10-K

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

Or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 0-19467

Enpath Medical, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1533300
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

15301 Highway 55 West, Plymouth, Minnesota 55447

(Address of principal executive office, including zip code)

(763) 559-2613

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.01 Par Value

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes  o  No  ý

The aggregate market value of the common stock held by non-affiliates of the issuer as of June 30, 2004, the last day of the second quarter of the past fiscal year, was approximately $63,071,000.

Shares of Common Stock outstanding at March 16, 2005: 5,914,029 shares

Documents incorporated by reference:

Portions of the issuer’s Proxy Statement for the Annual Meeting of Shareholders scheduled for April 28, 2005 are incorporated by reference into Part III of this Form 10-K.

Table of Contents

	PART I
Item 1	Business
Item 2	Properties
Item 3	Legal Proceedings
Item 4	Submission of Matters to a Vote of Security Holders
	PART II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6	Selected Financial Data
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A	Quantitative and Qualitative Disclosures About Market Risk
Item 8	Financial Statements and Supplementary Data
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A	Controls and Procedures
Item 9B	Other Information
	PART III
Item 10	Directors and Executive Officers of the Registrant
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13	Certain Relationships and Related Transactions
Item 14	Principal Accountant Fees and Services
	PART IV
Item 15	Exhibits and Financial Statement Schedules

2

PART I

Item 1Business

Overview

We are a medical products company engaged in:

•the design, development, manufacture and marketing of percutaneous vessel introducers, safety needles and related vascular delivery products;

•the design, development, manufacture and marketing of implantable stimulation leads, lead delivery systems, and lead accessories for cardiac rhythm management (“CRM”) and neuromodulation markets; and

•the manufacture of medical devices and components for other medical product companies on a contract basis.

During 2004, we operated as two divisions.  The Enpath Delivery Systems Division (“EDS”), formerly Medamicus, Inc., was engaged in the design, development, manufacture and marketing of percutaneous vessel introducers, safety needles and related vascular delivery products, while the Enpath Lead Technologies Division (“ELT”), which consisted of assets purchased from BIOMEC Cardiovascular Inc. (“BCI”) in October 2003, was engaged in the design, development, manufacture and marketing of implantable stimulation leads, lead delivery systems, and lead accessories for CRM and neuromodulation markets.  In addition, both divisions were engaged in the manufacture of medical devices and components for other medical products on a contract basis.

The two divisions are aggregated into one reportable segment: the manufacture and sale of medical devices.  The divisions have similar technology, manufacturing, customers and regulatory activities and we have combined our sales and marketing and research and development activities to take advantage of similarities in customers and product development.  Effective January 1, 2005, the divisional structure was eliminated and we now operate as one organization located in two facilities.  On March 15, 2005, ELT was merged into Enpath Medical, Inc.

We were incorporated under the laws of the State of Minnesota on August 24, 1981 under the name “MNM Enterprises, Inc.”  In March 1988, we changed our name to Medamicus, Inc. and operated under that name until February 1, 2004.  On February 2, 2004 we changed our name to Enpath Medical, Inc.  Our Delivery Systems office is located at 15301 Highway 55 West, Plymouth, Minnesota 55447-1418 and our telephone number is (763) 559-2613.  Our Lead Technologies office is located at 7452 West 78^th Street, Bloomington, Minnesota 55439-2513, and its telephone number is (952) 943-1189.

Products

Delivery Systems

We manufacture and market a family of percutaneous venous vessel introducers with proprietary features, including our own proprietary valved introducer and we will introduce an articulating guide sheath in the near future.  Vessel introducers enable physicians to create a conduit through which they can insert infusion catheters, implantable ports, pacemaker leads and other therapeutic devices into a blood vessel.

In order to introduce a catheter or pacemaker lead into a vein, a hypodermic needle is first used to access the vein.  A guide wire is then inserted through the hypodermic needle and the needle is removed.  A vessel introducer, consisting of a hollow sheath and a dilator, is then inserted over the guide wire to expand the opening.  The guide wire and dilator are then removed, leaving only the hollow sheath through which the catheter or pacemaker lead is introduced.  Once the catheter or pacemaker lead is in place, the vessel introducer sheath is usually removed.  This process is typically done by “peeling” the introducer in half or slitting it off, in the case of our proprietary introducer.

We manufacture and market both peelable introducers and our own proprietary slitter introducer in a variety of sizes and market them both (1) in a kit that contains the disposable devices necessary to do catheter or lead implant procedures, and (2) in bulk for packaging by the customer with its own devices.

3

We also design, manufacture and market guiding and articulating or “steerable” introducers.  These “advanced delivery systems” are used by our customers to deliver therapeutic catheters to specific sites in the body.  We are currently providing delivery systems to several different companies for development projects evaluating new therapies.  Under the terms of our agreements with these customers, if the customer is successful in commercializing its therapy, we will be the manufacturer of its delivery system device.  We expect to continue to expand this portion of our business.

We also manufacture safety products, primarily a safety needle that can be retracted into a protective sheath while still in the patient, greatly reducing the possibility of a needle stick and infection to the health care professional after the needle has been in contact with a patient’s blood.  Due to slow market acceptance of the safety needle, we wrote down our investment in safety needle technology and equipment in the second quarter of 2004 (see Note 11 to the consolidated financial statements in this Form 10-K for further discussion).

Finally, we perform contract manufacturing and engineering services under which we design and manufacture products at our facilities to third party customer specifications.

Lead Technologies

Our primary product line is our permanent, sutureless, epicardial (MyoPore®) leads, both bipolar and unipolar, which are used in both post open-heart surgery patients and in cardiac resynchronization therapy (“CRT”) procedures for heart failure.  This epicardial lead technology has been on the market since 1989 and has been used in more than 20,000 implants worldwide.  The CRT procedure for congestive heart failure is a relatively new procedure in which one of the lead wires needs to be positioned in a small vein on the left side of the heart, sometimes a very difficult place to reach.  In 10 – 20% of these cases, the lead cannot be effectively placed transvenously, in which case the patient is taken to a surgical suitewhere a lead is placed on the outside of the heart. We manufacture one of two leads most often used for this epicardial or outside of the heart procedure.

A new steroid, sutureless, bipolar epicardial lead (Myopore Rx™) has been developed to reduce cardiac stimulation thresholds and improve the energy efficiency of the pacing system.  The Myopore Rx uses the mechanical structure of the bipolar Myopore lead and incorporates a steroid plug to reduce the inflammatory response of the cardiac tissue.  The steroid plugs are provided by two of our major CRM customers, resulting in two distinct steroid epicardial lead models.  As is the case with all Enpath products, these leads, when approved by the appropriate regulatory bodies, will be distributed by our OEM partners.  The FDA and CE regulatory submissions for these leads were made in August of 2004.  Based on an early indication from the FDA that such an application would be considered, we submitted a “Paper PMA” (a less burdensome approach that does not require prospective human clinical data) to gain marketing clearance for our epicardial steroid lead.  Recently the FDA advised us that our application does not have a “robust clinical argument” without human clinical data.  Although we are currently in negotiation with the FDA on the amount of human clinical data required for eventual PMA approval, the scope and the timing of collecting the human data along with the feasibility of conducting such a study has not yet been determined.  We did receive European approval to begin selling the first steroid leads through one of our OEM partners and expect approval of the lead for the second OEM partner within the next several weeks.

We also provide a FasTac® implant tool in every MyoPore lead package to facilitate surgical placement of the leads onto the surface of the heart.  The unique design of the implant tool allows for a quick, one-handed motion for release of the lead after attachment.  The distal end of the tool is designed to provide simple and fast regrasping, reloading, and repositioning of the lead, if necessary.

Based on feedback from cardiac surgeons, we developed a new epicardial implant tool called the FasTac Flex™ delivery tool.  The FasTac Flex is designed to facilitate more minimally invasive placement of epicardial leads on the ventricles of the heart.  While the new tool builds on some of the patented features of the FasTac, it offers many more surgery-friendly features such as remote tip deflection, rotation, and lead release.  The new device received FDA regulatory approval exemption as a Class I device, but does require a CE design dossier submission because it was classified as an active implantable medical device.  Unlike the original FasTac tool which is sold as part of the epicardial lead package, the FasTac Flex will be sold as a separate device.

4

Adaptors are necessary when a connector on a pacing lead wire from one generation of pacemaker needs to be connected to a pacemaker from a newer generation.  Although pacing lead wires are intended to stay in the body indefinitely, pacemakers need to be exchanged every five to ten years as batteries expire.  Due to the advent of multi-polar lead technology and multi-chamber pacing and defibrillation, the international standard for connectors has been under review in order to accommodate this new technology.  As discussed below under “Research and Development,” we anticipate the new IS-4 international connector standard to be implemented in 2005 or 2006.  This will again create a long-term mismatch between old and new connectors.  We currently produce four models of IS-1 implantable adapters.  We intend to supply selected IS-4 adapters to one of the major CRM manufacturers after the connector standard has been finalized.  We have also initiated development of a proprietary neurostimulation lead that incorporates previously patented fixation technology.

Finally, we perform contract manufacturing and engineering services under which we design and manufacture products at our facilities to third party customer specifications.

Markets and Marketing

We estimate that there are over 4,000,000 central venous and peripheral access procedures performed worldwide each year that use venous vessel introducers.  Because the majority of vessel introducers are sold in combination with the sale of infusion catheters, implantable ports or pacing leads, we identified an opportunity to market our vessel introducer with the catheters, implantable ports or pacing leads of other medical device manufacturers. Accordingly, we have entered into agreements with Medtronic, Inc. and with Bard Access Systems, a subsidiary of C. R. Bard, Inc., for the inclusion of our introducers in kits sold in their respective markets.  We also have agreements with a number of other companies in the dialysis and port markets.

We believe Medtronic has the largest worldwide market share of pacing leads.  Medtronic is currently purchasing our sterilized introducer kits, which include a syringe, hypodermic needle and guide wire, as well as the vessel introducer, and are packaged by us in boxes designed by Medtronic.  Medtronic markets our vessel introducer with the slitting device worldwide under the “SOLO-TRAK^TM” trade name.  We also manufacture and package a peelable introducer in similar kits for Medtronic.

In October 2002, we entered into a five-year supply agreement with Medtronic that superceded all previous supply agreements between the companies.  The agreement named us as exclusive supplier of all standard right-side pacing procedure kits.  There are no minimum purchase obligations associated with the agreement, but Medtronic is obligated to purchase all of its requirements for certain introducer procedure kits from us.

We estimate that approximately 110,000 CRT procedures were conducted in 2004, and in 10 – 20% of those cases an epicardial lead placement was necessary to complete this procedure.  We estimate that CRT procedures will grow more than three-fold over the next five years.  Two of the three major pacing companies offer our lead and implant tool when marketing their products for these procedures.

Our primary customers for our leads, delivery systems and adapters include the three major CRM companies: Medtronic, Guidant, Inc. and St. Jude Medical, Inc.  We also package accessory products for St. Jude Medical and perform packaging and contract manufacturing for a number of other companies.  We sell adaptors to all three major pacing companies and we are poised to capitalize on the opportunities presented by the adoption of the new connector standard.  Our products are sold to our OEM customers by our own sales force.

For the years ended December 31, 2004, 2003 and 2002, Medtronic accounted for 41%, 44% and 67% and C.R. Bard, Inc. accounted for 16%, 18% and 13% of our sales.  In addition, St. Jude Medical, Inc. accounted for 11% and 7% of our sales for the years ended December 31, 2004 and 2003.

5

Competition

Delivery Systems

Our vessel introducers compete with other peel-away vessel introducers manufactured by competitors.  We believe that the four major competitors in the venous introducer market are Daig Corporation (owned by St. Jude Medical); B. Braun of America Company; Pressure Products, Inc., and TFX Medical, a subsidiary of Teleflex Incorporated.  Daig, B. Braun, Pressure Products and TFX Medical market their vessel introducers primarily by establishing distribution arrangements with existing companies in the medical field, which is the same strategy that we follow.  Many of these competitors are significantly larger and have significantly greater financial, technical, research and marketing resources than we have.

Lead Technologies

Our primary competitors in providing stimulation leads and adapters to OEM customers in the CRM market are Oscor Inc., and Osypka GMBH.  Oscor, with its facility in Florida, and Osypka GMBH located in Germany, both have lines of pacing leads, adapters and other electrophysiology devices that they sell to major CRM companies, and also to end users through their own distributors worldwide.

Research and Development

Although our research and development activities are carried out primarily by our employees, we have utilized outside specialists on a contract basis and expect to continue to do so.  During the past year, we significantly increased our product development activities on a number of projects.  Delivery Systems broadened its venous vessel introducer product offering through the introduction of a valved introducer to minimize blood loss and reduce the possibility of an air embolism.  More importantly, they have been focused on development of articulating or steerable introducers.  We believe the next generation of introducers will be required to reach places inside a patient’s anatomy not accessed before in order to conduct new minimally-invasive therapeutic procedures.

Lead Technologies is engaged in several projects related to new CRM and neurostimulation leads, adapters, and delivery systems. We are developing a proprietary articulating delivery tool specifically designed for surgical placement of our epicardial leads in heart-failure patients undergoing CRT.  This new tool is designed to allow surgeons better control for lead placement on the left ventricular epicardial surface of the heart.  We have also developed a new version of our MyoPore epicardial lead that incorporates an anti-inflammatory drug, or steroid, into the lead head.  As discussed above under “Products - Leads Technologies,” we are currently seeking CE and FDA clearance to market this product in Europe and the United States.  We are also developing IS-4 adapters that will adapt current style IS-1 leads and IPG/ICD systems (pacemakers and defibrillators) to new IS-4 compatible leads and IPG/ICD systems.  The IS-4 standard is still in development and is expected to be adopted by the major CRM manufacturers by mid-2006.  We have been involved with the AAMI Pacemaker Connector Standards Committee that has been working on the new IS-4 connector standard over the past four years, and are currently a member of that committee.  In addition, we have initiated development of a proprietary neurostimulation lead that incorporates previously patented fixation technology and a next generation epicardial lead.  Both of these leads will utilize advanced delivery catheters as part of a lead/delivery system.

