.54 5/23/02
Glenn Latham........................ 22,750 6.7 1.87 1/01/02 - 10/09/02
</TABLE>

- ---------------
(1) One quarter of the options vest on the first anniversary of the date of
grant and the remainder vest in equal quarterly installments over the next
three succeeding years.

(2) Options to purchase an aggregate of 340,925 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
year ended December 31, 1996.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

None of the Named Executive Officers exercised any options to purchase
shares of the Company's Common Stock during fiscal year 1996. The following
table sets forth certain information regarding options held at December 31, 1996
by the Named Executive Officers:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Wallace............................. 9,750 16,250 $ 54,015 $ 90,025
Thomas Berryman............................ 25,148 39,202 156,199 189,770
Robert Greene, Jr.......................... 10,563 34,937 73,148 175,412
Glenn Latham............................... 10,157 28,843 56,271 127,809
</TABLE>

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

(1) Calculated by determining the difference between an initial public offering
price of $6.00 per share and the exercise price of the options.

EMPLOYMENT AGREEMENTS

The Company has not entered into employment agreements with any of its
executive officers or key employees.

INCENTIVE STOCK PLANS

1993 Stock Option Plan

The Company's 1993 Incentive Stock Option, Nonqualified Stock Option and
Restricted Stock Purchase Plan (the "Plan") was adopted by the Company's
stockholders and Board of Directors as of December 1993 and provides for the
granting of "incentive stock options," within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonstatutory
options. The Plan authorized for issuance up to 650,000 shares of the Company's
Common Stock. Under the Plan, shares of the Company's Common Stock may be
granted to directors, officers, employees and consultants of the Company, except
that incentive stock options may not be granted to non-employee directors or
consultants. The Plan is administered by the Compensation Committee, which has
sole discretion and authority, consistent with the provisions of the Plan,

41
<PAGE> 43

to determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the Plan. As of February 6, 1997,
there were 568,750 options outstanding under the Plan at a weighted average
exercise price of $1.33.

The exercise price of incentive stock options must be not less than the
fair market value of a share of Common Stock on the date the option is granted
(110% with respect to optionees who own at least 10% of the outstanding Common
Stock). Nonstatutory options shall have such exercise price as determined by the
Board. The Board of Directors has the authority to determine the time or times
at which options granted under the Plan become exercisable, provided that
options expire no later than ten years from the date of grant (five years with
respect to optionees who own at least 10% of the outstanding Common Stock).
Options are nontransferable, other than upon death by will and the laws of
descent and distribution, and generally may be exercised only by an employee
while employed by the Company or within 90 days after termination of employment
(one year for termination resulting from death or disability).

1996 Stock Incentive Plan

The Company adopted the 1996 Stock Incentive Plan (the "1996 Plan") in July
1996. The 1996 Plan provides for the granting of "incentive stock options,"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonstatutory options. The 1996 Plan provides for
options to purchase shares of the Company's Common Stock and restricted stock
grants covering an aggregate of 600,000 shares of the Company's Common Stock
which may be granted to directors, officers, employees and consultants of the
Company, except that incentive stock options may not be granted to non-employee
directors or consultants. In addition, the 1996 Plan provides each non-employee
director of the Company who is initially elected as a director during the term
of the Director Plan shall be granted an option consisting of 8,000 shares of
Common Stock, which option shall vest and become exercisable at the rate of 25%
immediately and 25% on each anniversary of such director's initial election
during the three-year period following the grant date. In addition, upon
reelection as a director for each year of such non-employee director's term of
office such non-employee director shall receive an additional option covering
2,000 shares of Common Stock, with the same vesting schedule, subject to the
limitations set forth in the 1996 Plan. The existing non-employee directors
shall be granted options under the 1996 Plan as of the date hereof at the price
of the Offering. The purpose of the 1996 Plan is to provide participants with
incentives which will encourage them to acquire a proprietary interest in, and
continue to provide services to, the Company. The 1996 Plan is administered by
the Compensation Committee, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine which eligible participants
will receive options, the time when options will be granted, the terms of
options granted and the number of shares which will be subject to options
granted under the 1996 Plan. As of February 6, 1997, there were 135,850 options
outstanding under the 1996 Plan at a weighted average exercise price of $6.51
per share.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors as of July 1996 and approved by the Company's
stockholders as of July 1996, covering an aggregate of 100,000 shares of Common
Stock. The Purchase Plan, which is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code, will be
implemented by six-month offerings with purchases occurring at six month
intervals commencing on the date of this Prospectus. The Purchase Plan will be
administered by the Board of Directors of the Company. Employees will be
eligible to participate if they are employed by the Company for at least 20
hours per week and if they have been employed by the Company for at least 90
days. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's
compensation. The price of stock purchased under the Purchase Plan will be 85%
of the lower of the fair market value of the Common Stock at the beginning of
the six-month offering period or on the applicable purchase date. Employees may
end their participation in the offering at any time during the offering period,
and participation ends automatically on termination of employment. The Board may
at any time amend or terminate the Purchase Plan, except that no

42
<PAGE> 44

such amendment or termination may adversely affect options previously granted
under the Purchase Plan. The Purchase Plan will in all events terminate ten
years after its effective date.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification. Prior to the closing of
this Offering, the Company will continue to maintain its $1 million director and
officer liability insurance policy and expects to have in place following this
Offering liability insurance coverage for its directors and officers in the
amount of $5 million.

In addition, the Company'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 a director 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 Company has entered into separate indemnification agreements with its
directors and officers. These agreements require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from actions not taken in good faith or in a manner the indemnitee
believed to be opposed to the best interests of the Company) to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified and to obtain directors' insurance if available on
reasonable terms. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed 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. 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.

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<PAGE> 45

CERTAIN TRANSACTIONS

Pursuant to the terms of a Consulting Agreement dated June 1, 1993, as
replaced by a Consulting Agreement dated October 1, 1996, and a License
Agreement dated June 1, 1993, the Company has paid fees and royalties to Andrew
Cragg, M.D., a stockholder of the Company, totaling $135,500 and $10,853,
respectively, for the period from October 1, 1994 through September 30, 1996.
Pursuant to the terms of the current Consulting Agreement, Dr. Cragg will
consult with the Company for a period of two years on an exclusive basis with
respect to the development of less invasive, percutaneous catheters used to
dissolve, disrupt or remove blood clots from the human body and to treat
cerebral aneurysms, and, on a nonexclusive basis, with respect to the
development of less invasive, percutaneous catheters used to diagnose and treat
disorders of the circulatory system. Under the Consulting Agreement, the Company
pays Dr. Cragg $7,000 per month for services provided plus a royalty for
products developed under the Consulting Agreement equal to 1% of net sales of
certain products of the Company that bear his name and 1.5% of net sales of the
Company's products that are primarily based upon an issued U.S. patent for which
Dr. Cragg was the inventor. Dr. Cragg's Consulting Agreement may be terminated
by either party at any time upon written notice. Under the License Agreement,
the Company pays Dr. Cragg a royalty equal to 1% of net sales of any product
utilizing the Cragg MicroValve.

On February 9, 1995, the Company entered into a Series B Stock Purchase
Agreement with Menlo Ventures VI, L.P. ("Menlo VI"), which is a principal
stockholder of the Company, together with other investors, pursuant to which the
Company issued 465,741 shares of Series B Preferred Stock to Menlo VI for $4.23
per share. H. DuBose Montgomery, a director of the Company, is the general
partner of the general partner of Menlo VI.

On May 17, 1996, the Company entered into a Series C Stock Purchase
Agreement with Menlo VI and Mayfield VII both of which are principal
stockholders of the Company, together with other investors, pursuant to which
the Company issued 224,315 and 155,350 shares of Series C Preferred Stock to
Menlo VI and Mayfield VII, respectively, for $6.46 per share.

Certain holders of shares of Common Stock of the Company, including Common
Stock issued upon conversion of the Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights."

The Company has granted options to certain of its directors and executive
officers. See "Management -- Option Grants Table" and "Principal Stockholders."

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could otherwise be 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.

