CARDIODYNAMICS INTERNATIONAL CORP, 10KSB, 2000-02-28

CARDIODYNAMICS INTERNATIONAL CORP
10KSB, 2000-02-28
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

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

For the fiscal year ended: November 30, 1999

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

Commission file number: 0-11868

CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
California 95-3533362
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>

6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (858) 535-0202

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]

The issuer's revenues for the year ending November 30, 1999, were $7,280,908.

The aggregate market value of the common stock held by nonaffiliates of the
registrant at February 22, 2000, was approximately $130,344,793 based on the
closing price for the common stock in the Nasdaq SmallCap Market. At February
22, 2000, 41,675,999 shares of registrant's common stock were outstanding.

Transitional Small Business Disclosure Format (check one): Yes No X.
--- ---

This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include statements regarding our plans,
goals, strategies, intent, beliefs or current expectations. These statements
are expressed in good faith and we believe had a reasonable basis when
expressed, but there can be no assurance that these expectations will be
achieved or accomplished. Sentences in this document containing verbs such as
"plan," "intend," "anticipate," "target," "estimate," "expect," etc., and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.) constitute forward-looking statements that involve risks and
uncertainties. Items contemplating, or making assumptions about, actual or
potential future sales, market size, collaborations, trends or operating results
also constitute such forward-looking statements. These statements are only
predictions and actual results could differ materially. Certain factors that
might cause such a difference are discussed throughout this Form 10-KSB
including the section entitled "Risk Factors" on pages 16 to 25 of this
document. Any forward-looking statement speaks only as of the date we made the
statement, and we do not undertake to update the disclosures contained in this
document or reflect events or circumstances that occur subsequently or the
occurrence of unanticipated events.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

CardioDynamics International Corporation is a medical technology and information
solutions company that develops, manufactures, and markets noninvasive heart-
monitoring devices using our proprietary impedance cardiography (ICG)
technology, DISQ(TM) technology, and ZMarc(TM) algorithm.

Our primary products, the BioZ(R) System, the BioZ(TM) Portable, and the
BioZ.com(TM) have FDA approval, CE Mark for international distribution, and
Health Care Finance Association (HCFA) mandated Medicare reimbursement. These
innovative devices provide physicians with continuous data on a wide range of
parameters relating to blood flow and heart function which previously were not
available in the physicians' offices or in many hospital departments. Unlike
other cardiac function monitoring technologies, this vital patient information
is measured noninvasively, providing physicians and patients with immediate,
safe and cost effective access to blood flow and heart function information.
Previously, this information was only available through a potentially dangerous,
costly and invasive procedure known as right heart catheterization (RHC) or
pulmonary artery catheterization (PAC). We are building awareness of the
availability of this new, accurate, innovative technology and its applications
to improve patient outcomes and reduce costs. Physicians are currently
utilizing the BioZ Systems to help them assess, diagnose, and aggressively treat
patients with high blood pressure, congestive heart failure, diabetes, high-risk
pregnancies, kidney dysfunction, and pacemakers.

We currently offer stand-alone ICG monitoring devices and proprietary sensors.
In the longer term, we see our business expanding to include integration of our
proprietary technology into leading patient monitors, cardiology, and anesthesia
delivery systems, increasing the mix of recurring sensor revenue, expanding
outpatient distribution, and eventually, generating income from home healthcare
products and a hemodynamic medical data warehouse. Our direct sales force
specializes in introducing medical technologies to the outpatient or physician
marketplace. This core competency is of value to large medical device companies
such as General Electric Marquette Medical Systems and Agilent Technologies, who
primarily focus on hospital distribution and are in need of a distribution
channel for the physician marketplace. Therefore, our outpatient distribution
could include, not only our products, but strategic partners' applicable
products as well as new technologies.

We also plan to empower medical professionals and their patients with
eHealth/Internet information exchange programs. Our goal is to apply the power
of Internet to increase communication and the exchange of information between
doctors and patients with the potential of improving patient outcomes and
substantially decreasing costs. To fully capitalize on this opportunity, we
intend to partner with leading eHealth Internet companies. We anticipate that
these eHealth/Internet information exchange programs will utilize the speed and
convenience of the Internet and new wireless technology to provide medical
professionals and patients access to vital information that will help them
monitor, adjust treatment, and prevent complications. This has the potential to
drastically reduce hospitalization admittance and length of stay, the use of
costly drug therapy, and the need for many in-person and follow-up appointments.

We were incorporated as a California Corporation in June 1980 as Bomed Medical
Manufacturing, Ltd. (Bomed) and changed our name to CardioDynamics International
Corporation in October 1993. Our principal executive offices are located at
6175 Nancy Ridge Drive, Suite 300, San Diego, California 92121, and our
telephone numbers are (888) 522-2342 and (858) 535-0202. Our common stock
trades on The Nasdaq Stock MarketSM, under the symbol CDIC.

Industry Overview and Company History

Researchers and medical professionals have long recognized the need for
noninvasive alternatives to hemodynamic monitoring. It was not until the 1940's
that research commenced on a technology called impedance cardiography or
thoracic electrical bioimpedance (TEB). In the 1960's the National Aeronautics
and Space Administration (NASA) saw the potential and funded research using the
technology to noninvasively monitor astronauts' cardiac functions in space
flight.

In 1980, the founders of Bomed saw the potential of this technology for
healthcare. Bomed developed and manufactured a noninvasive, analog-based device
that was sold throughout the 1980s and early 1990s. These monitors had only
modest commercial success due to microprocessor limitations, inaccurate
physiological assumptions, and reimbursement disincentives. Bomed entered
Chapter 11 bankruptcy in March 1992, and emerged in October 1993, under the name
of CardioDynamics International Corporation.

Recognizing the potential of ICG technology and the advancement of
microprocessors, a group of investors, which included Allen E. Paulson, James C.
Gilstrap, and Nicholas V. Diaco, M.D., purchased control of CardioDynamics in
February 1995. A new management team was recruited to further develop the
technology and revitalize the business.

Over the next several years, a number of significant advances were made in key
areas including:

. Continued development of the core technologies related to our products;
. Establishment of a prominent medical advisory board;
. Completion of significant clinical trials;
. Infusion of additional capital;
. Market release of 3 FDA cleared products;
. Implementation of quality assurance and regulatory programs resulting in ISO
9001 and EN 46001 certification as well as CE Mark approval;
. HCFA reimbursement mandated for nationwide Medicare coverage; and
. Strategic alliance with General Electric Marquette Medical Systems including
U.S. and international distribution and joint product development.

Industry Overview and Company History - (Continued)

Our Proprietary Noninvasive ICG Technology

As electrocardiograms (ECG) noninvasively measures the heart's electrical
characteristics, our ICG technology makes it possible to measure the heart's
mechanical or blood flow characteristics. For the first time, physicians now
have an easy, cost-effective way to access information about the heart's ability
to deliver blood to the body noninvasively. The BioZ System provides physicians
important hemodynamic information such as:

. The amount of blood pumped by the heart each minute - Cardiac Output;
. The force that the heart has to pump against to deliver blood to the body -
Systemic Vascular Resistance;
. The speed and strength of the heart's contraction - Contractility; and
. The amount of fluid in the chest - Thoracic Fluid Content.

Impedance cardiography is based on Ohm's Law and the fact that blood is the most
electrically conductive substance in the body. Blood volume and velocity change
with each heart beat and result in a change in the electrical conductivity, or
impedance, of the chest.

In order to measure this conductivity change, the BioZ(TM) Systems use four dual
sensors (two on the neck and two on the chest) to deliver a high frequency - 70
kHz, low magnitude - 4 mA, alternating current through the chest. Use of a high
frequency current eliminates the possibility of interference with bioelectrical
activity of the heart and brain. Additionally, at a high frequency, there is no
sensation to the patient. With the delivered current set at a constant
magnitude, variations in blood volume and velocity in the descending thoracic
aorta cause a proportional voltage change.

The measured voltage change is processed by the BioZ(TM) Systems, using
sophisticated proprietary Digital Signal Processing (DSP) technology. An
impedance waveform is captured and electronically processed to produce a rate of
impedance change. The changes in impedance are then applied to the Z MARCTM
algorithm to continuously measure and/or calculate the hemodynamic status.
Following are the most widely used parameters:

. Stroke volume
. Cardiac output
. Systemic vascular resistance
. Thoracic fluid content
. Velocity index
. Acceleration index
. Pre-ejection period
. Left ventricular ejection time
. Heart rate

In the simplest of terms, ICG measures the change in conductivity, or the
inverse, which is impedance, over a change in time, and calculates the volume of
blood pumped with each heartbeat - stroke volume. Similarly, pulmonary artery
catheterization utilizes a thermodilution method to measure the change in blood
temperature over a change in time to calculate stroke volume.

Industry Overview and Company History - (Continued)

Some hemodynamic measurements using ICG are subject to inaccuracies when the
theoretical calculations do not fit a particular patient's clinical
circumstances. The conditions that may limit the accuracy of the data include:

. Severe septic shock;
. Significant pulmonary hypertension;
. Severe aortic valve regurgitation;
. Severe hypertension;
. Severe irregular ventricular heartbeats;
. Tachycardia rates greater than 180 beats per minute;
. Patients shorter than 47 inches;
. Patients who weigh less than 66 pounds or more than 342 pounds; and
. Extreme patient movement.

The Invasive Alternative - Pulmonary Artery Catheterization

Although hemodynamic parameters are critical in assessing cardiac function,
historically, they have been difficult to obtain. The primary method currently
used to measure hemodynamic parameters is pulmonary artery catheterization.

PAC is an invasive procedure involving an incision into a patient's neck or
groin region and insertion of catheter (plastic tube) through the vascular
system and through the heart directly into the pulmonary artery. This procedure
can cause serious complications including pneumothorax, pulmonary artery
rupture, arrhythmia, infection, and death. Complication rates are as high 24%
(Moore et al., Surgical Clinics of North America, August 1991). Additionally, a
study which was reported in the September 1996 issue of the Journal of the
American Medical Association (JAMA) by Connors et al., determined that the use
of pulmonary artery catheterization to monitor cardiac output significantly
increased the risk of death in critically ill patients.

This study, which examined data from 5,735 intensive-care patients treated at
five U.S. medical centers, reported that patients who underwent pulmonary artery
catheterization had a 21% higher risk of death within 30 days of discharge
compared to those who did not undergo the procedure. The importance of this
finding is underscored by the fact that patients in both groups were matched for
disease severity and prognosis.

Another significant drawback in the use of pulmonary artery catheterization is
cost. The pulmonary artery catheterization procedure requires a hospital to
allocate valuable resources in terms of an intensive care unit bed, cardiac
catheterization laboratory, or operating room, highly skilled medical personnel
and expensive equipment to obtain non-continuous hemodynamic data. According to
the above referenced JAMA article, the mean cost of the hospital stay for
critically ill patients having a pulmonary artery catheterization was $49,300,
which is $13,600 greater than the $35,700 cost for similar critically ill
patients who did not undergo pulmonary artery catheterization. Currently, there
are an estimated one and one-half million pulmonary artery catheterizations
performed annually in the U.S. The associated annual cost to the U.S.
healthcare system is estimated at $3 billion for the cost of catheters and their
insertion and an additional $18 billion per year for the cost of complications
arising from the procedure.

Industry Overview and Company History - (Continued)

Many patients who might otherwise benefit from hemodynamic monitoring are
excluded presently because the risks and costs associated with pulmonary artery
catheterization often outweigh the potential benefits. ICG technology
eliminates pulmonary artery catheterization-caused complications and death,
lower costs, reduces procedure time, expands clinical applications, and offers
immediate availability of vital, real-time hemodynamic data continuously.

Managed Care Environment

In the 1970's, the healthcare environment was not as focused on cost containment
as it is today. Additionally, market acceptance of noninvasive cardiac function
methods was limited because of inaccuracies due to the technological limitations
of the then-available products. In the early 1980s, national attention focused
on escalating healthcare costs. Congress introduced a new Medicare payment
system called Diagnosis-Related Groups (DRG's) which limited reimbursement
amounts for patient care. Additionally, third-party payers such as insurance
companies, employers and Health Maintenance Organizations (HMO's) identified
numerous factors driving healthcare costs, one of which was the growing number
of invasive procedures.

To induce providers to seek more cost-effective treatments, third-party payers
began to institute their own capitated payment systems, thereby shifting the
financial risk of offering patient care from the payer to the provider. In this
environment, payment incentives are shifting away from the more expensive
invasive technologies. Increasingly, providers are seeking technologies and
products that produce effective outcomes at lower cost.

In November 1998, HCFA mandated Medicare coverage for BioZ procedures on a
nationwide basis. This approval provides for national coverage to over 75
million Americans. We are currently working with HCFA to establish uniform
national pricing for the procedure.

Our Products, Services, and Solutions

BioZ(TM) System. The BioZ(TM) System is a noninvasive cardiac ICG monitoring
device, with a suggested retail price of $22,900. It consists of a Pentium-
based CPU, 15" high-resolution medical grade color monitor, and keyboard.
Included in the CPU is our proprietary DSP circuit board and software. The
BioZ(TM) System is available in ergonomically designed shelf cart or pole cart
configurations. With the application of four dual sensors to the patient's neck
and chest, the physician is able to immediately assess twelve hemodynamic
parameters.

Portable BioZ(TM) System. The Portable BioZ(TM) System is a noninvasive ICG
monitoring device, with a suggested retail price of $24,540. This more compact
version has a 10.4" active matrix color display and built-in keyboard. Our
proprietary DSP circuit board and patented software are also an integral part of
this system.

Our Products, Services, and Solutions - (Continued)

BioZ.com(TM) System. This noninvasive cardiac function monitoring device, with
a suggested retail ranging from $25,400 to $30,900 depending on accessories, is
even more compact than the BioZ(TM) Portable and features a transport battery,
integrated blood pressure module and the ability to directly interface with most
hospital patient monitoring systems. The BioZ.com(TM) utilizes our proprietary
DISQTM technology and Z MARCTM algorithm, which provide improved measurement of
impedance waveforms and automatic electronic calibration.

BioZ(TM) Transducers and Sensors. We also market disposable sensors designed
specifically for use with the BioZ(TM) Systems. With each monitoring session,
four dual sensors are utilized. These sensors are placed on the patient's neck
and chest and are generally replaced after each use or every 24 hours. Sales of
this disposable component of the product mix should continue to increase as more
of our machines are sold. The suggested retail price of the four dual sensors
is $9.95 per set. An optional transducer sensor set with pre-attached lead
wires is priced at $29.95 per set. The transducer sensors are preferred in
operating rooms or for patients with infectious diseases.

BioZ.buy. As part of our eHealth information solutions service, we offer
BioZ.buy, our electronic commerce solution that provides the ability to
electronically acquire our products, services, and information. This is the
first phase of our eHealth/Internet medical product, service and solution
development strategy.

The Features and Benefits of the BioZ(TM) Systems, as Compared to PAC

<TABLE>
<CAPTION>
Feature Benefit
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<S> <C>
Noninvasive Painless
No complications or death from procedure
Reduced costs and liabilities
May be used on wider range of patients
- ----------------------------------------------------------------------------------------------------------------
Portable May be easily transported and used in many settings, including multiple hospital
departments, physician offices and clinics
- ----------------------------------------------------------------------------------------------------------------
Quick Setup Simple procedure performed by nurses or technicians
Rapid assessment with potential for improved patient outcomes
Immediate clinical decision capabilities
- ----------------------------------------------------------------------------------------------------------------
Continuous Data Reports continuous changes
Potential for improved patient outcomes
- ----------------------------------------------------------------------------------------------------------------
Disposable Sensors Reduced cost per evaluation
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

Our Products, Services, and Solutions - (Continued)

ICG Parameters Provided by BioZ(TM) Systems and Corresponding PAC Parameters

<TABLE>
<CAPTION>
BioZ(TM) System PAC Comments
Parameters Parameters
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SV (stroke volume, ml) and SI SV, SI BioZ measures volume of blood flow; PAC measures
(stroke volume indexed, ml/m2) pressure of blood flow. SI = SV divided by body
surface area (BSA)
- -------------------------------------------------------------------------------------------------------------------
CO (cardiac output, l/min) and CI CO, CI Calculated parameters in both techniques:
(cardiac output indexed, l/min/m2) CO = SV x HR, CI = CO divided by BSA

- -------------------------------------------------------------------------------------------------------------------
SVR (systemic vascular resistance, SVR Calculated from Mean Arterial Pressure (mmHg) and
mmHg x min x liters-1) Cardiac Output
- -------------------------------------------------------------------------------------------------------------------
EDV (end diastolic volume, ml) PAOP or "wedge Wedge pressure provides an estimation of left
pressure" ventricular pressure and end diastolic volume via
measurement of the "back pressure" of blood flow in
the pulmonary artery. It is inaccurate in patients
with mitral valve disease. The BioZ EDV (which is an
estimated value) provides a left ventricular end
diastolic volume instead of pressure
- -------------------------------------------------------------------------------------------------------------------
VI (velocity index, liters/seconds) No similar Index of velocity of blood in the aorta; provides
measurement insight into LV contractility
- -------------------------------------------------------------------------------------------------------------------
ACI (acceleration index, liters No similar Index of acceleration of blood in the aorta;
per seconds2) measurement provides insight into LV contractility
- -------------------------------------------------------------------------------------------------------------------
LCW (left cardiac work, No similar Useful clinical data regarding LV contractility and
kg x m x m-2) measurement volume status
- -------------------------------------------------------------------------------------------------------------------
PEP (pre-ejection period, msec) No similar Time from onset of ventricular depolarization to
measurement opening of aortic valve. Used in calculation of STR
- -------------------------------------------------------------------------------------------------------------------
LVET (left ventricular ejection No similar Time from opening to closing of the aortic valve.
time, msec) measurement Used in calculation of STR
- -------------------------------------------------------------------------------------------------------------------
STR (systolic time ratio) No similar STR = PEP / LVET and is an index of LV performance.
measurement An increase in STR indicates LV dysfunction; whereas,
a decrease in STR indicates a stronger, more
athletic heart
- -------------------------------------------------------------------------------------------------------------------
TFC (thoracic fluid content, No similar Useful clinical data regarding patients' thoracic
ohms-1) measurement fluid status (intravascular, interstitial,
intra-alveolar) and is important in distinguishing
between cardiac and pulmonary problems.
- -------------------------------------------------------------------------------------------------------------------
No similar measurement PVR (pulmonary Determines pressure within the pulmonary vascular
Vascular circulation
Resistance)
- -------------------------------------------------------------------------------------------------------------------
HR (heart rate, beats/min) No similar BioZ measures HR via modified ECG leads
measurement
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

Warranty and Service

Our systems are sold with a limited thirteen-month parts and labor warranty
commencing at the date of shipment. When warranty repairs are necessary, we
generally perform them at our headquarters or, in some cases, by our
distributors in authorized service centers. We also provide field clinical
application specialists as necessary, as well as 24-hour on-call technical
support. In addition to the standard warranty we offer extended service
agreements, called Z CARESM for hardware and software maintenance beyond the
warranty period. Additionally, we also service equipment on a time and
materials basis.

Marketing

Until recently, comprehensive hemodynamic information has been available only in
acute care settings, such as an intensive care unit (ICU) or operating room.
The BioZ(TM) Systems make obtaining and assessing this type of information
simple, rapid, cost-effective, safe, continuous and painless. For these
reasons, the utilization of noninvasive ICG information is expanding in both
hospital and outpatient environments.

The primary targets in the outpatient market include: cardiologists/general
internists caring for congestive heart failure (CHF) and high blood pressure
patients, dialysis centers and surgicenters. Among the patients in the United
States who can benefit from our technology are 60 million high blood pressure
patients, five million CHF patients, one million pacemaker patients, 50 million
emergency patients, and many patients requiring fluid management. CHF-related
expenditures exceeded $40 billion in 1998, more than any other illness. Our
strategy to the outpatient market has been designed to:

. Increase physicians' knowledge of ICG;

. Demonstrate the ability of the BioZ Systems to assist physicians in the
objective identification of appropriate pharmacological treatment of CHF,
high blood pressure, and fluid management patients;

. Show the ability of the BioZ Systems to assist physicians in the optimization
of pacemakers;

. Educate physicians of the importance of hemodynamics in the treatment of
patients who would normally not be monitored with a PAC, due to practice
setting, costs, and complications;

. Demonstrate cost savings, through more efficient care, and revenue generation
through HCFA-mandated Medicare reimbursement and private insurance
reimbursement; and

. Increase penetration through sales force expansion to maintain our market
leader position.

Within the hospital setting, departments serving high-risk surgical, intensive
care, acute dialysis, and emergency patients are our primary targets. Our
marketing strategy has been designed to:

. Increase physicians' and hospital personnel's knowledge of ICG;

. Demonstrate the cost savings of providing ICG monitoring to patients;

. Remind physicians and hospital staff of the importance of hemodynamics in the
treatment of patients who would normally not be monitored with a PAC, due to
practice setting, costs, and complications;

. Present the BioZ(TM) Systems as the technology of choice; and

. Utilize GE - Marquette Medical Systems and international distribution
capabilities to establish ourselves as the market leader.

The continued success of our products within the outpatient and hospital markets
will lay the foundation for the utilization of ICG-based products in the home
healthcare market. Although presently in development, this will allow patients
with chronic illnesses, such as congestive heart failure, to simply and
inexpensively monitor their hemodynamic status and transmit this information,
via telephone or Internet, on a regular basis to their physician. We believe
this "telemedicine" application can effectively and efficiently alert the
physician to any changes in status, need to adjust medications, or patient
noncompliance with prescribed treatment.

Marketing - (Continued)

Our marketing promotion strategy is based on key trade show participation, fax
and mail direct response programs, product and clinical education collateral
materials development.

In late 1998 we received authorization from TUV Rhineland of North America to
place the CE Mark on our BioZ.com(TM). The CE Mark is recognized worldwide as
an essential European regulatory approval and enables us to expand our sales and
distribution of the BioZ.com(TM) throughout Europe. We currently have
distribution agreements covering 24 European countries and over 50 countries
around the world.

We actively support research utilizing the BioZ(TM) Systems. In addition to
providing further clinical validation for ICG, we plan to have each study
published in a peer-reviewed journal and/or presented at major medical
conferences. Clinical publications and presentations at major medical
conferences provide us with the exposure necessary to establish credibility for
ICG and the BioZ(TM) Systems.

Sales and Distribution

The United States medical marketplace consists of two distinct segments: the
outpatient market, and the hospital market. During fiscal 1997, we established
distribution agreements with seventeen regional specialty distributors as our
representatives in the hospital market. By the end of fiscal 1997, it was
apparent that we needed to broaden our sales channels. We decided to add a
direct sales force targeted at both the hospital and outpatient markets in the
majority of the United States, and reduced the number of domestic distributors.

During 1998 and 1999, our direct sales force proved its ability to produce sales
in the outpatient market. This was largely due to the fact that there are few,
if any, formal capital equipment budget processes in this market segment and
purchasing decisions can be made more quickly. Consequently, we focused our
direct sales force primarily on the outpatient markets and sought an alliance
with a hospital-based industry leader that already had strong market presence to
penetrate the hospital market. In October 1999, we announced a strategic
alliance with GE Marquette Monitoring Systems whereby their sales force would
represent our products in the domestic hospital market where they are well
established.

Currently, we have a direct sales force of 25, focused primarily on the
outpatient market. Additionally, GE Marquette's 67 monitoring sales
representatives promote and sell our BioZ.com in the domestic hospital market.
Internationally, we utilize a variety of distributors, including GE Marquette
Medical Systems, to actively promote the BioZ.com in more than 50 countries
around the world.

Research and Development and Clinical Studies

Our research and development (R&D) team has extensive experience in the areas of
impedance cardiography, biological signal processing, hardware/software
development, and regulatory compliance. The team is responsible for on-going
product engineering, new product development, and basic research into thoracic
electrical bioimpedance and additional noninvasive monitoring applications.