For the years ended December 31, 2004, 2003 and 2002, we spent $4.7 million, $2.0 million and $1.7 million on research and development activities.  As of December 31, 2004, we had 28 employees dedicated to research and development.  We intend to increase our research and development spending slightly in 2005 compared to 2004 as we continue to work on these projects and begin development efforts on new projects.  There can be no assurance that our development efforts will result in additional revenue.

Contract Manufacturing

Delivery Systems

Since October 1985, we have performed contract manufacturing services for a variety of medical device companies in the Minneapolis-Saint Paul metropolitan area, and currently manufacture two medical products for one company

6

and one medical product for another company.  For the years ended December 31, 2004, 2003 and 2002, contract manufacturing sales were approximately 4-5% of our Delivery System sales.  We expect contract manufacturing sales for 2005 to be less than 3% of our Delivery Systems sales.

Lead Technologies

We also perform contract development and manufacturing for medical device OEM customers, primarily in the fields of CRM and Neuromodulation.  During 2004, we discontinued several contract manufacturing projects that did not fit our business model.  For the years ended December 31, 2004 and 2003, contract manufacturing revenues were approximately 50% and 65% of our Lead Technologies sales, respectively.  We anticipate that sales related to contract manufacturing will decline to approximately 30% of Lead Technologies sales in 2005 as we focus our sales efforts on increasing sales of our proprietary products.

Suppliers

We currently purchase, and will in the future purchase, components and raw materials from outside vendors.  Although we have identified alternative suppliers for key components and raw materials, at the present time we generally use one source of supply for each component and raw material.  Each supplier of raw material for the vessel introducers we sell to Medtronic is subject to the approval of Medtronic, and future customers may have a right of approval as well.  At present, Medtronic has approved all of the applicable suppliers.  If a key supplier is unwilling or unable to supply any such component or raw material in a timely manner, or if approval of a proposed supplier is delayed, withheld or withdrawn, we could experience delays in obtaining alternative suppliers, which may adversely affect our business.

Government Regulation

The medical devices we manufacture and market are subject to regulation by the FDA and, in some instances, by state and foreign authorities.  Pursuant to the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act, and related regulations, medical devices intended for human use are classified into three categories (Classes I, II and III), depending upon the degree of regulatory control to which they will be subject.  Our introducer products are considered Class II devices.  Our lead wires are considered Class III devices.

If a Class II device is substantially equivalent to an existing device that has been continuously marketed since the effective date of the 1976 Amendments, FDA requirements may be satisfied through a Premarket Notification Submission (510(k)) under which the applicant provides product information supporting its claim of substantial equivalence.  In a 510(k) Submission, the FDA may also require that it be provided with clinical test results demonstrating the safety and efficacy of the device.  Generally, Class III devices are devices that must receive pre-market approval by the FDA to ensure their safety and effectiveness.  They are typically life-sustaining, life supporting, or implantable devices.  Pre-market approval (PMA) is a more rigorous approval process typically requiring human clinical studies.  The lead wires that we manufacture and market at our Lead Technologies facility are typically Class III devices.  In August 2004, we submitted a “Paper PMA” (a less burdensome approach that does not require prospective human clinical data) to gain marketing clearance for our epicardial steroid lead, based on an indication from the FDA that such an application would be considered.  Recently the FDA has advised us that our application does not have a “robust clinical argument” without human clinical data.  Although we are currently in negotiation with the FDA on the amount of human clinical data required for eventual PMA approval, the scope and the timing of collecting the human data along with the feasibility of undertaking such a study has not yet been determined.

We also submitted a 510(k) application in December 2004 for marketing clearance for our steerable introducer.  We are currently awaiting a response from the FDA on that submission.

As a manufacturer of medical devices, we are also subject to certain other FDA regulations, and our manufacturing processes and facilities are subject to continuing review by the FDA to ensure compliance with Good Manufacturing Practices regulations.  We believe that our manufacturing and quality control procedures substantially conform to the requirements of FDA regulations.  In addition, our sales and marketing practices are subject to regulation by the United

7

States Department of Health and Human Services pursuant to federal anti-kickback laws, and are also subject to similar state laws.

Our devices may also be subject to regulation in foreign countries in order to conduct business in the European Community.  Medtronic, Bard Access, St. Jude Medical, Guidant and any other entity with whom we would develop a distribution relationship, are responsible for obtaining approval from the foreign countries in which they desire to sell the vessel introducers manufactured by us.  Our facilities are ISO 13485 certified and we have received approval for placement of the CE Mark on products for sale in Europe.  Should we elect to use independent distributors in countries outside the European Community, we may be responsible for obtaining approval to sell in those countries.

Intellectual Property

Delivery Systems

We have made and continue to make, when appropriate, efforts to obtain patents on new products and improvements to existing products.  We have nine U.S. patents on various aspects of introducer and delivery systems and a number of additional applications pending or in process.

Due to the rapid technological changes experienced in the medical device industry, we believe that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage.

Lead Technologies

We have nine U.S. patents covering certain aspects of myocardial leads and introducers, steroid eluting myocardial leads, and other leads and lead features for CRM applications.  We also have twelve registered trademarks, in the U.S. and Europe, related to our MyoPore leads, FasTac, other endocardial leads, and pending trademarks for introducers and business marketing services.  We also have several invention disclosures and one provisional patent related to leads, delivery systems and other lead related technologies.

Employees

As of March 15, 2005, our Delivery Systems facility had 153 full-time employees while our Lead Technologies facility employed 72 persons, including one part-time employee.

Available Information

We maintain a website at www.enpathmedical.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available on our website, as soon as reasonably practicable after these documents are filed with the SEC.  To obtain copies of these reports, go to www.enpathmedical.com and click on “Investor Relations,” then click on “SEC Filings.”  A copy of any report filed by the Company with the SEC will also be furnished without charge to any shareholder who requests it in writing from Michael D. Erdmann, Secretary, Enpath Medical, Inc., 15301 Highway 55 West, Plymouth, Minnesota 55447.

You may also read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 or by calling 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 2Properties

Our Delivery Systems administrative, manufacturing and research and development facilities are located at 15301 Highway 55 West, Plymouth, Minnesota 55447-1418.  Effective February 1, 2004, we extended our lease until June 30, 2006.  Under the revised lease, we occupy 38,337 square feet of space with current base rent payments of

8

$17,525 per month and common area maintenance expenses and real estate taxes of $8,585 per month through May 2005, increasing to $19,276 and $9,185 per month, respectively, from June 1, 2005 to the end of the lease term.  The lease provides for up to three one-year extensions that are automatic if we do not give a six-month notice of evacuation.  The base rent can increase yearly, after June 30, 2006, based on the consumer price index.

Delivery Systems also leased additional warehouse space on February 4, 2005 located at 2010 East Center Circle, Plymouth, Minnesota 55441.  Under the new lease, we occupy 4,740 square feet of space with base rent payments of $1,876 per month and common area maintenance expenses and real estate taxes of $1,063 per month beginning March 1, 2005 and running through July 2006.

Our Lead Technologies administrative, manufacturing and research and development facilities are located at 7452 West 78^th Street, Bloomington, Minnesota 55439-2513.  We are leasing 27,000 square feet pursuant to a lease that commenced on June 15, 1998 and expires December 31, 2008.  The lease calls for base rent payments of $14,189 per month, as well as charges for common area maintenance expenses and real estate taxes of $8,135 per month for 2005. The lease provides for up to three one-year extensions that require a six-month notice of intent to exercise that option, at which time the base rent would be established at the current market price

We are currently in the process of looking for new space that will combine both facilities into one building sometime in mid-2006.  We have hired an outside firm to assist us with this process and we are currently in the planning phase of the project.  We will report on our progress in this area in future filings.

Item 3Legal Proceedings

None

Item 4Submission of Matters to a Vote of Security Holders

None

PART II

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

The closing market price of our stock on March 21, 2005 was $8.02.

Our Common Stock was traded on the SmallCap System of the Nasdaq Stock Market under the symbol MEDM from September 1991 until October 2003 when we moved to the National Market System of The Nasdaq Stock Market.  Our trading symbol changed from MEDM to NPTH on February 2, 2004 in connection with the change in our name from Medamicus, Inc. to Enpath Medical, Inc.  The table below shows the high and low closing sales prices for the quarters indicated.

	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Year	Low		High		Low		High		Low		High		Low		High
2003	$	6.55	$	8.41	$	6.73	$	8.35	$	7.99	$	12.18	$	10.89	$	14.77
2004	$	12.53	$	14.15	$	11.01	$	13.92	$	8.43	$	11.39	$	8.10	$	10.96

Holders and Dividends

As of March 15, 2005, we had approximately 275 record holders and 1,800 beneficial holders of our Common Stock. We have not paid cash dividends in the past and do not expect to do so in the foreseeable future.  Under the terms of our bank credit facility, we are prohibited from paying any dividends without the consent of the bank.

Recent Sales of Unregistered Equity Securities

The Company had no unregistered sales of equity securities during the quarter ended December 31, 2004.

9

Issuer Repurchases of Equity Securities

We did not repurchase any of our equity securities during the quarter ended December 31, 2004.

Item 6Selected Financial Data

Selected Income Statement Data

Year Ended December 31 Dollars in thousands	2004			2003		2002		2001		2000
	Note 7			Note 4				Notes 1,2,3		Notes 1,2
Sales	$	29,489		$	19,603	$	17,879	$	13,648	$	7,399
Operating income (loss)	(1,784		)	257		4,441		3,487		1,695
Income (loss) from continuing operations	(1,296		)	309		2,859		3,541		1,580
Income (loss) from discontinued operations	—			—		—		3,079		(1,418		)
Net income (loss)	$	(1,296	)	$	309	$	2,859	$	6,620	$	162
								Note 6		Note 6

Selected Balance Sheet Data

As of December 31 Dollars in thousands	2004		2003		2002		2001		2000
									Note 5
Working capital	$	5,220	$	4,558	$	8,858	$	7,645	$	1,443
Total assets	31,168		33,561		18,571		13,926		5,561
Note payable to bank	3,833		—		—		—		1,551
Long-term obligations, including current portion	71		6,799		215		298		273
Total liabilities	7,393		10,571		3,143		1,990		2,929
Shareholders’ equity	23,775		22,990		15,428		11,936		2,632

Selected Share Data

Year Ended December 31	2004			2003		2002		2001		2000
Net income (loss) per common share - Basic
Continuing operations	$	(0.22	)	$	0.06	$	0.61	$	0.83	$	0.38
Discontinued operations	—			—		—		0.72		(0.34		)
Total net income (loss) per common share - Basic	$	(0.22	)	$	0.06	$	0.61	$	1.55	$	0.04
Net income (loss) per common share - Diluted
Continuing operations (Note 6)	$	(0.22	)	$	0.06	$	0.57	$	0.77	$	0.36
Discontinued operations	—			—		—		0.67		(0.32		)
Total net income (loss) per common share - Dilute	$	(0.22	)	$	0.06	$	0.57	$	1.43	$	0.04
								Note 6		Note 6
Dividends per share	$	—		$	—	$	—	$	—	$	—
Weighted average common and common equivalent shares outstanding (thousands)
Basic	5,843			4,918		4,712		4,275		4,165
Diluted	5,843			5,169		4,974		4,626		4,387

Notes

(1)Years prior to 2001 have been restated to reflect only sales and operating income from continuing operations.  All sales, gross profit and expenses related to the Gynecology Division are included in income (loss) from discontinued operations.

(2)Years prior to 2001 reflect no income tax expense due to the utilization of net operating tax loss carry-forwards.  2001 also includes recognition of benefit of unutilized net operating tax loss carry-forwards of $923,000.

(3)Results for 2001 include gain on sale of Gynecology Division of $2,896,610 and income from discontinued segment of $182,012.

(4)Results for 2003 include financial results from the BCI acquisition beginning October 24, 2003.  Included in these results are the write-off of purchased in-process research and development costs of $2,650,000.

(5)The balance sheet for 2000 includes assets and liabilities of the Gynecology Division.

(6)The comparable pro forma net income from continuing operations would have been $979,442 or $.22 per diluted share in 2000 and $2,160,949 or $.47 per diluted share in 2001.  The pro forma amounts ignore the income (loss) from discontinued operations (2000-2001), the $923,000 income tax benefit recognized in 2001 and applies a 38% tax rate on income for those three years.

(7)Results for 2004 include a safety needle impairment charge of $2,809,199 less income tax benefit of $898,944.

10

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

Overview

We are a medical products company engaged in:

•the design, development, manufacture and marketing of percutaneous vessel introducers, safety needles and related vascular delivery products;

•the design, development, manufacture and marketing of implantable stimulation leads, lead delivery systems, and lead accessories for cardiac rhythm management, neuromodulation, and hearing restoration markets; and

•the manufacture of medical devices and components for other medical product companies on a contract basis.

On October 23, 2003, we completed our acquisition of the operating assets of BCI from BIOMEC Inc. and began to operate the BCI business through our wholly-owned subsidiary, Enpath Lead Technologies, Inc. (“ELT”).  We paid $18 million less assumed liabilities of approximately $1 million plus a working capital adjustment of $897,000.  In addition, we made a contingent payment of $3 million on March 31, 2004, based on the final 2003 sales results of the acquired BCI business.  This payment consisted of $1.2 million in cash and $1.8 million in common stock (133,588 shares @ $13.62 per share).  We will also make a second contingent payment on March 31, 2005, which is based on the increase in proprietary sales in 2004 over 2003, as defined in the Asset Purchase Agreement.  This contingent payment totals $489,000 and will be paid out as $98,000 in cash and $391,000 in common stock.  We will issue 33,831 shares valued at $11.56 per share based upon a pre-agreed formula (see Note 4 to the consolidated financial statements in this Form 10-K for further details).  Under the terms of the Asset Purchase Agreement, the amount of the 2004 contingent payment is to be doubled if, on or before December 31, 2004, ELT executed supply agreements with one or more specified customers having minimum terms specified in the Asset Purchase Agreement.  The Company has determined that the conditions for doubling were not met and notified BIOMEC.  Under the Asset Purchase Agreement, BIOMEC has the right to review the Enpath documentation with respect to determination of the 2004 contingent payment.  If BIOMEC disputes the amount due to it under the 2004 contingent payment, the Asset Purchase Agreement establishes a dispute resolution mechanism under which the matter may be referred to a third party accounting firm.  BIOMEC has requested, and the Company has delivered, supporting documentation with respect to the computation of the 2004 contingent payment.