44
<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 6, 1997
(assuming conversion of all outstanding shares of convertible preferred stock),
and as adjusted to give effect to the sale by the Company of the shares of
Common Stock offered hereby, by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially 5% or more of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(2)
--------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Menlo Ventures VI, L.P............................. 1,674,209 36.7% 2,007,542 32.6%
Menlo Entrepreneurs Fund VI, L.P.(3)
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
Mayfield VII....................................... 864,441 19.0 1,031,108 16.7
Mayfield Associates Fund II(4)
2800 Sand Hill Road
Suite 250
Menlo Park, California 94025
The CIT Group/Venture Capital, Inc.(5)............. 309,725 6.8 340,975 5.5
650 CIT Drive
Livingston, New Jersey 07039-5795
Kingsbury Capital Partners II, L.P.(6)............. 309,725 6.8 340,975 5.5
3655 Nobel Drive
Suite 490
San Diego, California 92122
H. DuBose Montgomery(7)............................ 1,674,209 36.7 2,007,543 32.6
c/o Menlo Ventures
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, California 94025
George Wallace(8).................................. 309,291 6.7 312,624 5.1
Andrew Cragg(9).................................... 297,916 6.5 331,349 5.3
Getz Bros. Co. Ltd.(10)............................ 253,500 5.6 253,500 4.1
Sumitomo Seimei Aoyama Bldg.
3-1-30, Minami-Aoyama, Minato-Ku
Tokyo 107 Japan
Dick Allen(11)..................................... 45,344 1.0 55,344 *
Wende Hutton(12)................................... -- -- -- --
Thomas Berryman(13)................................ 28,397 * 30,897 *
Robert Greene, Jr.(14)............................. 15,844 * 15,844 *
Glenn Latham(15)................................... 10,157 * 10,188 *
All executive officers and directors as a group (12
persons)(16)..................................... 2,965,421 63.7 3,481,254 55.7
</TABLE>

- ---------------
* Less than 1%

(1) Unless otherwise indicated, the address for each of the indicated owners is
1062 Calle Negocio #F, San Clemente, California 92673.

(2) Assumes that the Underwriters' over-allotment option is not exercised.

45
<PAGE> 47

(3) Includes (i) 1,649,467 shares owned by Menlo Ventures VI, L.P., (ii) 24,742
shares owned by Menlo Entrepreneurs Fund VI, L.P. and (iii) 333,333 shares
which Menlo Ventures VI, L.P. intends to purchase in this Offering.

(4) Includes (i) 821,187 shares owned by Mayfield VII, (ii) 43,254 shares owned
by Mayfield Associates Fund II and (iii) 166,667 shares which Mayfield VII
intends to purchase in this Offering. A. Grant Heidrich is a General
Partner of Mayfield VII Management Partners, the General Partner of
Mayfield VII and, accordingly, may be deemed to beneficially own such
shares. Mr. Heidrich disclaims beneficial ownership of the shares owned by
Mayfield VII, except to the extent of his pecuniary interest therein.

(5) Includes 31,250 shares which The CIT Group/Venture Capital, Inc. intends to
purchase in this Offering pursuant to a stand-by purchase agreement. All of
the outstanding shares of capital stock of The CIT Group/Venture Capital,
Inc. are owned by The CIT Group/Equity Investments, Inc., the beneficial
owner of which is CIT Group Holdings, Inc. The outstanding capital stock of
CIT Group Holdings, Inc. is beneficially owned by The Dai-Ichai Kangyo
Bank, Ltd. and a holding Company for the Chase Manhattan Corporation. None
of their respective officers or directors are affiliated with the Company.

(6) Includes 31,250 shares which Kingsbury Capital Partners II, L.P. intends to
purchase in this Offering pursuant to a stand-by purchase agreement.
Timothy P. Wollaeger is the General Partner of Kingsbury Associates, L.P.,
the General Partner of Kingsbury Capital Partners II, L.P., and,
accordingly, may be deemed to beneficially own such shares. Mr. Wollaeger
disclaims beneficial ownership of the shares owned by Kingsbury Capital
Partners II, L.P., except to the extent of his pecuniary interest therein.

(7) Includes shares described in Note (3) above. Mr. Montgomery is the general
partner of MV Management VI, L.P., the general partner of both Menlo
Ventures VI, L.P. and Menlo Entrepreneurs Fund VI, L.P. and accordingly,
may be deemed to beneficially own such shares. Mr. Montgomery disclaims
beneficial ownership of the shares owned by Menlo Ventures VI, L.P. and
Menlo Entrepreneurs Fund VI, L.P. except to the extent of his pecuniary
interest therein.

(8) Includes 11,375 shares subject to options exercisable within 60 days of
February 6, 1997 and 3,333 shares which Mr. Wallace intends to purchase in
this Offering.

(9) Includes 3,333 shares which Dr. Cragg intends to purchase in this Offering.

(10) Getz Bros. Co. Ltd. is a publicly held Japanese corporation. None of its
officers or directors are affiliated with the Company.

(11) Includes 11,544 shares subject to options exercisable within 60 days of
February 6, 1997. Also includes 7,800 shares owned by The Allen Investment
Partnership, of which Mr. Allen is the managing partner, 26,000 shares
owned by DIMA Ventures, Incorporated and 10,000 shares which DIMA Ventures,
Incorporated intends to purchase in this Offering. Mr. Allen disclaims
beneficial ownership of the shares owned by The Allen Investment
Partnership, except to the extent of his pecuniary interest therein.

(12) Ms. Hutton is a general partner in Mayfield VIII, but is not a general
partner of either Mayfield VII nor Mayfield Associates Fund II.

(13) Consists of shares subject to options exercisable within 60 days of
February 6, 1997 and 2,500 shares which Mr. Berryman intends to purchase in
this Offering.

(14) Consists of shares subject to options exercisable within 60 days of
February 6, 1997.

(15) Consists of shares subject to options exercisable within 60 days of
February 6, 1997.

(16) Includes directors' and executive officers' shares listed above, including
95,055 shares subject to options exercisable within 60 days of February 6,
1997 and includes the shares described in Notes (3) and (4) above.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares
of common stock, $0.001 par value ("Common Stock"), and 5,000,000 shares of
preferred stock, $0.001 par value ("Preferred Stock").

COMMON STOCK

As of February 6, 1997, assuming conversion of all outstanding Preferred
Stock, there were 4,558,633 shares of Common Stock outstanding, which was held
of record by 49 stockholders. Following the sale of the shares of Common Stock
offered by the Company hereby, there will be 6,158,633 shares of Common Stock
outstanding.

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 the holders of outstanding shares of Preferred

46
<PAGE> 48

Stock, if any, the holders of Common Stock are entitled to receive such lawful
dividends as may be declared by the Board of Directors. In the event of
liquidation, dissolution or winding up of the Company, and subject to the rights
of the holders of outstanding shares of Preferred Stock, if any outstanding, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. 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 shares of Common Stock to be issued pursuant to this Offering
shall be fully paid and nonassessable.

PREFERRED STOCK

Effective prior to the closing of this Offering, each issued and
outstanding share of Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock will be converted into
shares of Common Stock of the Company at prices of $1.38, $1.85, $4.23 and $6.46
per share, respectively, and no shares of Preferred Stock will be outstanding.
Upon the closing of this Offering, the Board of Directors will have the
authority, without further action by the stockholders, to issue the authorized
shares of Preferred Stock in one or more series and to fix the rights,
preferences and privileges thereof, including voting rights, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Although it presently has no intention to do so,
the Board of Directors, without stockholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company. See
"Risk Factors -- Anti-Takeover Provisions."

REGISTRATION RIGHTS

Pursuant to the Amended and Restated Investors' Rights Agreement, subject
to the terms and conditions therein, and upon expiration of lock-up agreements
with the Underwriters, persons who are the holders of the aggregate of 4,493,744
outstanding shares of Common Stock, including 3,612,664 shares of Common Stock
issuable upon conversion of all outstanding shares of convertible Preferred
Stock, are entitled to certain rights, including demand registration rights and
piggyback rights, with respect to the registration of such shares.

DELAWARE LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation 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 either
(i) prior to the date at which the person becomes an interested stockholder, the
board of directors approves such transaction or business combination, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to such interested stockholder. For
purposes of Section 203, "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation in Glendale, California.

47
<PAGE> 49

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. As described
below, no shares will be available for sale shortly after this Offering (other
than shares sold in this Offering) because of certain contractual restrictions
on resale. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.

Upon completion of this Offering, the Company will have outstanding
6,158,633 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options granted under the
Company's stock option plans. Of these shares, up to 1,018,334 of the 1,600,000
shares sold in this Offering will be available for immediate sale in the public
market without restriction under the Securities Act of 1933 (the "Securities
Act"), unless purchased by "affiliates" of the Company as the term is defined in
Rule 144 under the Securities Act. Up to 581,666 shares sold in this Offering
will be sold to "affiliates" of the Company and will be subject to the terms of
the lock-up agreements described below. See "Principal Stockholders" and
"Underwriting."

The remaining 4,558,633 shares held by existing stockholders will be
restricted securities as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rules 144 or 701 promulgated under the Securities Act,
which are summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.