To supplement our engineering staff, we utilize Rivertek Medical Systems, Inc.
(Rivertek), located in Minneapolis, Minnesota. Rivertek serves as an
engineering consulting firm for medical device manufacturers, including Guidant
Corporation and Medtronic, Inc., as well as emerging medical technology
companies. Dennis Hepp, our Chief Technology Officer, founded Rivertek in 1988.
Rivertek employs 28 medical hardware, software, and biomedical engineers.

Research and Development and Clinical Studies - (Continued)

The R&D team participates in monitoring and analysis of Company-sponsored
clinical trials, for which we employ Clinical Application Specialists (CAS).
Each of these individuals has a strong clinical background and is responsible
for monitoring clinical studies and assisting in research and customer training.

Studies Utilizing Previous Generation Technology. A considerable amount of
research has been published on ICG. In fact, more than 80 research papers have
been published since 1993. In general, these studies reported favorable results
when comparing cardiac output measurements with that of other techniques, such
as pulmonary artery catheterization.

Previous generation technology worked reasonably well, in a select group of
patients. However, there were significant limitations of the technology. These
became evident when monitoring patients with increasing heart rates, high heart
rates, abnormal heartbeats, high respiration rates, pacemakers, and hospitalized
ventilated patients. These limitations related to both hardware and software
inadequacies. As a result of intense focus and concerted effort we have
successfully addressed these limitations by improving the electronics and
processing as well as the algorithms.

Studies Utilizing the BioZ(TM) Systems. We are committed to supporting well-
designed clinical research studies utilizing ICG technology. Studies which are
of most importance to us are those which demonstrate:

. Validity;
. Reproducibility;
. Clinical utility; and
. Cost-effectiveness.

The results of several major studies addressing each of these areas have been
released with very positive results.

Medical Advisory Board

We have established a distinguished Medical Advisory Board consisting of 19
physicians, many of whom are affiliated with prestigious universities and well-
known medical institutions throughout the United States, such as Stanford
University School of Medicine, Cleveland Clinic, Scripps Clinic, University of
California, San Diego, and Baylor College of Medicine, Houston, Texas. Members
of our Medical Advisory Board have expertise in cardiology, electrophysiology,
anesthesiology, hypertension, pulmonary and critical care, internal medicine,
heart failure, and emergency medicine. The Medical Advisory Board provides
guidance regarding clinical trials, technological improvements and potential
uses for our products.

Members of the Medical Advisory Board receive reimbursement for their expenses
in attending company-sponsored meetings and, in certain cases, receive
consulting fees for time spent working on our behalf. No fees were paid to the
MAB members in either of the fiscal years ended November 30, 1998 or 1999 for
their service on our Medical Advisory Board.

Intellectual Property

Our success will, to some extent, depend on our ability to maintain patent
protection for our products and processes, to preserve our trade secrets and
proprietary technology and to operate without infringing upon the patents or
proprietary rights of others. As of November 30, 1999, we have six United
States patents.

All of our existing patents were issued prior to the re-engineering of the
products to a DSP-based system. As such, several of the patents are not
integral to the design of the BioZ(TM). We also possess proprietary software,
which we have strategically elected not to disclose through patents. In
addition, we may file new patent applications covering certain modifications to
our products and algorithms during 2000.

Manufacturing

We are licensed as a healthcare device manufacturer by the Food and Drug Branch
of the California Department of Health Services, which is essentially equivalent
to a State FDA, and operate under the United States FDA Good Manufacturing
Practice (GMP) regulation 21 CFR 820.

ISO 9000. In concert with management's commitment to quality, we have
implemented quality procedures and documentation required for successful
International Organization for Standardization (ISO) 9001 certification. In June
1998, we received ISO 9001 and EN 46001 quality certification for developing and
marketing medical devices.

CE Mark. In November 1998, we received authorization from TUV Rhineland of
North America to place the CE Mark on the BioZ.com(TM). The CE Mark is
recognized worldwide as an essential European regulatory approval and enables us
to expand our sales and distribution of the BioZ.com(TM) throughout Europe.

Direct Competition

We are aware of three domestic and two international manufacturers of ICG
monitors. Since all five companies are privately held, sales and financial
figures for these potential competitors are not available. We believe that our
BioZ(TM) products provide the most advanced ICG monitoring, commercially
attractive designs, at prices that are competitive. Thus far, sales and
marketing efforts by our competitors have not been visible to us. No industry
ads, trade show participation, or significant direct sales efforts are known to
us.

Indirect Competition

Pulmonary Artery Catheterization - Also known as thermodilution, right heart
catheterization, and Swan-Ganz(TM) catheterization. The PAC procedure was
introduced in the early 1970's and despite its limitations, costs, and risks, is
the most commonly used technology for monitoring a patient's hemodynamic status.
It is estimated that pulmonary artery catheterization procedures are used more
than one and one-half million times per year in the United States and more than
two million times per year worldwide. The estimated cost to the U.S. healthcare
system is estimated at $3 billion for the cost of the catheters and their
insertion and $18 billion per year for the cost of complications arising from
the procedure. Baxter Healthcare Corporation, Abbott Laboratories and B. Braun
Medical, Inc. produce the majority of right heart catheters used in the U.S. The
PAC procedure has significant limitations. Some of the limitations of PAC
include:

Indirect Competition - (Continued)

Limitations of the PAC Procedure

<TABLE>
<CAPTION>
Limitation Explanation Reference (If Applicable)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Complications Rates of 10% to 24%, including infection, Per Moore, op. cit.
cardiac arrhythmia, air embolus, pulmonary
infarction, pulmonary artery rupture
pneumothorax, sepsis and death
- ------------------------------------------------------------------------------------------------------------------
Death Increased 30-day death rates in patients Per Connors, op. cit.
undergoing PAC as compared to those patients American Society of
not receiving PAC. A publication of the Anes-thesiologists Task
American Society of Anesthesiologists indicated Force, "Practice Guidelines
the death rate associated with PACs in the U.S. for PAC" Anesthesiology, V
ranged from 0.02% to 1/5% 78, No 2, Feb 1993, 380-394.
- ------------------------------------------------------------------------------------------------------------------
Costs Average increased hospitalization costs Per Connors, op. cit.
Of $13,600 per patient
- ------------------------------------------------------------------------------------------------------------------
Insertion requirements Hospitalization in an intensive care setting,
operating room or cardiac catheterization
laboratory; sterile environment; physician,
nurses and trained personnel required for
insertion
- ------------------------------------------------------------------------------------------------------------------
Availability of data Intermittent; requires multiple personnel
- ------------------------------------------------------------------------------------------------------------------
Variability of data +/-20% error/inconsistency Per Moore, op. cit.
- ------------------------------------------------------------------------------------------------------------------
Conditions that may limit Obesity; anatomical, vascular and cardiac
Placement or accuracy structure anomalies; tricuspid, pulmonary and
mitral valve abnormalities

- ------------------------------------------------------------------------------------------------------------------
</TABLE>

Echocardiography. Echocardiography (Echo) is a medical diagnostic tool
utilizing ultrasound frequency waves to detect anatomical abnormalities of the
heart and blood vessels. Echo technology was developed during the 1970's, and
has advanced through the years with the addition of sophisticated electronics
and digitalization for acquisition of better images. A continuous wave
suprasternal Doppler echo measures cardiac output noninvasively by placing a
Doppler transducer on the chest, aiming it toward the ascending aorta, and
measuring aortic blood flow velocity. Specifically, it measures the aortic
diameter and the moving red blood cells to determine the velocity and direction
of blood flow to calculate stroke volume, and hence calculate cardiac output.

Limitations in measuring cardiac output via Doppler echo:

. Inconsistency in images and in the data generated, due to differences in
technician skill and experience, patient size and disease state;
. Difficulty in procuring images in patients with evidence of pulmonary
disease, tracheotomies, chest wounds, or obesity;
. Time consuming procedure that typically requires 30-45 minutes; and
. In some patients, reliable, accurate images simply cannot be obtained by
Doppler echo for unknown reasons.

Indirect Competition - (Continued)

Trans-esophageal Echo. Trans-esophageal Echo (TEE) has been developed in recent
years to obtain closer images of the heart. It is useful in-patients in whom
examination from the usual position is technically impossible and in-patients
undergoing cardiac surgery. TEE is performed with the ultrasound transducer
placed invasively in the esophagus through the mouth. Although this procedure
enables more direct, accurate images of the heart, several disadvantages
accompany this technique because of its invasive nature including increased
patient discomfort and the requirement for patient sedation to promote procedure
tolerance. In addition, patient airway complications may result, necessitating
the need for available emergency equipment, such as oxygen, intubation
equipment, and ECG monitoring. Consequently, the procedure customarily is
performed with several attendants, usually an Echo technician, a nurse and a
physician.

Direct Fick. Direct Fick was the original method conceived in the late 1800's
to measure cardiac output. It is based on calculating the oxygen difference
between the arterial and venous blood, along with oxygen inhalation and
expiration. The Direct Fick method is seldom used because it is time consuming,
costly, and complicated. A variation of the Direct Fick method, called Fick
Partial Re-breathing, was introduced in late 1998 to the hospital surgical
market. Fick Partial Re-breathing uses CO2 instead of oxygen to measure cardiac
output. The Fick Partial Re-breathing method is limited to patients who are
mechanically ventilated, which severely restricts the number of patients who are
candidates for the procedure. In addition, lack of HCFA-approved reimbursement
creates a barrier for adoption by clinicians.

Government Regulation

In November 1996, we received 510(k) clearance from the U.S. Food and Drug
Administration (FDA) to market the BioZ(TM) System. In September 1997, the FDA
granted 510(k) clearance to market the BioZ(TM) Portable System and implement
our proprietary Digital Impedance Signal Quantifier (DISQ(TM)) technology into
our next generation of monitors. DISQTM provides improved measurement of
impedance waveforms through enhanced digital signal processing and automatic
calibration.

In March 1998, we received 510(k) marketing clearance for our latest generation
monitoring system, the BioZ.com(TM) incorporating the Z MARC(TM) - Modulating
Aortic Compliance algorithm which allows the system to sense and modulate values
on patients with over or under compliant aortas. The BioZ.com(TM) is even more
compact than the BioZ(TM) Portable and features a transport battery, integrated
blood pressure module and the ability to directly interface with most hospital
central monitoring systems. In November 1998, the BioZ.com received CE Mark
approval, which allows it to be sold in Europe. Also in November 1998, the
Health Care Financing Administration mandated Medicare coverage for BioZ
procedures on a nationwide basis.

Our products and activities are subject to extensive regulation by the FDA and
other governmental and foreign regulatory agencies. Delays in receipt of, or
failure to obtain, regulatory clearances and approvals, or any failure to comply
with regulatory requirements, could have a very negative effect on our business.

Under the federal Food, Drug, and Cosmetic Act, the FDA regulates the clinical
testing, manufacture, labeling, packaging, marketing, distribution and record
keeping for medical devices, in order to ensure that medical devices distributed
in the United States are safe and effective for their intended use.

Government Regulation - (Continued)

Before a new device can be introduced into the market, the manufacturer
generally must obtain either FDA 510(k) clearance or approval of a premarket
approval application. Following submission of a 510(k) or PMA application, the
manufacturer may not market the new device until an order is issued by the FDA
granting clearance or approval. The process required to obtain FDA 510(k)
approval can entail an expensive, lengthy and uncertain process. We have
received a marketing clearance for the BioZ(TM) System, the BioZ(TM) Portable
and the BioZ.com(TM). However, such clearances are subject to continued FDA
audits and can be rescinded. Further, we plan to submit additional new products
for FDA approval in the future. It is possible that our future products might
not gain FDA approval in a timely fashion, or at all. It is also possible that
our current products may someday lose their FDA approval.

We are also subject to routine inspection by the FDA and state agencies, such as
the California Department of Health Services, for compliance with Good
Manufacturing Practice requirements, Medical Device Reporting requirements and
other applicable regulations. Although we work hard at attempting to comply
with all governmental regulations, it is possible that an inspector could
someday find a violation. Such a violation could result in government action
ranging from warning letters to fines to criminal prosecution. Should we ever
incur a significant penalty it is possible it would be detrimental to us. The
FDC Act requires that medical devices be manufactured in accordance with GMP
requirements. GMP requirements specify, among other things, that:

. The manufacturing process be regulated and controlled by the use of written
procedures;
. The ability to produce devices which meet the manufacturer's specifications
be validated by the extensive and detailed testing of every aspect of the
process; and
. Deficiencies in the manufacturing process or in the products produced
be investigated and detailed records kept.

Manufacturing facilities are subject to FDA inspection on a periodic basis to
monitor compliance with current GMP requirements. Labeling and promotional
activities are regulated by the FDA and, in certain circumstances, by the
Federal Trade Commission. For any medical device cleared through the 510(k)
process, modifications or enhancements that could significantly affect the
safety or effectiveness of the device or that constitute a major change to the
intended use of the device require a new 510(k) submission. If the FDA requires
us to submit a new 510(k) notice for any product modification, we may be
prohibited from marketing the modified product until the 510(k) notice is
cleared by the FDA.

The FDA also regulates computer software that performs the function of a
regulated device or that is intimately associated with a given device, such as
control software for diagnostic devices like our products. The FDA is
reevaluating its regulation of such software, and if the FDA undertakes
increased or more rigorous regulation of such software, the BioZ(TM) product
line and related products may become subject to further regulatory processes and
clearance requirements.

Laws and regulations regarding the manufacture, sale and use of medical devices
are subject to change and depend heavily on administrative interpretations.
Future changes in the regulations or interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, may adversely affect us.

Government Regulation - (Continued)

Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary from country to country. We currently rely on
our international distributors and sub-distributors for the receipt of pre-
market approvals and compliance with clinical trial requirements in those
countries that require them, and we expect to continue to rely on them in those
countries where we continue to use distributors. If our international
distributors fail to obtain or maintain required pre-market approvals or fail to
comply with foreign regulations, foreign regulatory authorities may require us
to cause the applicable distributor to file revised governmental notifications,
cease commercial sales of our products in the applicable countries, or otherwise
cure the problem. Such enforcement action by regulatory authorities could be
costly.

In order to sell our products within the European Economic Area, we have to
comply with the European Commission's Medical Device Directive and affix a "CE"
marking on our products to attest such compliance. In November 1998, we
received authorization from TUV Rhineland of North America to place the CE Mark
on our BioZ.com(TM).

Third-Party Reimbursement

Most medical procedures are reimbursed by a variety of third-party payers,
including Medicare and private insurers. Health Care Finance Association, the
governmental body that approves medical diagnosis and treatment for financial
reimbursement for Medicare coverage, determines whether to reimburse for a given
type of procedure and the dollar amount allowed. In November 1998, we received
HCFA approval for Medicare coverage of BioZ procedures on a nationwide basis.
This reimbursement approval for our BioZ(TM) Systems has improved our ability to
penetrate the outpatient market. We are currently working with HCFA to
establish national reimbursement pricing for the use of our equipment to reduce
the geographic variations in Medicare reimbursement amounts.

The financial and health care cost containment pressures at U.S. hospitals,
resulting from per-capita compensation techniques required by HMOs, are driving
medical departments to decrease costs. In a managed care system involving
capitation, the health care provider is strongly induced to utilize the most
cost-efficient methods available in order to maintain per-patient costs within
the monthly fees. Our products can reduce hospital costs by an estimated
minimum of $600 per patient in non-complicated cases (Clancy, T.V., et al.,
Journal of Trauma, August 1991) to as much as $13,600 where pulmonary artery
catheterization is used (Connors, op. cit.). Therefore, a financial incentive
exists, independent of third-party reimbursement circumstances, for hospitals to
purchase and use our products.

Employees

As of February 22, 2000, we had 75 employees, three of which are considered
part-time. We believe that the success of our business will depend, in part, on
our ability to identify, attract and retain qualified personnel. In the future,
we will add additional skilled personnel or retain consultants in such areas as
research and development, manufacturing, administration and marketing and sales.
We consider our relationships with our employees to be good.

Risk Factors

Dependence on BioZ(TM) Product Line Whose Market Acceptance is Unclear

Our future is dependent upon the success of the BioZ(TM) product line and
similar products that are based on the same core technology. The market for
thoracic electrical bioimpedance products is in a relatively early stage of
development, and it is possible that this market will never fully develop. The
long-term commercial success of the BioZ(TM) product line and any follow-on
products requires widespread acceptance of our thoracic electrical bioimpedance
products as safe, efficient, and cost-effective. Widespread acceptance would
represent a significant change in medical practice patterns. Historically, some
medical professionals have indicated hesitancy in using thoracic electrical
bioimpedance products such as previous generation analog-based monitors.
Invasive procedures, such as pulmonary artery catheterization, are generally
accepted in the medical community and have a long history of use.

We have limited clinical data with which to demonstrate the clinical benefits of
our products. However, we have sponsored and plan to continue to sponsor and/or
conduct clinical trials that we hope will demonstrate consistent clinical
benefits resulting from the use of our products. We cannot be certain that
these clinical trials will be completed or if they will have a positive outcome
or if a positive outcome in these trials would be sufficient to enable
widespread acceptance of the BioZ(TM) product line by the medical community

Some hemodynamic measurements using thoracic electrical bioimpedance are subject
to inaccuracies and may limit the accuracy of our products, such as:

. Severe septic shock;
. Significant pulmonary hypertension;
. Severe aortic valve regurgitation;
. Severe hypertension;
. Severe irregular ventricular heartbeats;
. Tachycardia rates greater than 180 beats per minute;
. Patients who are shorter than 47 inches;
. Patients who weigh less than 66 pounds or more than 342 pounds; and
. Extreme patient movement.

History of Losses and Expected Continued Losses

Since Bomed's emergence from bankruptcy proceedings in 1993, we have had large
annual losses in the course of researching, developing and enhancing our
technology and products and establishing our sales, marketing, and
administrative organizations. We anticipate that our operating expenses will
increase substantially in the foreseeable future as we increase our sales and
marketing activities, expand our operations and continue the development of our
technology. Accordingly, we expect to incur additional losses for fiscal 2000
and it is possible that we will never achieve or sustain adequate revenue levels
required for profitability.

Future Additional Capital Requirements; No Assurance Future Capital Will Be
Available

Our commercialization of the BioZ(TM) product line and the development and
commercialization of any additional products will require substantial
expenditures. Our capital requirements will depend on numerous factors,
including:

. Our rate of sales growth--fast growth could actually increase our need for
additional capital to hire additional staff, purchase additional component
inventories, finance the increase in accounts receivable, and supply
additional support services;

. Our progress in marketing-related clinical evaluations and product
development programs--these programs represent potential avenues for growth,
but will require additional capital;

. Our receipt of, and the time required to obtain, regulatory clearances and
approvals--the longer regulatory approval takes, the more working capital we
need to support our regulatory and development efforts in advance of sales;

. Resources we devote to the development, manufacture and marketing of our
products--any decision we make to improve, expand or simply change our
process, products or technology will require increased funds;

. Resources required to hire and develop medical sales representatives and
distributors and to develop internal manufacturing capacity--requires
substantial working capital;

. Facilities requirements--as we grow we may need additional manufacturing,
warehousing and administration facilities and the costs of the facilities
would be borne long before any increased revenue from growth would occur;

. Market acceptance and demand for our products--although growth could
increase our capital needs, the lack of growth and continued losses would
also increase our need for capital; and

. Our ability to speed up hospitals' otherwise lengthy purchasing processes by
offering leasing programs as an alternative to outright purchasing and
provide outpatient offices with extended payment terms and funding options.

The timing and amount of such capital requirements cannot be accurately
predicted. We may be required to raise additional funds through public or
private financing, bank loans, collaborative relationships or other arrangements
earlier than expected. It is possible that banks, venture capitalists and other
investors may perceive our current debt load, our history of losses or our
technology's lack of acceptance as too great a risk to bear and, as a result,
such additional funding may not be available on attractive terms, or at all. If
we cannot obtain additional capital when needed we might be forced to agree to
unattractive financing terms.

Competition From Other Producers; and Technological Change May Benefit Our
Competitors

We compete with other companies that are developing and marketing non-invasive
hemodynamic monitors. We are also subject to competition from invasive-
technology companies, including Baxter Healthcare Corporation, which have more
established and larger marketing and sales organizations, significantly greater
financial and technical resources and a larger installed base of customers than
we do. Such competitors may be able to devote greater resources to the
development, promotion and sales of their products.

The current widespread acceptance of PAC, and lack of widespread acceptance of
ICG, is an important competitive disadvantage that we must overcome. In
addition, our current and potential competitors may establish cooperative
relationships with large medical equipment companies to gain access to greater
research and development or marketing resources. Competition may result in
price reductions, reduced gross margins and loss of market share. Any of these
could hurt our business, results of operations and financial condition. It is
possible that we will not be able to compete successfully.

The introduction by others of products embodying new technologies and the
emergence of new industry standards could render our products obsolete and
unmarketable. Other companies may develop and introduce products and processes
competitive with or superior to ours. In addition, other technologies or
products may be developed that have an entirely different approach or means of
accomplishing the intended purposes of our products. Accordingly, our products'
life cycles are difficult to estimate. To compete successfully, we must
continually develop and introduce new products that keep pace with technological
advancements, respond to evolving consumer requirements and achieve market
acceptance.

We may not succeed in satisfactorily and timely developing and introducing
additional products. Even if we succeed in developing and marketing products
that achieve market acceptance, our competitors may develop and market products
that will replace ours.

Technological Change is Difficult to Predict and to Manage

Although not in fact a new company, we currently face many of the challenges
that are typically faced by new companies just emerging from the development
phase. The BioZ(TM) product line has required, and any future products will
require, substantial development efforts and compliance with all governmental
clearance/approval requirements. We have to continue to build up our sales and
marketing functions. We may encounter unforeseen technological or scientific
problems that may force abandonment or substantial change in the development of
a specific product or process. Technological change or product developments by
others may also have a significant negative effect on us.

Ability to Manage Growth

If successful, we will experience a period of growth that could place a
significant strain upon our managerial, financial and operational resources.
Our infrastructure, procedures and controls may not be adequate to support our
operations and to achieve the rapid execution necessary to fully exploit any
future market opportunity for our products. Our future operating results will
also depend on our ability to complete our geographic network of direct sales
persons and distributors, expand our sales and marketing organizations, and fill
out our support staff organization. If we are unable to manage expansion
effectively, our business, results of operations and financial condition will
suffer. However, we are not promising you that such expansion or growth will
occur.

We May Not Continue to Receive Necessary Approvals from the Food and Drug
Administration

Our products and activities are subject to extensive regulation by the FDA and
other governmental authorities. Delays in receipt of, or failure to obtain,
regulatory clearances and approvals, or any failure to comply with regulatory
requirements, could have a very negative effect on our business.

Our thoracic electrical bioimpedance products are subject to extensive and
rigorous regulation by the FDA and, to varying degrees, by state and foreign
regulatory agencies. Under the federal Food, Drug, and Cosmetic Act, the FDA
regulates the clinical testing, manufacture, labeling, packaging, marketing,
distribution and record keeping for medical devices, in order to ensure that
medical devices distributed in the United States are safe and effective for
their intended use.

We May Not Continue to Receive Necessary Approvals from the FDA - (Continued)

Before a new device can be introduced into the market, the manufacturer
generally must obtain either FDA 510(k) clearance or approval of a pre-market
approval application (PMA). Following submission of a 510(k) or PMA
application, the manufacturer may not market the new device until an order is
issued by the FDA granting clearance or approval, which can entail an expensive,
lengthy and uncertain process. We have received a marketing clearance for the
BioZ System, the BioZ(TM) Portable and the BioZ.com(TM). However, such
clearances are subject to continued FDA audits and can be rescinded. Further,
we plan to submit additional new products for FDA approval in the future. It is
possible that our future products might not gain FDA approval in a timely
fashion, or at all. It is also possible that our current products may someday
lose their FDA approval.