During 2004, Enpath Medical, Inc. operated as two divisions:  The Enpath Delivery Systems Division (“EDS”, formerly Medamicus, Inc.) and the Enpath Lead Technologies Division (“ELT”, formerly BCI).  The divisions are aggregated into one reportable segment: the manufacture and sale of medical devices.  The divisions have similar technology, manufacturing, customers and regulatory activities and we have combined our sales and marketing and research and development activities to take advantage of similarities in customers and product development.  Effective January 1, 2005, the divisional structure was eliminated and we now operate as one organization located in two facilities.

Our consolidated 2004 sales were $29.5 million, consisting of $20.9 million from EDS and $8.6 million from ELT.  Sales at EDS increased $3.9 million compared to 2003 primarily due to increased sales of new and existing introducer products to both new and existing customers.  Sales at ELT increased $6.0 million compared to 2003 due to only including two months of post acquisition revenue in our 2003 consolidated results.  Comparing full-year 2004 to full-year 2003 ELT/BCI sales, sales actually declined from $10.5 million to $8.6 million, primarily due to lower sales of accessories to our largest ELT customer.

Our consolidated 2004 gross profit was $11.2 million, consisting of $9.4 million from EDS and $1.8 million from ELT.  Gross profit at EDS increased $2.2 million compared to 2003 primarily due to increased sales levels and improved manufacturing efficiencies in 2004.  Gross profit at ELT increased $1.0 million compared to 2003 primarily due to only including two months of post acquisition gross profit in our 2003 consolidated results.  Comparing full-year 2004 to full-year 2003

11

ELT/BCI gross profit, gross profit actually declined from $3.5 million to $1.8 million, primarily due to lower sales and correspondingly higher amounts of unapplied overhead included in cost of goods sold.

Our consolidated 2004 expenses were $13.1 million, consisting of $4.7 million of research and development expenses, $5.4 million of sales, general and administrative expenses and $211,000 of interest and other expenses.  Additionally, EDS booked a one-time impairment charge on its safety needle investment of $2.8 million to write down the value of assets related to the safety needle product line.

As a result, we had a net loss of $1.3 million or $.22 per diluted common share in 2004, compared to net income of $309,000 or $.06 per diluted common share in 2003.  See the table below for a more complete summary.

Combined Summary 2004 Compared to 2003

	Year Ended December 31, 2004														YTD
In Thousands	EDS $		EDS %		ELT $			ELT %		Consolidated			Tot %		2003 (1)		Tot %		Change			% Change
Revenues	$	20,941	100.0	%	$	8,548		100.0	%	$	29,489		100.0	%	$	19,603	100.0	%	$	9,886		50.4	%
Gross profit	9,410		44.9	%	1,760			20.6	%	11,170			37.9	%	7,976		40.7	%	3,194			40.0	%
Expenses
Research & development	2,676		12.8	%	2,054			24.0	%	4,730			16.0	%	1,987		10.1	%	2,743			138.0	%
Sales & marketing	949		4.5	%	898			10.5	%	1,847			6.3	%	1,025		5.2	%	822			80.2	%
General & administrative	2,602		12.4	%	966			11.3	%	3,568			12.1	%	2,057		10.5	%	1,511			73.5	%
Purchased in-process R&D	—		0.0	%	—			0.0	%	—			0.0	%	2,650		13.5	%	(2,650		)	n/a
Safety needle asset impairment	2,809		13.4	%	—			0.0	%	2,809			9.5	%	—		0.0	%	2,809			n/a
Interest, other	214		1.0	%	(3		)	0.0	%	211			0.7	%	21		0.1	%	190			904.8	%
Total Expenses	9,250				3,915					13,165					7,740				5,425			70.1	%
Income (loss) before tax	160				(2,155		)			(1,995		)			236				(2,231		)	-945.3	%
Income tax benefit (expense)	10		0.0	%	689			8.1	%	699			2.4	%	73		0.4	%	626			-857.5	%
Net income (loss)	$	170			$	(1,466	)			$	(1,296	)	-4.4	%	$	309	1.6	%	$	(1,605	)	-519.4	%

(1)YTD 2003 included ELT results from October 24, 2003 to December 31, 2003

	Year Ended December 31, 2003														YTD
In Thousands	EDS $			EDS %		ELT $			ELT %		Consolidated		Tot %		2002 (2)			Tot %		Change			% Change
Revenues	$	17,055		100.0	%	$	2,548		100.0	%	$	19,603	100.0	%	$	17,879		100.0	%	$	1,724		9.6	%
Gross profit	7,242			42.5	%	734			28.8	%	7,976		40.7	%	8,376			46.8	%	(400		)	-4.8	%
Expenses
Research & development	1,764			10.3	%	223			8.8	%	1,987		10.1	%	1,661			9.3	%	326			19.6	%
Sales & marketing	835			4.9	%	190			7.5	%	1,025		5.2	%	529			3.0	%	496			93.8	%
General & administrative	1,851			10.9	%	206			8.1	%	2,057		10.5	%	1,744			9.8	%	313			17.9	%
Purchased in-process R&D	—			0.0	%	2,650			104.0	%	2,650		13.5	%	—			0.0	%	2,650			n/a
Safety needle asset impairment	—			0.0	%	—			0.0	%	—		0.0	%	—			0.0	%	—			n/a
Interest, other	20			0.1	%	1			0.0	%	21		0.1	%	(51		)	-0.3	%	72			-141.2	%
Total Expenses	4,470					3,270					7,740				3,883					3,857			99.3	%
Income (loss) before tax	2,772					(2,536		)			236				4,493					(4,257		)	-94.7	%
Income tax benefit (expense)	(891		)	-5.2	%	964			37.8	%	73		0.4	%	(1,634		)	-9.1	%	1,707			-104.4	%
Net income (loss)	$	1,881				$	(1,572	)			$	309	1.6	%	$	2,859		16.0	%	$	(2,550	)	-89.2	%

(2)YTD 2002 consisted of the EDS division only

Delivery Systems

We manufacture and market a family of percutaneous venous vessel introducers with proprietary features, as well as our own proprietary valved introducer.  Vessel introducers enable physicians to create a conduit through which they can insert infusion catheters, implantable ports and pacemaker leads into a blood vessel.

12

In addition to this core traditional introducer product line, we have developed and manufacture “advanced delivery” introducers that have “fixed curve” or articulating distal tip sections that can be manipulated to enable the health care professional to access parts of the patient’s anatomy  (such as the left ventricle of the heart) that cannot be reached by traditional introducers. These sophisticated advanced delivery introducers are designed and manufactured to meet the unique needs of each procedure being performed.

We also manufacture safety products, primarily a safety needle that can be retracted into a protective sheath while still in the patient, greatly reducing the possibility of a needle stick and infection to the health care professional after the needle has been in contact with a patient’s blood (see Note 11 to the consolidated financial statements in this Form 10-K for further information).

Finally, we perform contract manufacturing and engineering services under which we design and manufacture products at our facilities to third party customer specifications.

Lead Technologies

We develop and manufacture proprietary and custom designed implantable stimulation leads, adapters and delivery systems for the cardiac and neuromodulation markets. We also provide laser processing and contract manufacturing services for our medical device customers for implantable and disposable devices.

Results of Operations

Delivery Systems 2004, 2003 and 2002

Net sales were $20.9 million in 2004, $17.1 million in 2003 and $17.9 million in 2002, representing a 22.8% increase and a 4.6% decrease, respectively.

Sales of our core introducer products were $16.5 million in 2004, $12.4 million in 2003 and $11.1 million in 2002, representing a 32.4% and 12.2% increase, respectively.  The increase in 2004 was primarily due to the launch of the FlowGuard^TM valved introducer into the cardiac pacemaker market which included a large initial stocking order, as well as strong orders for introducers from our two largest customers during the last half of 2004.  The increase in 2003 was primarily due to continued growth in sales to both new and existing customers.  We had hoped to see a larger increase in our introducer product sales during 2003 with the launch of our FlowGuard valved introducer in the second quarter. Unfortunately, due to a design issue related to the handle resin, we voluntarily pulled the product off the market in June 2003 and spent the remainder of 2003 resolving the issue.  We expect introducer sales in 2005 to increase slightly over the 2004 level as we continue to penetrate smaller market share customers with the FlowGuard product.

Sales of our advanced delivery products were $2.8 million in 2004, $2.5 million in 2003 and $5.5 million in 2002, representing a 10.9% increase and a 54.6% decrease, respectively.  The increase in 2004 was primarily due to several special orders of Left Ventricle Lead Delivery System (“LVLDS”) procedural kits that shipped to Medtronic in 2004.  Without these special orders, sales would have declined from 2003 primarily due to lower component sales to Medtronic for these kits.  The decrease in 2003 was primarily due to Medtronic transferring the manufacturing of LVLDS kits from us to its own facility beginning in late 2002.  We are continuing our work with several different customers on sophisticated delivery catheters that will have utility in the treatment of atrial fibrillation, percutaneous mitral valve repair, carotid stent placement, and a variety of renal and peripheral interventions.  Each of these delivery catheters is based on our proprietary technology and could potentially be used in new treatments being developed by our customers addressing large patient populations.  Some of our partners are further along than others, and on track to bring their therapeutic device to market sometime in 2005.  We expect advanced delivery product sales to increase in the second half of 2005 as our customers begin to launch their new devices into the marketplace with our delivery systems.

13

Sales of safety needles were $393,000 in 2004, $602,000 in 2003 and $180,000 in 2002, representing a 34.7% decrease and a 234.4% increase, respectively (see Note 11 of the consolidated financial statements in this Form 10-K for additional information).  The decrease in 2004 is primarily due to the reasons described below.

During 2002 and 2003, sales of our safety needles had been growing, but at a much slower pace than we originally anticipated.  We launched the safety needle in all of Medtronic’s kits for United States distribution in 2003.  Our initial launch strategy was to place a safety needle in all kits for United States distribution and after a period of time when all customers had been exposed to the safety needle, we would then offer an option of kits with and without safety needles. Since then, sales of kits with safety needles have dropped precipitously.  Cook Incorporated launched our safety needle in February 2004 and purchased a substantial amount of inventory.  We had discussions with these two customers during the second quarter of 2004 to assess their expectations in the marketplace regarding safety needles.  Cook advised us that it had experienced only modest sales of safety needles.  While we remain cautiously optimistic that the federal mandate requiring the use of safety needles in all health care related procedures will result in a future favorable revenue stream for our safety needle, the market’s slow adoption rate no longer justified the level of investment we had in safety needle intellectual property rights and equipment.  As a result, we determined, with the assistance of an independent valuation firm, that the current fair value of our safety needle assets at June 30, 2004 was $315,000.  This resulted in a one-time impairment charge of approximately $2.8 million which we reflected in the results from operations for the three months ended June 30, 2004.  We expect sales of safety needles to remain soft for the foreseeable future and we are continuing to evaluate our options for this product.  On December 31, 2004, we had inventory of safety needles totaling $308,000 which amounted to 6.6% of total inventory.  We continue to sell safety needles on a monthly basis, reducing the inventory levels of these products.  We estimate that we have a 12-18 month supply of safety needle inventory on hand and will not be purchasing any additional components or manufacturing any additional needles in the near future.

Other sales, consisting of contract manufacturing, engineering services and freight charges were $1.3 million in 2004, $1.5 million in 2003 and $1.1 million in 2002.  Because of the small number of contract manufacturing customers we serve and the volatility of engineering service projects, this category of sales will vary from one year to the next.  The decrease in 2004 was primarily due to decreased engineering service sales, partially off-set by increases in contract manufacturing sales during the comparable periods.  The increase in 2003 was primarily due to increased engineering service sales, partially off-set by decreases in contract manufacturing sales during the comparable periods.

Gross profit totaled $9.4 million in 2004, $7.2 million in 2003 and $8.4 million in 2002, representing a 29.9% increase and a 13.5% decrease, respectively.  Gross profit as a percent of sales was 44.9% in 2004, 42.5% in 2003 and 46.9% in 2002.  Gross profit as a percent of sales increased in 2004 compared to 2003 primarily due to the resolution of several issues that impacted 2003.  These issues included the recall of the FlowGuard product due to resin issues that have been resolved, the manufacturing by hand of safety needles which are now made on automated equipment, and the high levels of depreciation and amortization on our safety needle assets related to the sales of safety needles. Gross profit as a percent of sales decreased in 2003 compared to 2002 primarily due to the drastic reduction in our high gross profit Medtronic advanced delivery product sales.  In addition, we made a conscious decision to retain all of our production staff while we resolved the FlowGuard resin issue and we used the time to conduct training and rearrange our production floor for greater efficiency.  As a result, we had higher manufacturing overhead costs than would be typical for the lower level of production we generated.  We also had relatively high fixed costs related to the amortization of our investment in obtaining the rights to the arterial safety needle market, as well as depreciation on the automated safety needle assembly equipment (beginning in April 2003), as compared to sales of safety needles.  We also incurred additional costs in the first quarter of 2003 when we manually assembled safety needles, as well as additional costs in the second quarter of 2003 when we wrote off inventory associated with the FlowGuard valved introducer.  We expect our margins to approximate 42%-44% in 2005 as we continue to launch the smaller sizes of FlowGuard and other new products to the marketplace.

Lead Technologies 2004, 2003 and 2002

Because we did not acquire the assets of this division until October 23, 2003, the comparative numbers shown for 2003 were taken directly from the unaudited records of BCI and the comparative numbers for 2002 were taken from the audited financial statements of BCI.  These figures are shown in order to give a point of reference to the current year

14

results.  The percent changes are shown in the table below in order to help clarify the comparative results.  The amounts for 2004 and from October 23 to December 31, 2003 were included in our consolidated results.