The Restricted Shares held by affiliates of the Company are also subject to
lock-up agreements under which the holders of such shares have agreed not to
sell, directly or indirectly, any shares owned by them for 180 days after the
date of this Prospectus without the prior written consent of UBS Securities LLC.
As a result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rule 144, shares subject to lock-up
agreements will not be saleable until the agreements expire. Following the
Offering, 63,051 shares of Common Stock will be eligible for sale pursuant to
Rule 701, and an additional 781,950 shares will be eligible for sale under Rule
144. Upon expiration of the 180-day lock-up period, 2,456,726 shares will be
eligible for sale under Rule 144 and 581,666 shares will be eligible for sale by
affiliates purchasing shares in this Offering. See "Principal Stockholders." The
remaining 1,256,906 shares held by existing stockholders will become eligible
for public resale at various times over a period of less than two years
following the completion of this Offering, subject in some cases to vesting
provisions and volume limitations. In addition, as of February 6, 1997, options
to purchase an aggregate of 704,600 shares of Common Stock were outstanding
under the Company's option plans, substantially all of which are subject to the
180-day lock-up described above. Upon expiration of the lock-up, approximately
300,000 shares subject to such options will be vested.

In general, Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years (including the holding period of any prior owner except an affiliate)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) one percent of the numbers of shares of
Common Stock then outstanding (approximately 61,586 shares immediately after
this Offering), or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

48
<PAGE> 50

In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts 90 days after the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144, but without compliance with certain
restrictions including the holding period requirements contained in Rule 144.
Shortly after this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Company's stock plans. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such shares are subject to vesting restrictions with the Company or the
lock-up agreements described above.

49
<PAGE> 51

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Volpe, Welty & Company are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC........................................................
Volpe, Welty & Company....................................................
Bear, Stearns & Co. Inc. .................................................
Alex. Brown & Sons Incorporated...........................................
Cowen & Company...........................................................
Dillon., Read & Co. Inc. .................................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Furman Selz LLC...........................................................
Hambrecht & Quist LLC.....................................................
Montgomery Securities.....................................................
Oppenheimer & Co., Inc. ..................................................
Piper Jaffray Inc. .......................................................
Fahnestock & Co. Inc. ....................................................
Needham & Company, Inc. ..................................................
Pacific Growth Equities, Inc. ............................................
Raymond James & Associates, Inc. .........................................
Van Kasper & Company......................................................
Wedbush Morgan Securities.................................................
Wessels, Arnold & Henderson, L.L.C. ......................................
Total........................................................... 1,600,000
=========
</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. The
nature of the Underwriter's obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other dealers. After the public offering of the shares of
Common Stock, the offering price and other selling terms may be changed by the
Underwriters.

The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 240,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised.

50
<PAGE> 52

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own an aggregate of 4,455,457 shares of Common
Stock outstanding prior to this Offering have agreed that they will not, without
the prior written consent of UBS Securities LLC, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them for a period of 180 days after the effective date of this
Offering. The Company has agreed that it will not, without the prior written
consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock for a period
of 180 days after the date of this Prospectus, except that the Company may grant
additional options under its stock option plans, or issue shares upon the
exercise of outstanding stock options.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

Certain persons and entities associated with UBS Securities LLC and Volpe,
Welty & Company purchased equity securities of the Company in May 1996 and July
1993, respectively.

Certain principal stockholders, officers and directors of the Company will
purchase an aggregate of 581,666 shares of Common Stock in this Offering at the
offering price and upon the selling terms described above. Of such shares,
62,500 shares shall be purchased by certain principal stockholders of the
Company pursuant to stand-by purchase agreements to be entered into with UBS
Securities LLC, which agreements provide that such principal stockholders shall
only purchase such shares in the event that, and to the extent that, UBS
Securities LLC represents in writing that no other purchasers for such shares
were available. See "Principal Stockholders."

Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price was negotiated among 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 and economic conditions, were certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present stage of the Company's development, and the above factors
in relation to market values and various measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "MTIX."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, Newport Beach,
California. Bruce Feuchter, a shareholder of Stradling, Yocca, Carlson & Rauth,
is the Corporate Secretary of the Company and beneficially owns 10,835 shares of
the Company's Common Stock. Certain legal matters will be passed upon for the
Underwriters by Morrison & Foerster LLP, Palo Alto, California.

EXPERTS

The balance sheets as of December 31, 1994 and 1995, and the statements of
operations, stockholders' equity and cash flows for the period from inception
(June 11, 1993) through December 31, 1993, and for the years ended December 31,
1994 and 1995, included in this Prospectus have been so included in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

51
<PAGE> 53

In September 1995, the Board of Directors appointed Coopers & Lybrand
L.L.P. as the Company's auditors, replacing Ernst & Young LLP, who were
dismissed.

There were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, auditing
scope or procedure or any reportable event. Ernst & Young LLP's reports on the
financial statements for the fiscal years ending March 31, 1994 and 1995,
respectively, contained no adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles.

The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Technology,"
"Business -- Patents and Proprietary Rights" and other references herein to
intellectual property of the Company have been reviewed and approved by the
Company's patent counsel who are Breimayer Law Office, Minneapolis, Minnesota;
Burns, Doane, Swecker & Mathis, Menlo Park, California; and Crockett & Fish, Los
Angeles, California, as experts on such matters, and are included herein in
reliance upon that review and approval.

REPORTS TO SECURITY HOLDERS

The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its stockholders with annual reports containing audited financial
statements certified by its independent public accountants and quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year.

ADDITIONAL INFORMATION

A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of all or any part of
the Registration Statement may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon the
payment of the fees prescribed by the Commission. Such materials, including
reports, proxy and information statements and other information, may be obtained
electronically by visiting the Commission's Web site on the internet at
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.

52
<PAGE> 54

MICRO THERAPEUTICS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets At December 31, 1994 And 1995, And At September 30, 1996 (Unaudited).... F-3
Statements Of Operations For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-4
Statements Of Stockholders' Equity For The Period From Inception (June 11, 1993)
Through December 31, 1993 And for The Years Ended December 31, 1994 And 1995, And For
The Nine Months Ended September 30, 1996 (Unaudited)................................. F-5
Statements Of Cash Flows For The Period From Inception (June 11, 1993) Through December
31, 1993 And for The Years Ended December 31, 1994 And 1995, And For The Nine Months
Ended September 30, 1995 (Unaudited) And 1996 (Unaudited)............................ F-6
Notes To Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Micro Therapeutics, Inc.

We have audited the accompanying balance sheets of Micro Therapeutics, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from inception (June 11,
1993) through December 31, 1993 and for the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Micro Therapeutics, Inc. at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the period from inception (June 11, 1993) through December 31, 1993 and for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Newport Beach, California
December 2, 1996

F-2
<PAGE> 56

MICRO THERAPEUTICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 457,414 $ 2,417,644 $ 2,347,751
Short-term investments......................... -- -- 3,717,316
Accounts receivable............................ 11,618 76,608 191,643
Inventories.................................... 59,645 165,026 393,190
Prepaid expenses and other current assets...... 21,888 41,708 131,145
----------- ----------- -----------
Total current assets................... 550,565 2,700,986 6,781,045
Property and equipment, net...................... 91,489 345,034 669,491
Patents and licenses, net of accumulated
amortization of $2,067, $3,553 and $13,906 as
of December 31, 1994, 1995 and September 30,
1996, respectively............................. 43,316 152,164 218,844
Other assets..................................... 9,501 22,793 162,411
----------- ----------- -----------
Total assets........................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment line of credit.... $ -- $ -- $ 39,163
Accounts payable............................... 148,608 248,891 362,080
Accrued salaries and benefits.................. 25,212 78,401 130,665
Accrued liabilities............................ 5,043 15,644 36,890
----------- ----------- -----------
Total current liabilities.............. 178,863 342,936 568,798
Equipment line of credit......................... -- -- 152,011
----------- ----------- -----------
Total liabilities...................... 178,863 342,936 720,809
----------- ----------- -----------
Commitments and contingencies (Note 12)
Stockholders' equity:
Convertible preferred stock, no par value
($0.001 par value pro forma), 1,126,667,
2,355,758, 3,663,395 and 5,000,000 shares
authorized at December 31, 1994, 1995,
September 30, 1996 and pro forma,
respectively; 1,126,667, 2,355,758 and
3,612,664 shares issued and outstanding as
of December 31, 1994, 1995 and September 30,
1996, respectively, no shares pro forma..... 1,795,066 6,962,415 15,034,497
Common stock, no par value ($0.001 par value
pro forma), 6,500,000 shares authorized,
20,000,000 shares authorized pro forma;
945,747, 883,997 and 890,823 shares issued
and outstanding as of December 31, 1994,
1995 and September 30, 1996, respectively,
4,503,487 shares pro forma.................. 137,500 145,700 634,550 $ 4,503
Additional paid-in capital..................... -- -- -- 15,664,544
Unearned compensation.......................... -- (6,518) (413,285) (413,285)
Accumulated deficit............................ (1,416,558) (4,223,556) (8,144,780) (8,144,780)
----------- ----------- ----------- -----------
Total stockholders' equity............. 516,008 2,878,041 7,110,982 $ 7,110,982
===========
----------- ----------- -----------
Total liabilities and stockholders'
equity............................... $ 694,871 $ 3,220,977 $ 7,831,791
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 57