We are also subject to routine inspection by the FDA and state agencies, such as
the California Department of Health Services, for compliance with GMP
requirements, Medical Device Reporting requirements and other applicable
regulations. Although we work hard at attempting to comply with all
governmental regulations, it is possible that an inspector could someday find a
violation. Such a violation could result in government action ranging from
warning letters to fines to criminal prosecution. Should we ever incur a
significant penalty it is possible it would be detrimental to us. The FDC Act
requires that medical devices be manufactured in accordance with Good
Manufacturing Practice requirements.

Good Manufacturing Practice requirements specify, among other things, that:

. the manufacturing process be regulated and controlled by the use of written
procedures;

. the ability to produce devices which meet the manufacturer's
specifications be validated by the extensive and detailed testing of every
aspect of the process; and

. any deficiencies in the manufacturing process or in the products produced
be investigated and detailed records kept.

Manufacturing facilities are subject to FDA inspection on a periodic basis to
monitor compliance with current GMP requirements. Labeling and promotional
activities are regulated 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. For any medical
device cleared through the 510(k) process, modifications or enhancements that
could significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device require a new 510(k)
submission. If the FDA requires us to submit a new 510(k) notice for any
product modification, we may be prohibited from marketing the modified product
until the 510(k) notice is cleared by the FDA.

The FDA regulates computer software that performs the function of a regulated
device or that is intimately associated with a given device, such as control
software for diagnostic devices like our products. The FDA is reevaluating its
regulation of such software, and if the FDA undertakes increased or more
rigorous regulation of such software, the BioZ product line and related products
may become subject to further regulatory processes and clearance requirements.

Control by Our Co-Chairmen

Allen E. Paulson and James C. Gilstrap, the co-chairmen of CardioDynamics,
beneficially own, directly or through CardioDynamics Holdings, LLC, which they
control, approximately 35% of the outstanding shares of our common stock. In
addition, Mr. Paulson's sons beneficially own another seven percent of the
outstanding shares of common stock. Accordingly, Messrs. Paulson and Gilstrap,
as a group, are able to substantially control CardioDynamics and influence our
affairs and business, including any future issuances of common stock or other
securities, merger and acquisition decisions, declaration of dividends and the
election of directors. Further, in their position as holders of our stock, they
have no duty to act in the best interests of CardioDynamics. Our stock price
and our ability to raise capital could be injured if they were to sell even a
portion of their holdings on the open market. CDH has been sued in United
States Bankruptcy Court on behalf of the creditors of a party from whom CDH
acquired some of its CardioDynamics stock. Although CardioDynamics has been
dismissed as a defendant in this lawsuit, we cannot predict the impact on
CardioDynamics of an unfavorable outcome of this suit to CDH.

We May Not Receive Approvals by Foreign Regulators Which Are Necessary for
Foreign Sales

Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary from country to country. If we or our
international distributors fail to obtain or maintain required pre-market
approvals or fail to comply with foreign regulations, foreign regulatory
authorities may require us to file revised governmental notifications, cease
commercial sales of our products in the applicable countries, or otherwise cure
the problem Such enforcement action by regulatory authorities could be costly.

In order to sell our products within the European Economic Area, we have to
comply with the European Commission's Medical Device Directive and to affix a
"CE" marking on our products to attest such compliance. In November 1998 we
received authorization from independent certifying agency TUV Rhineland of North
America to place the CE Mark on our BioZ.com(TM). However, future regulatory
changes could limit our ability to use the CE Mark and any new products we
develop may not qualify for the CE Mark. Failure to obtain authorization to use
the CE Mark or loss of such authorization would render us unable to sell our
products in the European Economic Area and this would limit our potential.

Third-Party Reimbursement; Pricing Pressures

Our commercial success will depend in part on the availability of adequate
reimbursement from third-party healthcare payers, such as government and private
health insurers and managed care organizations. Third-party payers are
increasingly challenging the pricing of medical products and services. Even
with an FDA approved device, third-party payers may not cover the device and
related services, or they may place significant restrictions on the
circumstances in which coverage will be available. Medicare reimbursement for
use of the BioZ product line is now available under the heading of
plethysmography, but private third-party payers are not required to follow
Medicare's lead. We may not be able to obtain a specific code for reimbursement
of thoracic electrical bioimpedance tests in a reasonable time frame, or at all,
from either Medicare or private third-party payers. In addition, reimbursement
may not be at or stay at price levels sufficient to allow medical professionals
to realize an appropriate return on an investment in our products. Downward
pricing pressure in the industry could hurt our operations.

Our business plan contemplates an income stream from sales of disposable sensors
that are compatible with an installed base of our monitors. We may be subject
to price competition from other sensor manufacturers.

Dependence on Management and Other Key Personnel

We are dependent upon a limited number of key management and technical personnel
and we do not have insurance on these people. The loss of the services of one
or more of such key employees could hurt our business. In addition, our success
depends upon our ability to attract and retain additional highly qualified
sales, management, manufacturing and research and development personnel. We
face intense competition in our recruiting activities and we may not be able to
attract and/or retain qualified personnel.

Dependence on Rivertek Medical Systems for Development Services and Other Third
Parties for Development and Manufacturing Services

Our strategy for development and commercialization of certain of our products
depends upon entering into various arrangements with third parties and upon the
subsequent success of these parties in performing their obligations. It is
possible that we will not be able to negotiate acceptable arrangements in the
future or that our existing arrangements will not be successful. We rely
heavily on contracted development services, particularly from Rivertek Medical
Systems, Inc. Also, we currently assemble our BioZ product line from components
manufactured by others. Therefore, we are dependent on contract manufacturers.

Small Market Float Can Produce Both Stock Price Volatility and a Potential Lack
of Liquidity

Market float is the aggregate value of all of a company's publicly traded stock.
Our market float is smaller than that of many other publicly traded companies.
Because our market float is smaller, changes in the opinion of one investor or
one analyst can have a significant effect on our stock price. As a result, the
market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to various factors beyond our control,
including:

. Quarterly variations in operating results;
. Announcements of technological innovations, new products or pricing by our
competitors;
. Changes in, or failure to meet, financial estimates of securities analysts;
. The rate of adoption by physicians of thoracic electrical bioimpedance
technology in targeted markets;
. Timing of patent and regulatory approvals;
. Timing and extent of technological advancements;
. Results of clinical studies;
. The sales of stock by affiliates; and
. General market conditions.

In addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of the stock of many medical
device companies and that often have been unrelated to the operating performance
of such companies. These broad market fluctuations may directly influence the
market price of our common stock. Our somewhat small market float may not be
entirely adequate to provide market liquidity and mitigate stock price
volatility.

Reliance on Patents and Proprietary Technology

Although we believe that we have effective patent protection, our patents and
proprietary technology may not be able to prevent effective competition by
others and our products could possibly be found to infringe the rights of
others. Intellectual property litigation, whether defensive or offensive, would
have no certain outcome other than to drain our resources.

The validity and breadth of claims in medical technology patents involve complex
legal and factual questions. Future patent applications may not be issued, the
scope of any patent protection may not exclude competitors and it may not
provide competitive advantages to us. Further, our patents may be found to be
invalid, and other companies may claim rights in or ownership of the patents and
other proprietary rights held or licensed by us. Also, our existing patents
might not cover products we want to bring out in the future. Moreover, when our
key patents expire, the inventions will enter the public domain.

Since patent applications in the United States are maintained in secrecy until
patents issue, our patent applications may infringe patents that may be issued
to others. In the event our products are found to infringe patents held by
competitors, we may have to modify our product to avoid infringement, and it is
possible that our modified products would not be commercially successful.

We Could be Required to Issue Additional Shares of Common Stock

The holders of warrants to purchase our common stock and certain purchasers of
our common stock in our December 3, 1999 private placement could require us to
issue additional shares of common stock to them pursuant to anti-dilution rights
we have provided them. These rights would cause us to issue additional common
stock upon exercise of their warrants if we sell common stock at a price less
than the exercise price of their warrants or issue additional common stock to
the purchasers in the private placement if the market price falls below certain
target levels. If we need to sell common stock at a time when the market price
for our shares is depressed, these anti-dilution rights could further depress
the market price and could, in turn, impair our ability to raise needed capital.

Anticipated Resales of Common Stock

We have filed or will file registration statements with the SEC covering the
potential resale by certain shareholders of up to 11,070,000 shares of common
stock. The existence of a substantial number of shares of common stock subject
to immediate resale could depress the market price for the common stock and, in
turn, impair our ability to raise needed capital.

Risks Associated with International Activities

In fiscal 1999, international sales accounted for approximately 21% of our
revenue. We believe it is possible that international sales will represent a
meaningful portion of our revenue in the future. This would require significant
management attention and financial resources and subject us to the risks of
selling internationally. These risks include unexpected changes in regulatory
requirements, tariffs and other barriers and restrictions, and an adverse effect
from reduced protection for intellectual property rights. We would have to
comply with a variety of foreign laws. In addition, fluctuations in the rates
of exchange could increase the price in local currencies of our products in
foreign markets and make our products relatively more expensive than
competitors' products that are denominated in local currencies.

Low Stock Price Could Result in Our Being De-Listed from NASDAQ and Subject Us
to Regulations Which Could Reduce Our Ability to Raise Funds

If our stock price were to drop below $1.00 per share and remain below $1.00 per
share for an extended period of time, certain NASDAQ regulations would require
the de-listing of our shares and then our shares could no longer be traded on
NASDAQ. In such an event, our shares could only be traded on over-the-counter
bulletin board systems. This method of trading could significantly impair or
completely remove our ability to raise new capital.

In the event that we were de-listed from NASDAQ due to low stock price, we might
be subject to certain rules, called penny stock rules, that impose additional
sales practice requirements on broker-dealers who sell such securities. For any
transaction involving a penny stock the rules require, among other things, the
delivery, prior to the transaction, of a disclosure schedule required by the SEC
relating to the market for penny stocks. The broker-dealer also must disclose
the commissions payable both to the broker-dealer and the registered
representative and current quotations for the securities, and monthly statements
must be sent disclosing recent price information.

In the event our common stock becomes characterized as a penny stock, our market
liquidity could be severely affected. In such event, the regulations relating
to penny stocks could limit the ability of broker-dealers to sell our common
stock and thus, the ability of purchasers in this offering to sell their common
stock in the secondary market.

Product Liability Risk and Product Recall; Limited Insurance Coverage

The nature of our business exposes it to risks of product liability or product
recalls that are typical in the medical devices industry. Medical devices as
complex as ours frequently contain errors or failures, especially when first
introduced or when new versions are released. Our products are designed to be
used in certain procedures where there is a high risk of serious injury or
death. Such risks will exist even with respect to those products that have
received, or may in the future receive, regulatory clearance for commercial
sale.

We did not carry product liability insurance during certain periods before May
15, 1995. So far, this has not hurt us. Since then, we have maintained product
liability insurance at levels that we believe are sufficient and consistent with
industry standards for companies with our current sales levels. We intend to
increase our product liability insurance policy limits as sales grow.
Currently, our product liability insurance policy limits are $10,000,000 per
occurrence and $10,000,000 in the aggregate. Our product liability insurance
may not be adequate and it is possible that such insurance coverage may not
continue to be available on commercially reasonable terms or at all. In
addition, product liability claims or recalls could hurt us in various ways even
if we have adequate insurance coverage.

No Dividends

We do not intend to pay any cash dividends on the common stock any time soon.
Payment of such cash dividends would, in any event, be prohibited or limited
under the terms of our bank loans.

Uncertainty and Potential Negative Effects of Healthcare Reform

The healthcare industry is undergoing fundamental changes resulting from
political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to:

. Increase access to health care for the uninsured;
. Control the escalation of healthcare expenditures within the economy; and
. Use health care reimbursement policies to help balance the federal budget.

We anticipate that Congress and state legislatures will continue to review and
assess such proposals, and public debate of these issues will likely continue.
We cannot predict which, if any, of such reform proposals will be adopted and
when they might be adopted. Other countries also are considering healthcare
reform. Significant changes in healthcare systems could have a substantial
impact on the manner in which we conduct our business and could disrupt our
strategies.

We Have No Experience with Home Health Care or the Internet

We intend to enter the home health care market and the eHealth field in
conjunction with other parties. We have not concluded any agreements or
understandings with any third parties and we may not be able to achieve such
arrangements on terms satisfactory to us. Even if we are successful in
negotiating acceptable arrangements with third parties, the parties may not
perform their obligations to us for reasons beyond our control. If we are not
able to negotiate arrangements with other parties to implement our home health
care and eHealth strategies, or if such arrangements, once negotiated, are not
successful, we will not be able to meet our business objectives

ITEM 2. DESCRIPTION OF PROPERTY

Our executive offices are located in an approximately 19,000 square foot leased
facility in San Diego, California. This facility houses all of our research,
development, manufacturing, marketing, sales and administrative activities
except for field and contract personnel. The five-year lease runs through June
2002.

ITEM 3. LEGAL PROCEEDINGS

On February 8, 1999, the Official Post Confirmation Committee of Unsecured
Creditors of Helionetics, Inc. filed a complaint in United States Bankruptcy
Court for the Central District of California, Santa Ana Division, naming
CardioDynamics Holdings, LLC (CDH) and CardioDynamics as defendants. The
complaint alleged fraudulent transfer of certain shares of our common stock from
Helionetics to CDH in February 1995 and sought various relief including return
of the shares to Helionetics and compensatory and punitive damages. Subsequent
to our fiscal year end, on February 16, 2000, our motion to dismiss the
complaint was granted without leave for Helionetics to amend. We are unable to
predict what effect, if any, an unfavorable outcome to CDH in this matter could
have on CardioDynamics.

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

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock trades on the Nasdaq SmallCap market under the symbol CDIC.
The following table sets forth for the periods indicated the high and low
closing prices of the common stock as furnished by The Nasdaq Stock Market(SM).
<TABLE>
<CAPTION>

High Low
----- -----
<S> <C> <C>
Year Ending November 30, 1999
Fourth Quarter................................................................ $3.35 $2.50
Third Quarter ............................................................ 3.75 1.38
Second Quarter................................................................ 1.88 1.50
First Quarter .............................................................. 2.56 1.56

Year Ending November 30, 1998
Fourth Quarter................................................................ $2.75 $1.03
Third Quarter................................................................. 3.00 1.75
Second Quarter................................................................ 3.94 2.19
First Quarter ............................................................. 3.31 2.38
</TABLE>

On February 22, 2000 there were approximately 575 holders of record of our
common stock. We have not declared or paid any cash dividends on shares of our
common stock and do not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain any future earnings for use in the
operation of our business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

The following discussion should be read in along with our Financial Statements
and the Notes that go along with the financial statements, as well as the other
financial information included in this Form 10-KSB. Some of our discussion is
forward-looking and involve risks and uncertainties. For information regarding
risk factors that could have a material adverse effect on our company's
business, refer to Item I of this Form 10-KSB, Description of Business - Risk
Factors

Results of Operations (This discussion refers to fiscal years which end on
November 30)

In March 1998, we received FDA 510(k) marketing clearance for our BioZ.com(TM)
ICG monitoring system. The BioZ.com(TM) is even more compact than our BioZ(TM)
Portable system and features a transport battery, integrated blood pressure
module and the ability to directly interface with most hospital central
monitoring systems. The BioZ.com(TM) utilizes our proprietary DISQ(TM)
technology and Z MARC(TM) algorithm that provide improved measurement of
impedance waveforms and automatic electronic calibration. The BioZ.com(TM)
accounted for 90% of our overall equipment sales in fiscal 1999, up from 43% in
fiscal 1998.

Net sales in fiscal 1999 increased to $7,280,908, an increase of 247% over net
sales of $2,098,696 recorded in fiscal 1998. The significant sales growth in
fiscal 1999 is primarily due to the success of our domestic direct sales force,
expansion of our international distributor network, our strategic alliance with
GE Marquette Medical Systems and the growing awareness of the availability and
clinical usefulness of our BioZ(TM) noninvasive ICG monitoring systems.

Our direct sales force targets individual physician offices as well as hospitals
in the U.S. under 100 beds. During fiscal 1999, we increased our direct sales
force from 15 territory sales representatives at the beginning of the year, to
25 territory sales representatives, three regional sales managers and a national
accounts manager at the end of the year. In fiscal 2000 we plan to continue to
expand our direct sales force as qualified candidates are identified in targeted
metropolitan areas. However, the success of our direct sales expansion will be
dependent, to a large degree, on our ability to identify, attract and retain
qualified sales representatives with successful medical industry sales
experience.

In November of 1998, we received CE Mark approval for our BioZ.com(TM), which
opened the door for distribution in Europe. During fiscal 1998 and 1999 we
established international distribution agreements with 15 medical device
distributors and in August 1999, we entered into a strategic alliance with GE
Marquette Medical Systems for exclusive distribution of our BioZ.com(TM) to
select countries in Europe. In January 2000 the GE Marquette distribution
agreement was expanded to include 18 additional counties including Russia,
Egypt, Saudi Arabia, and United Arab Emirates. Through GE Marquette and our
other international distributors, we now have representation in over 50
countries including Europe, Asia Pacific, Africa, the Middle East, Australia,
New Zealand, and Latin America.

In October 1999, we entered into a distribution agreement with GE Marquette
Medical Systems for distribution of the BioZ.com(TM) in the U.S. hospital
market. The agreement provides GE Marquette exclusive rights to market and sell
our BioZ.com(TM) in hospitals over 100 beds, where they have a significant
presence and are widely recognized for their success at introducing new
technologies, particularly in the areas of diagnostic cardiology, clinical
information systems, and patient monitoring systems. Our direct sales force
continues to focus their efforts on the outpatient market and the smaller U.S.
hospitals.

Results of Operations - (Continued)

In fiscal 1999, 70% of our overall sales were generated through our direct sales
force with 29% coming through our distributor network, including GE Marquette.
Of the sales generated through our distributor network, 21% was sold to
international distributors and the remaining 8% was sold to our domestic
distributors. International sales increased by 188% in fiscal 1999 over fiscal
1998.

Each time our BioZ(TM) products are used, disposable sets of four dual sensors
are required. We sell these disposable sensors for $9.95 per application. In
fiscal 1999, sales of our disposable sensors increased by 109% to $342,000, up
from $164,000 in fiscal 1998. As the installed base of BioZ(TM) equipment grows,
we anticipate the revenue generated by our disposable sensors will comprise an
increasingly larger percentage of our overall sales.

We achieved a gross margin of $4,681,717, or 64%, in fiscal 1999 compared to a
gross margin of $900,715, or 43%, in fiscal 1998. The significant improvement in
our gross margin percentage in fiscal 1999 is attributable to: (i) greater
utilization of our manufacturing capacity based on the increased volume of units
produced, (ii) the higher priced BioZ.com(TM) comprising a greater percentage of
our overall product mix and, (iii) increased average unit sales prices as a
result of a higher percentage of our BioZ products being sold though our sales
force directly to end users. Our average sales price per unit sold increased by
24% in fiscal 1999.

We continue to invest a significant portion of our resources into research,
clinical studies, further enhancements to the BioZ(TM) Systems and new product
development. During fiscal 1999 we increased our internal capabilities for
research and development, decreasing our reliance on outside engineering
consulting services. As a result of this investment in internal resources, and
the fact that fiscal 1998 included substantial expenses related to the
accelerated 11-month development cycle of the BioZ.com(TM), research and
developments expenses in fiscal 1999 decreased by $395,556, or 17%, relative to
fiscal 1998. Included in research and development in fiscal 1999 is a non-cash
charge of $350,479 related to common stock warrants issued to GE Marquette to
obtain access to their technology which we are currently using for new product
development. We anticipate that costs associated with research, clinical
studies, further enhancements to the BioZ(TM) Systems and new product
development will continue to comprise a substantial portion of our overall
expense structure during the coming year.

Selling, general and administrative expenses in fiscal 1999 were $6,041,919, up
58% from $ 3,815,673 in fiscal 1998 as a result of our strategic decision to
dramatically increase our investment in sales and marketing related activities
in 1999. As a result, our sales and marketing expenses increased 89% in fiscal
1999 over the fiscal 1998 level. The majority of the investment was related to
expansion of both our domestic direct sales force and our international
distribution capabilities. During 1999 we added 10 direct sales
representatives, three regional managers and a national accounts sales
representative and we plan to continue to expand our direct sales force and
increase our investment in sales and marketing activities in fiscal 2000 and
beyond.

Included in selling, general and administrative expenses in fiscal 1999 is
$1,369,144 of administrative expenses related to the overall infrastructure and
management of our company. As a result of our continued focus on ongoing cost
containment and targeting our investments to areas of the business that directly
contribute to revenue growth, our general and administrative expenses increased
by only 1.6% from the $1,347,737 spent in fiscal 1998.

Results of Operations - (Continued)

We incurred interest expense of $311,461 in fiscal 1999, up from $213,798 in
fiscal 1998. The $97,663 increase is primarily the result of interest payments
on our term loan with City National Bank and borrowings on our private line of
credit agreement with our Chairmen. We earned $90,944 of interest income on
invested funds in fiscal 1999, down 12% from the $104,358 earned in fiscal 1998
due primarily to decreased funds available for investment throughout the year.

To achieve an orderly conversion of the shares of our Series A convertible
preferred stock and minimize the potential impact on the market price of our
common stock, in June of 1999, we identified a group of strategic investors and
facilitated the private sale of the common shares issued upon conversion of the
remaining portion of the preferred stock by reducing the effective purchase
price. As a result of this Series A preferred stock conversion, we recorded a
non-cash charge of $483,333 in fiscal 1999 that is included in our Statement of
Operations under "Other expense: Other, net".

Preferred stock dividends increased from $22,800 in fiscal 1998 to $226,030 in
fiscal 1999. Prior to elimination of the preferred stock during the third
quarter of fiscal 1999, the preferred shareholders received $34,466 of dividends
in the form of common stock under the terms of the preferred stock agreement.
In the third fiscal quarter of 1999, we recorded a $191,564 preferred stock
dividend related to premium-priced warrants issued to the Series A preferred
stock investors in exchange for the elimination of their contractual right to
buy an additional three million dollars of convertible preferred stock.

Fiscal 1999's net loss to common shareholders was reduced by $1,138,792 to
$4,218,957, or $.12 per common share, versus a net loss to common shareholders
of $5,357,749, or $.17 per share, in fiscal 1998. The fiscal 1999 net loss
included $226,030 of dividends paid to the holders of Series A preferred stock.
Additionally, the fiscal 1999 net loss included two non-cash accounting charges:
$350,479 for warrants issued to GE Marquette and $483,333 for shares issued upon
conversion of the remaining shares of Series A preferred stock. Excluding these
non-cash charges, the net loss to common shareholders for fiscal 1999 was
$3,159,115, or $0.09 per share, down 41% from fiscal 1998.

The weighted-average number of common shares we had outstanding during fiscal
1999 increased by 13% primarily due to conversions during the year of 2,240
shares of Series A preferred stock and the $5.2 million common stock private
placement we completed in May 1999.

Liquidity and Capital Resources

In June 1997, we entered into a five-year lease for a 19,000 square-foot
manufacturing facility that also houses our research, development, marketing,
sales and administrative activities. The lease commenced on September 1, 1997
with current lease payments of $16,486 per month. In fiscal 1998 and 1999, we
invested $165,989 and $184,087 respectively, including equipment acquired under
capital lease, in property and equipment, principally for new computers and
software, and equipment to be used in our manufacturing process.

Liquidity and Capital Resources - (Continued)

Over the past three years we have raised just over $15 million dollars in three
separate financings. In early 1997 we raised approximately $7.2 million in a
private placement of common stock and we raised an additional $3 million in
August of 1998 through the issuance of Series A convertible preferred stock, and
in May of 1999 we raised another $5.2 million through a private placement of
common stock. These financings, together with the bank loans and chairmen's
line of credit described below, have provided the capital required to fund
commercialization of our BioZ products, ongoing research and development
efforts, expansion of our direct sales force and international sales presence,
capital expenditures and to meet our working capital requirements including the
significant increase in accounts receivable resulting from the higher sales
volumes and extended payment terms.