Sales Category (in thousands)	Full Year 2004			Pro Forma Full Year 2003			October 23 to December 31 2003			Full Year 2002
Proprietary Products	$	3,880		$	3,391		$	723		$	1,622
Contract Manufacturing	4,336			6,783			1,699			2,562
Contract Development/Other	332			344			126			25
Total Sales	$	8,548		$	10,518		$	2,548		$	4,209
Gross Profit	$	1,791		$	3,466		$	734		$	780
Gross Profit as Percent of Sales	21.0		%	33.0		%	28.8		%	18.5		%

Percent Change	Full Yr 2004 to Full Yr 2003		Full Yr 2004 to Partial Yr 2003		Full Yr 2003 to Full Yr 2002
Total Sales	-18.7	%	235.5	%	149.9	%
Proprietary Product Sales	14.4	%	436.7	%	109.1	%
Contract Manufacturing Sales	-36.1	%	155.2	%	164.8	%
Contract Development/Other Sales	-3.5	%	163.5	%	1276.0	%
Gross Profit	-48.3	%	144.0	%	344.4	%

Total sales were $8.6 million in 2004, $10.5 million in 2003 ($2.5 million included in consolidated sales) and $4.2 million in 2002 (not included in consolidated sales).

Sales of proprietary products, consisting of implantable stimulation leads, lead delivery systems and adaptors were $3.9 million in 2004, $3.4 million in 2003 ($723,000 included in consolidated sales) and $1.6 million in 2002 (not included in consolidated sales).  The increase in 2004 was primarily due to increased sales of epicardial leads into the growing CRT market and the launch of several IS-1 adaptors for a key customer.  The increase in 2003 was primarily due to a three-fold growth in our proprietary Myopore epicardial lead sales and increased demand for our IS-1 adapters.  High growth in the Myopore lead sales was driven by the rapid growth of the CRT market and the demand for sutureless epicardial leads for left ventricular pacing in failed transvenous left ventricular placements.  We expect that sales in 2005 will increase due to European approval of our Myopore Rx™ epicardial steroid lead.  The launch of our Fastac Flex™ delivery tool for improved efficiency when placing the epicardial lead will also help to increase sales in 2005.

Sales of contract manufacturing products, consisting primarily of lead accessories were $4.3 million in 2004, $6.8 million in 2003 ($1.7 million included in consolidated sales), and $2.6 million in 2002 (not included in consolidated sales).  The decrease in 2004 was primarily due to our largest customer continuing to adjust an inventory overstock situation and we look for reduced orders to continue through the first quarter of 2005.  Additionally, as part of our overall strategy to focus on higher margin proprietary products, we discontinued several low margin contract manufacturing projects.  The increase in 2003 was primarily due to the growth in pacing accessories driven by our largest customer’s increase in stocking levels and higher demand due to that customer’s sales force expansion. Additional revenue growth was due to increased demand for OEM procedure kits, laser processing of prosthetic discs, and the successful start-up of a hemostatic powder filling operation.  We expect that contract manufacturing sales in 2005 will be lower than 2004 due to the shift to proprietary products and the continued reduced orders for accessory products from our largest customer.

Other sales consisting of our contract development work and freight were $332,000 in 2004, $344,000 in 2003 ($126,000 included in consolidated sales) and $25,000 in 2002 (not included in consolidated sales).  Contract development work in 2004 and 2003 was primarily related to development of stimulation leads for a variety of emerging neurostimulation applications.  These co-development efforts have been initiated to fuel longer-term manufacturing growth tied to development and supply arrangements with emerging therapy start-up companies.

15

Gross profit totaled $1.8 million in 2004, $3.5 million in 2003 ($734,000 included in consolidated results) and $780,000 in 2002 (not included in consolidated results).  Gross profit as a percent of sales was 21.0% in 2004, 33.0% in 2003 (28.8% included in consolidated results) and 18.5% in 2002 (not included in consolidated results).  The decrease in gross profit as a percentage of sales was primarily due to the low level of sales during the year, causing our manufacturing staff to be underutilized which resulted in a significant portion of our overhead not being allocated to production.  Gross profits were also affected by the amortization of identifiable intangible assets totaling $219,000 in 2004 compared to $36,000 in 2003.  Without the amortization charge, gross profits as a percent of sales for 2004 would have been 23.5%.  Gross profit grew in 2003 primarily because of increased sales of our higher-margin proprietary products.  Other changes that helped improve gross profit in 2003 included the implementation of cost reduction efforts in strategic supply, manufacturing processing improvements and increased efficiencies in the production work force due to hiring, training, and retention programs.  We were also able to pass on price increases to customers of our proprietary products that had not seen price increases in several years.  We do not expect margins to increase substantially until we launch our new Fastac Flex and Myopore Rx products to the market in 2005.

Combined Expenses 2004, 2003 and 2002

Research and Development

Research and development expenses were $4.7 million in 2004 ($2.6 million for EDS, $2.1 million for ELT), $2.0 million in 2003 ($1.8 million for EDS, $223,000 for ELT) and $1.7 million in 2002 (all EDS) totaling 16.0%, 10.1% and 9.3% of sales, respectively.  The large increase in 2004 was primarily due to inclusion of the ELT expenses for all of 2004 compared to only two months in 2003 and none in 2002.  Included in the amounts was $260,000 and $43,000 for 2004 and 2003, respectively, of identifiable intangible asset amortization related to the BCI acquisition.

The increase in 2004 over 2003 for Delivery Systems was due to development work on its family of proprietary advanced delivery introducers, as well as development work related to partnerships with a number of other medical device companies working on therapies that will utilize our delivery systems.  The increase in 2003 over 2002 was due to increasing our engineering staff and continuing expenditures on a variety of new product development activities.

The increase in 2004 over 2003 for Lead Technologies was primarily due to activities related to validating the improved performance of our anti-inflammatory steroid epicardial lead and the submission of our application to the FDA for marketing clearance (approximately $1 million).  Recent discussions with the FDA have indicated that they consider the original least burdensome approach (i.e. a “Paper PMA” with no requirement for prospective human clinical data) as not being a “robust clinical argument” for the approval of this lead.  We are attempting to clarify the scope and timing of a human clinical that the FDA would find acceptable and then assess the feasibility of conducting such a clinical trial. In addition to the steroid epicardial lead activities, we also spent approximately $500,000 on continued development of the FasTac Flex tool and new IS-4 adaptors.

We expect research and development expenditures for 2005 to be approximately 14% of sales as we continue our efforts to develop and launch these new products.  Our long-term goal is to spend approximately 10-12% of our sales on research and development activities.

Sales and Marketing

Sales and marketing expenses were $1.8 million in 2004, $1.0 million in 2003 and $529,000 in 2002 totaling 6.3%, 5.2% and 3.0% of sales, respectively.  The large increase in 2004 was primarily due to the inclusion of the ELT expenses for all of 2004 compared to only two months in 2003 and none in 2002.  Had we included ELT expenses for all of 2003, the 2003 amount of spending would have totaled approximately $1.6 million.  Included in the amounts was $18,000 and $3,000 for 2004 and 2003, respectively, of identifiable intangible asset amortization related to the BCI acquisition.

The increase in 2004 from 2003 was primarily due to the costs associated with combining our sales and marketing group for the two divisions.  On March 31, 2004 we announced the formation of a single sales and marketing group for our two divisions and named James Mellor as Senior Vice President with overall responsibility for that effort.  James Reed was appointed to the new position of Director of Sales for the combined group.  We did not expect cost savings as a result of putting the two groups together, but rather a more focused and effective sales effort, especially with the large

16

cardiac rhythm management companies.  We incurred some significant expenses related to web-site and marketing material development that increased expenses in 2004 (approximately $100,000).  We also added one additional person to the group in 2004.  The increase in 2003 from 2002 was primarily due to increased spending on salaries, trade shows and travel, partially off-set by a decrease in commission expense.  We had been developing an internal sales and marketing department over the past two years and added a number of positions since January of 2002 to help drive the sales and marketing efforts for our new products while eliminating our independent sales representative relationships.  With the addition of these positions, we attended more trade shows to build awareness of our products and incurred higher travel costs than in past years.  We expect sales and marketing expenses to be approximately 6% of sales for 2005.

General and Administrative

General and administrative expenses were $3.6 million in 2004, $2.1 million in 2003 and $1.7 million in 2002 totaling 12.1%, 10.5% and 9.8% of sales, respectively.  The large increase in 2004 was primarily due to several factors.  First, we included the ELT expenses for all of 2004 compared to only 2 months in 2003 and none in 2002.  Had we included ELT expenses for all of 2003, the 2003 amount of spending would have totaled approximately $3.0 million.  Included in the amounts was $118,000 and $20,000 for 2004 and 2003, respectively, of identifiable intangible asset amortization related to the BCI acquisition.  Second, we increased spending on salaries, accounting and legal services, investor relations, name change and corporate integration activities.  Compliance with Sarbanes-Oxley Section 404 requirements increased our accounting and legal costs significantly, and we expect these higher costs to continue for all of 2005 and beyond.  We also have increased our investor relations activities in conjunction with our acquisition of BCI in order to expand awareness to a growing group of investors.  Finally, we have incurred additional costs and expenses in connection with the integration of our new ELT division and the name change to Enpath Medical.  The increase in 2003 from 2002 was primarily due to increased spending on salaries, accounting and legal fees associated with Sarbanes-Oxley compliance, investor relations, depreciation, consulting services and insurance.  We expect general and administrative expenses to total approximately 11% of sales for 2005.

Other Expenses

Interest income was $2,000 in 2004, $40,000 in 2003 and $78,000 in 2002 and interest expense was $206,000, $52,000, and $23,000 during the same respective periods.  Interest income decreased primarily due to lower cash balances resulting from the use of excess cash to fund the acquisition of BCI in 2003, as well as lower interest rates compared to 2002.  Interest expense increased primarily due to the interest on the $5.0 million note payable that was put in place in October 2003 to help fund the BCI acquisition, as well as interest payments on our line of credit borrowings.

Liquidity and Capital Resources

As of December 31, 2004, we had unrestricted cash and cash equivalents of $363,000, compared to $1.1 million as of December 31, 2003.  Net cash provided by operating activities during 2004 was $3.1 million, consisting of a net loss of $1.3 million, adjusted for non-cash items of depreciation and amortization of $2.4 million, safety needle asset impairment charge of $2.8 million, non-cash consulting services of $7,000 offset in part by the net change in our deferred tax asset of $600,000. We also had a net change in operating assets and liabilities of $212,000.

Net cash used in investing activities during 2004 was $3.8 million, consisting primarily of the purchase of equipment totaling $1.4 million, additions to intangible assets totaling $411,000 and cash paid for the BCI acquisition of $2.0 million.

Net cash used in financing activities during 2004 was $38,000.  We made principal payments on capital leases of $75,000 and payments on our note payable to bank of $1.0 million.  This was offset by proceeds from option exercises of $155,000 and proceeds on our line of credit totaling $882,000.

On October 23, 2003, we entered into a financing arrangement with a bank that included a five-year term loan of $5 million, which was used to finance a portion of the BCI acquisition, and a $3 million line of credit, $2.1 million of which was available at December 31, 2004.  The borrowings are secured by substantially all of our assets and also contain financial covenants that must be met on a quarterly basis.  The agreement also prohibits the payment of

17

dividends without the consent of the lender.  At December 31, 2004, we were in violation of certain of these covenants, due to the $2.8 million safety needle asset impairment charge (see Note 11 to the consolidated financial statements in this Form 10-K).  These violations were subsequently waived by the bank on February 9, 2005.

Payments on the term loan consist of monthly principal payments of $83,334 plus interest at Libor plus 2.5%.  These payments commenced in November 2003.  The line of credit bears interest at Libor plus 2.25% with no minimum interest due and expires on April 30, 2005.  The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. There were borrowings of $882,000 under the line of credit at December 31, 2004.

As of December 31, 2004, our working capital was $5.2 million, or a current ratio of 2.3 to 1, compared to working capital of $4.6 million or a current ratio of 1.9 to 1 as of December 31, 2003.  Accounts receivable decreased $463,000 primarily due to faster collections at our ELT facility in 2004 (45 days in 2004 versus 79 days in 2003).  Inventory increased $885,000 during 2004 as we moved to a new distribution strategy of maintaining higher levels of finished goods for our customers.  While this strategy has the short-term impact of increasing our inventories, it significantly simplifies the process our customers go through when they order our products.  We had cash totaling $363,000 as of December 31, 2004.  Because we have been utilizing our bank line of credit, we have been using excess cash to pay down the credit line in order to minimize interest expense.  We will continue to maintain a small cash balance while we utilize our line of credit.

A summary of our contractual cash obligations at December 31, 2004 is as follows:

	Payments due by period
Contractual Obligations	Total		2005		2006		2007		2008
Long-term debt, including interest	$	4,264,156	$	1,229,819	$	1,117,577	$	1,065,319	$	851,441
Operating leases	1,134,679		438,698		323,918		191,108		180,955
Total contractual cash obligations	$	5,398,835	$	1,668,517	$	1,441,495	$	1,256,427	$	1,032,396

We also have a commercial commitment as described below:

Other Commercial Commitment	Total Amount Committed		Outstanding at December 31, 2004		Date of Expiration
Line of credit	$	3,000,000	$	881,652	April 30, 2005

We had $362,625 in cash and cash equivalents as of December 31, 2004.  In connection with our acquisition of BCI, we are required to make an additional payment of $488,856 related to the 2004 Contingent Payment that is due on March 31, 2005.  In February 2004, we entered into an amendment to the Asset Purchase Agreement with BIOMEC Inc., under which we agreed to pay the 2004 Contingent Payment as 80% stock and 20% cash.  In addition, the value of the stock to be issued in conjunction with the contingent payment would be valued at no less than $11.56 or more than $15.63 per share.  Based on these parameters, the 2004 Contingent Payment will be made in the form of $97,771 in cash and $391,085 in common stock (an estimated 33,831 shares).  Under the terms of the Asset Purchase Agreement, the amount of the 2004 contingent payment is to be doubled if, on or before December 31, 2004, ELT executed supply agreements with one or more specified customers having minimum terms specified in the Asset Purchase Agreement.  The Company has determined that the conditions for doubling were not met and notified BIOMEC.  Under the Asset Purchase Agreement, BIOMEC has the right to review the Enpath documentation with respect to determination of the 2004 contingent payment.  If BIOMEC disputes the amount due to it under the 2004 contingent payment, the Asset Purchase Agreement establishes a dispute resolution mechanism under which the matter may be referred to a third party accounting firm.  BIOMEC has requested, and the Company has delivered, supporting documentation with respect to the computation of the 2004 contingent payment.