MICRO THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE NINE
(JUNE 11, 1993) FOR THE YEARS ENDED MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
--------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 26,229 $ 292,302 $ 135,084 $ 968,990
Cost of sales................... 26,978 316,404 161,261 1,115,658
--------- --------- --------- ---------
Gross profit (loss)... (749) (24,102) (26,177) (146,668)
Costs and expenses:
General and administrative.... $ 23,782 336,831 597,368 423,527 803,100
Research and development...... 90,421 647,424 1,147,403 733,567 1,201,133
Regulatory/quality
assurance.................. 2,000 121,364 337,968 213,617 388,023
Marketing and sales........... -- 209,986 901,735 505,249 1,500,013
--------- --------- --------- --------- ---------
Total costs and
expenses............ 116,203 1,315,605 2,984,474 1,875,960 3,892,269
--------- --------- --------- --------- ---------
Loss from
operations.......... (116,203) (1,316,354) (3,008,576) (1,902,137) (4,038,937)
Other income (expense):
Interest income............... 209 17,390 202,378 161,327 134,323
Interest expense.............. -- -- -- -- (9,779)
Other......................... -- -- -- -- (6,031)
--------- --------- --------- --------- ---------
209 17,390 202,378 161,327 118,513
--------- --------- --------- --------- ---------
Loss before provision
for income taxes.... (115,994) (1,298,964) (2,806,198) (1,740,810) (3,920,424)
Provision for income taxes...... 800 800 800 -- 800
--------- --------- --------- --------- ---------
Net loss.............. $(116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
========= ========= ========= ========= =========
Pro forma net loss.............. $(2,806,998) $(3,921,224)
========= =========
Pro forma net loss per share.... $ (0.83) $ (1.16)
========= =========
Pro forma weighted average
shares outstanding............ 3,390,000 3,379,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 58

MICRO THERAPEUTICS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
----------------------- ------------------ UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY
--------- ----------- ------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 11, 1993
(inception).......................... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash...... -- -- 650,000 1,000 -- -- 1,000
Issuance of common stock for cash...... -- -- 295,747 136,500 -- -- 136,500
Issuance of Series A-1 convertible
preferred stock (net of costs of
$25,624)............................. 541,667 724,376 -- -- -- -- 724,376
Net loss............................... -- -- -- -- -- (116,794) (116,794)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1993.......... 541,667 724,376 945,747 137,500 -- (116,794) 745,082
Issuance of Series A-2 convertible
preferred stock (net of costs of
$9,310).............................. 585,000 1,070,690 -- -- -- -- 1,070,690
Net loss............................... -- -- -- -- -- (1,299,764) (1,299,764)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1994.......... 1,126,667 1,795,066 945,747 137,500 -- (1,416,558) 516,008
Issuance of Series B convertible
preferred stock (net of costs of
$32,651)............................. 1,229,091 5,167,349 -- -- -- -- 5,167,349
Repurchase of common stock............. -- -- (65,000) (100) -- -- (100)
Exercise of stock options.............. -- -- 3,250 1,500 -- -- 1,500
Unearned compensation related to stock
options granted...................... -- -- -- 6,800 (6,800) -- --
Compensation related to stock options
vesting.............................. -- -- -- -- 282 -- 282
Net loss............................... -- -- -- -- -- (2,806,998) (2,806,998)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at December 31, 1995.......... 2,355,758 6,962,415 883,997 145,700 (6,518) (4,223,556) 2,878,041
Issuance of Series C convertible
preferred stock (net of costs of
$49,458) (unaudited)................. 1,256,906 8,072,082 -- -- -- -- 8,072,082
Exercise of stock options
(unaudited).......................... -- -- 6,826 3,150 -- -- 3,150
Unearned compensation related to stock
options granted (unaudited).......... -- -- -- 485,700 (485,700) -- --
Compensation related to stock options
vesting (unaudited).................. -- -- -- -- 78,933 -- 78,933
Net loss (unaudited)................... -- -- -- -- -- (3,921,224) (3,921,224)
--------- ----------- ------- -------- --------- ---------- -----------
Balances at September 30, 1996
(unaudited).......................... 3,612,664 $15,034,497 890,823 $634,550 $(413,285) $(8,144,780) $ 7,110,982
========= =========== ======= ======== ========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 59

MICRO THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE NINE
FROM INCEPTION FOR THE YEARS ENDED MONTHS ENDED
(JUNE 11, 1993) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (116,794) $(1,299,764) $(2,806,998) $(1,740,810) $(3,921,224)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation and amortization................. -- 15,749 72,496 42,628 144,156
Compensation related to stock options
vesting..................................... -- -- 282 -- 78,933
Change in operating assets and liabilities:
Accounts receivable......................... -- (11,618) (64,990) (24,336) (115,036)
Inventories................................. -- (59,645) (105,381) (45,475) (228,164)
Prepaid expenses and other assets........... -- (31,388) (33,112) (45,576) (98,933)
Accounts payable............................ -- 148,608 100,283 (1,683) 44,211
Accrued salaries and benefits............... -- 25,212 53,189 21,958 52,265
Accrued liabilities......................... 800 4,243 10,601 10,812 21,246
---------- ----------- ----------- ----------- -----------
Net cash used in operating activities.... (115,994) (1,208,603) (2,773,630) (1,782,482) (4,022,546)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments.............. -- -- (1,955,688) (1,955,688) (3,717,316)
Sale of short-term investments.................. -- -- 1,955,688 1,955,688 --
Additions to property and equipment............. (860) (102,244) (322,850) (155,691) (458,249)
Additions to patents and licenses............... (8,487) (38,963) (112,039) (72,950) (77,044)
---------- ----------- ----------- ----------- -----------
Net cash used in investing activities.... (9,347) (141,207) (434,889) (228,641) (4,252,609)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Receivable from stockholder..................... (10,000) 10,000 -- -- --
Proceeds from issuance of common stock.......... 137,500 -- -- -- --
Proceeds from issuance of preferred stock....... 750,000 1,080,000 5,200,000 5,200,000 8,121,540
Costs of equity issuances....................... -- (34,935) (32,651) (32,651) (49,458)
Payment of deferred offering costs.............. -- -- -- -- (61,143)
Proceeds from exercise of stock options......... -- -- 1,500 1,500 3,150
Repurchase of common stock...................... -- -- (100) (100) --
Borrowings on equipment line of credit.......... -- -- -- -- 206,343
Repayments on equipment line of credit.......... -- -- -- -- (15,170)
---------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 877,500 1,055,065 5,168,749 5,168,749 8,205,262
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 752,159 (294,745) 1,960,230 3,157,626 (69,893)
Cash and cash equivalents at beginning of
period.......................................... -- 752,159 457,414 457,414 2,417,644
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period........ $ 752,159 $ 457,414 $ 2,417,644 $ 3,615,040 $ 2,347,751
========== =========== =========== =========== ===========
Supplemental cash flow disclosures:
Cash paid during the period for interest........ $ -- $ -- $ -- $ -- $ 9,779
========== =========== =========== =========== ===========
Cash paid during the period for income taxes.... $ -- $ 1,600 $ 800 $ -- $ 800
========== =========== =========== =========== ===========
Supplemental schedule of noncash activities:
Deferred equity issuance costs.................. $ 25,624 $ -- $ -- $ -- $ --
Deferred offering costs......................... -- -- -- -- 68,978
Unearned compensation related to stock options
granted....................................... -- -- 6,800 -- 485,700
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 60

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY

Micro Therapeutics, Inc. ("MTI" or the "Company") was incorporated on June
11, 1993 to develop, manufacture and market minimally invasive medical devices
to diagnose and treat vascular diseases. The Company's activities to date have
been primarily research and development and financing. The Company believes that
it has adequate resources to fund operations in the normal course of business
for the next fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash and cash equivalents approximates market value.

Short-Term Investments

Short-term investments are administered by an outside firm and consist of
United States government treasury bills with acquired maturities of greater than
three months. The carrying amount of short-term investments is at cost, which
approximates market value.

Inventories

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

Property And Equipment

Property and equipment are carried at cost less accumulated depreciation
and amortization. Maintenance and repairs are expensed as incurred while
renewals or betterments are capitalized. Upon sale or disposition of assets, any
gain or loss is included in the statement of operations.