In March 1998, we entered into an 18-month unsecured private line of credit
agreement with the co-chairmen of our Board of Directors. Under the terms of
the agreement we can borrow up to $3,000,000 on an as-needed basis at an annual
interest rate of 10.0%. In August of 1998 we borrowed $1,000,000 on this line
of credit and used the proceeds to reduce outstanding borrowings under the
Imperial Bank term loan. In February 1999, this line of credit was extended to
September 30, 2000. At November 30, 1999, $1,000,000 was outstanding under this
agreement.

In May of 1998, we entered into a six-month unsecured term loan agreement with
Imperial Bank. Under the terms of the agreement we could borrow up to
$4,000,000, of which we borrowed $3,000,000. The loan bore interest at one
percent above the bank's prime rate and was guaranteed by the co-chairmen of our
Board of Directors. In August 1998, we repaid $1,000,000 of the $3,000,000,
reducing the outstanding balance to $2,000,000. In exchange, the Bank extended
the term of the loan until February 28, 1999.

On February 26, 1999 we entered into a three-year unsecured term loan agreement
with City National Bank at the bank's prime rate. Under the terms of the
agreement we borrowed $2,000,000, the proceeds of which were used to repay the
Imperial Bank term loan. The co-chairmen of our Board of Directors guarantee
the loan. So far we have made interest only payments, however, beginning March
2000, we will commence monthly principal installments of $83,333 each plus
interest at one percent above the bank's prime rate. At November 30, 1999,
$2,000,000 was outstanding under the agreement

In August of 1998, we raised $3,000,000 through the issuance of Series A
convertible preferred stock to a group of institutional investors. During the
third fiscal quarter of 1999, we facilitated conversion of the remaining shares
of the Series A preferred stock into shares of our common stock under the terms
of the preferred stock agreement. At November 30, 1999 all of the Series A
preferred stock have been converted into common stock.

To help provide the cash flow necessary to meet the increasing demand for our
products, in January 1999, we established a secured revolving credit line with
Imperial Bank. The credit line provides for borrowings of up to $3,000,000 at
the bank's prime rate. Under the terms of the agreement, we are required to
meet certain loan covenants, including maintenance of minimum quick ratio and
maximum quarterly losses. All the assets of the Company collateralize the
credit line. At November 30, 1999 $1,000,000 was outstanding on the line of
credit. Subsequent to our fiscal year end, in February 2000, the credit line was
renewed through February 2001 at the bank's prime rate with the same borrowing
limit of $3,000,000.

On May 28, 1999 we completed a $5.2 million private placement of common stock to
institutional and other accredited investors including Domain Associates,
L.L.C., a Princeton, New Jersey-based venture capital group and Veritas Societe
Generale. The investors purchased unregistered shares with a six-month holding
restriction for $1.00 per share, representing a 27% discount from the closing
bid price.

Liquidity and Capital Resources - (Continued)

Subsequent to our fiscal year end, on December 3, 1999, we completed a $3.3
million private placement of common stock to institutional investors, including
Veritas Societe Generale and three additional European institutional investors.
The investors purchased unregistered shares with a four-month holding
restriction for $2.50 per share, representing a 9% discount from the 30-day
average closing bid price at the time of the transaction.

Nonetheless, without additional debt or equity financing, our ability to
continue expansion of our direct sales strategy will be constrained, due to the
strategy's higher cash requirements. We expect our operating losses to continue
through at least the short term. Longer term, our liquidity will depend on our
ability to successfully commercialize the BioZ(TM) Systems and other diagnostic
products and raise additional funds through public or private financing, bank
loans, collaborative relationships or other arrangements. We can give no
assurance that such additional funding will be available on terms attractive to
us, or at all.

We have federal operating loss carryforwards of approximately $21,000,000. The
Tax Reform Act of 1986 contains provisions which limit the federal net operating
loss carryforwards that can be used in any given year in the event of certain
occurrences, including significant ownership changes. A valuation allowance has
been recognized for the full amount of the deferred tax asset created by these
carryforwards.

Other Matters

Year 2000 Compliance

During 1999 we implemented a plan to assure internal readiness of our computer
systems and the ability of our products to handle the year 2000 issue. The plan
was comprehensive, however we did not have to spend significant amounts of money
to assure our compliance. As of February 22, 2000 we have not experienced any
significant disruptions to our financial or operating activities caused by
failure of our computer systems resulting from Year 2000 issues. We are not
aware of any Year 2000 related product performance issues. We do not expect
Year 2000 issues to have a material adverse effect on our business, results of
operations, or financial condition.

Item 7. Financial Statements

Independent Auditors' Report

The Board of Directors and Shareholders
CardioDynamics International Corporation:

We have audited the accompanying balance sheets of CardioDynamics International
Corporation as of November 30, 1999 and 1998, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CardioDynamics International
Corporation as of November 30, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

/s/ KPMG LLP

San Diego, California
January 17, 2000

CARDIODYNAMICS INTERNATIONAL CORPORATION
Balance Sheets

November 30, 1999 and 1998

<TABLE>
<CAPTION>
Assets (notes 4, 5 and 6) 1999 1998
------------------- -------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,405,710 $ 2,633,086
Accounts receivable, net of allowance for doubtful accounts
and returns of $552,648 in 1999 and $32,728 in 1998 4,226,470 632,190
Inventory, net (note 2) 1,344,527 995,364
Other current assets 116,070 81,229
------------------- -------------------
Total current assets 8,092,777 4,341,869
------------------- -------------------
Property and equipment, net (note 3) 335,760 266,917
Long-term receivables 25,973 --
Deposits 42,500 40,099
------------------- -------------------
Total assets $ 8,497,010 $ 4,648,885
=================== ===================

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,125,068 $ 577,836
Accrued expenses 183,910 89,663
Accrued salaries, wages and benefits 309,083 276,179
Current maturities of long-term debt (note 5) 885,932 37,816
Line of credit (note 4) 1,000,000 --
Note payable to bank (note 4) -- 2,000,000
Notes payable related parties (notes 4 and 6) 1,000,000 --
Provision for inventory returns -- 23,040
------------------- -------------------
Total current liabilities 4,503,993 3,004,534

Note payable related parties (notes 4 and 5) -- 1,000,000
Long-term debt, less current maturities (note 5) 1,350,425 112,215
------------------- -------------------
Total liabilities 5,854,418 4,116,749
Convertible preferred stock, no par value; 18,000,000 shares authorized;
no shares issued or outstanding at November 30, 1999; issued and
outstanding 2,240 Series A shares at November 30, 1998 (Note 7) -- 2,152,294

Shareholders' equity: (notes 5, 6, 7 and 8)
Common stock, no par value; 50,000,000 shares authorized; issued
and outstanding 39,888,811 shares at November 30, 1999 and
32,676,029 shares at November 30, 1998 24,079,981 15,598,274

Accumulated deficit (21,437,389) (17,218,432)
------------------- -------------------
Total shareholders' equity (deficit) 2,642,592 (1,620,158)
------------------- -------------------
Commitments and contingencies (note 10)
Total liabilities and shareholders' equity $ 8,497,010 $ 4,648,885
=================== ===================
</TABLE>

See accompanying notes to financial statements.
32

CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Operations

For the years ended November 30, 1999 and 1998

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Net sales $ 7,280,908 $ 2,098,696
Cost of sales 2,599,191 1,197,981
------------------- -------------------
Gross margin 4,681,717 900,715

Operating expenses:
Research and development 1,913,920 2,309,476
Selling, general, and administrative expenses 6,041,919 3,815,673
------------------- -------------------
Total operating expenses 7,955,839 6,125,149
------------------- -------------------
Loss from operations (3,274,122) (5,224,434)

Other expense:
Interest, net (220,517) (109,440)
Other, net (note 7) (497,488) (275)
------------------- -------------------
Total other expense: (718,005) (109,715)

Loss before income taxes (3,992,127) (5,334,149)
Income taxes (note 9) (800) (800)
------------------- -------------------
Net loss (3,992,927) (5,334,949)

Preferred stock dividends (226,030) (22,800)
------------------- -------------------
Net loss to common shareholders $ (4,218,957) $ (5,357,749)
=================== ===================
Net loss per common share, basic and diluted $ (.12) $ (.17)
=================== ===================
Weighted-average number of common shares outstanding 36,296,495 32,117,853
=================== ===================
</TABLE>

See accompanying notes to financial statements.
33

CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Shareholders' Equity (Deficit)

For the years ended November 30, 1999 and 1998

<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- ------------------------ Accumulated
Shares Amount Shares Amount Deficit Total
---------- --------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1997 -- -- 32,085,743 $14,826,762 $(11,860,683) $ 2,966,079

Issuance of common stock - upon exercise of
stock options -- -- 28,000 29,700 --
Issuance of common stock - upon conversion of
preferred stock -- -- 554,134 730,243 --

Preferred stock dividends paid in common stock -- -- 8,152 11,569 (22,800) (11,231)
Net loss -- -- -- -- (5,334,949) (5,334,949)
---------- --------- --------- -------------- -------------- -------------

Balance at November 30, 1998 -- -- 32,676,029 15,598,274 (17,218,432) (1,620,158)
Compensatory stock options granted -- -- -- 8,274 -- 8,274
Issuance of common stock warrants -- -- -- 554,174 -- 554,174
Issuance of common stock, net -- -- 5,527,272 5,577,338 -- 5,577,338
Issuance of common stock - upon exercise of
stock options -- -- 91,000 151,000 --
Issuance of common stock - upon conversion of
convertible preferred stock -- -- 1,567,962 2,145,224 --

Preferred stock dividends paid in common stock
and warrants -- -- 26,548 45,697 (226,030) (180,333)
Net loss -- -- -- -- (3,992,927) (3,992,927)
---------- --------- ----------- -------------- -------------- -------------
Balance at November 30, 1999 -- $ -- 39,888,811 $24,079,981 $(21,437,389) $ 2,642,592
========== ========= =========== ============== ============== =============
</TABLE>

See accompanying notes to financial statements
34

CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Cash Flows

For the years ended November 30, 1999 and 1998

<TABLE>
<CAPTION>
1999 1998
------------------ --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,992,927) $ (5,334,949)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 116,807 93,728
Gain on sale of fixed assets (614) (3,000)
Provision for obsolete inventory 69,829 80,822
Provision for warranty repairs 75,752 53,602
Reduction in reserve for inventory returns (23,040) (591,820)
Provision for refurbishment of demonstration inventory units 60,459 117,818
Provision for doubtful receivables 519,920 13,609
Compensatory stock options granted 8,274 --
Warrants issued in exchange for technology 350,479 --
Non-cash expense for retirement of Series A preferred stock 483,333 --
Changes in operating assets and liabilities:
Accounts receivable (4,114,200) (594,231)
Inventory (479,451) (287,895)
Other current assets (28,274) 56,505
Long-term receivables (25,973) --
Deposits (2,401) (12,311)
Accounts payable 547,232 282,312
Accrued expenses 29,726 (456)
Accrued salaries, wages and benefits 32,904 192,547
------------------ --------------------
Net cash used in operating activities (6,372,165) (5,933,719)
------------------ --------------------
Cash flows from investing activities:
Purchases of property and equipment (33,542) (58,771)
Proceeds from sale of fixed assets 1,498 53,000
------------------ --------------------
Net cash used in investing activities (32,044) (5,771)
------------------ --------------------
</TABLE>

See accompanying notes to financial statements.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Statements of Cash Flows, (Continued)

For the years ended November 30, 1999 and 1998

<TABLE>
<CAPTION>
1999 1998
------------------ --------------------
Cash flows from financing activities:
<S> <C> <C> <C> <C>
Repayment of long-term debt $ (66,666) $ (27,260)
Borrowing of long-term debt 2,000,000 32,250
Proceeds from line of credit 1,000,000 --
Proceeds from debt issuance to related parties -- 1,000,000
Proceeds from note payable to bank -- 3,000,000
Repayment of note payable to bank (2,000,000) (1,000,000)
Issuance of preferred stock -- 3,000,000
Preferred stock issuance costs (8,608) (117,463)
Issuance of common stock, net 5,252,107 29,700
------------------ --------------------

Net cash provided by financing activities 6,176,833 5,917,227
------------------ --------------------

Net decrease in cash and cash equivalents (227,376) (22,263)

Cash and cash equivalents at beginning of year 2,633,086 2,655,349
------------------ --------------------

Cash and cash equivalents at end of year $ 2,405,710 $ 2,633,086
================== ====================
</TABLE>

<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
Supplemental disclosures of cash flow information:
<S> <C> <C> <C> <C>
Cash paid for interest $ 311,461 $ 213,798
Cash paid for income taxes $ 800 $ 800

Supplemental disclosures of non-cash investing and financing activities:
Common stock issued upon redemption or conversion of preferred stock $ 2,145,224 $ 730,243
Fixed assets acquired by capital lease $ 152,992 $ 107,218
Preferred stock dividends paid in common stock and warrants $ 226,030 $ 22,800
</TABLE>

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(1) Summary of Significant Accounting Policies

Description of Business

CardioDynamics International Corporation (the "Company") was incorporated in
California in June 1980 as Bomed Medical Manufacturing, Ltd. and changed its
name to CardioDynamics International Corporation in October 1993. The
Company develops, manufactures and markets heart-monitoring devices that
provide physicians with continuous data on a wide range of parameters
relating to blood flow and heart function. Unlike other cardiac function
monitoring technologies, our monitors are non-invasive. Our primary
products, the BioZ(TM) System, the BioZ(TM) Portable, and the BioZ.com(TM)
use a technology called thoracic electrical bioimpedance (TEB) to obtain
data which is typically available only through a time-consuming, costly, and
potentially dangerous invasive procedure known as right heart
catheterization, or pulmonary artery catheterization.

Many patients who might otherwise benefit from cardiac function monitoring
are often not given such treatment because the risks and costs associated
with pulmonary artery catheterization often outweigh the potential benefits.
The BioZ(TM) Systems allow these patients to receive treatment in a safe,
efficient, and cost-effective manner. Since the BioZ(TM) Systems provide
cardiac function monitoring noninvasively, they have the potential to expand
the number of clinical applications well beyond cardiology, intensive care,
and surgery. These include applications for congestive heart failure, high
blood pressure, emergency, dialysis, immune suppressed, high risk obstetric,
and pacemaker patients.

Cash Equivalents

Cash equivalents consist of short-term money market funds and commercial
paper and are stated at cost, which approximates fair market value. The
Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.

The Company maintains its cash in bank deposit accounts which, at times, may
exceed the federally insured limits. The Company has not experienced any
losses in such accounts and management believes it places its cash on
deposit with financial institutions that are financially stable. At November
30, 1999, the Company has cash deposits in excess of federally insured
limits totaling $2,205,710.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

Inventory

Inventory is stated at the lower of cost or market, cost being determined on
a first-in, first-out (FIFO) basis. The Company evaluates inventory on hand
against historical and planned usage to determine appropriate provisions for
obsolete, slow-moving and non-saleable inventory.

Property and Equipment

Property and equipment are recorded at cost. Property and equipment acquired
under capital leases are recorded at the present value of future minimum
lease payments. Leasehold improvements are amortized using the straight-line
method over the shorter of the remaining lease term or the estimated useful
life. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to seven years.

Revenue Recognition

Revenue is recognized when a product is shipped or a service is provided to
the customer with appropriate provisions for estimated returns and
allowances.

Warranty Cost

The Company provides, by a current charge to cost of goods sold, an amount
it estimates will be needed to cover future warranty obligations for
products sold during the year. The accrued liability for warranty costs is
included in accrued expenses in the accompanying balance sheets.

Research and Development

All research and development costs are expensed in the period incurred.

Patents

Costs to obtain, maintain and defend patents are expensed in the period
incurred.

Advertising

All advertising costs are expensed in the period incurred. Advertising
costs, including trade show expenses, amounted to $320,728 and $339,470 in
1999 and 1998, respectively.

Segment Reporting

Statement of Financial Accounting Standard (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas and major
customers. An operating segment is defined as a component of an enterprise
that engages in business activities from which it may earn revenues and
incur expenses, and about which separate financial information is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources. All of the Company's business activities are aggregated into one
reportable segment given the similarities of economic characteristics
between the activities and the common nature of the Company's services and
customers.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

Net Loss Per Share

Net loss per common share is computed by dividing the net loss to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted loss per share is calculated by including the additional
common shares issuable upon exercise of outstanding options and warrants in
the weighted average share calculation. Basic and diluted loss per common
share are the same for the years ended November 30, 1999 and 1998 as all
potentially dilutive securities are antidilutive. For the year ended
November 30, 1999, 3,831,866 options and 2,993,184 warrants, each
convertible into one share of common stock, were not included in the diluted
earnings per share calculation as their effect was antidilutive. At November
30, 1998, 3,550,000 options and 447,848 warrants were not included in the
diluted earnings per share calculation.

Significant Customers

In August of 1999 the Company entered into a strategic alliance with GE
Marquette for exclusive distribution of our BioZ.com in Europe. In October
1999 the Company expanded on the European agreement by signing an U.S.
hospital distribution agreement. During fiscal 1999 sales to GE Marquette
resulted in $1,075,800 of revenue, representing 15% of net sales. Sales to
international distributors including GE Marquette represented 21% of net
sales during fiscal 1999. In fiscal 1998, sales to international
distributors accounted for 25% of net sales. No one customer represented
more than 10% of net sales in fiscal 1998.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and accrued salaries, wages and benefits,
are considered to be representative of their fair values because of the
short-term nature of these financial instruments. The carrying amount of the
note payable to bank and long-term debt is a reasonable estimate of fair
value as the loans bear interest based on market rates available for debt
with similar terms. It is not practical to estimate the fair value of notes
payable to related parties because of the related party nature.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

Stock-Option Plan

The Company accounts for stock options granted to employees in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25.
As such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. The
Company applies the disclosure only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, which established accounting and
disclosure requirements using fair-value-based method of accounting for
stock based employee compensation plans.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the Company reviews
long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Impairment losses for long-lived
assets to be held and used are recorded by reducing the carrying value, to
the fair value of the asset. Assets to be disposed of are reported at the
lower of the carrying amount or fair value, less costs to sell.

Reclassifications

Certain reclassifications have been made to certain prior year balances in
order to conform to current year presentation.

Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, revenue and expenses,
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

(2) Inventory

Inventory at November 30, 1999 and 1998 consists of the following:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Electronic components and subassemblies $ 791,603 $ 497,050
Finished goods 552,025 410,191
Demonstration units 628,190 547,101
Distributor inventory to be returned (note 9) -- 38,025
Less provision for obsolete inventory (366,714) (296,885)
Less provision for demonstration inventory (260,577) (200,118)
------------------- -------------------
$ 1,344,527 $ 995,364
=================== ===================
</TABLE>

In 1999 and 1998 the Company used a number of vendors for components and
subassemblies and believes that, should these suppliers not be able to
provide inventory to the Company in the future, it would be able to obtain
alternate suppliers within a reasonable amount of time to meet production
demands.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998
(3) Property and Equipment

Property and equipment at November 30, 1999 and 1998 consist of the
following:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Furniture $ 81,165 $ 85,362
Exhibit booth 4,800 4,800
Other equipment 93,779 120,579
Lab equipment 58,175 68,122
Manufacturing equipment and fixtures 52,070 26,429
Sales equipment 26,282 57,626
Computer software and equipment 193,134 76,656
Leasehold improvements 115,885 115,885
------------------- -------------------
625,290 555,459
Less accumulated depreciation and amortization (289,530) (288,542)
------------------- -------------------
$ 335,760 $ 266,917
=================== ===================
</TABLE>

At November 30, 1999 and 1998, the Company had $244,230 and $107,218 of
property and equipment under capital lease, respectively. Accumulated
amortization on the leased equipment was $60,338 in 1999 and $19,677 in
1998.

(4) Financing Agreements

In May 1998, the Company entered into a six month unsecured term loan
agreement with Imperial Bank. Under the terms of the agreement the Company
could borrow up to $4,000,000, of which the Company borrowed $3,000,000.
The loan bore interest at one percent above the Bank's Prime Rate and was
guaranteed by the co-chairmen of the Company's Board of Directors. In
August 1998, the Company repaid $1,000,000 of the $3,000,000, reducing the
outstanding balance to $2,000,000. In exchange, the Bank extended the term
of the loan until February 28, 1999. This note was repaid by the Company
and retired on February 26, 1999.

In March 1998, the Company entered into an 18 month unsecured private line
of credit agreement with the co-chairmen of the Company's Board of
Directors. Under the terms of the agreement the Company may borrow up to
$3,000,000 on an as-needed basis at an annual interest rate of 10.0%. In
August of 1998 the Company borrowed $1,000,000 on this line of credit and
used the proceeds to reduce outstanding borrowings under the bank term
loan. In February 1999, the line of credit was extended to September 30,
2000. At November 30, 1999, $1,000,000 was outstanding under the agreement.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(4) Financing Agreements - (Continued)

In January 1999, the Company obtained a secured revolving credit line with
Imperial Bank. The credit line provides for borrowing up to $3,000,000 at
the bank's prime rate. Under the terms of the agreement, the Company is
required to meet certain loan covenants, including maintenance of minimum
quick ratio and maximum quarterly losses. All the assets of the Company
collateralize the credit line. At November 30, 1999 $1,000,000 was
outstanding on the line of credit. In February 2000 the credit line was
renewed through February 2001 with a borrowing limit of $3,000,000 at the
bank's prime rate.

(5) Long-term Debt

Long-term debt at November 30, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Prepetition and postpetition payroll taxes payable in
installments including interest at 8%. $ 22,513 $ 33,793

Note Payable to City National Bank, payable in monthly
principal installments of $83,333 each plus interest at
one percent above the bank's prime rate, beginning in
March 2000, guaranteed by certain shareholders. 2,000,000 --

Capital lease obligations payable in monthly installments
between $52 and $1,192, bearing interest at rates
between 10% and 20.8%, maturing from December 2000 to 188,844 91,238
February 2003.

Note payable to CardioDynamics Holdings, LLC, a related
party, collateralized by a subordinated interest in
substantially all assets of the Company, bearing
interest at 7.5% per annum with interest-only payments
due quarterly, maturing March 31, 2000. Convertible into
common stock at a rate of $.25 per share. 25,000 25,000
----------------- ----------------
2,236,357 150,031
Less current maturities of long-term debt (885,932) (37,816)
----------------- ----------------
$ 1,350,425 $ 112,215
================= ================
</TABLE>

The aggregate maturities of long-term debt subsequent to November 30, 1999
are as follows: 2000, $885,932; 2001, $1,062,096; 2002, $284,412 and 2003,
$3,917.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(6) Shareholders' Equity

During February 1995, the Company entered into an agreement with a related
party, CardioDynamics Holdings, LLC ("CDH"), a California limited liability
company, for the sale of approximately 37.6% of the Company's common stock.
Additionally, the Company issued a five-year secured promissory note (the
"CDH note") in the amount of $100,000. In fiscal 1996 and 1997, the CDH note
was amended to increase the loan amount, establish a per share conversion
price of $0.25 per share, subject to adjustment under specified
circumstances, and change the maturity date to March 31, 2000. The CDH note
is collateralized by a subordinated interest in substantially all of the
assets of the Company. Advances under the CDH note accrue interest at 7.5%
with interest-only payable quarterly through maturity at March 31, 2000. At
November 30, 1999 and 1998, $25,000 was outstanding under this note (See
Note 5).

On March 6, 1997, in connection with the $7.2 million private placement the
company issued 276,514 common stock warrants to EVEREN Securities, Inc.
which served as placement agent. Each warrant represents the right to
purchase one share of the Company's common stock at an exercise price of
$3.56, until the expiration date of March 5, 2002.