While we believe that we have sufficient resources with our current cash and credit facility to make payments required under the acquisition, to meet our long-term debt obligations and fund our planned operations for fiscal 2005, there is no assurance that we will not need additional capital in the future.  Sources of additional capital may include additional debt

18

financing or the sale of debt or equity securities. There can be no assurance that we will be able to successfully obtain additional capital on favorable terms.

Critical Accounting Policies and Estimates

Our significant accounting policies and estimates are summarized in the footnotes to our annual consolidated financial statements.  Some of our accounting policies require management to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates.  These judgments are subject to an inherent degree of uncertainty and are based on our historical experience, known trends in our industry, terms of existing contracts and other information from outside sources, as appropriate.  Actual results may differ from these estimates under different assumptions and conditions.  Certain of the most critical policies that require significant judgment are as follows:

Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin 104, Revenue Recognition when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

Allowance for Doubtful Accounts

We establish estimates of the uncollectability of accounts receivable.  Our management analyzes accounts receivable, historical write-offs as bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.  We maintain an allowance for doubtful accounts at an amount that we estimate to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on receivables.  A considerable amount of judgment is required when assessing the realizability of receivables, including assessing the probability of collection and the current credit-worthiness of each customer.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required.  We have not experienced significant bad debt expense and our reserve for doubtful accounts of $69,000 should be adequate for any exposure to loss in our December 31, 2004 accounts receivable.

Allowance for Excess and Slow-Moving Inventory

Inventories, which are composed of purchased parts and subassemblies, work in process and finished goods, are valued at the lower of cost or market with cost being determined by the first-in, first-out method. On a periodic basis, we analyze the level of inventory on hand, its cost in relation to market value and estimated customer requirements to determine whether write-downs for excess or slow-moving inventory are required. Actual customer requirements in any future periods are inherently uncertain and thus may differ from estimates. If actual or expected requirements were significantly greater or lower than the established reserves, a reduction or increase to the obsolescence allowance would be recorded in the period in which such a determination was made. We have established reserves for excess and slow-moving inventories and believe the reserve of $124,000 at December 31, 2004 is adequate.

Valuation of Goodwill and Long-Lived Assets including Intangible Assets with Finite Lives

As a matter of policy, we review our major assets for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  The test for impairment of finite life assets requires us to make estimates of the fair value of our long-lived assets, primarily based on projected future cash flows using discount rates determined by management to be commensurate with the risk inherent in the current business model or another valuation technique. For indefinite life intangibles, we determine whether the carrying amount of the reporting unit’s net assets exceeds its expected future cash flows.  If we determine that the carrying value of these assets may not be recoverable, we will be required to reduce the valuation of these assets on our financial statements.  Significant intangible assets include the following:

19

Goodwill

The estimate of the fair value of the goodwill that resulted from our recent acquisition of BCI and the annual impairment test of this asset are significant estimates and require judgment in projecting future cash flows as well as considering the current amount recorded of $9.6 million.

Safety Needle

The determination of the safety needle intangible and equipment impairments during 2004 was a significant estimate in 2004.  In addition, the realization of our remaining investment in the license agreement and manufacturing equipment related to the safety needle (aggregate net balance of $263,250 at December 31, 2004) is dependent upon attaining a sustained level of sales of this product.  We currently are comfortable projecting a level of future sales that is sufficient to allow us to fully realize the adjusted investment we have remaining in the safety needle inventory and equipment.  However, if actual sales fail to reach these levels, our adjusted investment in this product may not be fully realizable in the future (see Note 11 to the consolidated financial statements in this Form 10-K).

Other Intangibles with Finite Lives

Other intangibles with finite lives consist primarily of purchased technology, trade name, patents, customer relationships and trademarks (aggregate net balance of $5.9 million at December 31, 2004) are being amortized on a straight-line method over their estimated useful lives, ranging from 5 to 30 years (see Note 3 to the consolidated financial statements in this Form 10-K).

Allocation of Purchase Price Paid for the BCI Acquisition

As a result of our acquisition of BCI, (see Note 4 to the consolidated financial statements in this Form 10-K), we were required to allocate the consideration paid for BCI between tangible assets, identifiable intangible assets, including in-process research and development (IPR&D), and goodwill.  The value assigned to IPR&D was determined by identifying those acquired specific in-process research and development projects that would be continued and for which (a) technological feasibility had not been established at the acquisition date, (b) there was no alternative future use, and (c) the fair value was estimable with reasonable reliability.  We were required to make significant estimates to determine the portion of the purchase price allocated to IPR&D and other intangible assets. We engaged an independent valuation firm to assist in the determination of the fair values of the intangible assets.  The amount of the purchase price allocated to IPR&D and other intangible assets was determined by estimating the future cash flows of each project or technology and discounting the net cash flows back to their present values. The discount rates used in calculating the present value of the various intangibles were in accordance with accepted valuation methods and for IPR&D also included the consideration of the risks of not achieving commercial feasibility. The goodwill that resulted from this acquisition represents the excess of the total purchase price over the fair value of the total tangible and identifiable intangible net assets acquired.

In-Process Research and Development (IPR&D)

Development projects, that had not yet reached technological feasibility and had no alternative future use, were classified as in-process research and development.  The purchase price assigned to those projects was immediately expensed on the acquisition date and was reflected as an expense in the 2003 consolidated statements of operations. The in-process research and development projects were as follows: steroid leads ($1.3 million), adapters ($1 million) and an implant tool ($350,000). The estimated value of these projects was determined using a discounted cash flow model.  The discount rates used considered the stage of completion and the risk surrounding the successful development and commercialization of each of the purchased in-process technology projects.  Some of the original assumptions related to these projects were as follows:

20

Initial Assumptions October 23, 2003

	Leads			Tool			Adaptor
Costs incurred as of 10/23/03	$	47,000		$	203,000		$	75,000
Estimated cost to complete	$	602,000		$	658,000		$	529,000
Percent complete (dollars)	7.2		%	23.6		%	12.4		%
Months spent up to 10/23/03	12			12			12
Estimated months to complete	24			12			12
Percent complete (months)	33.3		%	50.0		%	50.0		%
Year revenues estimated to begin	2005			2004			2004
Regulatory approval received	No			No			No

The discount rates used in valuing the developed, core and in-process technologies ranged from 26% to 50%.  A higher discount rate was used to value the in-process research and development, due to the inherent uncertainties surrounding the successful development of the in-process projects, FDA approval, and the market acceptance of the products. The percentage of completion for each of the in-process projects was determined using costs incurred to date on each project as compared to the remaining estimated costs to be incurred to bring each of the projects to technological feasibility.

We believe that the three in-process projects described above will reach technological feasibility.  However, because of the risks associated with the commercial viability of these products, there can be no assurance that these projects will actually achieve commercialization.  These risks include the delay or failure to obtain the necessary regulatory approvals or the failure to achieve market acceptance.  As of March 21, 2005, we had received European approval to begin selling the steroid lead through one OEM partner, but had not yet obtained regulatory approvals to market the other products.  Updated information related to these three projects is summarized below:

Status On December 31, 2004

	Leads			Tool			Adaptor
Costs incurred as of 12/31/04	$	1,038,000		$	686,000		$	85,000
Estimated cost to complete	$	350,000		$	132,000		$	153,000
Percent complete (dollars)	74.8		%	83.9		%	35.7		%
Months spent up to 12/31/04	26			26			26
Estimated months to complete	9			7			7
Percent complete (months)	74.3		%	78.8		%	78.8		%
Year revenues estimated to begin	2005			2005			2005
Regulatory approval received	No			No			No

The scope of the adaptor project has been significantly reduced due to entering into an exclusive arrangement with a major CRM company for IS-4 adaptors.

Recently Issued Accounting Pronouncements

In November 2004, FASB issued Statement No. 151, Inventory Costs.  Statement No 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage).  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The application of Statement No. 151 did not have any effect on our consolidated financial statements.

In December 2004, the Financial Accounting Standards Board (“FASB”) published FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)” or the “Statement”). FAS 123(R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. FAS 123(R) is a replacement of FASB Statement No. 123, Accounting for Stock-Based Compensation, and

21

supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretive guidance (APB 25).

The effect of the Statement will be to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement. We will be required to apply FAS 123(R) beginning July 1, 2005.

Forward Looking Statements

Statements included in this Annual Report on Form 10-K, in the letter to shareholders, in our quarterly reports, in filings by us with the Securities and Exchange Commission, in our press releases, and oral statements made with the approval of an authorized executive officer that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Certain important factors could cause results to differ materially from those anticipated by some of these statements.  Investors are cautioned that all forward-looking statements involve risks and uncertainties.  A number of factors that could cause results to differ materially are those discussed in the section of this Annual Report on Form 10-K entitled “Risk Factors.”  Additional factors that could cause results to differ materially are the following:  our ability to complete the integration of the ELT operation; our dependence upon a limited number of key customers for our revenue; our ability to complete development of our Myopore Rx steroid epicardial lead and Fastac Flex delivery tool and obtain all necessary FDA and European approval to market these devices; our ability and our distribution partners ability to successfully introduce the Myopore Rx and Fastac Flex; the ability of our customers to successfully develop and market therapies that utilize our advanced delivery systems; our dependence upon licensing agreements with third parties for the technology underlying some of our products, our ability to effectively manufacture our products, including the new Myopore Rx steroid lead and the Fastac Flex delivery tool in anticipated required quantities; our ability to develop or acquire new products to increase revenues; our ability to attract and retain key personnel; introduction of competitive products; our ability to successfully protect our intellectual property against misappropriation or claims of infringement by third parties; government regulatory matters; economic conditions; and our ability to raise capital.  All our forward-looking statements, whether written or oral are expressly qualified by these cautionary statements.  In addition, we disclaim any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

Risk Factors

The following are important factors that could cause actual results to differ materially from those anticipated in any forward-looking statements made by or on behalf of the Company.

We have three major customers and depend on these customers for a significant portion of our revenues.

Medtronic accounted for approximately 41%, 44% and 67%; C.R. Bard accounted for approximately 16%, 18% and 13%; and St. Jude Medical accounted for approximately 11%, 7% and 0% of our total sales from operations in 2004, 2003 and 2002, respectively.  We anticipate that our expected near-term future growth in sales will be tied in part to these customers’ sales of their existing products, as well as new products incorporating our products as components. Because we anticipate that sales of our components and kits to Medtronic for use in Medtronic’s Left Ventricle Lead Delivery Systems (“LVLDS”) will continue to decrease, we are attempting to expand our customer base and our product offerings. We cannot ensure that we will be successful in making sales to new customers, increasing sales to existing customers other than Medtronic or developing and marketing new products. To the extent that we do not expand our customer base and product offerings, sales to Medtronic and our other key customers will continue to account for a major portion of our revenues, making us vulnerable to the risks described below.  We anticipate that our concentration of business with Medtronic will approximate 40% in 2005 with our other two customers making up approximately 14% and 8%, respectively.

On October 11, 2002, we entered into a supply agreement with Medtronic that requires Medtronic to purchase exclusively from us all of its requirements for introducer kits manufactured by us for a period of five years.  There are no minimum purchase obligations under the supply agreement for our current products or any future products we may develop. If sales of Medtronic’s products that incorporate our products as components decrease or if Medtronic does not develop new products incorporating our products as components, future sales of our products to Medtronic and our

22

results of operations would be adversely affected. Further, any action by Medtronic to discontinue any of its products that incorporate our products, to redesign or change the technical requirements for its products so that our products would not meet those requirements, or to otherwise limit or discontinue its purchases from us would have a material adverse impact on sales of our products and, consequently, our financial results.

In addition, under the supply agreement, if we fail to supply certain products, Medtronic may manufacture and sell these products or have these products manufactured by another party. Our failure to supply these products would result in a loss of sales to Medtronic and would have a material adverse impact on our revenues. Moreover, the supply agreement establishes the pricing Medtronic receives with respect to each product and provides that if we extend more favorable pricing to any other customer, that same pricing will also be extended to Medtronic.  A reduction in our pricing with Medtronic would likely result in a decline in our overall revenue.

We may need additional capital in the future.

We had $362,625 in cash and cash equivalents as of December 31, 2004.  In connection with our acquisition of BCI, we are required to make an additional payment of $488,856 related to the 2004 Contingent Payment that is due on March 31, 2005.  In February 2004, we entered into an amendment to the Asset Purchase agreement with BIOMEC Inc., under which we agreed to pay the 2004 Contingent Payment as 80% stock and 20% cash.  In addition, the value of the stock to be issued in conjunction with the contingent payment would be valued at no less than $11.56 or more than $15.63 per share.  Based on these parameters, the 2004 Contingent Payment will be made in the form of $97,771 in cash and $391,085 in common stock (an estimated 33,831 shares).  Under the terms of the Asset Purchase Agreement, the amount of the 2004 contingent payment is to be doubled if, on or before December 31, 2004, ELT executed supply agreements with one or more specified customers having minimum terms specified in the Asset Purchase Agreement. The Company has determined that the conditions for doubling were not met and notified BIOMEC.  Under the Asset Purchase Agreement, BIOMEC has the right to review the Enpath documentation with respect to determination of the 2004 contingent payment.  If BIOMEC disputes the amount due to it under the 2004 contingent payment, the Asset Purchase Agreement establishes a dispute resolution mechanism under which the matter may be referred to a third party accounting firm.  BIOMEC has requested, and the Company has delivered, supporting documentation with respect to the computation of the 2004 contingent payment.

On October 23, 2003, we entered into a financing arrangement with a bank that included a five-year term loan of $5 million, which was used to finance a portion of the BCI acquisition, and a $3 million line of credit, $2.1 million of which was available at December 31, 2004.  The borrowings are secured by substantially all of our assets and also contain financial covenants that must be met on a quarterly basis.  The agreement also prohibits the payment of dividends without the consent of the lender.  At December 31, 2004, we were in violation of certain of these covenants, due to the $2.8 million safety needle asset impairment charge (see Note 11 to the consolidated financial statements in this Form 10-K).  These violations were subsequently waived by the bank on February 9, 2005.