The cost of property and equipment is generally depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are generally not greater than five years. Leasehold improvements are
amortized over the lesser of the estimated useful lives of the assets or the
related lease terms.

Patents And Licenses

Costs incurred to obtain patents and licenses are capitalized. All amounts
assigned to these patents and licenses are amortized on a straight-line basis
over an estimated five-year useful life from date of issue or acquisition. The
Company continually evaluates the amortization period and carrying basis of
patents and licenses to determine whether later events and circumstances warrant
a revised estimated useful life or reduction in value.

Research And Development

The Company's research and development costs are expensed as incurred.

Revenue Recognition

Sales and related cost of sales are recognized upon shipment of products.
The Company's products are generally under warranty against defects in material
and workmanship for a period of one year.

F-7
<PAGE> 61

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Income Taxes

The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

Pro Forma Net Loss Per Share

Pro forma net loss per share has been computed by dividing pro forma net
loss by the pro forma weighted average number of common shares and certain
common equivalent shares, as described below, outstanding during the period.
Weighted average common shares and common equivalent shares include common
shares and common shares issuable upon conversion of all outstanding shares of
the Company's preferred stock. Additionally, pursuant to Securities and Exchange
Commission Staff Accounting Bulletin Topic 4-D, stock options and warrants
granted during the twelve months prior to the date of the filing of the
Company's proposed public offering, at prices less than the per share initial
public offering price, have been included in the calculation of common
equivalent shares using the treasury stock method as if they were outstanding as
of the beginning of the period. Historical net loss per share is not presented
as it is not indicative of the ongoing entity.

Stock Options

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee stock option. Fair value of the
stock option is determined considering factors such as the exercise price, the
expected life of the option, the current price of the underlying stock and its
volatility, expected dividends on the stock, and the risk-free interest rate for
the expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period.

A company may elect to adopt SFAS No. 123 or elect to continue accounting
for its stock option or similar equity awards using the intrinsic method, where
compensation costs are measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise price. If a company
elects not to adopt SFAS No. 123, then it must provide pro forma disclosure of
net income and earnings per share, as if the fair value based method had been
applied.

SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the intrinsic method must
include the effects of all awards granted in fiscal years that begin after
December 15, 1994. The

F-8
<PAGE> 62

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company currently continues to account for stock-based compensation plans under
the intrinsic method and is evaluating the impact of adopting SFAS No. 123.

Reverse Stock Split

In December 1996, the Board of Directors authorized a 0.65 to 1.0 reverse
stock split of all outstanding common stock, preferred stock and common stock
options and warrants. All share and per share amounts have been adjusted to give
retroactive effect to the reverse stock split for all periods presented.

Unaudited Interim Financial Information

The financial information at September 30, 1996 and for the nine-month
periods ended September 30, 1995 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results of the
September 30, 1996 period are not necessarily indicative of the results for the
entire year.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash........................................... $457,414 $ 244,499 $ 1,657,196
Cash equivalents............................... -- 2,173,145 690,555
-------- ---------- -----------
$457,414 $2,417,644 $ 2,347,751
======== ========== ===========
</TABLE>

Cash equivalents consist of United States government treasury bills and
commercial paper.

4. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and work-in-process................. $ 8,594 $ 57,423 $ 209,955
Finished goods.................................... 51,051 107,603 183,235
------- -------- ---------
$59,645 $165,026 $ 393,190
======= ======== =========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $ 50,319 $223,976 $ 431,871
Tooling.......................................... 14,255 11,718 14,493
Furniture and fixtures........................... 25,031 70,241 121,554
Leasehold improvements........................... 10,963 89,832 254,466
Construction-in-progress......................... 2,536 30,189 61,819
-------- -------- ----------
103,104 425,956 884,203
Less, Accumulated depreciation and
amortization......................... (11,615) (80,922) (214,712)
-------- -------- ----------
$ 91,489 $345,034 $ 669,491
======== ======== ==========
</TABLE>

F-9
<PAGE> 63

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. EQUIPMENT LINE OF CREDIT

On December 20, 1995, the Company entered into an equipment line of credit
to finance qualified equipment purchases through December 15, 1996 up to a
maximum amount of $400,000, at an implicit interest rate of 14.23%. Outstanding
amounts are collateralized by the assets financed. The amounts outstanding at
December 15, 1996 will be due in 48 monthly installments to expire on December
20, 2000. The agreement contains a provision to extend these terms of payment
for an additional year. There were no outstanding balances under this equipment
line of credit as of December 31, 1995, and a total of $191,174 was outstanding
at September 30, 1996 (unaudited).

In connection with this equipment line of credit, the Company issued a
warrant to the lessor to purchase up to 7,638 shares of the Company's Series B
preferred stock at a price of $4.23 per share. This warrant is convertible into
a warrant for common stock in the event that the remaining outstanding preferred
stock is converted to common stock. This warrant is exercisable for a period of:
(a) ten years, or (b) five years from the effective date of an initial public
offering, whichever is longer.

7. PREFERRED STOCK

At December 31, 1995, the Company had authorized 2,355,758 shares of
preferred stock with no par value which may be issued in one or more series and
were designated as 541,667 shares of Series A-1, 585,000 shares of Series A-2
and 1,229,091 shares of Series B (collectively, "convertible preferred stock").
Under a stock purchase agreement entered into in December 1993, 541,667 shares
of Series A-1 convertible preferred stock were sold in December 1993 for net
cash proceeds of $724,376 and 585,000 shares of Series A-2 convertible preferred
stock were sold in July 1994 for net cash proceeds of $1,070,690. Under a stock
purchase agreement entered into in February 1995, 1,229,091 shares of Series B
convertible preferred stock were sold in February 1995 for net proceeds of
$5,167,349.

In April 1996, the Company increased the total authorized shares of
preferred stock to 3,663,395 with the increase allocated to a total of 1,236,728
shares of Series B and 1,300,000 shares of Series C (see Note 15).

Shares of convertible preferred stock are convertible at the holder's
option into shares of common stock on a share-for-share basis. The conversion
ratio may be adjusted from time to time in the event of certain subsequent sales
of common stock, grants of stock options, stock splits, stock dividends or other
distributions of common stock. Conversion is automatic in the event of a public
offering of the Company's common stock meeting certain specified criteria.

Dividends are noncumulative, and if declared, are payable at the rate of
$0.09, $0.12 and $0.27 per annum on each share of Series A-1, A-2 and B
convertible preferred stock, respectively. Each share of convertible preferred
stock has voting rights equal to the number of shares of common stock into which
it is then convertible. In the event of liquidation, dissolution or merger of
the Company, each share of Series A-1, A-2 and B preferred stock entitles its
holder to receive an amount equal to $1.38 per Series A-1 share, $1.85 per
Series A-2 share and $4.23 per Series B share of convertible preferred stock
plus declared but unpaid dividends and, thereafter, to receive on a
share-for-share basis with common stock outstanding the remaining assets in an
amount not to exceed in the aggregate $4.15 per Series A-1 share, $5.54 per
Series A-2 share and $6.34 per Series B share of convertible preferred stock. No
dividends have been declared through December 31, 1995.

8. COMMON STOCK

In June 1993, the Company issued 650,000 shares of its common stock to
founding stockholders in exchange for $1,000. In October 1993, the Company
issued 295,747 shares of common stock for $126,500 in cash and a note receivable
of $10,000. The note receivable was paid in cash in 1994.

F-10
<PAGE> 64

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to a September 1993 stockholders' agreement between the Company
and holders of 650,000 shares of its common stock (the "founding stockholders"),
in the event that a founding stockholder's involvement with the Company as an
employee or consultant is terminated before September 30, 1996, the Company may
be obligated to repurchase all or a portion of the stockholder's shares of
common stock for $0.001 per share. The Company's obligation under this agreement
terminates automatically in the event of a public offering of the Company's
common stock meeting certain specified criteria. In March 1995, the Company
terminated a consulting agreement with one of its founding stockholders. In
conjunction with the termination, the Company repurchased 65,000 shares of
common stock from the stockholder. There were no other terminations/repurchases
through September 30, 1996 (unaudited).

9. UNAUDITED PRO FORMA FINANCIAL STATEMENT INFORMATION

Upon the closing of an initial public offering of the Company's common
stock meeting certain specified criteria, each outstanding share of the
Company's preferred stock will be converted automatically to common stock as
described in Note 7. If an initial public offering is consummated under terms
presently anticipated, at a price of $6.00 per share, the automatic conversion
feature will not be applicable. However, the Company has received written
notification from the holders of such preferred stock that they will elect
conversion of all outstanding shares of preferred stock into 3,612,664 shares of
common stock upon the closing of an initial public offering at a price of $6.00
per share. The pro forma effect of the conversion has been presented as a
separate column in the Company's balance sheet assuming the conversion had
occurred as of September 30, 1996.