On May 15, 1998 in connection with the completion of the Imperial Bank
financing agreement, 33,334 common stock purchase warrants were issued to
the bank. Each warrant represents the right to purchase one share of the
Company's common stock at an exercise price of $3.00, until the expiration
date of May 14, 2003. On August 21, 1998 an additional 15,000 common stock
purchase warrants were issued to the bank. Each warrant represents the right
to purchase one share of the Company's stock at an exercise price of $2.00,
until the expiration date of August 21, 2003.

On August 21, 1998 the Company sold 3,000 shares of Series A convertible
preferred stock to institutional investors. In conjunction with this
financing 123,000 common stock purchase warrants were issued. Each warrant
represents the right to purchase one share of the Company's common stock at
an exercise price of $2.55, until the expiration date of August 21, 2003.

In March 1999, in connection with the City National Bank financing
agreement, the Company issued 50,000 common stock warrants. Each warrant
represents the right to purchase one share of the Company's stock at an
exercise price of $2.20, until the expiration date of March 7, 2004.

On May 28, 1999 the Company completed a $5.2 million private placement of
common stock to institutional and other accredited investors who purchased
unregistered shares with a six-month holding restriction for $1.00 per
share, representing a 27% discount from the closing bid price.

On August 25, 1999 the Company issued 2,000,000 common stock warrants to
GE Marquette. 1,000,000 of the warrants were granted to obtain access to
GE Marquette's technology. In connection with these warrants, the Company
recorded a non-cash accounting charge of $350,479 in fiscal 1999. The second
1,000,000 warrants are performance based and will vest and be expensed after
15 months, provided GE Marquette meets certain stated minimum sales
objectives under the distribution agreements with the Company. Each warrant
represents the right purchase one share of the Company's stock at an
exercise price of $4.10, until the expiration date of August 25, 2004.

On December 3, 1999, the Company completed a $3.3 million private placement
of common stock to institutional investors who purchased unregistered shares
with a four-month holding restriction for $2.50 per share, representing a 9%
discount from the 30-day average closing bid price.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(7) Convertible Preferred Stock

On August 21, 1998, the Company sold 3,000 shares of Series A convertible
preferred stock and 123,000 warrants to institutional investors for
$3,000,000, net of issuance costs of $117,463. The Series A preferred stock
was convertible into common stock at the lesser of $2.70 or 95% of the then-
current common stock market value (92% after August 21, 1999). The Series A
preferred stock had a cumulative dividend of 3% per year, which could be
paid in cash or the Company's common stock at the discretion of the Company.
For the year ended November 30, 1999, the Company issued 26,548 shares of
common stock as dividends to the preferred shareholders. For the year ended
November 30, 1998, 8,152 shares were issued as dividends.

To achieve an orderly conversion of the outstanding shares of the Series A
convertible preferred stock, with minimum impact on the market price of the
Company's common stock, in June 1999, the Company identified a group of
strategic investors and facilitated the private sale of the common shares
issued upon conversion. In conjunction with this transaction, the Company
issued 305,772 additional shares of common stock at the market price of
$1.56 per share and 20,336 common stock purchase warrants at an exercise
price of $1.63, with an expiration date of June 2002. As a result of the
Series A preferred stock retirement, in August 1999 the Company recorded a
non-cash accounting charge of $483,333 which is included in other expenses.

During fiscal 1999 all outstanding shares of the Series A preferred stock
were converted into 1,567,962 shares of common stock. During fiscal 1998,
the preferred shareholders converted 760 shares of Series A preferred stock
in exchange for 554,134 shares of common stock.

The original purchasers of the Series A preferred stock could, under certain
conditions, require the Company to sell them up to 3,000 shares of Series B
preferred stock. In August of 1999 $191,564 was recorded as a preferred
stock dividend related to 375,000 premium priced warrants issued to the
Series A preferred stock investors in exchange for the elimination of their
right to buy the additional 3,000 shares of Series B preferred stock. Each
warrant represents the right to purchase one share of the Company's common
stock at an exercise price of $3.54 per share, until the expiration date in
August 2004.

(8) Stock Options

In 1995, the shareholders approved a Stock Option/Stock Issuance Plan (the
"Option Plan") that provides for the granting of options to officers,
directors and key employees to purchase the Company's common stock. Under
the Option Plan, as amended in 1998, 4,000,000 shares of common stock have
been reserved for granting of options at 100% of the fair market value of
the Company's common stock on the date of grant.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(8) Stock Options - (Continued)

The Option Plan also provides for monthly grants, at fair market value to
each non-employee director of the Company, of options to purchase 1,000
shares of Company common stock as payment for director fees for each full
month of service. The options are exercisable immediately upon grant and
expire upon the earlier of ten years from the date of grant or two years
after the director terminates his position on the Board. During 1999 and
1998, 81,000 and 100,000 options were granted to the Board of Directors. The
Option Plan also provides for grants of options and issuance's of stock in
exchange for professional services. During 1999 37,500 options, with a value
of $8,274, were granted in exchange for services. During 1998, the Company
did not grant any stock options in exchange for professional services.

At November 30, 1999, there were 1,564,134 shares available for grant under
the Option Plan. The per share weighted-average fair value of stock options
granted during 1999 and 1998 was $.80 and $1.22 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1999 - expected dividend yield 0%, risk-free interest rate of
5.17%, expected volatility of 33.2% and an expected life of 4 years; 1998 -
expected dividend yield 0%, risk-free interest rate of 4.86%, expected
volatility of 74.5% and an expected life of 3 years.

The Company applies APB Opinion No. 25 in accounting for its Option Plan
and, accordingly, no compensation cost has been recognized in the financial
statements for its stock options issued to officers, directors, and
employees. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Net loss to common shareholders, as reported $ (4,218,957) $ (5,357,749)
Pro forma net loss to common shareholders $ (4,740,510) $ (6,595,785)
Net loss per share to common shareholders basic and diluted, as
reported $ (.12) $ (.17)
Pro forma net loss per share to common shareholders basic and diluted
$ (.13) $ (.21)
</TABLE>

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(8) Stock Options - (Continued)

Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
Weighted-average
Number of shares exercise price
------------------- -------------------
<S> <C> <C>
Balance at November 30, 1997 1,444,000 $ 2.50
Granted 1,464,000 1.99
Exercised (28,000) 1.06
Forfeited (537,832) 2.85
Expired (337,168) 3.32
------------------- -------------------
Balance at November 30, 1998 2,005,000 $ 1.91

Granted 655,700 2.34
Exercised (91,000) 1.66
Forfeited (244,834) 1.89
Expired (38,000) 2.85
------------------- -------------------
Balance at November 30, 1999 2,286,866 $ 2.04
=================== ===================
</TABLE>

At November 30, 1999 the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.95- $4.56 and 7.7
years. At November 30, 1999 and 1998, the number of options exercisable was
968,269 and 604,002, respectively, and the weighted-average exercise price
of those options was $2.15 and $2.21, respectively.

The following table sets forth information regarding options outstanding at
November 30, 1999:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ----------------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
- ---------------- ---------------- ---------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.95 - 1.31 480,500 5.6 $ 1.12 263,958 $ 1.18
1.50 - 2.25 1,209,200 8.7 1.87 329,310 1.79
2.34 - 3.50 550,166 7.3 3.04 366,001 3.08
3.57 - 4.56 47,000 6.4 3.81 39,000 3.82
---------------- ---------------
2,286,866 7.7 $ 2.04 968,269 $ 2.15
================ ===============
</TABLE>

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(8) Stock Options - (Continued)

On October 16, 1998, the Company adopted a Stock Option
Cancellation/Regrant program. Each employee was given the opportunity to
exchange their existing options for new options, exercisable at $1.625 per
share, the fair value of the Company's common stock on October 16, 1998.
All accrued vesting under the old stock options was forfeited, and the new
options began a new vesting schedule (over the same number of years as the
old option's vesting schedule). For all employees other than executive
officers, the new options were granted for the same number of shares as the
old options. For executive officers, the new options were granted for a
fewer number of shares. The reduction in option shares for the executive
officers was calculated by a formula based on the Black-Scholes option
valuation model.

Under the program 537,832 Plan options were forfeited with an average
exercise price of $2.74. 673,000 new options were granted under the Plan
with an exercise price of $1.625 per share and 135,168 options were
forfeited. Eligible optionees representing 678,000 options with an average
price $1.75 elected not to participate in the program. These amounts are
included in the table above.

In June 1995, the Company entered into an employment agreement with its
then Chief Executive Officer, Richard Otto. Under the terms of the
agreement, Mr. Otto was granted 500,000 non-transferable stock options (not
under the Option Plan) at an exercise price of $0.50 per share. The options
vest if the quoted market price of the Company's stock attains specified
levels. Upon the attainment of the specified levels, the Company will
record compensation cost. During 1997, Mr. Otto voluntarily agreed to
reduce the number of options to 250,000. At November 30, 1999, none of
these options were vested.

On March 23, 1998, the Company entered into an employment agreement with
Michael Perry who succeeded Mr. Otto as Chief Executive Officer. Under the
terms of the agreement, Mr. Perry was granted 1,500,000 non-transferable
stock options (not under the Option Plan) at an exercise price of $2.55 per
share, subject to vesting requirements. The first tranche vested on
September 23, 1998, and the final tranche was not scheduled to vest until
March 23, 2002. Under the October 16, 1998 Stock Option
Cancellation/Regrant program, Mr. Perry cancelled his 1,500,000 old options
in exchange for a new grant of 1,295,000 options. The new options have an
exercise price of $1.625 per share, and all accrued vesting was forfeited.
The new options vest over a four-year period with a commencement date of
October 16, 1998. At November 30, 1999, 323,750 of the options are vested.
The options expire on October 15, 2008.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(9) Income Taxes

Income taxes in the accompanying statements of operations are comprised of
the following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal $ -- $ --
State 800 800
--------- ---------
$ 800 $ 800
========= =========
</TABLE>

At November 30, 1999, the Company had federal net operating loss
carryforwards of approximately $21,465,300, expiring as follows:

These amounts may be subject to significant limitations under IRC Section
382. The Tax Reform Act of 1986 contains provisions which limit the federal
net operating loss carryforwards that can be used in any given year in the
event of certain occurrences, including significant ownership changes. A
valuation allowance has been recognized for the full amount of the deferred
tax asset created by these carryforwards.

At November 30, 1999, the Company had state net operating loss
carryforwards of approximately $12,751,000 that expire in years 2000 to
2005.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of November 30, 1999 and 1998 are as
follows:

<TABLE>
<CAPTION>
1999 1998
------------------ ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,707,200 $ 8,076,500
Allowance for doubtful accounts and returns 236,700 0
Inventory 792,300 150,400
Accrued expenses 220,900 219,000
Other 21,900 18,500
---------------

Total gross deferred tax assets 9,979,000 8,464,500

Valuation allowance (9,979,000) (8,464,500)
------------------ ---------------

Net deferred tax assets $ -- $ --
================== ===============
</TABLE>

A 100% valuation allowance has been applied to these net deferred tax
assets. Accordingly, no tax benefit has been recorded for the years ended
November 30, 1999 and 1998.

CARDIODYNAMICS INTERNATIONAL CORPORATION

Notes to Financial Statements

November 30, 1999 and 1998

(10) Leases

In June 1997, the Company entered into a five-year operating lease for a
19,000 square-foot manufacturing facility that also houses the Company's
research, development, marketing, sales and administrative activities.
Future minimum lease payments under all non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) as of
November 30, 1999 are:

<TABLE>
<CAPTION>
Year ending November 30,
- ------------------------
<S> <C>
2000 $ 241,137
2001 223,066
2002 165,293
---------

Total minimum lease payments $ 629,496
=========
</TABLE>

Rent expense under operating leases was $286,570 and $291,214 for the years
ended November 30, 1999 and 1998, respectively.

(11) 401k Plan

Effective April 1996, the Company established a qualified savings plan
under Section 401(k) of the Internal Revenue Code. Employees who have
completed three months of service and are 21 years of age are eligible to
participate in the plan, subject to limitations. The Company may make
discretionary contributions to the plan. Eligible employees may contribute
up to 20% of eligible wages. Employer matching contributions were $24,107
and $7,035 for the fiscal years ended November 30, 1999 and 1998,
respectively.

(12) Related Party Transactions

The Company receives certain engineering, development and consulting
services from a related party. The Company paid $391,293 and $454,801 for
these services in 1999 and 1998, respectively. Amounts payable to this
related party at November 30, 1999 and 1998 were $38,509 and $125,460,
respectively.

(13) Segment Information

Revenues derived by geographic segment are as follows:

1999 1998
---- ----
U.S. $5,759,630 $1,571,600
International 1,521,278 527,096
---------- ----------
$7,280,908 $2,098,696
========== ==========

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors and Executive Officers

The names of our directors and executive officers, together with certain
information regarding them, as of February 22, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- ------------------ --------------------------------------------
<S> <C> <C>
Allen E. Paulson 77 Co-Chairman of the Board of Directors
James C. Gilstrap 63 Co-Chairman of the Board of Directors
Michael K. Perry 39 Chief Executive Officer and Director
Rhonda F. Rhyne 39 President
Stephen P. Loomis 39 Chief Financial Officer
Richard E. Trayler 49 Chief Operating Officer
Dennis G. Hepp 51 Chief Technology Officer
Russell H. Bergen 53 Vice President of Operations
Connie R. Curran, Ed.D., RN 52 Director
Louis P. Ferrero 57 Director
Cam L. Garner 51 Director
Richard O. Martin, Ph.D. 60 Director
</TABLE>
___________________

During the past five years, the business experience, principal occupations and
employment of our directors and executive officers have been as follows:

Allen E. Paulson. Mr. Paulson has been Co-Chairman of our Board since June 1996
and Director since February 1995. Mr. Paulson owns numerous companies having
substantial investments in diverse industries, including aerospace; energy
exploration; horse breeding, training, and racing; automobile dealerships;
gaming and entertainment; and real estate and resorts. Mr. Paulson is the
founder and Chairman Emeritus of Gulfstream Aerospace Corporation, the world's
leading designer, manufacturer and marketer of large corporate jets. He has
earned numerous awards including the Horatio Alger Award for Distinguished
Americans, and the American Academy of Achievement's Golden Plate Award, as well
as five honorary doctorates.

Directors and Executive Officers - (Continued)

James C. Gilstrap. Mr. Gilstrap served as Chairman of the Board of our Company
from May 1995 to June 1996, and has been Co-Chairman of the Board since June
1996. Mr. Gilstrap is retired from Jefferies & Company, where he served as
Senior Executive Vice President, Partner, and Member of the Executive Committee.
Mr. Gilstrap serves on the Board of Full House Resorts, Inc. and is past
President of the Dallas Securities Dealers as well as a past member of the Board
of Governors of the National Association of Securities Dealers, Inc.

Michael K. Perry. Mr. Perry has been Chief Executive Officer and a Director of
our Company since April 1998. From 1994 to 1997, Mr. Perry was Vice President
of Operations at Pyxis Corporation, and in 1995 assumed additional
responsibility for Research and Development. Pyxis Corporation is a pioneer of
healthcare automation and information management services, in addition to
pharmacy management services to hospitals and outpatient facilities. Mr. Perry
was part of the executive team that successfully acquired and integrated three
businesses into Pyxis, and in 1996, sold the company to Cardinal Health, Inc.
Prior to joining Pyxis, Mr. Perry served in several increasingly responsible
management assignments with Hewlett Packard Company's Medical Products Group in
manufacturing and finance. Additionally, he was Director of Quality for a
division of Hewlett-Packard's Deskjet Printer Group. Mr. Perry holds a Master's
Degree in Business Administration from Harvard University and a Bachelor's
degree in Mechanical Engineering from General Motors Institute. Mr. Perry
serves on the Advisory Board of the University of California San Diego
Cardiovascular Center and the Board of Directors for Junior Achievement of San
Diego.

Rhonda F. Rhyne. Ms. Rhyne has been President of our Company since June 1997.
She served as Vice President of Operations from June 1995 to January 1996 and as
Chief Operating Officer from February 1996 to May 1997. Ms. Rhyne has over 15
years of healthcare experience, including medical product development, rapid
growth transitions, sales and marketing, and executive management. From July
1992 until May 1995, Ms. Rhyne held the positions of President/Chief Executive
Officer, Vice President of Sales and Marketing, and Board member at Culture
Technology, Inc., a privately held biotechnology company specializing in
culturing autologous skin for burn patients. Ms. Rhyne has also held positions
at GE Medical Systems and Quinton Instrument Company, both medical device
subsidiaries of publicly held companies. Ms. Rhyne holds a Bachelor of Pharmacy
from Washington State University and a Masters in Business Administration,
Executive Program, from UCLA Anderson School of Business in Los Angeles.

Stephen P. Loomis. Mr. Loomis joined our Company in September 1996 as Vice
President of Finance and has held the positions of Chief Financial Officer and
Corporate Secretary since April 1997. Mr. Loomis is a Certified Public
Accountant with more than 14 years experience in finance and business
development with both publicly traded and privately held companies. From 1993
until joining CardioDynamics, he served as Director of Financial Reporting at
Kinko's Inc. From 1988 to 1993, Mr. Loomis was the Chief Financial Officer for
Terminal Data Corporation, a publicly traded high-speed document imaging
company. Prior to that, Mr. Loomis was with Peat Marwick. He earned his
Bachelor of Science Degree in Business Administration from California State
University at Northridge.

Richard E. Trayler. Mr. Trayler joined our Company in July 1997 as Chief
Operating Officer. From 1982 to 1997, Mr. Trayler held positions of regional
and divisional sales manager at Quinton Instrument Company, a medical device
subsidiary of American Home Products Corporation. He has also held positions at
the Heart Institute for CARE, the University of Washington, and the Boeing
Company where he assisted cardiologists in the clinical assessment of cardiac
patients. Mr. Trayler earned a Bachelors Degree from Texas A&M University, a
Masters Degree from the University of Washington, and a Master of Christian
Leadership Degree from Western Conservative Baptist Seminary (Phoenix Seminary).

Dennis G. Hepp. Mr. Hepp was appointed Chief Technology Officer of our Company
in June 1997. Mr. Hepp has served as a consultant to us since July 1995. He
has over 30 years experience in cardiovascular clinical medicine and the medical
device industry. From 1974 to 1986, Mr. Hepp held various engineering and
management positions at Medtronic, Inc. In 1989, Mr. Hepp founded and he
continues to serve as Managing Director of Rivertek Medical Systems, Inc.,
Minneapolis, Minnesota, which serves as an engineering consulting firm to
medical device manufacturers, including Guidant Corporation and Medtronic, Inc.,
as well as emerging medical technology companies such as CardioDynamics. Mr.
Hepp holds a Bachelor of Electrical Engineering from the University of Detroit.

Russell H. Bergen. Mr. Bergen joined our Company in September 1998 as Vice
President of Operations. From 1971 to 1998, Mr. Bergen held several positions
at Hewlett-Packard Company's Instrument Group, Peripheral Products Group and Ink
Jet Business Unit, including Writing System Program Manager, Customer
Satisfaction Manager, Production Manager, Manufacturing Engineering Manager, New
Product Support Manager, and Materials Engineering Manager. Previously, Mr.
Bergen was employed at Honeywell, Inc.'s Peripheral Products Group as a
Procurement Engineer. Mr. Bergen earned Bachelor of Science degrees in
Aerospace Engineering and Manpower Management from the University of Colorado,
Boulder.

Connie R. Curran, Ed.D., RN. Dr. Curran has served as a Director of our
Company since February 2000. Dr. Curran has been President and Chief Executive
Officer of CurranCare since 1995. CurranCare is a national management services
organization with a mission to change the way health care is delivered. Dr.
Curran has held a variety of executive positions in academia, multi-system
health care operations, and as Vice President of the American Hospital
Association as well as the National Director of Patient Care for APM, Inc. Dr.
Curran serves as Director for Allegiance Corporation and Finova Group. Dr.
Curran holds a Masters Degree in Medical-Surgical Nursing from De Paul
University and a Doctorate in Educational Psychology from Northern Illinois
University.

Louis P. Ferrero. Mr. Ferrero has served as a Director of our Company since
July 1997. Mr. Ferrero has been Chairman and Chief Executive Officer of Conseco
Global Investments since 1991. Conseco Global Investments is an investment
company, which identifies emerging investment opportunities for Conseco, Inc., a
major insurance holding company. Before joining Conseco Global Investments, Mr.
Ferrero was Chairman and Chief Executive Officer of Anacomp, Inc., a full-
service provider of computer and micrographics equipment, service and supplies.
Mr. Ferrero holds a Bachelor of Economics and Marketing degree from the
University of Florida.

Cam L. Garner. Mr. Garner has served as a Director of our Company since July
1997. Mr. Garner has been Chairman, President and Chief Executive Officer of
Dura Pharmaceuticals, Inc., a respiratory products company, since 1990. Prior
to joining Dura Pharmaceuticals, Inc., Mr. Garner was Senior Vice President of
Sales and Marketing with Hybritech, Inc., a division of Eli Lilly & Co. Mr.
Garner serves as Director for Trega Biosciences, Inc., Nanogen, Inc., Safeskin
Corporation, Spiros Development Corporation and DJPharma, as well as for Dura
Pharmaceuticals. Mr. Garner earned a Masters Degree in Business Administration
from Baldwin-Wallace College and a Bachelor of Arts degree in Biology from
Virginia Wesleyan.

Richard O. Martin, Ph.D. Dr. Martin has served as a Director of our Company
since July 1997. Dr. Martin is currently President of Medtronic-Physio-Control
Corporation, a medical device company which designs, manufactures and sells
external defibrillators and heart monitors. Until Medtronic's acquisition in
1998 of Physio-Control Corporation, Dr. Martin was Chairman and CEO. Prior to
that he was Vice President of Cardiovascular Business Development with Sulzer
Medica and has held several management positions at Intermedics, Inc. and
Medtronic, Inc. Dr. Martin serves on the Boards of Maxxim Medical, Inc., and
Encore Medical. Dr. Martin earned a Doctorate in Electrical/ Biomedical
Engineering at Duke University.

Section 16(a) Beneficial Ownership Reporting Compliance

We believe that each person who, at any time during the fiscal year ended
November 30, 1999, was a director, officer, or beneficial owner of more than 10%
of a class of registered equity securities of CardioDynamics, filed on a timely
basis all reports required by Section 16(a) of the Securities Exchange Act.

ITEM 9. EXECUTIVE COMPENSATION

The following table provides information regarding the annual and long-term
compensation earned for services rendered in all capacities to CardioDynamics
for the fiscal years ended November 30, 1997, 1998 and 1999 of those persons who
were, at November 30, 1999 (i) the Chief Executive Officer and (ii) the other
executive officers of CardioDynamics whose aggregate direct remuneration from
CardioDynamics during the fiscal year ended November 30, 1999 exceeded $100,000
(collectively, the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Awards
Annual Compensation (1) --------------
-------------------------------------------------------- Securities
Other Underlying
Name and Annual Options/
Principal Position Year Salary($) Bonus($) Compensation($) SARs (#)
- ----------------------- ------- -------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Michael K. Perry 1999 $ 91,450 $216,170 (3) $ -0- 45,000
Chief Executive 1998 1 (4) 750 4,000 (2) 1,295,000
Officer 1997 n/a n/a n/a n/a

Rhonda F. Rhyne 1999 148,020 11,045 17,000 (5) 40,000
President 1998 127,833 751 18,000 (5) 250,000
1997 111,308 17,228 15,000 (5) 75,000

Stephen P. Loomis 1999 137,543 8,520 -0- 30,000
Chief Financial 1998 116,583 1,663 -0- 120,000 (6)
Officer (7) 1997 103,416 22,849 -0- 70,000 (7)

Richard E. Trayler 1999 129,584 8,745 -0- 35,000
Chief Operating 1998 123,750 1,502 -0- 80,000 (6)
Officer 1997 60,000 (8) -0- -0- 100,000 (7)

Russell H. Bergen 1999 120,000 5,800 -0- -0-
Vice President of 1998 25,923 (9) -0- -0- 75,000
Operations 1997 n/a n/a n/a n/a
</TABLE>

__________________
(1) Employee benefits provided to each of the Named Officers under various
Company programs do not exceed the disclosure thresholds
established under the SEC rules and are therefore not included.