While we believe that we have sufficient resources with our current cash and the new credit facility to make payments required under the acquisition, meet our long-term debt obligations and fund our planned operations for fiscal 2005, there is no assurance that we will not need additional capital in the future.  Sources of additional capital may include additional debt financing or the sale of debt or equity securities. There can be no assurance that we will be able to successfully obtain additional capital on favorable terms.

We have only attained profitability recently and had a net loss of $1.3 million in 2004.

We became a publicly traded company in 1991 and incurred losses in each of the years from 1991 to 1999.  For the years ended December 31, 2000, 2001, 2002, 2003 and 2004, we reported net income of $162,000; $6.6 million; $2.9 million, $309,000 and a net loss of $1.3 million, respectively.  Net income for 2001 included $3.1 million related to the sale of the gynecology division, as well as recognition of income tax benefit of $923,000 resulting from the elimination of the valuation allowance on deferred tax assets.  In 2003, ELT/BCI was profitable for the first time in many years.  However, our 2003 results only included income from ELT from October 24, 2003 to December 31, 2003 and included a one-time write-off of $2.7 million related to the purchase of in-process research and development costs associated with the acquisition.  The net loss for 2004 included a one-time charge of $2.8 million related to safety needle asset impairment.  There is no assurance that we will be able to effectively integrate the operation of ELT and regain and maintain profitable operations in the future.

23

The government heavily regulates our business.

The medical products that we sell and propose to sell are subject to regulation by the FDA and by comparable agencies in certain states and foreign countries.  The process of complying with requirements of the FDA and other agencies can be costly and time consuming.  We have received clearance from the FDA to market our vessel introducer products, safety needle, epicardial lead and implant tool.  As discussed above in “Products — Lead Technologies,” we currently have a PMA submission pending with the FDA related to our epicardial steroid lead, and a 510k submission related to our steerable introducer product.  There is no assurance that any future additional clearance can be obtained.  In addition, once obtained, these clearances are subject to review, and later discovery of previous unknown problems may result in restrictions on the marketing of a product or withdrawal of the product from the market.  We are also subject to certain FDA regulations governing manufacturing practices, packaging and labeling.  Non-compliance with these regulations can result in product recalls or other sanctions which could have a material adverse effect on the Company.

We depend on patents and proprietary technology.

Our success may depend on our ability to obtain patent protection for our products and processes, to preserve our trade secrets and to operate without infringing on the proprietary rights of third parties.  We have 18 United States and foreign patents issued related to various aspects of vessel introducers and stimulation leads.  There can be no assurance that any future patent protection will be granted, that the scope of any patent protection will exclude competitors or that any of our patents will be held valid if subsequently challenged. The validity and breadth of claims covered in medical technology patents involve complex legal and factual questions and therefore may be highly uncertain. We also rely upon unpatented trade secrets, and no assurance can be given that others will not independently develop or otherwise acquire substantially equivalent trade secrets or otherwise gain access to our proprietary technology.

We depend on our key personnel.

Failure to attract and retain skilled personnel could hinder our research and development and manufacturing efforts. Our future success depends to a significant degree upon the continued services of key technical and senior management personnel. Our future success also depends on our continuing ability to attract, retain and motivate highly qualified managerial and technical personnel. The inability to retain or attract qualified personnel could have a significant negative effect upon our efforts and thereby materially harm our business and financial condition.

We face intense competition and rapid technological change.

We are faced with intense competition and rapid technological and industry change and, if our competitors’ existing products or new products are more effective or superior to our products, the commercial opportunity for our products will be reduced or eliminated.  We face intense competition from other device manufacturers, many of whom are significantly larger and have greater financial, technical, research, marketing, sales, distribution and other resources than we do.  We believe there will be intense price competition for products developed in our markets. Our competitors may develop or market technologies and products that are more effective or commercially attractive than any we are developing or marketing. Our competitors may succeed in obtaining regulatory approval and introducing or commercializing products before we do.  Such developments could have a significant negative effect on our financial condition.  Even if we are able to compete successfully, we may not be able to do so in a profitable manner.  The medical device industry is generally characterized by rapid technological change, changing customer needs, and frequent new product introductions.  Our products may be rendered obsolete as a result of future innovations.

We risk product liability claims and product recalls.

The manufacture and sale of medical products entails significant risk of product liability claims or product recalls.  Our existing insurance coverage limits may not be adequate to protect us from any liabilities we might incur in connection with the clinical trials or sales of our products.  We may require increased product liability coverage as our products are commercialized.  Insurance is expensive and may not be available on acceptable terms, or at all.  A successful product liability claim or series of claims brought against us in excess of our insurance coverage, or a recall of our products, could have a significant negative effect on our business and financial condition.  Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business.

24

We have limited sources of supply for our products.

We currently purchase, and will in the future purchase, components and raw materials from outside vendors.  Although we have identified alternative suppliers for key components and raw materials, at the present time we generally use one source of supply for each component and raw material.  If a key supplier becomes unwilling or unable to supply any such component or raw material in a timely manner, or if approval of a proposed supplier is delayed, withheld or withdrawn, we could experience delays in obtaining alternative suppliers, which may adversely affect our business.

We have a limited public market for our common stock.

As of March 16, 2005, we had 5,914,029 shares of common stock outstanding.  The average daily trading volume approximated 47,000 shares per day in 2001, 26,000 shares per day in 2002, 18,000 shares per day in 2003, 14,000 shares per day in 2004 and 13,000 shares per day through March 15, 2005.  There can be no assurance that an active market will exist for our common stock, or that our common stock could be sold without a significant negative impact on the publicly quoted price per share.

Our future operating results may fluctuate.

If our revenue declines in a quarter compared to the revenue in the previous quarter, our earnings will likely decline as well, due to the fact that many of our expenses are relatively fixed.  In particular, research and development, sales and marketing and general and administrative expenses are not affected directly by variations in revenue.  In some future quarter or quarters, due to a decrease or shortfall in revenue or for some other reason, our operating results likely will be below the expectations of securities analysts or investors.  In this event, the market price of our common stock may fall abruptly and significantly.

Our research and development projects may not reach technological feasibility.

We are planning on spending approximately $4.8 million in 2005 to continue the development of several new products.  These products include the epicardial steroid lead, the implant tool, the next generation of adaptors, steerable delivery sheaths and ergonomic handle and steerable catheters.  While we believe that these products will reach technological feasibility, because of the risks associated with the commercial viability of these products, there can be no assurance that these projects will actually achieve commercialization.  Such risks include the delay or failure to obtain the necessary regulatory approvals or the failure to achieve market acceptance.

Item 7AQuantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in interest rates primarily as a result of our borrowing activities used to maintain liquidity.  Our earnings have not been materially affected by changes in interest rates on our floating interest rate debt (less than $50,000 for 2004) because interest rates remained fairly stable during the year and we only started utilizing our line of credit beginning in June 2004.  Based on our current borrowings and anticipated line of credit requirements in 2005, an increase of 100 basis points in prevailing interest rates would increase our annual interest expense by less than $100,000.

25

Item 8Financial Statements and Supplementary Data

Quarterly Financial Data

The consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004, and the related consolidated balance sheets of the Company as of December 31, 2004 and 2003, together with the related notes thereto and the report of independent registered public accounting firm appear on pages 27 through 47 hereof.

The following tabulation presents the Company’s unaudited quarterly results of operations for 2004 and 2003:

In thousands except for per share data

	2004
	Q1		Q2 (A)			Q3		Q4		Total
Net sales	$	7,297	$	7,295		$	7,064	$	7,833	$	29,489
Gross profit	2,768		2,745			2,806		2,851		$	11,170
Operating income (loss)	445		(2,620		)	363		28		$	(1,784	)
Net income (loss)	$	273	$	(1,816	)	$	209	$	38	$	(1,296	)
Basic net income (loss) per common share	$	0.05	$	(0.31	)	$	0.04	$	0.01	$	(0.22	)
Diluted net income (loss) per common share	$	0.05	$	(0.31	)	$	0.03	$	0.01	$	(0.22	)

	2003
	Q1		Q2		Q3		Q4 (B)			Total
Net sales	$	4,667	$	4,338	$	4,042	$	6,556		$	19,603
Gross profit	2,071		1,820		1,632		2,453			$	7,976
Operating income (loss)	993		745		601		(2,082		)	$	257
Net income (loss)	$	632	$	474	$	381	$	(1,178	)	$	309
Basic net income (loss) per common share	$	0.13	$	0.10	$	0.08	$	(0.22	)	$	0.06
Diluted net income (loss) per common share	$	0.13	$	0.10	$	0.08	$	(0.22	)	$	0.06

Notes

(A)  The second quarter of 2004 includes a $2.81 million safety needle asset impairment charge (see Note 11 to the consolidated financial statements in this Form 10-K)

(B)  The fourth quarter of 2003 includes a $2.65 million charge for the purchased in-process research and development that resulted from the acquisition of BCI in the 4th quarter (see Note 4 to the consolidated financial statements in this Form 10-K).

26

Audited Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Enpath Medical, Inc.

Minneapolis, Minnesota

We have audited the accompanying consolidated balance sheets of Enpath Medical, Inc. (formerly Medamicus, Inc.) and Subsidiary, as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each year in the three year period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Enpath Medical, Inc. and Subsidiary, as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each year in the three year period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.

	/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
January 18, 2005 (except for Note 6, as to which the date is February 9, 2005)

27

Consolidated Balance Sheets

	December 31, 2004			December 31, 2003
ASSETS (Note 6)
Current assets:
Cash and cash equivalents	$	362,625		$	1,067,935
Accounts receivable, less allowance for doubtful accounts of $69,000 and $70,000, respectively (Note 9)	3,660,049			4,122,570
Inventories, less allowance for slow-moving inventory of $124,000 and $155,000, respectively (Note 2)	4,624,183			3,738,853
Prepaid expenses and other assets	230,443			215,377
Income taxes receivable	310,683			99,931
Deferred income taxes (Note 5)	194,000			156,000
Total current assets	9,381,983			9,400,666
Property and equipment: (Notes 7 and 11)
Equipment	6,148,662			7,162,779
Office furniture, fixtures and computers	1,736,531			1,426,714
Leasehold improvements	1,576,759			1,448,678
	9,461,952			10,038,171
Less accumulated depreciation and amortization	(4,285,866		)	(3,176,423		)
Net property and equipment	5,176,086			6,861,748
Goodwill (Note 4)	9,593,662			8,984,824
Intangible assets with finite lives, net (Notes 3, 4 and 11)	5,861,045			7,717,656
Deferred income taxes (Note 5)	1,154,964			596,000
TOTAL ASSETS	$	31,167,740		$	33,560,894
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank line of credit payable (Note 6)	$	881,652		$	—
Current maturities of note payable to bank (Note 6)	1,000,000			1,000,000
Current installments of capital lease obligations (Note 7)	64,420			70,793
Accounts payable	927,196			731,390
Accrued compensation	810,016			642,536
Other accruals	260,946			287,102
Accrued acquisition payments (Note 4)	217,771			2,110,476
Total current liabilities	4,162,001			4,842,297
Long-term liabilities:
Notes payable to bank, less current maturities (Note 6)	2,833,324			3,833,332
Capital lease obligations, less current installments (Note 7)	6,473			75,498
Accrued acquisition payments (Note 4)	391,085			1,819,473
Total long-term liabilities	3,230,882			5,728,303
Total liabilities	7,392,883			10,570,600
Commitments and contingencies (Notes 4,7,10 and 11)
Shareholders’ equity: (Note 8)
Preferred stock-undesignated, authorized 1,000,000 shares	—			—
Common stock-$.01 par value, authorized 20,000,000 shares; issued and outstanding 5,887,929 and 5,703,526 shares, respectively	58,879			57,035
Additional paid-in capital	21,283,676			19,204,591
Retained earnings	2,432,302			3,728,668
Total shareholders’ equity	23,774,857			22,990,294
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	31,167,740		$	33,560,894

See accompanying notes to consolidated financial statements

28

Consolidated Statements of Operations

Years Ended December 31,	2004			2003			2002
Net sales (Note 9)	$	29,489,034		$	19,603,441		$	17,879,234
Cost of sales	18,318,793			11,626,944			9,503,690
Gross profit	11,170,241			7,976,497			8,375,544
Operating expenses:
Research and development	4,730,013			1,987,122			1,661,373
Selling, general and administrative	5,415,287			3,082,446			2,272,717
Purchased in-process research and development (Note 4)	—			2,650,000			—
Impairment charge on safety needle investment (Note 11)	2,809,199			—			—
Total operating expenses	12,954,499			7,719,568			3,934,090
Operating income (loss)	(1,784,258		)	256,929			4,441,454
Other income (expense):
Interest expense	(205,636		)	(51,727		)	(22,918		)
Interest income	1,613			39,787			78,233
Other	(6,907		)	(8,873		)	(4,196		)
Total other income (expense)	(210,930		)	(20,813		)	51,119
Income (loss) before income taxes	(1,995,188		)	236,116			4,492,573
Income tax expense (benefit) (Note 5)	(698,822		)	(72,641		)	1,633,939
Net income (loss)	$	(1,296,366	)	$	308,757		$	2,858,634
Earnings (loss) per common share:
Basic	$	(0.22	)	$	0.06		$	0.61
Diluted	$	(0.22	)	$	0.06		$	0.57
Weighted average common and common equivalent shares outstanding:
Basic	5,843,103			4,917,623			4,711,634
Diluted	5,843,103			5,168,675			4,973,966