10. STOCK OPTION PLAN

The 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (the "Plan") provides for the direct sale of shares and the
grant of options to purchase shares of the Company's common stock to employees,
officers, consultants and directors. The Plan includes nonqualified stock
options ("NSOs") and incentive stock options ("ISOs"). The option price for the
ISOs and NSOs shall not be less than the fair market value of the shares of
Company's stock on the date of the grant. For ISOs, the exercise price per share
may not be less than 110% of the fair market value of a share of common stock on
the grant date for any individual possessing more than 10% of the total
outstanding stock of the Company. The timing of exercise for individual option
grants is at the discretion of the administrator. Options expire within a period
of not more than ten years from the date of grant. Options expire ninety days
after termination of employment.

F-11
<PAGE> 65

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Plan provides for the issuance of up to 650,000 shares of common stock.
A summary of the option activity under the 1993 Stock Option Plan is as follows:

<TABLE>
<CAPTION>
EXERCISE PRICE
INCENTIVE NONQUALIFIED TOTAL PER SHARE
--------- ------------ -------- --------------
<S> <C> <C> <C> <C>
Granted............................ 187,200 121,225 308,425 $0.46
Exercised.......................... -- -- -- --
Canceled........................... -- -- -- --
-------- ------- -------- -------------
Balances at December 31, 1994...... 187,200 121,225 308,425 $0.46
Granted............................ 217,100 9,100 226,200 $0.46
Exercised.......................... -- (3,250) (3,250) $0.46
Canceled........................... (48,750) -- (48,750) $0.46
-------- ------- -------- -------------
Balances at December 31, 1995...... 355,550 127,075 482,625 $0.46
Granted (unaudited)................ 158,275 57,850 216,125 $0.46 - $5.38
Exercised (unaudited).............. (6,826) -- (6,826) $0.46
Canceled (unaudited)............... (67,274) -- (67,274) $0.46 - $5.38
-------- ------- -------- -------------
Balances at September 30, 1996
(unaudited)...................... 439,725 184,925 624,650 $0.46 - $5.38
======== ======= ======== =============
Exercisable at September 30, 1996
(unaudited)...................... 120,296 109,068 229,364 $0.46 - $5.38
======== ======= ======== =============
</TABLE>

The difference between the exercise price and the fair market value of the
options at the date of grant of $6,800 at December 31, 1995 is accounted for as
unearned compensation and will be amortized to expense over the related service
period. During the nine months ended September 30, 1996, an additional $485,700
(unaudited) of unearned compensation was recorded. During the year ended
December 31, 1995, amortized compensation expense was $282, and for the nine
months ended September 30, 1996, amortized compensation expense was $78,933
(unaudited).

11. INCOME TAXES

The following table presents the current and deferred income tax provision
for federal and state income taxes:

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, --------------
1993 1994 1995
--------------- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ --
State............................................... 800 800 800
---- ---- ----
800 800 800
---- ---- ----
Deferred:
Federal............................................. -- -- --
State............................................... -- -- --
---- ---- ----
$800 $800 $800
==== ==== ====
</TABLE>

F-12
<PAGE> 66

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences which give rise to the deferred
tax provision (benefit) consist of:

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JUNE 11, 1993) FOR THE YEARS ENDED
THROUGH DECEMBER 31,
DECEMBER 31, -----------------------
1993 1994 1995
--------------- -------- ----------
<S> <C> <C> <C>
Capitalized research and development costs..... $ (8,586) $(59,289) $ (85,033)
Capitalized inventory costs.................... -- (6,863) (12,126)
Intangibles.................................... (1,400) 321 572
Property and equipment......................... 74 1,197 (4,109)
Accrued expenses............................... -- (8,578) (10,058)
State taxes.................................... (272) -- --
Tax credit carryforwards....................... (7,054) (80,433) (134,103)
Net operating loss carryforwards............... (37,478) (437,910) (886,806)
Valuation allowance............................ 54,716 591,555 1,131,663
-------- -------- ----------
$ -- $ -- $ --
======== ======== ==========
</TABLE>

The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS
(JUNE 11, 1993) ENDED
THROUGH DECEMBER 31,
DECEMBER 31, ------------------
1993 1994 1995
--------------- ------ ------
<S> <C> <C> <C>
Statutory regular federal income tax rate........... (34.00)% (34.00)% (34.00)%
Meals and entertainment............................. 0.05 0.09 3.03
State taxes......................................... 0.46 0.04 0.02
Tax credits......................................... (2.86) (2.92) (2.25)
Change in valuation allowance....................... 37.05 36.82 33.22
Other............................................... -- 0.03 0.01
------ ------ ------
Effective tax rate........................ 0.70% 0.06% 0.03%
====== ====== ======
</TABLE>

The components of the deferred tax assets at December 31 are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Capitalized research and development costs.................. $ 67,875 $ 152,908
Capitalized inventory costs................................. 6,863 18,989
Intangibles................................................. 1,079 507
Property and equipment...................................... (1,271) 2,838
Accrued expenses............................................ 8,578 18,636
State taxes................................................. 272 272
Tax credit carryforwards.................................... 87,487 221,590
Net operating loss carryforwards............................ 475,388 1,362,194
--------- -----------
646,271 1,777,934
Valuation allowance.................................... (646,271) (1,777,934)
--------- -----------
Net deferred tax asset............................ $ -- $ --
========= ===========
</TABLE>

F-13
<PAGE> 67

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax assets.
At such time as it is determined that it is more likely than not that deferred
tax assets are realizable, the valuation allowance will be reduced.

At December 31, 1995, the Company had net operating loss carryforwards for
federal and state purposes of approximately $3,714,000 and $1,069,000,
respectively. The net operating loss carryforwards begin expiring in 2009 and
1999, respectively. The Company also has research and experimentation credit
carryforwards for federal and state purposes of approximately $158,000 and
$63,000, respectively. The research and experimentation credits begin to expire
in 2009 for federal purposes and carry forward indefinitely for state purposes.

The utilization of net operating loss and research and experimentation
credit carryforwards may be limited under the provisions of Internal Revenue
Code Section 382 and similar state provisions.

12. COMMITMENTS AND CONTINGENCIES

On February 1, 1994, the Company entered into a three-year operating lease
for office, research and manufacturing space. On December 1, 1995, the Company
entered into a one-year operating lease for additional office space. As of
December 31, 1995, future minimum lease payments for the years ending December
31 are as follows:

Rent expense for the years ended December 31, 1994 and 1995 were $47,448
and $66,828, respectively. There was no rent expense incurred from the period
from inception through December 31, 1993. On December 15, 1995, the Company
entered into an agreement to sublease certain office space. The Company received
$989 of rental income for the year ended December 31, 1995, and is to receive
$22,735 of rental income in the year ended December 31, 1996.

13. RELATED PARTY TRANSACTIONS

License And Royalty Agreements

In June 1993, the Company acquired from a stockholder an exclusive
worldwide license to manufacture, market and sell devices utilizing certain
catheter technology developed by the stockholder/licensor. As consideration for
the license, the Company is obligated to pay the stockholder/licensor royalties
at the rate of 1% of the net revenues from products developed utilizing the
patented technology for a period of twelve years from the first commercial sale
of such products. Commercial sale of the products commenced in November 1994.
Royalty expense under the license agreement totaled $138 and $4,868 for the
years ended December 31, 1994 and 1995, respectively.

Contract Services

Through March 1995, the Company contracted with Novel Biomedical, Inc.
("Novel"), a stockholder of the Company, for design, development and patent
services. Research and development expenses for the period from inception
through December 31, 1993, and for the years ended December 31, 1994 and 1995
include $88,159, $320,954 and $65,745, respectively, of charges from Novel which
approximates cost of these services. As of December 31, 1994, the Company had
approximately $35,000 payable to Novel included in accounts payable.

F-14
<PAGE> 68

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14. CONCENTRATIONS OF CREDIT RISK

At December 31, 1994 and 1995, the Company had approximately $382,000 and
$2,395,000, respectively, of cash balances that were in excess of the
federally-insured limit of $100,000 per bank.

The Company's customers are primarily hospitals in the United States and
distributors in certain foreign countries. There were no customers which
accounted for greater than 10% of accounts receivable or net sales for any date
or period presented.

15. SUBSEQUENT EVENTS (UNAUDITED)

Board Of Director Authorizations:

In July 1996, the Board of Directors (i) authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of its common stock to the public; (ii) adopted the
1996 Stock Incentive Plan and the 1996 Employee Stock Purchase Plan and reserved
600,000 and 100,000 shares of common stock, respectively, for issuance
thereunder; and (iii) authorized the Company's re-incorporation in the State of
Delaware. In conjunction with this re-incorporation, the Company's common stock
will become $0.001 par value stock with 20,000,000 shares authorized, and the
Company's preferred stock will become $0.001 par value with 5,000,000 shares
authorized.