(2) Amount represents Company paid allowance for automobile expenses.

(3) Bonus amount paid in 1999 includes $205,000 pursuant to Mr. Perry's
employment agreement dated March 23, 1998, under which Mr. Perry was paid a
salary of $1.00 for the initial 14 months of his employment. In exchange,
he was eligible to receive a performance bonus based on achieving a 100%
increase in sales during the 12-month period ending May 31, 1999, over the
previous 12-month period.

(4) Represents compensation earned by Mr. Perry from his employment with our
Company commencing April of 1998.

(5) Amounts represent Company paid lodging of $12,000 in 1997, $12,000 in 1998
and $11,000 in 1999. The balance in each year is for automobile expenses.

(6) Amounts represent options granted under Company Stock Option
Cancellation/Regrant program.

(7) In conjunction with our Stock Option Cancellation/Regrant program in 1998,
these options were cancelled.

(8) Represents compensation earned by Mr. Trayler from his employment with our
Company commencing July of 1997.

(9) Represents compensation earned by Mr. Bergen from his employment with our
Company commencing September of 1998.

The following table provides information regarding option exercises during the
fiscal year ended November 30, 1999, as well as information with respect to
unexercised options to purchase our common stock granted to the Named Officers
in fiscal 1999. None of the Named Officers exercised any stock options during
fiscal 1999. CardioDynamics has not granted any stock appreciation rights.

OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

Individual Grants
----------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted
Options to Employees Exercise Expiration
Name Granted in Fiscal 1999 Price($/Sh) (1) Date
- -------------------- ---------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Michael K. Perry 45,000 7% $2.25 01/00/2009
Rhonda F. Rhyne 40,000 6% $2.25 01/00/2009
Stephen P. Loomis 30,000 5% $2.25 01/00/2009
Richard E. Trayler 35,000 5% $2.25 01/00/2009
Russell H. Bergen -0- n/a n/a n/a
</TABLE>
- --------------------------------
(1) All options were granted at fair market value (closing sale price for our
common stock on the NASDAQ/AMEX Stock Market on the date of grant).

The following table provides further information regarding the Named Officers'
outstanding stock options as of November 30, 1999. No stock appreciation rights
were granted or exercised, and no stock options were exercised during fiscal
1999.

AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

Number of
Securities
Underlying Value(1) of
Unexercised Unexercised
Options/SARs In-the-Money
at FY-End (#) Options/SARs at FY-
Shares Acquired Value Exercisable/ End ($) Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable(2)
- ------------------- ------------------ ----------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Michael K. Perry - 0 - - 0 - 323,750 / 1,016,250 445,156 /1,369,219
Rhonda F. Rhyne - 0 - - 0 - 175,000 / 340,000 93,750 / 423,750
Stephen P. Loomis - 0 - - 0 - 43,333 / 106,667 59,583 / 127,917
Richard E. Trayler - 0 - - 0 - 28,886 / 86,114 39,718 / 96,559
Russell H. Bergen - 0 - - 0 - 21,874 / 53,026 39,592 / 95,977
</TABLE>
___________________________________________
(1) Represents the difference between the closing sale price of our common
stock on the NASDAQ/AMEX Stock Market of $3.00 on November 30, 1999 and the
exercise price of the options.

(2) The respective Named Officers as of November 30, 1999 could not exercise
these options and future exercisability is subject to certain vesting
provisions including specific stock price thresholds and/or remaining in
the employ of the Company for up to three additional years.

Stock Options

On October 16, 1998, we adopted a Stock Option Cancellation/Regrant program.
Each employee was given the opportunity to exchange his or her existing options
for new options, exercisable at $1.625 per share. All accrued vesting under the
old stock options was forfeited, and the new optionee began a new vesting
schedule (over the same number of years as the old option's vesting schedule).
For all employees other than executive officers, the new options were granted
for the same number of shares as the old options. For executive officers, the
new options were granted for a fewer number of shares. The reduction in option
shares for the executive officers was calculated by a formula based on the
Black-Scholes option valuation model.

Under the program 2,267,000 options were cancelled with an average exercise
price of $2.74. In exchange, 1,968,000 new options were granted with an exercise
price of $1.625 per share and 299,000 options were forfeited with an average
price of $2.75. Eligible optionees representing 678,000 options with an average
price $1.75 elected not to participate in the program.

Employment Agreements

On March 23, 1998, we entered into an employment agreement with Michael Perry
who succeeded Mr. Otto as Chief Executive Officer. Under the terms of the
agreement, Mr. Perry was granted 1,500,000 non-transferable stock options (not
under our Option Plan) at an exercise price of $2.55 per share, subject to
vesting requirements. The first tranche vested on September 23, 1998, and the
final tranche was not scheduled to vest until March 23, 2002. Under the October
16, 1998 Stock Option Cancellation/Regrant program, Mr. Perry cancelled his
1,500,000 old options in exchange for a new grant of 1,295,000 options. The new
options have an exercise price of $1.625 per share, and all accrued vesting was
forfeited. The new options vest over the same four-year period with a
commencement date of October 16, 1998. At November 30, 1999, 323,750 of the
options are vested. The options expire on October 15, 2008.

We entered into a Compensation and Employment Agreement, dated June 16, 1995,
with our then Chief Executive Officer, Richard E. Otto. Under the terms of the
agreement Mr. Otto was granted 500,000 non-transferable stock options (not under
our 1995 Plan) at an exercise price of $0.50 per share. In June 1997, the
Company and Mr. Otto agreed to reduce the number of stock options to 250,000.
The options vest when and if the quoted market price of our common stock attains
and holds the following stock prices:
<TABLE>
<CAPTION>

At November 30, 1999, none of the options were vested. The options expire June
15, 2005

Long Term Incentive Plans

We do not have any long-term incentive plans (as defined in the Securities and
Exchange Commission regulations).

Directors' Fees

Each non-employee director who has not been employed by us during the proceeding
two years receives 1,000 automatic monthly stock options granted at fair market
value (or, in the case of 10% shareholders Mr. Paulson and Mr. Gilstrap, at 110%
of fair market value) on the last day of the month for each full month of
service as a director of our Company. On August 1, 1997, Cam L. Garner, a
Director of our Company, entered into a consulting agreement with our Company
whereby Mr. Garner is paid a monthly fee of $2,083.33 and received a one-time
grant of 5,000 stock options to purchase CardioDynamics' common stock in
exchange for consulting services. Total fees paid to Mr. Garner in fiscal 1999
were $24,999.96, he was paid the same amount during fiscal 1998.

ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock - Certain Beneficial Holders

The following are the only persons known by us to own beneficially, as of
February 22, 2000, five percent (5%) or more of the outstanding shares of our
common stock.

<TABLE>
<CAPTION>
Shares Beneficially Owned
Name and Address of ---------------------------
Beneficial Owner Number (1) Percentage (2)
- --------------------------------- ----------- --------------
<S> <C> <C>

Allen E. Paulson (3) 10,655,986 25.5%
P.O. Box 9660
Rancho Santa Fe, CA 92067

James C. Gilstrap (4) 3,357,897 8.0%
5067 Shore Drive
Carlsbad, CA 92008

Domain Partners LP 4,500,000 10.6%
One Palmer Square
Princeton, NJ 08542

Societe Generale Veritas 3,000,000 7.0%
4 New York Plaza
New York, NY 10004

Edge Financial Group, Inc. (6) 2,214,059 5.2%
16225 Park Ten Place, Suite 380
Houston, TX 77084

Joe C. Richardson, Jr. (7) 2,195,538 5.1%
P.O. Box 8246
Amarillo, TX 79114
</TABLE>
______________________

1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, subject to community
property laws, where applicable.

2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).

3) Includes 102,243 shares of common stock beneficially owned by
CardioDynamics Holdings, LLC ("CDH"), of which Mr. Paulson is a member with
a majority interest. Mr. Paulson disclaims beneficial ownership of these
shares except to the extent of his individual ownership interest in CDH.
See footnote (5). Includes 9,088,734 shares held in the Allen E Paulson
Living Trust dated 12-23-86. Also includes 54,000 shares of common stock
Mr. Paulson beneficially owns, by virtue of his right to acquire such
shares from CardioDynamics under stock options now exercisable or
exercisable within 60 days. Excludes 3,000,000 shares of common stock owned
by Mr. Paulson's sons; Mr. Paulson disclaims beneficial ownership of such
shares.

4) Includes 102,243 shares of common stock beneficially owned by CDH, of which
Mr. Gilstrap is a member with a minority interest. Mr. Gilstrap disclaims
beneficial ownership of these shares except to the extent of his individual
ownership interest in CDH. See footnote (5). Includes 3,195,654 shares held
in the Jim and Sue Gilstrap Family Limited Partnership. Mr. Gilstrap
disclaims beneficial ownership of these shares except to the extent of his
and his wife's ownership interest in the Jim and Sue Gilstrap Family
Limited Partnership. Also includes 54,000 shares of common stock Mr.
Gilstrap beneficially owns, by virtue of his right to acquire such shares
from CardioDynamics under stock options now exercisable or exercisable
within 60 days. Excludes 544,033 shares of common stock owned by Mr.
Gilstrap's daughters; Mr. Gilstrap disclaims beneficial ownership of such
shares.

Common Stock - Certain Beneficial Holders - (Continued)

5) Includes 2,243 shares of common stock over which CDH exercises sole voting
and investment power. Also includes 100,000 shares of common stock issuable
upon conversion of a note issued by CardioDynamics.

6) Includes 1,209,049 shares of common stock beneficially owned by Medical
Assets, LLC, of which Edge Financial Group, Inc. is a member. Edge
Financial Group, Inc. disclaims beneficial ownership of these shares except
to the extent of its ownership interest in Medical Assets, LLC. See
footnote (7).

7) Includes 1,209,049 shares of common stock beneficially owned by Medical
Assets, LLC, of which Mr. Richardson is a member. Mr. Richardson disclaims
beneficial ownership of these shares except to the extent of his ownership
interest in Medical Assets, LLC. Also includes 25,109 shares held by Vital
Energy, Inc of which Mr. Richardson is CEO and majority shareholder. See
footnote (6).

Common Stock - Management

The following table sets forth the beneficial ownership of common stock of
CardioDynamics as of February 22, 2000 by each Director and each officer of
CardioDynamics named in the Summary Compensation Table, and by all Directors and
executive officers of our Company as a group. Each such person has a business
address, care of CardioDynamics.
<TABLE>
<CAPTION>

Shares Beneficially Owned
-----------------------------
Name Number (1) Percent (2)
- -------------------------- -------------- -------------
<S> <C> <C>
Russell H. Bergen (3) 39,686 *

Connie Curran 2,000 *

Louis P. Ferrero (4) 186,667 *

Cam L. Garner (5) 98,000 *

James C. Gilstrap (6) 3,357,897 8.0%

Dennis G. Hepp (7) 65,000 *

Stephen P. Loomis (8) 39,978 *

Richard O. Martin, Ph.D. (9) 86,667 *

Allen E. Paulson (10) 10,655,986 25.5%

Michael Perry (11) 304,811 *

Rhonda F. Rhyne (12) 194,374 *

Richard E. Trayler (13) 151,933 *

All Directors and executive
officers as a group - (12 persons) (14) 15,080,756 35.4%
</TABLE>
- ----------------
*Less than 1%

Common Stock - Management - (Continued)

(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them, subject to community
property laws, where applicable. Share ownership in each case includes
shares issuable on exercise of certain outstanding options as described in
the footnotes below.

(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3d(1).

(3) Includes 29,686 shares of common stock Mr. Bergen beneficially owes by
virtue of his right to acquire shares under stock options now exercisable
or exercisable within 60 days.

(4) Includes 36,667 shares of common stock Mr. Ferrero beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.

(5) Includes 40,000 shares of common stock Mr. Garner beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.

(6) Includes 102,243 shares of common stock beneficially owned by CDH, of which
Mr. Gilstrap is a member with a minority interest. Mr. Gilstrap disclaims
beneficial ownership of these shares except to the extent of his individual
ownership interest in CDH. See footnote (14). Includes 3,195,654 shares
held in the Jim and Sue Gilstrap Family Limited Partnership. Mr. Gilstrap
disclaims beneficial ownership of these shares except to the extent of his
and his wife's ownership interest in the Jim and Sue Gilstrap Family
Limited Partnership. Also includes 54,000 shares of common stock Mr.
Gilstrap beneficially owns, by virtue of his right to acquire such shares
from CardioDynamics under stock options now exercisable or exercisable
within 60 days. Excludes 544,033 shares of common stock owned by Mr.
Gilstrap's daughters; Mr. Gilstrap disclaims beneficial ownership of such
shares.

(7) Includes 45,000 shares of common stock Mr. Hepp beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.

(8) Includes 29,978 shares of common stock Mr. Loomis beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.

(9) Includes 36,667 shares of common stock Dr. Martin beneficially owns, by
virtue of his right to acquire such shares under stock options now
exercisable or exercisable within 60 days.

(10) Includes 123,243 shares of common stock beneficially owned by CDH, of which
Mr. Paulson is a member with a majority interest. Mr. Paulson disclaims
beneficial ownership of these shares except to the extent of his individual
ownership interest in CDH. See footnote (14). Also includes 54,000 shares
of common stock Mr. Paulson beneficially owns, by virtue of his right to
acquire such shares from CardioDynamics under stock options now exercisable
or exercisable within 60 days. Excludes 3,000,000 shares of common stock
owned by Mr. Paulson's sons; Mr. Paulson disclaims beneficial ownership of
such shares.

(11) Includes 287,811 shares of common stock Mr. Perry beneficially owes by
virtue of his right to acquire shares under stock options now exercisable
or exercisable within 60 days.

(12) Includes 167,499 shares of common stock Ms. Rhyne beneficially owes by
virtue of her right to acquire shares under stock options now exercisable
or exercisable within 60 days.

(13) Includes 50,933 shares of common stock Mr. Trayler beneficially owes by
virtue of his right to acquire shares under stock options now exercisable
or exercisable within 60 days.

(14) Shares beneficially owned include shares held by entities affiliated with
certain directors and named Officers as described above in the footnotes.

Preferred Stock

All previously outstanding preferred stock was converted to common stock during
fiscal 1998 and 1999.

ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During fiscal 1996, CardioDynamics Holdings, LLC and its members engaged in
several significant transactions with us, substantially all resulting in the
issuance of unregistered common stock or notes convertible (and later
converted) into common stock. As of November 30, 1999 CDH owns 2,243 shares of
our common stock and has the right under a $25,000 note bearing interest at 7.5%
to obtain an additional 100,000 shares upon conversion. Members of CDH
individually own 14,749,009 shares of common stock of CardioDynamics (aside from
CDH's own holdings); of the members' shares, Allen E. Paulson owns 10,553,743,
James C. Gilstrap owns 3,255,654. At February 22, 2000, CDH and its members
together are the beneficial owners of 34.6% of our common stock.

In March 1998, we entered into an 18-month unsecured private line of credit
agreement with Allen E. Paulson and James C. Gilstrap. Under the terms of the
agreement we can borrow up to $3,000,000 on an as-needed basis with monthly
interest-only payments at an annual interest rate of 10.0%. In February 1999,
the term was extended one year, to September 2000.

Before and after becoming an executive officer of CardioDynamics in June 1997,
Dennis G. Hepp has served as a consultant and vendor to our Company since July
1995 through the company he founded in 1989, Rivertek Medical Systems, Inc.,
located in Minneapolis, Minnesota. Rivertek, which is 100% owned by Mr. Hepp
and his wife, provides engineering consulting to medical device manufacturers,
and continues to be one of our largest vendors. In fiscal 1999 and fiscal 1998,
we paid $391,293 and $454,801, respectively, to Rivertek.

ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit Index

The following exhibits are attached to this Report and are incorporated herein
by reference:

<TABLE>
Exhibit Title
- --------- -----
<S> <C>
2.1 Fourth Amended Plan of Reorganization. (Incorporated by reference from November 30,
1994 Form 10-KSB.)

2.2 Purchase Agreement dated February 7, 1995 between CardioDynamics and CardioDynamics
Holdings, LLC. (Incorporated by reference from February 28,1995 Form 10-QSB.)

2.3 Amendment to Purchase Agreement, dated March 31, 1996, between the Company and
CardioDynamics Holdings, LLC, (Incorporated by reference from May 31, 1996 Form
10-QSB.)

3.1 Bylaws, as amended through May 15, 1995. (Incorporated by reference from May 31,
1995 Form 10-QSB.)

3.2 Amendment to Bylaws, dated June 2, 1999. (Incorporated by reference from August 31,
1999 Form 10-QSB.)

3.3 Restated Articles of Incorporation as filed July 24, 1998. (Incorporated by
reference from August 31, 1998 Form 10-QSB.)

3.4 Certificate of Determination of Preferences of Series A Convertible preferred stock.
(Incorporated by reference to Form 8-K for the event of August 21, 1998, filed
September 3, 1998.)

4.1 Secured Convertible Promissory Note, dated February 7, 1995, in favor of
CardioDynamics Holdings, LLC. (Incorporated by reference from February 28,1995 Form
10-QSB.)

4.2 First Amended and Restated Secured Convertible Promissory Note, dated March 30, 1995
in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from May 31,
1995 Form 10-QSB.)

4.3 Second Amended and Restated Secured Convertible Promissory Note, dated May 19, 1995
in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from May 31,
1995 Form 10-QSB.)

4.4 Third Amended and Restated Secured Convertible Promissory Note, dated March 31, 1996
in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from May 31,
1996 Form 10-QSB.)
</TABLE>

<TABLE>
<CAPTION>
(a) Exhibit Index - (Continued)

Exhibit Title
- ------- -----
<C> <S>
4.5 Fourth Amended and Restated Secured Convertible Promissory Note, dated June 30, 1996
in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from August
31, 1996 Form 10-QSB.)

4.6 Fifth Amended and Restated Secured Convertible Promissory Note, dated February 1,
1997 in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from
February 28, 1997 Form 10-QSB.)

4.7 Sixth Amended and Restated Secured Convertible Promissory Note, dated August 15,
1998 in favor of CardioDynamics Holdings, LLC. (Incorporated by reference from
August 31, 1998 Form 10-QSB.)

10.1 Security Agreement, dated February 7, 1995 between the Company and CardioDynamics
Holdings, LLC. (Incorporated by reference from February 28,1995 Form 10-QSB.)

10.2 Patent Security Agreement, dated February 7, 1995 between the Company and
CardioDynamics Holdings, LLC. (Incorporated by reference from February 28, 1995
Form 10-QSB.)

10.3 Offer to Grant Irrevocable Proxy and Agreement and Mutual General Release, dated
February 2, 1995 between the Company and DaVinci Scientific Corporation.
(Incorporated by reference from February 28, 1995.)

10.4 Notice to DaVinci Scientific Corporation, dated February 7, 1995. (Incorporated by
reference from February 28, 1995 Form 10-QSB.)

10.5* Compensation and Employment Agreement with Richard E. Otto. (Incorporated by
reference from August 31, 1995 Form 10-QSB.)

10.5.1* Amendment to Compensation and Employment Agreement, dated April 5, 1998, between the
Company and Richard E. Otto. (Incorporated by reference from May 31, 1998 Form
10-QSB.)

10.6 Warrants to purchase 276,514 shares of CardioDynamics International Corporation
common stock to EVEREN Securities, Inc. dated February 26, 1997 and March 6, 1997.
(Incorporated by reference from February 28, 1997 Form 10-QSB.)

10.7 Amendment No. 1 to Service Agreement among Rivertek Medical Systems, Inc., Dennis G.
Hepp and the Company, dated July 25, 1997. (Incorporated by reference from August
31, 1997 Form 10-QSB.)

10.7.1 Amendment No. 2 to Service Agreement among Rivertek Medical Systems, Inc.,
Dennis G. Hepp and the Company, dated October 16, 1998. (Incorporated by reference
from November 30, 1998 Form 10-KSB.)

10.8* Consulting Services Agreement, dated August 1, 1997, between Cam L. Garner and the
Company. (Incorporated by reference from November 30, 1997 Form 10-KSB.)

10.9 Lease between AGBRI Nancy Ridge, LLC and the Company dated June 20, 1997.
(Incorporated by reference from August 31, 1997 Form 10-QSB.)

10.10 Private Line of Credit Agreement, dated March 11, 1998, between Allen Paulson, James
C. Gilstrap and the Company. (Incorporated by reference from May 31, 1998 Form
10-QSB.)
</TABLE>

<TABLE>
<CAPTION>
(a) Exhibit Index - (Continued)

Exhibit Title
- ---------- -----

<S> <C>
10.10.1 Amendment of Private Line of Credit Agreement, dated February 5, 1999, between Allen
Paulson, James C. Gilstrap and the Company. (Incorporated by reference from February
28, 1999 Form 10-QSB.)

10.11* Employment Agreement, dated March 23, 1998, between the Company and Michael K.
Perry. (Incorporated by reference from May 31, 1998 Form 10-QSB.)

10.12 Distribution Agreement dated March 31, 1998 between the Company and Cardiomedics,
Inc. (Incorporated by reference from August 31, 1998 Form 10-QSB.)

10.13 Warrants to purchase 33,334 shares of CardioDynamics International Corporation
common stock to Imperial Bank dated May 14, 1998. (Incorporated by reference from
August 31, 1998 Form 10-QSB.)

10.14 Promissory Note and Credit Agreement, dated August 19, 1998 between Imperial Bank
and the Company. (Incorporated by reference from August 31, 1998 Form 10-QSB.)

10.15 Amendment to 1995 Stock Option/Stock Issuance Plan dated May 20, 1998. (Incorporated
by reference from August 31, 1998 Form 10-QSB.)

10.16 Warrants to purchase 15,000 shares of CardioDynamics International Corporation
common stock to Imperial Bank dated August 21, 1998. (Incorporated by reference from
August 31, 1998 Form 10-QSB.)

10.17 Securities Purchase Agreement dated August 21, 1998 between the Company and certain
selling stockholders. (Incorporated by reference to Form 8-K for event of August
21, 1998, filed September 3, 1998.)

10.18 Form of Warrant issued August 21, 1998 to certain selling stockholders.
(Incorporated by reference to Form 8-K for event of August 21, 1998, filed September
3, 1998.)

10.19 Registration Rights Agreement dated August 21, 1998 between the Company and certain
selling stockholders. (Incorporated by reference to Form 8-K for event of August
21, 1998, filed September 3, 1998.)

10.20 Certificate of Determination of Preferences of Series A Convertible preferred stock.
(Incorporated by reference to Form 8-K for event of August 21, 1998, filed September
3, 1998.)

10.21 Line of Credit Agreement with Imperial Bank, dated January 15, 1999. (Incorporated
by reference from February 28, 1999 Form 10-QSB.)
</TABLE>

<TABLE>
<CAPTION>
(a) Exhibit Index - (Continued)

Exhibit Title
- ------- -----

<S> <C>
10.22 Promissory Note dated February 25, 1999 between City National Bank and the Company.
(Incorporated by reference from May 31, 1999 Form 10-QSB.)

10.23 Warrants to purchase 50,000 shares of CardioDynamics International Corporation
common stock to City National Bank dated March 31, 1999. (Incorporated by reference
from May 31, 1999 Form 10-QSB.)

10.24 Form of common stock Purchase Agreement for the May 28, 1999 Private Placement.
(Incorporated by reference from May 31, 1999 Form 10-QSB.)

10.25 Purchase agreement between CardioDynamics International Corporation and GE Marquette
Medical Systems, Inc. dated August 25, 1999. (Incorporated by reference from August
31, 1999 Form 10-QSB.)

10.26 Warrants to purchase 2,000,000 shares of CardioDynamics International Corporation
common stock to GE Marquette Medical Systems, Inc., Dated August 25, 1999.
(Incorporated by reference from August 31, 1999 Form 10-QSB.)