See accompanying notes to consolidated financial statements

29

Consolidated Statements of Shareholders’ Equity

				Additional
	Common Stock			Paid-In		Retained
Years Ended December 31, 2004, 2003 and 2002	Shares	Amount		Capital		Earnings			Total
Balances at December 31, 2001	4,601,567	$	46,016	$	11,328,818	$	561,277		$	11,936,111
Options exercised (Note 8)	36,600	366		83,592		—			83,958
Tax benefit from options exercised (Note 5)	—	—		52,000		—			52,000
Warrants exercised (Note 8)	88,426	884		495,186		—			496,070
Warrants issued to consultant for services	—	—		1,139		—			1,139
Net income for the year ended December 31, 2002	—	—		—		2,858,634			2,858,634
Balances at December 31, 2002	4,726,593	$	47,266	$	11,960,735	$	3,419,911		$	15,427,912
Options exercised (Note 8)	43,600	436		180,937		—			181,373
Common stock issued in connection with acquisition (Note 4)	933,333	9,333		6,862,818		—			6,872,151
Tax benefit from options exercised (Note 5)	—	—		141,000		—			141,000
Options issued to consultant for services	—	—		7,000		—			7,000
Warrants issued in connection with acquisition (Notes 4 and 8)	—	—		52,101		—			52,101
Net income for the year ended December 31, 2003	—	—		—		308,757			308,757
Balances at December 31, 2003	5,703,526	$	57,035	$	19,204,591	$	3,728,668		$	22,990,294
Options exercised (Note 8)	50,815	508		154,944		—			155,452
Common stock issued in connection with acquisition (Note 4)	133,588	1,336		1,818,137		—			1,819,473
Tax benefit from options exercised (Note 5)	—	—		99,504		—			99,504
Options issued to consultant for services	—	—		6,500		—			6,500
Net loss for the year ended December 31, 2004	—	—		—		(1,296,366		)	(1,296,366		)
Balances at December 31, 2004	5,887,929	$	58,879	$	21,283,676	$	2,432,302		$	23,774,857

See accompanying notes to consolidated financial statements

30

Consolidated Statements of Cash Flows

Years Ended December 31,	2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	(1,296,366	)	$	308,757		$	2,858,634
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	1,538,341			988,497			492,008
Amortization	883,550			411,773			406,259
Write-off of purchased in-process research and development (Note 4)	—			2,650,000			—
Impairment charge on safety needle investment (Note 11)	2,809,199			—			—
Loss on disposal of equipment	—			4,220			383
Non-cash consulting services	6,500			7,000			1,139
Deferred income taxes	(596,964		)	(802,000		)	225,000
Changes in operating assets and liabilities:
net of effect of acquisition
Accounts receivable	462,521			(446,594		)	(204,916		)
Inventories	(885,330		)	465,519			(153,430		)
Prepaid expenses and other assets	(15,066		)	(44,640		)	(47,618		)
Income taxes receivable	(111,248		)	—			—
Accounts payable	195,806			(602,534		)	(197,917		)
Accrued liabilities	141,324			(277,974		)	115,843
Income taxes payable	—			(1,206,913		)	1,219,827
Net cash provided by operating activities	3,132,267			1,455,111			4,715,212
Cash flows from investing activities:
Purchase of property and equipment	(1,397,598		)	(1,184,531		)	(3,161,159		)
Proceeds from disposal of property and equipment	—			10,720			384
Additions to intangible assets	(411,201		)	(251,001		)	(98,224		)
Net cash paid for acquisition (Note 4)	(1,990,476		)	(11,212,310		)	—
Net cash used in investing activities	(3,799,275		)	(12,637,122		)	(3,258,999		)
Cash flows from financing activities:
Principal payments on capital lease obligations	(75,398		)	(69,121		)	(82,356		)
Proceeds from long-term debt	—			5,000,000			—
Principal payments on long-term debt	(1,000,008		)	(166,668		)	—
Net proceeds on line of credit	881,652			—			—
Proceeds from exercise of stock options and warrants	155,452			181,373			580,028
Net cash provided by (used in) financing activities	(38,302		)	4,945,584			497,672
Net increase (decrease) in cash and cash equivalents	(705,310		)	(6,236,427		)	1,953,885
Cash and cash equivalents, beginning of year	1,067,935			7,304,362			5,350,477
Cash and cash equivalents, end of year	$	362,625		$	1,067,935		$	7,304,362
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	204,984		$	51,727		$	22,918
Cash paid during the period for income taxes	$	9,500		$	1,937,154		$	189,112
Supplemental schedule of non-cash investing and financing activities:
Equity increase from tax benefit from stock option exercises (Note 5)	$	99,504		$	141,000		$	52,000
Common stock issued in payment of contingent purchase price	$	1,819,473		$	6,872,151		$	—
Accrued acquisition payments not yet paid (Note 4)	$	488,856		$	2,110,476		$	—

See accompanying notes to consolidated financial statements

31

Notes To Consolidated Financial Statements

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company is a medical products company engaged in:

•designing, developing, manufacturing and marketing percutaneous vessel introducers, safety needles and related vascular delivery products;

•designing, developing, manufacturing and marketing implantable stimulation leads, lead delivery systems, and lead accessories for cardiac rhythm management and neuromodulation markets; and

•manufacturing medical devices and components for other medical product companies on a contract basis.

On October 23, 2003, the Company completed the acquisition of the net operating assets of BIOMEC Cardiovascular Inc. (“BCI”) from BIOMEC Inc. (see Note 4 for further details).  The Company has included BCI’s results in its consolidated financial statements from October 24, 2003 forward.  As a result of this transaction, Enpath Medical, Inc. operated with two divisions from October 24, 2003 through December 31, 2004:  The Enpath Delivery Systems Division (“EDS”, formerly Medamicus, Inc.) and the Enpath Lead Technologies Division (“ELT”, formerly BCI).  The divisions are aggregated into one reportable segment: the manufacture and sale of medical devices.  The divisions have similar technology, manufacturing, customers and regulatory activities and the Company has combined the sales and marketing and research and development activities to take advantage of similarities in customers and product development.  Revenues are primarily derived from designing, developing, manufacturing and marketing medical devices.  Net sales by product line for the years ended December 31, 2004 and 2003 were as follows:

	2004			2003
Delivery Systems Product Line	$	20,941,027		$	17,055,674
Lead Technologies Product Line	8,548,007			2,547,767
Total	$		29,489,034	$	19,603,441

On February 2, 2004, the Company changed its name from Medamicus, Inc. to Enpath Medical, Inc.  The name Enpath reflects the Company’s mission to create pathways that enable the delivery of essential medical therapies.

A summary of the Company’s significant accounting policies follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Enpath Medical, Inc. and its wholly owned subsidiary Enpath Lead Technologies, Inc.  All material intercompany accounts and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment of products to its customers, FOB shipping point.  Shipping and handling charges billed to customers are included in net sales, and shipping and handling costs incurred by the Company are included in cost of sales.

RECENT PRONOUNCEMENTS

In November 2004, FASB issued Statement No. 151, Inventory Costs.  Statement No 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage).  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The application of Statement No. 151 did not have any effect on the Company’s consolidated financial statements.

32

In December 2004, the Financial Accounting Standards Board (“FASB”) published FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)” or the “Statement”). FAS 123(R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. FAS 123(R) is a replacement of FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretive guidance (APB 25).

The effect of the Statement will be to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement. The Company will be required to apply FAS 123(R) as of the beginning of its third quarter in 2005.

FAS 123(R) allows two methods for determining the effects of the transition: the modified prospective transition method and the modified retrospective method of transition. The Company has not yet completed its study of the transition methods or made any decisions about how it will adopt FAS 123(R).  However, the pro forma net income effect of using the fair value method for the past three fiscal years is presented in the table under employee stock based compensation below. The pro forma compensation costs presented below and in prior filings for the Company have been calculated using a Black-Scholes option pricing model and may not be indicative of amounts which should be expected in future years. No decisions have been made by management as to which option-pricing model is most appropriate for the Company for future awards.

ESTIMATES

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

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of certain financial instruments for which it is practicable to estimate that value:

•Cash equivalents:  The carrying amount approximates fair value because of the short maturity of these instruments.

•Notes payable:  The fair value of the Company’s notes payable are estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements.  At December 31, 2004 and 2003, the fair value of the Company’s notes payable approximated their carrying value.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments, primarily United States money market securities, with an original maturity of three months or less. The Company maintains its cash in bank accounts, which, at times, exceed federally insured limits.  The Company has not experienced any losses in such accounts.

ACCOUNTS RECEIVABLE

Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Management determines the allowance for doubtful accounts after reviewing individual customer accounts as well as considering both historical and expected credit loss experience. Accounts receivable are written off when deemed uncollectible.  Recoveries of accounts receivable previously written off are recorded when received.

33

INVENTORIES

Inventories, which are composed of purchased parts and subassemblies, work in process and finished goods, are valued at the lower of cost or market with cost being determined by the first-in, first-out method. On a periodic basis, the Company reviews the level of inventory on hand, its cost in relation to market value and estimated customer requirements to determine whether write-downs for excess or slow-moving inventory are required.  If actual or expected requirements were significantly greater or lower than the established reserves, a reduction or increase to the obsolescence allowance would be recorded in the period in which such a determination was made.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated or amortized on a straight-line basis over a period of three to seven years.  Leasehold improvements are amortized over the remaining term of the related lease.  Repair and maintenance costs are charged to operations as incurred.

INTANGIBLE ASSETS WITH FINITE LIVES

Intangible assets are amortized on a straight-line basis over their estimated useful lives or contractual lives,  whichever are shorter (see Note 3).  For a description of the intangible assets acquired in the BCI transaction, see Note 4.

GOODWILL

In accordance with Financial Accounting Standards Board (FASB) Statement No. 142, goodwill is tested for impairment annually and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired.  An impairment loss would generally be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.  The Company determined that no impairment existed at December 31, 2004 or 2003.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company periodically reviews long-lived assets to determine any potential impairment.  The asset carrying values are compared with the expected future cash flows resulting from their use.  The expected future cash flows include cash flows resulting from the asset’s disposition.  The Company would recognize an impairment loss if an asset’s carrying value exceeded its expected future cash flow.  In 2004, management recorded an impairment charge of approximately $2.8 million related to its investment in the safety needle (see Note 11).

INCOME TAXES

Deferred taxes are provided on an asset and liability method under which deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

EMPLOYEE STOCK-BASED COMPENSATION

At December 31, 2004, the Company has two stock-based employee compensation plans (see Note 8).  The Company accounts for those plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

The Company also grants options and warrants to non-employees for goods and services and in conjunction with certain agreements.  These grants are accounted for under FASB Statement No. 123 based on the grant date fair values.

34

The following table illustrates the effect on net income (loss) and net income (loss) per common share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	2004			2003			2002
Net income (loss) - as reported	$	(1,296,366	)	$	308,757		$	2,858,634
Deduct: Total stock-based employee compensation (expense determined under the fair value based method for all awards)	(624,686		)	(415,273		)	(267,622		)
Pro forma net income (loss)	$	(1,921,052	)	$	(106,516	)	$	2,591,012
Net income (loss) per common share:
Basic net income (loss) per share - as reported	$	(0.22	)	$	0.06		$	0.61
Basic net income (loss) per share - pro forma	$	(0.33	)	$	(0.02	)	$	0.55
Diluted net income (loss) per share - as reported	$	(0.22	)	$	0.06		$	0.57
Diluted net income (loss) per share - pro forma	$	(0.33	)	$	(0.02	)	$	0.52
Weighted average common shares outstanding
Basic	5,843,103			4,917,623			4,711,634
Diluted	5,843,103			5,168,675			4,973,966

The above pro forma effects on net income (loss) and net income (loss) per common share are not likely to be representative of the effects on reported net income (loss) for future years because options vest over several years and additional awards generally are made each year.

RESEARCH AND DEVELOPMENT EXPENSES

The Company incurred research and development expenses of $4,730,013, $1,987,122 and $1,661,373 in 2004, 2003 and 2002, respectively, as well as $2,650,000 of expense from the write-off of purchase price assigned to in-process technology in 2003.  The value assigned to purchased in-process technology was determined by identifying those acquired specific in-process research and development projects that would be continued and for which (a) technological feasibility had not been established at the acquisition date, (b) there was no alternative future use, and (c) the fair value was estimable with reasonable reliability.  The fair value was estimated using the present value of future estimated cash flows of each project.  The discount rate used in calculating the present value included the consideration of the risks of not achieving commercial feasibility (see Note 4).

PRODUCT WARRANTIES

The Company provides a limited warranty for the replacement of defective products.  The Company has never incurred any significant costs associated with this warranty and therefore has not provided any estimated liability for these warranties.

CONCENTRATION OF SUPPLY

The Company generally uses one source of supply for key components and raw materials.  The Company has identified alternate sources for these components and raw materials.

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

Basic per-share amounts are computed by dividing net income (loss) by the weighted average number of common shares outstanding.  Diluted per-share amounts are computed similar to basic per-share amounts except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive.  The number of additional shares is calculated by assuming the outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the year.  The dilutive effect of these additional shares for the years ended December 31, 2003 and 2002 was to increase the weighted average shares outstanding by 251,052 and

35

262,332 shares, respectively.  Because the Company had a loss in 2004, diluted shares were the same as basic shares since the effect of options and warrants would have been anti-dilutive.

2.  INVENTORIES

Inventories at December 31, 2004 and 2003 consisted of the following:

	2004		2003
Purchased parts and subassemblies	$	3,326,998	$	2,284,699
Work in process	513,608		921,934
Finished goods	783,577		532,220
Total Inventory	$	4,624,183	$	3,738,853

3.  INTANGIBLE ASSETS WITH FINITE LIVES

Finite life intangible assets at December 31, 2004 and 2003 were as follows:

		December 31, 2004
	Estimated	Gross		Accumulated
	Lives (Years)	Carrying Amount		Amortization		Net Value
License technology (Note 11)	2	$	115,000	$	28,750	$	86,250
Core technology	12	2,650,000		257,642		2,392,358
Developed technology	8	1,500,000		218,750		1,281,250
Customer relationships	6	615,000		119,588		495,412
Patents and inventions	5 to 9	1,346,676		338,756		1,007,920
Trade name	30	545,000		21,196		523,804
Other	5 to 10	93,085		19,034		74,051
Totals		$	6,864,761	$	1,003,716	$	5,861,045

		December 31, 2003
	Estimated	Gross		Accumulated
	Lives (Years)	Carrying Amount		Amortization		Net Value
License technology	8	$	2,047,894	$	543,224	$	1,504,670
Core technology	12	2,650,000		36,806		2,613,194
Developed technology	8	1,500,000		31,250		1,468,750
Customer relationships	6	615,000		17,084		597,916
Patents and inventions	5 to 9	1,060,146		154,813		905,333
Trade name	30	545,000		3,028		541,972
Other	5 to 10	88,395		2,574		85,821
Totals		$	8,506,435	$	788,779	$	7,717,656

Amortization expense related to these assets is as follows:

Year ended December 31, 2004	$	883,550
Year ended December 31, 2003	$	411,773
Year ended December 31, 2002	$	275,356

36

Estimated annual amortization expense for these assets over the next five years is as follows:

Year	Amount
2005	$	814,000
2006	$	783,000
2007	$	754,000
2008	$	714,000
2009	$	585,000

4.  ACQUISITION OF BCI

On October 23, 2003, the Company purchased substantially all of the operating assets of BCI, a company that developed and manufactured medical products, specializing in pacing-lead products and pacing accessories.  The primary reasons for the acquisition of BCI included the following: allow the Company to diversify its product base and increase its customer base; obtain an intellectual property portfolio covering various products; acquire potential products that are currently in the development stage, and certain future synergies that are anticipated to be realized in the combined Company after the acquisition.