Common Stock Options

For the nine months ended September 30, 1996, the Company granted 216,125
options to purchase common stock pursuant to the 1993 Stock Option Plan at
exercise prices ranging from $0.46-$5.38 per share, resulting in unearned
compensation of $485,700. In October and November 1996, the Company granted an
additional 16,900 options pursuant to the 1993 Stock Option Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.

In October and November 1996, the Company granted 92,300 options to
purchase common stock pursuant to the 1996 Stock Incentive Plan at an exercise
price of $5.38 per share resulting in no additional unearned compensation.

Series C Preferred Stock

In May and June 1996, the Company sold in a private placement 1,256,906
shares of Series C convertible preferred stock at a price of $6.46 per share
raising net cash proceeds of $8,072,082.

Shares of Series C convertible preferred stock are convertible at the
holder's option into shares of common stock on a share-for-share basis and this
conversion is automatic in the event of a public offering of the Company's
common stock meeting certain specified criteria.

Dividends are noncumulative, and if declared, are payable at the rate of
$0.43 per annum on each share outstanding. Each share of Series C convertible
preferred stock has voting rights equal to the number of shares of common stock
into which it is then convertible. In the event of liquidation, dissolution or
merger of the Company, each share is entitled to an amount equal to $6.46 plus
declared but unpaid dividends, and thereafter, to receive on a share-for-share
basis with common stock outstanding the remaining assets in an amount not to
exceed in the aggregate $8.08 per share.

Lease

On May 1, 1996, the Company entered into an agreement to extend the current
operating lease and to lease additional office space for a period of one year.
Additional future payments required under this lease in

F-15
<PAGE> 69

MICRO THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1996 and 1997 will be $36,212 and $3,292, respectively. This lease contains a
provision to extend the lease for three additional one-year terms.

Equipment Line Of Credit

On May 21, 1996, the Company amended the equipment line of credit (Note 6)
to allow for equipment purchases up to a maximum of $900,000. In connection with
this amendment, the Company issued a warrant to the lessor to purchase up to
6,045 shares of the Company's Series C preferred stock at a price of $6.46 per
share. This warrant is convertible into a warrant for common stock in the event
that the remaining outstanding preferred stock is converted to common stock.
This warrant is exercisable for a period of: (a) ten years, or (b) five years
from the effective date of an initial public offering, whichever is longer.

F-16
<PAGE> 70

APPENDIX

INSIDE FRONT COVER:

AVM -- Hemorrhagic Stroke. In an arteriovenous malformation, the flow of
blood is shortcut by the development of vessels connecting directly from
arteries to veins. MTI's Liquid Embolic System material enters the diseased site
as a liquid and transforms into a solid polymer cast.

ANEURYSM -- Hemorrhagic Stroke. An aneurysm is a balloon-shaped structure
which forms at a weak point in the vessel wall. MTI's Liquid Embolic System
material completely fills the space, which may reduce potential for reformation
of an aneurysm resulting from inadequate filling.

BLOOD CLOT -- Vaso-Occlusive Stroke. Interventional therapy for neuro blood
clots involves the use of micro catheters to access the site and infuse
thrombolytic drugs. MTI's sidehole micro catheters infuse fluid directly into
the clot.

INSIDE FRONT COVER (LEFT FOLDOUT):

THROMBOLYSIS

PULSE-SPRAY AND WEEP INFUSION -- MTI's Cragg-McNamara Valved Tip Infusion
Catheters allow pulse-spray and weep infusion with or without a guidewire in
place.

SIDEHOLE INFUSION -- MTI's Cragg-McNamara Valved Tip Infusion Catheters
allow the use of the entire catheter lumen for sidehole infusion.

COAXIAL INFUSION -- MTI's ProStream Sidehole Infusion Wire is passed
through the Cragg-McNamara Valved Tip Infusion Catheter for coaxial infusion.

INSIDE FRONT COVER (RIGHT FOLDOUT):

ADVANCED THROMBOLYSIS

MTI'S CRAGG THROMBOLYTIC BRUSH CATHETER is designed for rapid percutaneous
clot disruption and dissolution through mechanical mixing of a thrombolytic
agent with the blood clot.

MTI has begun a controlled clinical evaluation of the Cragg Thrombolytic
Brush in hemodialysis access grafts. Results of these evaluations as of November
30, 1996, demonstrate substantial reductions in the length of time to open
grafts and amount of drug used.

BEFORE -- Angiogram of occluded hemodialysis access graft.

AFTER -- Angiograms of hemodialysis access graft after treatment with the
Cragg Thrombolytic Brush.

INSIDE BACK COVER:

LIQUID EMBOLIC SYSTEM (LES)

(PAGE )

[Color Illustration of the Liquid Embolic System being used to fill an
aneurysm and a photograph of catheter in a beeker of water injecting the LES
material forming a solid and bearing the following captions:]

The LES offers a unique form, fill and seal approach to the interventional
treatment of aneurysms or AVMs associated with hemorrhagic stroke.

A microcatheter is used to deliver the LES material in liquid form, to
small remote blood vessels in the brain where it fills a vascular defect and
transforms into a solid polymer cast.
<PAGE> 71

BACK PAGE -- BOTTOM

The LES is an investigational product and has not been cleared by the FDA
for marketing in the United States.

STROKE

[Color illustrations indicating an AVM, an aneurysm and a blood clotted
artery and referring to locations in an illustrated human head and an
illustrated human form showing a vascular system, together with a photographs of
certain catheters, infusion wires and the Cragg Thrombolytic Brush, bearing the
following captions:]

STROKE PAGE -- Above Stabilization language and slug line (see conceptus
example):

The Liquid Embolic System and Cragg Thrombolytic Brush are investigational
products and have not been cleared by the FDA for marketing in the United
States. In September 1996, the Company filed a 510(k) market clearance
application with the FDA for the Cragg Thrombolytic Brush.
<PAGE> 72

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

No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and, if given
or made, such information or representations 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 an offer to buy any securities
other than the Common Stock to which it relates or an offer to sell or the
solicitation of an offer to buy such securities in any circumstances in which
such an offer or solicitation is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that information contained herein is correct as of any
time subsequent to the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 13
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............................... 20
Management............................. 38
Certain Transactions................... 44
Principal Stockholders................. 45
Description of Capital Stock........... 46
Shares Eligible for Future Sale........ 48
Underwriting........................... 50
Legal Matters.......................... 51
Experts................................ 51
Reports to Security Holders............ 52
Additional Information................. 52
Index to Financial Statements.......... F-1
</TABLE>

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

Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, 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.

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

1,600,000 SHARES

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

, 1997
------------------------
UBS SECURITIES

VOLPE, WELTY & COMPANY

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>
<CAPTION>
TO BE PAID BY
THE COMPANY
-------------
<S> <C>
SEC registration fee............................................ $ 9,060.61
NASD filing fee................................................. 3,490.00
Nasdaq National Market application fee.......................... 33,762.78
Printing expenses............................................... 125,000.00
Legal fees and expenses......................................... 200,000.00
Accounting fees and expenses.................................... 100,000.00
Blue sky fees and expenses...................................... 10,000.00
Transfer agent and registrar fees............................... 2,000.00
Miscellaneous................................................... 50,000.00
-----------
Total................................................. $ 533,313.39
===========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

(a) As permitted by the Delaware General Corporation Law, the Restated
Certificate of Incorporation of the Company (Exhibit 3.1 hereto) eliminates the
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a directors, except to the extent otherwise
required by the Delaware General Corporation Law.

(b) The Restated Certificate of Incorporation provides that the Company
will indemnify each person who was or is made a party to any proceeding by
reason of the fact that such person is or was a director or officer of the
Company against all expense, liability and loss reasonably incurred or suffered
by such person in connection therewith to the fullest extent authorized by the
Delaware General Corporation Law. The Company's Bylaws (Exhibit 3.2 hereto)
provide for a similar indemnity to directors and officers of the Company to the
fullest extent authorized by the Delaware General Corporation Law.