10.27 Purchase agreement between CardioDynamics International Corporation and GE Marquette
Medical Systems, Inc. dated October 20, 1999.

23.1 Consent of Independent Auditors, KPMG LLP

27.0 Financial Data Schedule
</TABLE>
____________________
* This management contract or compensatory plan or arrangement is required
to be filed as an exhibit.

(b) Reports on Form 8-K:

None.

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated: February 28, 2000 CARDIODYNAMICS INTERNATIONAL CORPORATION

By: /s/ Michael K. Perry
--------------------
Michael K. Perry
Director and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Signature Title Date
- ---------------------------- ------------------------------ -----------------
<S> <C> <C>

/s/ Michael K. Perry Director and Chief February 28, 2000
- ---------------------------- Executive Officer
Michael K. Perry

/s/ Stephen P. Loomis Vice President, Finance, February 28, 2000
- ---------------------------- Chief Financial Officer and
Stephen P. Loomis Corporate Secretary (Principal
Accounting Officer)

/s/ Connie Curran, RN Director February 28, 2000
- ----------------------------
Connie Curran

/s/ Louis P. Ferrero Director February 28, 2000
- ----------------------------
Louis P. Ferrero

/s/ Cam L. Garner Director February 28, 2000
- ----------------------------
Cam L. Garner

/s/ James C. Gilstrap Director February 28, 2000
- ----------------------------
James C. Gilstrap

/s/ Richard O. Martin, Ph.D. Director February 28, 2000
- ----------------------------
Richard O. Martin, Ph.D.

/s/ Allen E. Paulson Director February 28, 2000
- ----------------------------
Allen E. Paulson
</TABLE>

EXHIBIT 10.27
DISTRIBUTION AGREEMENT

BY AND BETWEEN:

GE Marquette Medical Systems Inc., a corporation organized under the laws of the
state of Wisconsin, United States of America, having its principal place of
business at 8200 W. Tower Avenue, Milwaukee, Wisconsin, 53223, United States of
America, (the "Company"), and CardioDynamics International Corporation, a
corporation organized and existing under the laws of the state of California,
having its principal office and place of business at 6175 Nancy Ridge Drive,
Suite 300, San Diego, California 92121 (the "Manufacturer").

The Company and the Manufacturer being individually referred to as the "Party",
and collectively referred to as the "Parties".

WITNESSETH:

WHEREAS, the Manufacturer is engaged in the design, manufacture, marketing,
sale, and servicing of certain Products (as hereinafter defined)

WHEREAS, the Manufacturer has a direct sales force targeted at sales to
congestive heart failure (CHF) and dialysis clinics (including CHF and dialysis
clinics within hospitals), and outpatient physician offices, and wishes to
increase the sales of the Products in the Territory (as hereinafter defined);

WHEREAS, the Company represents that it possesses the necessary resources,
expertise and organization to market, promote, purchase, and sell the Products
in the Territory;

WHEREAS, the Manufacturer represents that it possesses the necessary resources,
expertise and organization to manufacture and service the Products; and

WHEREAS, subject to the terms and conditions of this Distribution Agreement (the
"Agreement"), the Manufacturer wishes to appoint the Company, and the Company is
willing to accept such appointment, as distributor of the Products in the
Territory.

NOW THEREFORE, in consideration of the premises and the representations,
warranties, terms, conditions and mutual undertakings hereinafter set forth, the
Parties hereto agree as follows:

SPECIFIC TERMS

Effective Date: October 20, 1999
----------------

Agreement Ref. No:
-----------------

ARTICLE 1 - DEFINITIONS
- -----------------------

For the purposes of this Agreement, the terms set out below shall have the
following meanings:

1.1 "Affiliate" shall mean any corporation or other business entity which
controls, is controlled by or is under common control with a party, but only for
so long as such entity controls, is controlled by or is under common control
with such party. An entity shall be regarded as in control of another entity if
it owns or controls at least fifty percent of the outstanding stock or other
voting rights of the subject entity entitled to vote for the election of
directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority), or if it can appoint, dismiss
or otherwise control the actions of a majority of directors or any corresponding
managing authority.

1.2 "Operators and Service Manuals" shall mean the documents attached to this
Agreement as Exhibit A, as modified, reissued, amended, or updated from time to
time.

1.3 "Product" and "Products" shall each mean the BioZ.com Non-Invasive Cardiac
Output Monitor described in the Operator and Service Manuals attached as Exhibit
A and any modifications, enhancements, upgrades and accessories thereto and
their associated documentation.

1.4 "Territory" shall mean the countries and territories specified in Exhibit B
to this Agreement and such other countries as the Parties may agree to in
writing.

1.5 "Training Plan" shall mean the training to be provided in accordance with
Section 5 (j) and Exhibit D to this Agreement.

1.6 "Upgrade" shall have the meaning given to it in Section 2.3.

ARTICLE 2 - RIGHTS TO PRODUCT
- -----------------------------

2.1 Appointment
-----------

The Manufacturer hereby appoints the Company, and the Company hereby accepts the
appointment in the Territory, as the Manufacturer's exclusive distributor from
January 1, 2000 and its non-exclusive distributor prior to that date, for in-
hospital promotion and sale of the Products in the Territory. The Company shall
use its skill to sell, advertise and promote the in-hospital sale and use of the
Products throughout the Territory.

2.2 No Right to Distribute Outside Territory.
----------------------------------------

The Company shall not, outside the Territory either (a) solicit or accept
orders, or (b) bid on tenders, or (c) establish an office for the purpose of
selling and/or servicing the Products.

2.3 Modifications, Enhancements, Upgrades.
-------------------------------------

In the event the Manufacturer modifies, enhances or upgrades a Product (each an
"Upgrade") during the term of this Agreement, the Manufacturer will provide the
Company with such Upgrades in accordance with Exhibit C as amended from time to
time This provision does not apply to new options, features or products offered
for sale by Manufacturer.

ARTICLE 3 - TERM
- ----------------

The term of this Agreement shall commence on the date hereof and shall continue
until terminated in accordance with the provisions hereof (such period being the
"Agreement Period").

ARTICLE 4 - RESPONSIBILITIES OF COMPANY
- ---------------------------------------

During the Term of this Agreement, the Company shall

(a) promote and sell the Product within the Territory using such methods as it,
at its sole discretion deems appropriate, including the concentrating of sales
and marketing efforts on one or more areas of the Territory to the exclusion of
others: should the Company wish to exclude an area within the Territory such
area will be thereafter deleted from the definition of Territory.

(b) maintain an adequate organization, infrastructure and trained personnel in
order to perform its obligations under this Agreement and to achieve the
objectives set forth in this Agreement;

(c) within 2 weeks of the end of each quarter (31 March, 30 June, 30 September
and 31 December), commencing the first quarter after the signing of this
Agreement, or upon request from the Manufacturer (with at least five (5)
business days advance notice to Company) provide the Manufacturer with a
complete list of its customers for the Products, the amounts and serial numbers
purchased by such customers and financial statements relating to sales of the
Product and an order and sales forecast for the next quarter;

(d) notify the Manufacturer promptly of the existence and content of any law,
rule, regulation, or governmental or regulatory order of which it becomes aware
which conflicts or may conflict with any provision of this Agreement or
otherwise affect the sale of the Products in the Territory;

(e) comply with all applicable laws, rules, regulations or governmental or
regulatory orders regarding the Products;

(f) purchase the Products directly from Manufacturer;

(g) ensure that the Products bear the Manufacturer's name when sold to
customers;

(h) obtain at its own expense, any and all import and export licenses and
governmental approvals as necessary for the sale of the Products, and inform the
Manufacturer of the granting or withdrawal of said licenses or approvals;

(i) train and support purchasers of the Product to the level and training which
Manufacturer has made available to Company; and

(j) provide the Manufacturer with a six (6) month rolling forecast on a
quarterly basis of its anticipated needs by Product model and month. Such
forecast are agreed to be for polling purposes only and are not binding upon
either party.

ARTICLE 5 - RESPONSIBILITIES OF MANUFACTURER
- --------------------------------------------

The Manufacturer shall

(a) sell the Products and spare parts for Products to the Company for resale by
it to customers in the Territory at prices agreed between the Parties from
time to time and as set forth in Exhibit C to this Agreement;

(b) supply the Products and spare parts ordered by the Company in the
quantities and at the times specified by the Company in its purchase orders
within Manufacturer stated lead times, in accordance with the terms and
conditions set forth in this Agreement;

(c) sell to the Company spare parts for the Products and copies of all
Operators and Service Manuals which were issued or were available during the
Term as Company may order at the prices and on the terms and conditions
prevailing on the date of order or as specified in a separate Service Agreement,
which will supercede any service obligations within this agreement for a period
of seven (7) years following termination of this Agreement;

(d) make available the Operators and Service Manuals in English

(e) not alter the design of the Products in any fashion which would cease to
make the Products interchangeable with respect to form fit and function (except
with the prior written agreement of the Company which shall not be unreasonably
withheld);

(f) give the Company sixty days notice of any changes in the design of the
Products which will impact their operation, form, fit or function;

(g) ensure that the Products bear the Manufacturer's name when sold to the
Company;

(h) give Company one hundred eighty (180) days notice of any proposed
discontinuance of any spare parts for any Product and shall supply to Company at
the then prevailing price such number of those parts as may be ordered by
Company during that one hundred eighty (180) day period. If, prior to the end
of such period, Company provides Manufacturer with a forecast for orders for
such parts during the one hundred eighty (180) days following the date of that
forecast, Manufacturer will supply those parts to Company at the then prevailing
prices if Company agrees to purchase all such parts Manufacturer will, upon
request, use reasonable efforts to assist Company in making arrangements with
its vendors to ensure a continuing supply to Company of such specialized parts
or in developing alternative sources of supply for such items;

(i) identify and obtain, at its sole cost and expense, all regulatory approvals
required for the development, manufacture or sale of the Products in the
Territory. If Manufacturer reasonably determines that it is not in its best
interests to obtain all regulatory approvals required in some portions of the
Territory, Manufacturer shall promptly provide notice for such determination to
Company. Within thirty (30) days of receiving such notice, Company may notify
Manufacturer of its intention to obtain such regulatory approval. Manufacturer
shall provide a written response within fifteen (15) days receipt of such notice
indicating whether it approves of, or reasonably objects to Company's intent as
stated in such notice and its reasons for that decision; if Manufacturer fails
to respond to such notice within the permitted period it shall be deemed to
approve the Company's intent. The cost of obtaining such approval shall be
borne by Company, and Company will have exclusivity on all sales and
distribution of Products in that Territory. If such approvals are not obtained,
or if Manufacturer sends a notice of reasonable objection within the fifteen
(15) day period, the relevant portion shall be excluded from the Territory and
the Company shall not market, promote or sell the Products in such portion of
the Territory. Where Company is responsible for obtaining any regulatory
approvals, Manufacturer will reasonably cooperate with Company by providing, at
no charge to Company, any data or material in its possession that is reasonably
required to obtain such approvals including, but not limited to, non-proprietary
clinical testing material;

(j) provide training courses in accordance with the Training Plan outlined in
Exhibit D;

(k) provide Company with Operators and Service Manuals as Company may
reasonably request;

(l) provide such telephonic technical support as Company may reasonably
request, or other technical support as Company and Manufacturer mutually deem
necessary to enable Company to perform its obligations under this Agreement;

(m) comply with all applicable export laws during the term of this Agreement;
and

(n) grant the Company and purchasers or users of the Products purchased through
the Company a perpetual, fully paid up, worldwide, irrevocable license to use in
the operation, maintenance and repair of such purchased Products, any software
and/or firmware supplied by Manufacturer to Company.

(o) support Company sales in the Territory by making available approximately
ten-percent (10%) of Manufacturer's aggregate direct sales efforts.

ARTICLE 6 - ORDERS AND ACCEPTANCE
- ---------------------------------

6.1 The Company shall submit to the Manufacturer purchase orders for the
Products in its standard format which shall specify the delivery dates and
identify the quantities to be delivered.

6.2 The Manufacturer will deliver the Products in the quantities and at the
destination specified by the Company in its purchase orders within sixty (60)
days of receipt of the purchase order or such other longer time specified in the
purchase order.

6.3 Prior to delivery of each Product ordered by Company pursuant to this
Agreement, Manufacturer will perform its standard factory acceptance test
applicable to such Product and, where applicable, will record in writing that
the Product ordered has satisfied the requirements of the test. Records of such
tests shall remain available for review by Company for a period of six (6)
months or such longer period as is required by applicable law. Product will be
deemed accepted by Company if not rejected by notice and returned to
Manufacturer in accordance with Section 9.1 within 45 days of shipment .

ARTICLE 7 -- DELIVERY AND TRANSFER OF TITLE
- -------------------------------------------

7.1 Title to and risk of loss for a Product shall pass from the Manufacturer
to the Company on delivery f.o.b. to the Manufacturer's dock in San Diego,
California. The Manufacturer will ship the Products to that destination. All
further costs of insurance, shipping, duties, packaging, freight and additional
charges will be borne by Company.

7.2 In the event that Company incurs a penalty because of a late delivery of
the Products and the late delivery is attributable to a fault on the
Manufacturer, the Manufacturer shall reimburse the Company for the amount of
such penalty. The penalty shall not exceed the late delivery penalty which the
Company incurs by reason of late delivery attributable to the fault of the
Manufacturer and the total amount of the penalty will not exceed the price of
the Product. The above shall be in addition to any other remedies available to
the Company.

7.3 The delivery schedule confirmed by the Manufacturer will be binding upon
both parties, but the Company may, upon written notice, reschedule delivery by a
period of at least equal to the lead-time for such Product.(Such reschedule must
defer the delivery of the Products to a reschedule date no later than October 15
of the current year.) No other changes, including changes in the mix or
configuration of the Products, may be made to the purchase order without the
Manufacturer's prior written consent.

ARTICLE 8 - FINANCIAL CONDITIONS
- --------------------------------

Prices
- ------

8.1.1. The prices to be paid by the Company for the Products shall be those
set forth in Exhibit C, or as they may be amended by written agreement between
the Parties from time to time.

8.1.2 The Company shall pay any charges with respect to the delivery,
storage, transportation and insurance of the Products.

8.1.3 Company and Manufacturer will review the prices six (6) months from the
date of this Agreement and every six (6) months thereafter; provided, however,
that in no event shall any increase in prices for a particular Product be
greater than the total percentage increase in the Manufacturer's cost in
making, assembling or purchasing for such Product.

8.1.4 Manufacturer will ensure that the prices are at least as low as the
prices at which it currently sells the Products or items equivalent to the
Products in the same or similar quantities and under the same or similar terms
and conditions to any other customers. If, during the Term, Manufacturer
reduces the price of such items it shall:

(i) promptly notify the Company in writing of such reduction; and

(ii) apply an equivalent reduction in price to all products ordered by the
Company that have not been previously shipped and invoiced at the time of such
reduction. The prices shall thereafter be adjusted to reflect such reduction.

8.2 Terms of Payment
----------------

All payments from the Company to the Manufacturer shall be due within of sixty
(60) days after shipment of the Products in good working order and shall be in
US dollars by wire transfer, check or other instrument reasonably acceptable to
Manufacturer. All invoices unpaid after sixty (60) days are subject to
interest at the lesser of 10% per year, or the maximum lawful rate commencing
upon the date the payment is due.

8.3 Taxes
-----

All taxes (including income, sales or turnover taxes), duties, fees, charges or
assessments of any nature levied relating to the Products before shipment shall
be the responsibility of the Manufacturer; those levied after shipment, whether
levied against the Company, or against the Manufacturer or their respective
subcontractors, shall be the sole responsibility of the Company.

ARTICLE 9 - WARRANTIES AND INDEMNITY
- ------------------------------------

9.1 General Warranty
----------------

The Manufacturer warrants each Product sold to the Company under this Agreement
against defects for the periods set out in Exhibit E. In the event of a breach
of this warranty, the Manufacturer's obligation is limited to replacing or
repairing, at its option, at a site to be designated by it in writing, any
Product (except expendable parts thereof) that was in the warranty period and
returned to Manufacturer in the original shipping carton or a replacement
shipping carton provided by Manufacturer at Manufacturer's expense under a
Material Return Authorization ("MRA") number to be issued by CardioDynamics to
the Company or customer as soon as Company or customer informs Manufacturer of
the breach of this warranty and, were found by Manufacturer to be defective in
proper usage. Manufacturer warrants that (a) the Products will (i) conform
materially to all relevant Operators and Service Manuals, specifications,
drawings, plans, instructions, samples or other descriptions furnished to the
Company, (ii) be fit and sufficient for the purpose(s) for which they were
manufactured and sold, (iii) be new and merchantable, (iv) be of good material
and workmanship and free from defects, whether latent or otherwise and (v) be
free from any claim of any nature by any third person. Manufacturer warrants
that any Service by Manufacturer will be performed in a competent manner and be
fit for any purpose for which Manufacturer knows or has reason to know Company
or Company's customers intend to use or rely upon such service.

9.2 Intellectual Property Warranty
------------------------------

The Manufacturer warrants that it owns all copyrights, patents, trademarks and
other intellectual property rights in the Products, that the Products do not
infringe the rights of any third parties and that it has full right and ability
to enter into this Agreement and to permit the Company to carry out its
obligations under this Agreement.

9.3 Year 2000
---------

Manufacturer expressly warrants that neither the performance nor the
functionality of any Product delivered to the Company will be affected in any
way by the advent of the year 2000 or otherwise by the use of any date
information, nor will the Product affect any other systems, products or
operations in any way by the advent of the year

2000 or otherwise by the use of any date information.

9.4 Medical Device Laws
-------------------

Manufacturer warrants that the Products and their Manufacturer will comply with
all applicable medical device laws and regulations.

9.5 Fair Labor Standards Act
------------------------

Manufacturer warrants, and will certify, that the Products were produced in
compliance with the Fair Labor Standards Act of 1933, as amended, and any other
laws or regulations dealing with the wages, hours of working, conditions or
employees engaged in the production of the Products.

9.6 Environmental Safety
--------------------

Manufacturer warrants that each chemical substance contained in the Products
complies with all applicable federal, state and local environmental health and
safety laws, including, without limitation, the Toxic Substances Control Act,
Occupational Health and Safety Act, and Federal Hazardous Substances Act, as
each may be amended.

9.7 Product Safety
--------------

Manufacturer warrants that the Products comply with any applicable sections of
the Federal Food, Drug and Cosmetic Act, Federal Consumer Product Safety Act,
and Federal Communications Act, as each may be amended, and any other applicable
product safety law.

9.8 Indemnity
---------

If the Manufacturer breaches the warranty given in Section 9.2, or if the
Company is subject to any product liability claims arising out of the design and
manufacture of the Product, the Manufacturer will hold harmless and indemnify
the Company against all losses, damages, costs and expenses (including
attorney's reasonable costs and fees) that the Company may sustain as a result
of such breach. This indemnity is given on the conditions that (i) Buyer gives
Manufacturer prompt notice of such claim (provided, however, that any delay or
failure to notify Manufacturer of any claim shall not relieve Manufacturer of
its indemnification obligations under Section 9.2 except to the extent that the
defense of such action is materially prejudiced or materially adversely affected
by such delay or failure to notify), (ii) Manufacturer maintains the right to
sole control of the defense and all negotiations for settlement of such claim or
suit and (iii) Company agrees to cooperate with Manufacturer (provided, however,
that any failure to cooperate with Manufacturer shall not relieve Manufacturer
of its indemnification obligations under this Section 9.8 except to the extent
that the defense of such action is materially prejudiced or materially adversely
affected by such failure to cooperate). In the event of any claim as described
above which has been finally adjudicated in favor of a third party, Manufacturer
will have the option, at its own expense, either to procure for Company the
right to continue using said product or replace with a non-infringing product or
modify same so it becomes non-infringing, subject to reasonable approval of such
replacement part or modification by Company.

9.9 Manufacturer shall indemnify, defend and hold Company harmless from and
against all loss, damage or expense (including reasonable attorneys' fees)
caused by a defect in the design or manufacture, or a breach of any warranty in
this Article 9 (other than the warranty given at Section 9.2) of any of the
Products purchased under this Agreement provided that Company gives Manufacturer
prompt notice of such claim or suit (provided, however, that any delay or
failure to notify Manufacturer of any claim shall not relieve Manufacturer of
its indemnification obligations under Section 9.8 except to the extent that the
defense of such action is materially prejudiced or materially adversely affected
by such delay or failure to notify), the right to maintain sole control of the
defense and all negotiations for settlement of such claim or suit, and
cooperates with Manufacturer in the defense and/or settlement thereof.

9.10 Except as set forth in this Article 9, Manufacturer gives no other
warranties of any kind, express or implied, and all implied warranties of
merchantability and fitness for a particular purpose that exceed the scope of
the above warranties are disclaimed by Manufacturer and excluded from this
Agreement.

ARTICLE 10 - SERVICE
- --------------------

The parties agree to negotiate in good faith a definitive written agreement with
respect to service and service training.

ARTICLE 11-ADVERTISING AND PUBLICITY
- ------------------------------------

If so requested the Manufacturer shall make available its own advertising and
sales literature to the Company at cost plus carriage. The Company shall not use
the Manufacturer's name or any other trademark or trade name used or claimed by
the Manufacturer (all of which names or marks shall hereinafter be referred to
as the "Marks") in connection with any business conducted by the Company other
than dealing with the Products. The Manufacturer hereby grants to the Company a
royalty free non-exclusive license to use the Marks, but only with respect to
the sales of the Products. The Company shall include and shall not alter,
obscure or remove any trademark or trade name used or claimed by the
Manufacturer, or any markings, colors or other insignia which are contained on
or in or affixed to Product at the time of shipment. Both parties must approve,
in advance in writing, any advertising or promotional literature or announcement
to the press by the Company regarding the relationship or otherwise utilizing
either the Manufacturer's or Buyer's name or trademarks in advance in writing.

ARTICLE 12-LIMITATION OF LIABILITY
- ----------------------------------

Any provision herein to the contrary notwithstanding, in no event shall either
party be liable for indirect, incidental or consequential damages. Except in
respect of a claim which falls under the indemnity given at Section 9.8, breach
of the warranty given at Section 9.2, for which no limit applies, in no event
shall the liability of the Manufacturer arising in connection with any Product
sold hereunder (whether such liability arises from a claim based on agreement,
warranty, tort (including gross negligence) or otherwise) exceed the amount paid
by Buyer to CardioDynamics for such Product.

ARTICLE 13 - COMPETITION
- ------------------------

13.1 Co-Marketing
------------

Manufacturer agrees that, during the term of this Agreement, it will not
directly or indirectly sell, market or distribute the Products (or any stand-
alone products capable of functioning as a substitute to the Product) to any
party in the Territory, as specified in Exhibit B.

13.2 Further Agreements-Rights of Exclusivity
----------------------------------------

The parties intend to enter into good faith negotiations with respect to a
definitive written agreement pursuant to which, Company shall distribute
Manufacturer's products in Canada, Latin America, and Asia/Pacific.
Manufacturer agrees that neither it nor its Affiliates or representatives will:
(i) sell or transfer their respective companies, any significant interest in
their respective companies or any significant assets of their respective
companies to any third party, or enter into any agreement to do the same; or
(ii) make any offer to any third party, or commence or entertain discussions
with, or provide material non-public information to any third party (other than
with respect to the ongoing activities of Manufacturer's current distributors in
those territories) regarding the distribution of its products in those
territories. Manufacturer further agrees to promptly inform Company of any
proposal or other writing it may receive relating to any of the foregoing. In
order to provide a reasonable period for the parties to complete negotiation of
distribution agreement for these territories, this section will remain in force
until midnight December 1, 1999.