(c) The Restated Certificate of Incorporation also gives the Company the
ability to enter into indemnification agreements with each of its directors and
officers. The Company has entered into indemnification agreements with each of
its directors and officers (Exhibit 10.1 hereto), which provide for the
indemnification of directors and officers of the Company against any an all
expenses, judgments, fines, penalties and amounts paid in settlement, to the
fullest extent permitted by law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act of 1993 (the
"Securities Act"):

(1) From time to time during the three years preceding the date
hereof, the Registrant issued incentive stock options and nonqualified
stock options to purchase Common Stock pursuant to the Registrant's
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan -- 1993 (the "1993 Plan") and 1996 Stock Incentive Plan (the
"1996 Plan") to officers, directors, employees

II-1
<PAGE> 74

and consultants of the Registrant. During such three year period, options
to purchase 759,850 shares of Common Stock were granted pursuant to the
1993 Plan and options to purchase 135,850 shares of Common Stock were
granted pursuant to the 1996 Plan. Through February 6, 1997, options to
purchase 65,222 shares of Common Stock granted pursuant to the 1993 Plan
were exercised for an aggregate exercise price of $30,101, and no options
were exercised pursuant to the 1996 Plan. During the period referred to
above, options granted pursuant to 1993 Plan were exercised. Exemption from
the registration provisions of the Securities Act is claimed, with respect
to the grant of options referred to above, on the basis that the grant of
options did not involve a "sale" of securities and, therefore, registration
thereof was not required and, with respect to the exercise of options
referred to above, on the basis that such transactions met the requirements
of Rule 701 as promulgated under Section 3(b) of the Securities Act.

(2) In September 1993, the Registrant issued 650,000 shares of Common
Stock in connection with the formation and organization of the Registrant.
The shares were issued to the following persons: (i) George Wallace; (ii)
Andrew Cragg; (iii) Novel Biomedical Inc.; and (iv) JK Holdings, Inc.

(3) In September 1993, the Registrant issued 295,747 shares of Common
Stock at a price of $.46 per share to thirteen individuals in connection
with an initial financing of the Registrant.

(4) In December 1993, the Registrant issued 541,667 shares of Series
A-1 Preferred Stock at a price of $1.38 per share to Menlo Ventures, L.P.
and a related partnership.

(5) In July 1994, the Registrant issued 585,000 shares of Series A-2
Preferred Stock at a price of $1.85 per share to Menlo Ventures and a
related partnership, and 5 other purchasers.

(6) In February 1995, the Registrant issued 1,229,091 shares of Series
B Preferred Stock at a price of $4.23 per share to Menlo Ventures and a
related partnership, Mayfield Partners and 2 other purchasers.

(7) In May and June 1996, the Registrant issued 1,256,906 shares of
Series C Preferred Stock at a price of $6.46 per share to Menlo Ventures
and a related partnership, two related Mayfield partnerships, and twelve
other purchasers.

Except as set forth in item (1) above, exemption from the registration
requirements of the Securities Act for the transactions described above was
claimed under Section 4(2) of the Securities Act, among others, on the basis
that such transactions did not involve any public offering and the purchasers
were sophisticated with access to the kind of information registration would
provide. No underwriting or broker's commissions were paid in connection with
the foregoing transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Amended Form of Underwriting Agreement.(1)
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics, Inc., a
California corporation, effective November 6, 1996.(1)
3.1 Certificate of Incorporation of the Company.(1)
3.2 Bylaws of the Company, as currently in effect.(1)
3.3 Specimen Certificate of Common Stock.(1)
3.4 Certificate of Amendment to Certificate of Incorporation (to be filed in
Delaware).(1)
4.1 Warrant Agreement dated December 20, 1995 between the Company and Comdisco, Inc.(1)
4.2 Warrant Agreement dated May 21, 1996 between the Company and Comdisco, Inc.(1)
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.(1)
10.1 Form of Directors' and Officers' Indemnification Agreement.(1)
10.2 License Agreement dated June 1, 1993 between the Company and Andrew Cragg.(1)
10.3 Consulting Agreement dated October 1, 1996 between the Company and Andrew Cragg.(1)
</TABLE>

II-2
<PAGE> 75

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------------------------------------------------------------------------------
<C> <S>
10.4 Real Property Lease dated April 15, 1996 between the Company and Reuben L.
Casey.(1)
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995, among the
Company, the Investors named therein and the Common Holders named therein, as
amended on May 17, 1996 and June 27, 1996.(1)
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan.(1)
10.7 1996 Stock Incentive Plan.(1)
10.8 Employee Stock Purchase Plan.(1)
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the Company and
ComDisco Ventures, as amended on May 21, 1996.(1)
16.1 Letter from Ernst & Young LLP on changes in certifying accountant.(1)
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (see
Exhibit 5.1).(1)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Breimayer Law Office.(1)
23.4 Consent of Burns, Doane, Swecker & Mathis.(1)
23.5 Consent of Crockett & Fish.(1)
24.1 Power of Attorney.(1)
27.1 Financial Data Schedule.(1)
</TABLE>

- ---------------
(1) Previously filed.

(B) FINANCIAL STATEMENT SCHEDULES

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.

ITEM 17. UNDERTAKINGS

The Company 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 Company
pursuant to the foregoing provisions or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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, the Company 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 Company 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

II-3
<PAGE> 76

form of prospectus filed by the Company 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-4
<PAGE> 77

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Clemente of California, on the 12th day of February, 1997.

MICRO THERAPEUTICS, INC.

By: /s/ GEORGE WALLACE

------------------------------------
George Wallace
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------- ------------------
<C> <S> <C>
/s/ GEORGE WALLACE President, Chief Executive February 12, 1997
- ---------------------------------------- Officer and Director (Principal
George Wallace Executive Officer)
/s/ THOMAS BERRYMAN* Vice-President of Finance and February 12, 1997
- ---------------------------------------- Chief Financial Officer
Thomas Berryman (Principal Financial and
Principal Accounting Officer)
/s/ H. DUBOSE MONTGOMERY* Chairman and Director February 12, 1997
- ----------------------------------------
H. DuBose Montgomery
/s/ WENDE HUTTON* Director February 12, 1997
- ----------------------------------------
Wende Hutton
/s/ DICK ALLEN* Director February 12, 1997
- ----------------------------------------
Dick Allen
*By: /s/ GEORGE WALLACE February 12, 1997
- ---------------------------------------
George Wallace,
as Attorney-In-Fact
</TABLE>

II-5
<PAGE> 78

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- --------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Amended Form of Underwriting Agreement (1)................................
2.1 Agreement and Plan of Merger between the Company and Micro Therapeutics,
Inc.,
a California corporation, effective November 6, 1996 (1)..................
3.1 Certificate of Incorporation of the Company (1)...........................
3.2 Bylaws of the Company, as currently in effect (1).........................
3.3 Specimen Certificate of Common Stock (1)..................................
3.4 Certificate of Amendment to Certificate of Incorporation (to be filed in
Delaware) (1).............................................................
4.1 Warrant Agreement dated December 20, 1995 between the Company and
Comdisco, Inc. (1) .......................................................
4.2 Warrant Agreement dated May 21, 1996 between the Company
and Comdisco, Inc. (1) ...................................................
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation
(1).......................................................................
10.1 Form of Directors' and Officers' Indemnification Agreement (1)............
10.2 License Agreement dated June 1, 1993 between the Company and Andrew Cragg
(1).......................................................................
10.3 Consulting Agreement dated October 1, 1996 between the Company and
Andrew Cragg (1)..........................................................
10.4 Real Property Lease dated April 15, 1996 between the Company
and Reuben L. Casey (1)...................................................
10.5 Amended and Restated Investors Rights Agreement dated February 9, 1995,
among the Company, the Investors named therein and the Common Holders
named therein, as amended on May 17, 1996 and June 27, 1996 (1)...........
10.6 1993 Incentive Stock Option, Nonqualified Stock Option and Restricted
Stock Purchase Plan (1)...................................................
10.7 1996 Stock Incentive Plan (1).............................................
10.8 Employee Stock Purchase Plan (1)..........................................
10.9 Equipment Leasing Line of Credit dated December 20, 1995 between the
Company and ComDisco Ventures, as amended on May 21, 1996 (1).............
16.1 Letter from Ernst & Young LLP on changes in certifying accountant (1).....
21.1 Subsidiaries of the Registrant (1)........................................
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation
(see Exhibit 5.1) (1).....................................................
23.2 Consent of Coopers & Lybrand L.L.P........................................
23.3 Consent of Breimayer Law Office (1).......................................
23.4 Consent of Burns, Doane, Swecker & Mathis (1).............................
23.5 Consent of Crockett & Fish (1)............................................
24.1 Power of Attorney (1).....................................................
27.1 Financial Data Schedule (1)...............................................
</TABLE>

- ---------------
(1) Previously filed.

<PAGE> 1
Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form SB-2
of our report dated December 2, 1996 on our audits of the financial statements
of Micro Therapeutics, Inc. We also consent to the references to our firm under
the captions "Selected Financial Data" and "Experts".

COOPERS & LYBRAND L.L.P.

Newport Beach, California
February 13, 1997