13.3 Non-competition
---------------

In order to induce Manufacturer to enter into the transactions contemplated
hereby, and in consideration thereof, Company agrees that it shall not, directly
or indirectly, engage, whether as principal, agent, investor, distributor,
representative, partner, stockholder, consultant or otherwise, in any activity
or business venture, anywhere in the Territory, which involves (a) during the
term of this Agreement, the development, manufacture, distribution or sale of
non-invasive cardiac output measurement devices using the Thoracic Electrical
Bio-impedance method or (b) for a period of one (1) year following expiration or
termination of this Agreement, the distribution or sale of noninvasive cardiac
output measurement devices using the Thoracic Electrical Bio-impedance method.

13.4 Scope of Restriction
--------------------

The parties agree that if, in any proceeding, a court or other authority shall
refuse to enforce any covenant herein set forth because such covenant covers too
extensive a geographic area or too long a period of time, such covenant shall be
deemed appropriately amended and modified in keeping with the intention of the
parties to the maximum extent permitted by law.

ARTICLE 14 - INITIAL PURCHASE
- -----------------------------

14.1 On execution of this Agreement, Company will submit to Manufacturer a
purchase order of even date for 20 demonstration units of the BIOZ.com
hemodynamic Monitor (model BZ 4110-101) and one additional patient cable, , and
case of sensors (50 patient applications) per unit for shipment on or before
October 15, 1999.

14.2 A minimum order of an additional 20 units of the Products (BioZ.com,
additional patient cable , and a case of sensors) will be ordered on or before
January 5, 2000 and a yearly minimum volume commitment for the purchase of
Products will be agreed between the parties. For Year 2000, the minimum volume
commitment is 68 units (20 units for the first quarter, and 16 units for each
subsequent quarter in Year 2000). The additional 20 units ordered on or before
January 15, 2000 will apply toward the minimum volume commitment for the Year
2000, and toward the minimum volume commitment for shipments prior to February
15, 2000 as specified in Article 17.2. In no event shall the minimum volume
commitment be less than the Company's mutually-agreed upon share of
Manufacturer's annual business objectives.

14.3 Company agrees to make available one Hewlett-Packard Model 340 (or
acceptable equivalent) Printer for each demonstration unit. Printers may be
purchased either from Manufacturer or from the Company's preferred printer
supplier.

ARTICLE 15 - RECALL AND PRODUCT COMPLAINTS
- ------------------------------------------

15.1 Recall
------

In the event the Company, any of its subsidiaries, or its distributors should be
required or the Company should voluntarily decide to initiate a recall, product
withdrawal, or field correction of any Products Company shall notify
Manufacturer and provide a copy of its proposal, including the recall letter,
for Manufacturer's approval prior to initiation of such action which approval
will not be unreasonably withheld or delayed. In carrying out such a recall,
Manufacturer shall lead in the investigation to determine the cause and extent
of the problem.

In the event that Manufacturer or a regulatory agency reasonably believes that a
recall, product withdrawal, or field correction for Products may be necessary or
appropriate, Manufacturer shall notify Company through Company's designee to be
named, of Manufacturer's belief, and the parties shall fully cooperate with each
other concerning the necessity and nature of such action. All regulatory
authority contacts, as applicable, and coordination of any recall or field
correction activities will be handled by Manufacturer, with Company's
assistance, whether or not such action was initially requested by Manufacturer.
In the event that any Product is recalled as a result of (1) the supply by
Manufacturer of product that does not conform to any warranty in Article 9
including, without limitation, the specifications; (2) the negligent or
intentionally wrongful act of Manufacturer or its representatives, then
Manufacturer shall bear the following costs and expenses of such recall:
reasonable expenses related to communications and meetings with all required
regulatory agencies, reasonable expenses of replacement stock, the reasonable
cost of notifying customers and the reasonable costs associated with shipment of
recalled Products from customers and shipment of an equal amount of replacement
Products to those same customers. To the extent that the reason for any recall
of Products hereunder is in part the responsibility of Manufacturer and in part
the responsibility of Company then the expenses shall be allocated in an
equitable manner between the parties.

15.2 Product Complaints
------------------

Manufacturer will be responsible for the support and upkeep of the Products
unless specified in a separate Service Agreement. However, if any Product needs
engineering evaluation, Manufacturer will evaluate at no charge and supply a
written report summarizing the evaluation within fourteen (14) days of receipt
of the subject device. Furthermore, it will be the responsibility of
Manufacturer to resolve

Product-related complaints. All complaints submitted through Company will be
transferred in a timely manner to Manufacturer for investigation and resolution.
Product complaints in which the Product is implicated in an event which resulted
in patient or user serious injury or death will be transferred to Manufacturer
within three working days. Manufacturer will provide Company with copies of all
correspondence related to Product-related complaints originated by Company.

ARTICLE 16 - CONFIDENTIALITY
- ----------------------------

16.1 Each of the parties shall at all times during and subsequent to the
Agreement Period keep and cause to be kept confidential, any confidential
information received by it from the other party. Such confidential information
received from the other party shall not be disclosed in any manner to any third
party; provided, however, the parties may disclose any confidential information
contemplated hereunder to third parties as necessary to have the Products
designed, manufactured, modified, improved, serviced or repaired; confidential
information shall be disclosed by the receiving party only to those employees or
third party contractors who need to know the same; such employees and third
parties to whom such Confidential information is disclosed shall be advised of
the confidential nature of such information and shall maintain the same in
confidence as the confidential information of the other party.

16.2 Confidential information shall consist of all confidential information
maintained in secrecy or confidence by the disclosing party as a valuable trade
secret or business information; all confidential information disclosed shall be
marked "confidential" by the disclosing party if in writing prior to disclosure.

16.3 Confidential information shall not include: (i) any information which is
generally available to the public through no breach of this Agreement; (ii) any
information which is lawfully received from a third party having rights to
disclose the same to the receiving party and which third party is free from
similar non-disclosure obligations as are set forth herein; (iii) any
information which is independently developed by the receiving party; (iv) any
information which is already known to the receiving party or its subsidiaries or
affiliates, or in their possession prior to disclosure by the other party. The
parties further agree that the party asserting as a defense that confidential
information was obtained in a manner set forth in clause (i), (ii), (iii) or
(iv) above shall bear the burden of proof in establishing such defense by a
preponderance of the evidence.

16.4 It shall not be a breach of this Article 16 if Confidential Information
is disclosed by the receiving party to comply with a legal or regulatory
requirement or with a court order, if that party promptly notifies the other
upon becoming aware of such requirement or order.

ARTICLE 17 - TERMINATION
- ------------------------

17.1 This Agreement shall expire at the end of the term specified in Article 3
unless otherwise agreed. In the absence of an extension or renewal agreement,
any transactions or activities within the scope of this Agreement engaged in
between the Parties following expiration or termination of this Agreement shall
be covered by the terms of this Agreement, but nothing in this Agreement shall
be deemed to require either Party to further continue such activities or
transactions, and either Party, at its sole discretion, may cease any such
further activities or transactions at any such time without liability to the
other.

17.2 This Agreement may be terminated prior to the completion of its term:

by agreement in writing between the Parties;

by either party upon sixty (60) days notice if the other is in material breach
of this Agreement, unless such breach is capable of cure and is not persistent,
in which case termination shall occur only if such material breach has not been
cured within that sixty (60) day period following receipt of a notice. The
notice shall specify the material breach in reasonable detail. For the purposes
of this Article 17.2 material breaches include, without limitation, failure of
the Products to conform to the Operators and Service Manuals in Exhibit A as
amended from time to time; the supply within the Territory by Manufacturer or by
any party other than the Company who has been so authorized by the Manufacturer
of the Products to any party other than the Company for in-hospital sales;
failure to deliver Products on time; failure to provide Service in a prompt and
efficient manner;

by either party, effective immediately upon notice, if the other Party becomes
the subject of

any bankruptcy proceedings, receivership, or other insolvency proceedings or
makes any assignment or other arrangement for the benefit of its creditors or
otherwise ceases to conduct its operations in the normal course of business;

by either party, effective immediately upon notice, if (i) the other attempts to
sell, assign, delegate, or transfer any of its rights and obligations under this
Agreement, except in the case of the Company, to any of the Company's
Affiliates, without having obtained the Company's prior written approval or (ii)
a material change occurs in the ownership or control of the Manufacturer which
is reasonably unacceptable to the Company; or (iii) either party utilizes the
services of a company or person reasonably unacceptable to the other party; or
(iv) either party acts in a manner reasonably deemed by the other party to
be detrimental to the best interests of the other party ;

by either party if the other fails to secure or renew any material license,
registration, permit, authorization or approval necessary for the conduct of its
business in the manner contemplated by this agreement, or if any such license,
registration, permit, authorization or approval is revoked or suspended and is
not cured within sixty (60) days of such failure, revocation;

by the Manufacturer, effective immediately upon notice, if Buyer fails to pay
any sums due under this agreement within thirty (30) days after the due date; by
the Manufacturer;

by the Manufacturer, effective immediately upon notice, if the Company fails to
order the minimum volume commitment of Products in accordance with Article 14;

by either party immediately if the parties fail to execute a mutually acceptable
Service Agreement by November 30, 1999; or

by either party if they fail to agree upon minimum volume commitments ("Minimum
Yearly Amount") by January 15, 2000 and, in respect to subsequent years, thirty
(30) days prior to the end of the twelve (12) month period covered by the then
existing Minimum Yearly Amount;

by Manufacturer upon sixty (60) days notice except for the November 15 date,
which would be five (5) days notice if the Company fails to order the
following minimum quarterly percentages of the Minimum Yearly Amount by:

February 15: at least 25% of the Minimum Yearly Amount;
-----------

May 15: at least 25% of the Minimum Yearly Amount (or a cumulative of 50%
------
of the Minimum Yearly Amount)

August 15: at least 25% of the Minimum Yearly Amount (or a cumulative of
---------
75% of the Minimum Yearly Amount)

November 15: at least 25% of the Minimum Yearly Amount (or a cumulative of
-----------
100% of the Minimum Yearly Amount)

by either party upon notice if any other distribution agreement between the
parties is terminated in accordance with the terms thereof by either party if
they fail to agree upon Minimum Yearly for the calendar year commencing January
1, 2001 by November 15, 2000.

ARTICLE 18 - RIGHTS AND OBLIGATIONS OF THE PARTIES ON TERMINATION
- -----------------------------------------------------------------

18.1 Upon expiration or termination of this Agreement except as otherwise
requested by the Manufacturer, the Company shall immediately cease all sales and
other activities in connection with the Products;

within sixty (60) days of the expiration or termination of this Agreement a
final accounting shall be prepared by the Manufacturer and delivered to the
Company. Such final accounting shall indicate any and all amounts owed by the
Company to the Manufacturer as set off by any amount due by the Manufacturer to
the Company, at the effective date of expiration or termination. All payments
to be made pursuant to this Article shall be made within thirty (30) days of
receipt by the Company of the aforesaid final accounting;

Company shall, within sixty (60) days from the date of expiration or termination
of this Agreement return to the Manufacturer, free of charge (i) all of its
sales and service records concerning the Products, including, without
limitation, its customer list; and (ii) any and all proprietary items supplied
by the Manufacturer to the Company;

Manufacturer shall, at the Company's request, at any time after termination of
this Agreement due to Manufacturers breach, repurchase any of the Products or
spare parts, at the net price paid by the Company plus actual transportation
costs and import duties thereon, Manufacturer and the

Company hereby recognize and agree that, unless otherwise agreed between the
Parties, their responsibilities with respect to purchase orders for Products
accepted by the Manufacturer prior to the effective date of expiration or
termination of this Agreement, shall survive until fully performed,. At the date
of expiration or termination of this Agreement, the Company shall provide to the
Manufacturer a list of such pending purchase orders; and

18.2 The acceptance of any purchase order, or the sale of any Product(s) to
the Company after the expiration or the termination of this Agreement shall not
be construed as a renewal or extension thereof nor as a waiver of expiration or
termination. In the absence of a written agreement between the Parties, all
such transactions shall be individually governed by the terms and conditions of
this Agreement.

18.3 The Parties hereby agree that neither shall be liable to the other by
reason solely of expiration or termination of this Agreement for compensation,
reimbursement or damages on account of the loss of prospective profits on
anticipated sales or on account of expenditures, investments, leases or
commitments in connection with the business or goodwill of the Manufacturer or
the Company or otherwise.

ARTICLE 19 - INJUNCTIVE RELIEF
- ------------------------------

In the event of a breach or threatened breach by either party of any of the
provisions of Article 13 or Article 16, each party hereby consents and agrees
that the other party shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining such party from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by such party under any
of such provisions, without the necessity of showing any actual damage or that
money damages would not afford an adequate remedy and without the necessity of
posting any bond or other security. Nothing herein shall be construed as
prohibiting any party from pursuing any other remedies at law or in equity which
it may have.

ARTICLE 20 - NOTICES
- --------------------

All notices to be served on the Company or the Manufacturer pursuant to the
terms hereof shall be in writing and either personally delivered, sent by
prepaid registered air mail or facsimile transmissions (and in the case of
facsimile, such return receipt must show complete transmission to the correct
facsimile number) to the addresses as set forth in this Agreement. All notices
given pursuant hereto shall be effective upon receipt (if personally delivered)
or the date shown on the return receipt (if sent by registered mail or by
facsimile). Notices shall be sent to the attention of the persons identified
below. Any change of address or recipient of notice of a Party hereto shall be
notified in writing to the other Party.

Initial contact details for the Parties are:

The Manufacturer:
CardioDynamics International Corporation
6175 Nancy Ridge Drive, Suite 300
San Diego, California 92121
Attention: Chief Executive Officer
Telecopier No.: (619) 535-0055

If to Company:

GE Marquette Medical Systems, Inc.
8200 West Tower Avenue
Milwaukee, Wisconsin 53223
Attention: Vice President of Marketing
Telecopier No.: (414) 357-3456

ARTICLE 21 - GOVERNING LAW MEDIATION ARBITRATION
- ------------------------------------------------

21.1 This Agreement shall be governed by, and in accordance with, the internal
laws of the State of Wisconsin USA, without giving effect to the conflict of
laws principles thereof.

21.2 The Parties agree that any controversy, claim or dispute between the
Parties arising out of or relating in any way to this Agreement which the
Parties are unable to resolve by mutual negotiation will be referred to the
Chief Executive Officer and General Counsel of the Manufacturer and the Vice
President of Marketing and General Counsel of the Company who will attempt to
resolve such controversy claim and dispute in a spirit of good faith and on
sensible commercial principles.

21.3 In the event of any controversy, dispute or difference between the
Parties hereto, reasonably estimated by either party not to exceed $100,000,
either party may give notice to the other in writing of the existence of such
controversy, dispute or difference specifying its nature and the

points at issue. If the same shall not be amicably resolved by negotiation as
set forth above within thirty (30) days from the receipt of such notice, either
party shall be entitled to have such controversy, dispute or difference finally
settled by arbitration, in accordance with the rules of the American Arbitration
Association in effect on the date of this Agreement. The arbitration shall be
conducted in Milwaukee, Wisconsin , USA, in the English language by a Tribunal
of three arbitrators appointed in accordance with such rules. The decision of
the arbitrators shall be based upon the rights and obligations of the Parties
set forth in this Agreement and shall be binding on the parties to the
arbitration proceeding and may be entered as a judgment in any court in any
country having jurisdiction.

ARTICLE 22 - MISCELLANEOUS
- --------------------------

22.1 Entire Agreement
----------------

This Agreement and the exhibits referred to herein constitute the entire
agreement between the Parties with respect to the subject matter thereof and
supersede all prior statements, agreements, understandings, communications,
representations and/or promises, whether in writing or oral, of the Parties
relating thereto.

22.2 Access to records
-----------------

If Manufacturer provides Products to the Company valued at ten thousand dollars
($10,000) or more over a twelve (12) month period, it shall permit, during the
period of this Agreement and for four years after its termination or expiration,
the Comptroller General of the United States, Department of Health and Human
Services or his duly authorized representatives reasonable access to this
Agreement and such records as he may reasonably require under applicable law to
verify the nature, extent and costs of service provided under this Agreement.
To the extent Manufacturer subcontracts any work connected with manufacturing
the Products, its contracts with these subcontractors will provide for similar
access to the subcontractors' records.

22.3 Non-assignment
--------------

Neither party shall have the right to assign, delegate, sub-contract or
otherwise transfer any of its rights and obligations under this Agreement
without the prior written consent of the other, except to an Affiliate of such
party.

22.4 Amendment
---------

This Agreement may not be modified except by a written instrument duly signed by
authorized representatives of both Parties.

22.5 Waiver
------

No failure on the part of a Party hereto to exercise, and no delay in its
exercise of, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise by a Party of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.

22.6 Severability
------------

If one or more of the provisions of this Agreement are at any time found to be
invalid by a court, tribunal or other forum of competent jurisdiction, or
otherwise rendered unenforceable, such decision shall not have the effect of
invalidating or voiding the remainder of this Agreement. This Agreement shall
be deemed amended by modifying or severing such provisions to the extent
necessary to render it valid, legal and enforceable while preserving its intent,
or if that is not possible, by substituting therefor another provision that is
valid, legal and enforceable which materially effectuates the Parties' intent.
Any such invalid or unenforceable provision or provisions shall be severable
from this Agreement so that the validity or enforceability of the remaining
provisions of this Agreement, or the validity of the provision(s) in question in
any other jurisdiction, shall not be affected thereby.

22.7 Independent Contractor
----------------------

This Agreement does not make either Party the employee, agent or legal
representative of the other for any purpose whatsoever. Neither Party is
granted the right or authority to assume or to create any obligation or
responsibility, express or implied, on behalf of or in the name of the other
Party. In fulfilling its obligations pursuant to this Agreement each Party
shall be acting as an independent contractor.

22.8 Amendment
---------

This Agreement cannot be amended, changed, modified or supplemented in any
manner whatsoever, except by agreement in writing executed by the Parties.

22.9 Force Majeure
-------------

If the performance of this Agreement or of any obligation hereunder (except
payment of monies due) is prevented, restricted or materially interfered with by
reason of fire or other casualty or accident; strikes or labor disputes;
inability to procure raw material, power or supplies; hurricanes, earthquakes,
floods, or Acts of God; war or other violence; any law, order, proclamation,
regulation, ordinance, demand or requirement of any governmental agency or
intergovernmental body; or any other act or condition whatsoever beyond the
reasonable control of the parties hereto, the party so affected, upon giving
notice to the other party, shall be excused from such performance during and to
the extent of such prevention, restrictions or interference.

22.10 Survival
--------

The provisions of Articles 5(c), 5(d), 8, 9, 12, 16, 18, 21 and 22.2 shall
survive the termination of this Agreement for whatever reason.

IN WITNESS WHEREOF, the Company and the Manufacturer have caused this
Agreement to be executed by their duly empowered representatives as of the date
first written above.

GE MARQUETTE MEDICAL SYSTEMS INC.

/s/ Fred Robertson
- ------------------------------
By: Fred Robertson
Title: Chief Executive Officer

CARDIODYNAMICS INTERNATIONAL CORPORATION

/s/ Michael K. Perry
- -------------------------------
By: Michael K. Perry
Title: Chief Executive Officer

EXHIBIT A
---------

Operator's and Service Manual
-----------------------------

Manufacturers Standard Operators Manual

A-1

EXHIBIT B
---------

The Territory
-------------

The United States including Puerto Rico and dependent territories.

Manufacturer appoints the Company as its authorized representative to promote
and sell the Products to hospitals in the Territory, with the following
exceptions:

(a) Congestive heart failure and dialysis clinics , including those based in
hospitals.
(b) Hospitals that are less than one hundred (100) beds and are not within
corporate partnerships with the Company (a list of hospitals to be provided
to the Manufacturer at the commencement of this agreement, and to be
updated on a quarterly basis during the term of this agreement).

In areas in the Territory in which the Manufacturer does not have representation
by direct sales representatives, the Company may promote and sell the Products
to all health care providers in mutually agreed upon areas. In the event the
Manufacturer hires a direct sales representative in an area in the Territory,
within three months of the date of hire of the direct sales representative, the
Company will confine its promotional and sales activities to hospitals with more
than 100 beds and all hospitals designated as corporate partner hospitals
(regardless of number of beds) in the area covered by the Manufacturer's new
sales representative. The Manufacturer's sales force and distributors have until
December 31, 1999 to complete sales within any of the Company's territory as
defined above. Otherwise, any sales in progress that are completed after
December 31, 1999 will be accounted toward the Company's minimum volume
commitment. The Company will provide to Manufacturer on no less than a
quarterly basis, a listing of all hospitals designated as corporate partner
hospitals within the Territory. The Manufacturer's sales force and distributors
will have 90 days from notice of a new corporate partner hospital, to complete
any sales in progress with that hospital. Otherwise, any sales that are
completed after 90 days will be accounted toward the Company's minimum volume
commitment.

B-1

EXHIBIT C
---------

Pricing
See attached Price List for List Prices of BioZ.com monitors and Accessories.

Transfer pricing to GEMMS will be as follows:
. 35% discount from list price for the BioZ.com Monitor
. 25% discount from list price for all accessories

Company and Manufacturer agree to review the Prices after the Products have been
distributed by Company for a period of six (6) months and every six (6) months
thereafter; provided, however, that in no event shall any increase in Prices for
a particular Product be greater than the percent increase in CardioDynamics'
cost of goods for such Product.

Furthermore, the Parties agree to review the level of discount on a yearly
basis, based on the level of commitment and participation by the Manufacturer's
salesforce as defined in Exhibit D.

C-1

EXHIBIT D
---------

Training Plan
-------------

A. Sales and Marketing. Manufacturer will train the designated sales,
clinical applications and marketing employees of Company in the use and
operation of the Products. Such training shall take place at a mutually agreed
upon place and time. Manufacturer's salesforce will provide approximately 10% of
their aggregate efforts toward sales support to the Company's salesforce for in-
hospital sales The Manufacturer's salesforce will receive commission and quota
credit on GEMMS sales of the Manufacturer's products into hospitals, paid by the
Manufacturer. The Manufacturer will provide reasonable market development
support toward establishing successful penetration of the Product in the
Territory.

B. Service. The parties will negotiate in good faith a definitive written
agreement with respect to the service and training to be provided by
Manufacturer to Company.

C. Quality Assurance. Manufacturer shall train Company's designated
employees, at a mutually agreeable time, at the Manufacture's facilities in San
Diego, California in the procedures used by Manufacturer to perform quality
assurance inspections of the Products.

D. Expenses. The training provided by Manufacturer described in this Exhibit
D will be provided without further charge to Company. At Company's option,
Manufacturer will make available training described in this Exhibit D at other
locations reasonably acceptable to Manufacturer, as Company may reasonably
request from time to time. All costs and expenses incurred by the parties in
connection with their travel to, or attendance at such training (including, but
not limited to, expenses for transportation, lodgings, and meals) shall be borne
by the party incurring those costs and expenses. Manufacturer shall provide
Company training of sufficient quality to enable the Company's employees to
perform the Company's obligations under this Agreement competently and
professionally.

D-1

EXHIBIT E
---------

Warranty Periods
----------------

[Manufacturers Standard Z-Care Service Policy]

E-1

Exhibit 23.1

Independent Auditors' Consent

The Board of Directors
CardioDynamics International Corporation:

We consent to incorporation by reference in registration statements No. 333-
40969 on Form S-8 and Nos. 333-31275, 333-65331, 333-69669, 333-69663, 333-
69659, 333-86475, 333-88309, 333-88307, and 333-88311 on Form S-3 of
CardioDynamics International Corporation of our report dated January 17, 2000,
relating to the balance sheets of CardioDynamics International Corporation as of
November 30, 1999 and 1998, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the years then ended, which
report appears in the November 30, 1999, annual report on Form 10-KSB of
CardioDynamics International Corporation.

/s/ KPMG LLP

San Diego, California
February 25, 2000

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YEAR ENDED
NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000719722
<NAME> CARDIODYNAMICS INTERNATIONAL CORPORATION

<S> <C>
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