The initial aggregate purchase price of approximately $18 million consisted of approximately $10 million in cash, the issuance of 933,333 shares of Company common stock with a market value of approximately $7 million and the assumption of short-term liabilities with a fair value of approximately $1 million.  The number of shares to be issued was determined per the asset purchase agreement that was signed on July 21, 2003.  The stock price per share was determined under the agreement by using the average closing stock price for the last five trading days prior to and including July 21, 2003 which amounted to an average price of $8.358 per share.  The Company then applied a 10% discount to this amount because under the agreement, trading in these shares was restricted until at least March 2004 and under certain circumstances until March 2005 without the Company’s consent, which brought the amount down to $7.52 per share.  The Company settled on $7.50 per share as a value to arrive at the 933,333 shares.

The asset purchase agreement required an additional payment of $897,495 to be made in 2004 based on the final working capital of BCI on the date of acquisition.  This payment was made in cash in February 2004.  In addition, the Company was required to make a contingent payment of $3,032,454 on March 31, 2004, based on BCI’s final 2003 sales results. This payment was made in the form of 40% cash ($1,212,981) and 60% common stock ($1,819,473 or 133,588 shares of common stock, valued at $13.62 per share).  There is also a second contingent payment due on March 31, 2005, which is based on the increase in BCI’s proprietary sales in 2004 over 2003.  The second contingent payment amounts to $488,856 and will be paid as 20% cash ($97,771) and 80% stock ($391,085) per the amended agreement and was included in liabilities at December 31, 2004. This contingent purchase price was recorded as an increase to goodwill, with the stock to be issued in conjunction with this payment to be valued at no less than $11.56 (33,831 shares) and no more than $15.63 (25,021 shares).  Under the terms of the Asset Purchase Agreement, the amount of the 2004 contingent payment is to be doubled if, on or before December 31, 2004, ELT executed supply agreement with one or more specified customers having minimum terms specified in the Asset Purchase Agreement.  The Company has determined that the conditions for doubling were not met and notified BIOMEC.  Under the Asset Purchase Agreement, BIOMEC has the right to review the Enpath documentation with respect to determination of the 2004 contingent payment.  If BIOMEC disputes the amount due to it under the 2004 contingent payment, the Asset Purchase Agreement establishes a dispute resolution mechanism under which the matter may be referred to a third party accounting firm.  BIOMEC has requested, and the Company has delivered, supporting documentation with respect to the computation of the 2004 contingent payment.  The results of operations of BCI and the estimated fair value of the assets acquired and liabilities assumed are included in the Company’s consolidated financial statements beginning October 24, 2003.

37

The Company accounted for the acquisition under the purchase method of accounting in accordance with SFAS 141. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of fair value at the acquisition date.  The Company engaged an independent valuation firm to assist in the determination of the fair values. The initial purchase price exceeded the amounts allocated to the tangible and identified intangible assets by approximately $9 million, and this excess was classified as goodwill.

The following tables provide further information on the acquisition of BCI and allocations:

Purchase Price Summary
Category	Amount
Cash paid at closing by Company	$	10,010,000
Value of Common Stock issued	7,000,000
Accrued payments:
Working capital adjustment	897,000
Contingent payment based on BCI 2003 sales:
Portion paid in cash	1,213,000
Portion paid with common stock	1,819,000
Contingent payment based on BCI 2004 sales:
Portion to be paid in cash	98,000
Portion to be paid with common stock	391,000
Direct acquisition costs	1,249,000
Total Consideration	$	22,677,000

Values Assigned to Assets & Liabilities
Category	Amount
Current assets	$		3,756,000
Property & equipment	1,733,000
Acquired in-process R&D	2,650,000
Intangible assets:
Developed technology	1,500,000
Customer relationships	615,000
Tade name	545,000
Patents	415,000
Core technology	2,650,000
Non competition agreement	75,000
Inventions	155,000
Goodwill	9,594,000
Current liabilities	(1,011,000			)
Net Assets Acquired	$	22,677,000

A portion of the purchase price was allocated to developed and core technology, and in-process research and development. These intangible assets were identified and valued through the analysis of data concerning the underlying technology of the Company and its existing products, development projects, their stage of development, the time and resources to complete them, if applicable, their expected income generating ability and associated risks. The income approach, which includes an analysis of cash flows and related risks, was the primary method used in valuing the developed and core technology, and in-process research and development. Developed technology

38

represents projects that had attained technological feasibility and their value has accordingly been capitalized.  Core technology has value through its use or re-use in many products or future generations of products.

39

In-Process Research and Development (IPR&D)

Development projects, which had not yet reached technological feasibility and had no alternative future use, were classified as in-process research and development. Accordingly, the purchase price assigned to those projects was immediately expensed on the acquisition date and was reflected as an expense in the 2003 consolidated statements of operations. The in-process research and development projects were as follows: Steroid Leads ($1.3 million), Adapters ($1 million) and an Implant Tool ($350,000). The estimated value of these projects was determined using a discounted cash flow model.  The discount rates used considered the stage of completion and the risk surrounding the successful development and commercialization of each of the purchased in-process technology projects.  Some of the original assumptions related to these projects were as follows.

Initial Assumptions October 23, 2003
	Leads			Tool			Adaptor
Costs incurred as of 10/23/03	$	47,000		$	203,000		$	75,000
Estimated cost to complete	$	602,000		$	658,000		$	529,000
Percent complete (dollars)	7.2		%	23.6		%	12.4		%
Months spent up to 10/23/03	12			12			12
Estimated months to complete	24			12			12
Percent complete (months)	33.3		%	50.0		%	50.0		%
Year revenues begin	2005			2004			2004
Regulatory approval received	No			No			No

The discount rates used in valuing the developed, core and in-process technologies ranged from 26% to 50%.  A higher discount rate was used to value the in-process research and development, due to the inherent uncertainties surrounding the successful development of the in-process projects, FDA approval, and the market acceptance of the products. The percentage of completion for each of the in-process projects was determined using costs incurred to date on each project as compared to the remaining estimated costs to be incurred to bring each of the projects to technological feasibility.

The Company believes that the three in-process projects will reach technological feasibility.  However, because of the risks associated with the commercial viability of these products, there can be no assurance that these projects will actually achieve commercialization.  Such risks include the delay or failure to obtain the necessary regulatory approvals or the failure to achieve market acceptance.  As of March 21, 2005, we had received European approval to begin selling the steroid lead through one OEM partner, but had not yet obtained the necessary regulatory approvals to market the other products.  Updated information related to these three projects is summarized below:

Status On December 31, 2004
	Leads				Tool			Adaptor
Costs incurred as of 12/31/04	$	1,038,000			$	686,000		$		85,000
Estimated cost to complete	$		350,000		$	132,000		$	153,000
Percent complete (dollars)	74.8			%	83.9		%	35.7			%
Months spent up to 12/31/04	26				26			26
Estimated months to complete	9				7			7
Percent complete (months)	74.3			%	78.8		%	78.8			%
Year revenues begin	2005				2005			2005
Regulatory approval received	No				No			No

The scope of the adaptor project has been significantly reduced due to entering into an exclusive arrangement with one of the major CRM companies for IS-4 adaptors.

40

The intangible assets acquired in the acquisition, with the exception of goodwill and the in-process research and development, are being amortized on a straight line basis over their estimated lives ranging from 5 to 30 years (see Note 3).  For tax purposes these assets, including goodwill and in-process research and development, are deductible over a 15-year period.  This difference gives rise to deferred income taxes disclosed in Note 5.

The acquisition transaction had the following net effect on the accompanying 2003 consolidated statement of cash flows:

Fair value of net working capital acquired	$	2,743,387
Fair value of property and equipment acquired	1,733,300
Purchase price assigned to:
Goodwill	8,984,824
Identifiable intangibles	8,605,000
Stock issued in connection with acquisition, net of registration costs	(6,872,151		)
Warrants issued in connection with acquisition	(52,101		)
Accrued payment on acquisition	(3,929,949		)
Cash Purchase Price	$	11,212,310

The following unaudited pro forma summary represents the consolidated results of operations as if the BCI acquisition had occurred at the beginning of 2002 and excludes the write-off of the purchased in-process research and development.  This presentation does not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future.

Pro forma results for the years ended December 31:

	2003			2002
Net sales	$	27,574,422		$		22,088,095
Net income	$	1,259,854		$	1,820,647
Basic income per share	$		0.22	$	0.32
Diluted income per share	$		0.21	$	0.31

5.  INCOME TAXES

Significant components of the provisions (benefit) for income taxes are as follows:

	2004			2003			2002
Current:
Federal	$	(92,000	)	$	634,000		$	1,249,000
State	(10,000		)	95,000			160,000
	(102,000		)	729,000			1,409,000
Deferred	(597,000		)	(802,000		)	225,000
	$	(699,000	)	$	(73,000	)	$	1,634,000

The appropriate deferred tax effect of each type of temporary difference and carry-forward is:

41

	2004			2003
Deferred tax assets
Intangible assets	$	1,176,000		$	1,053,000
Vacation accrual	78,000			61,000
Inventory	65,000			68,000
Other	51,000			27,000
	$	1,370,000		$	1,209,000
Deferred tax liabilities
Property and equipment	(21,000		)	(457,000		)
Net deferred tax assets	$	1,349,000		$	752,000

The components giving rise to the net deferred income tax assets described above have been included in the accompanying balance sheets as follows:

	2004		2003
Current assets	$	194,000	$	156,000
Long-term assets	1,155,000		596,000
Net deferred tax assets	$	1,349,000	$	752,000

The total tax expense (benefit) differs from the expected tax expense (benefit), computed by applying the federal statutory rate to the Company’s net income (loss), as follows:

	2004			2003			2002
Expected income tax expense (benefit)	$	(678,000	)	$	83,000		$	1,572,000
State tax (benefit), net of federal affect	(65,000		)	4,000			170,000
Income tax credits	(40,000		)	(205,000		)	(148,000		)
Other, including non-deductible expenses	84,000			45,000			40,000
Net tax expense (benefit)	$	(699,000	)	$	(73,000	)	$	1,634,000

6.  FINANCING ARRANGEMENTS

On October 23, 2003, the Company entered into a financing arrangement with a bank that included a five-year term loan of $5,000,000, which was used to finance a portion of the BCI acquisition, and a $3,000,000 line of credit, $2,118,348 of which was available at December 31, 2004.  The borrowings are secured by substantially all Company assets and also contain financial covenants that must be met on a quarterly basis.  The agreement also prohibits the payment of dividends without the consent of the lender.  At December 31, 2004, the Company was in violation of certain of these covenants, due to the $2.8 million safety needle asset impairment charge (see Note 11).  These violations were subsequently waived by the bank on February 9, 2005.

The current line of credit bears interest at Libor plus 2.25% with no minimum interest due and expires on April 30, 2005.  The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. There was $881,652 borrowed under the agreement at December 31, 2004.

42

	2004
Term loan payable to bank in monthly installments of $83,334 plus interest at Libor plus 2.5% (3.67% at December 31, 2004), commencing November 2003 with balance due October 2008	$	3,833,324
Less current maturities	(1,000,000		)
	$	2,833,324

Approximate maturities of long-term debt at December 31, 2004, are as follows:

Years ending December 31,	Amount
2005	1,000,000
2006	1,000,000
2007	1,000,000
2008	833,324
Total	$	3,833,324

7.  LEASES

The Company is obligated under capital lease agreements for equipment.  Future minimum payments under capital leases are as follows:

Years ending December 31,	Amount
2005	$	69,499
2006	4,758
Total minimum lease payments	74,257
Less amounts representing interest imputed at 8.0% to 11.6%	3,364
Present value of net minimum lease payments	70,893
Less current installments	64,420
	$	6,473

Capital leases are secured by the equipment underlying the lease.  Equipment under capital leases as of December 31, 2004 and 2003 is as follows:

	2004			2003
Equipment	$	433,482		$	433,482
Less accumulated depreciation	(324,252		)	(258,173		)
	$	109,230		$	175,309

The Company has separate operating leases related to its two facilities.  The Delivery Systems facility is under an operating lease that expires June 30, 2006, related to 38,337 square feet with a monthly base rent of $17,525 per month thru May 2005 and increasing June 2005 to $19,276 per month to the end of the lease term.  The Lead Technologies facility is under an operating lease that expires December 31, 2008, related to 27,000 square feet with a monthly base rent of $14,189.  This rent expense is being recognized on a straight-line basis over the term of the lease.  Delivery Systems also leased an additional 4,740 square feet of warehouse space on February 4, 2005.  The lease begins March 1, 2005 and expires on July 30, 2006 with a monthly base rent of $1,876 per month.

The Company also leases certain office equipment under operating leases.  Approximate future minimum payments under operating leases are as follows:

43

Years ending December 31,	Amount
2005	457,000
2006	337,000
2007	191,000
2008	181,000
Total minimum lease payments	$	1,166,000

Total rent expense, including operating expenses and real estate taxes, was approximately $589,000, $299,000 and $237,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

8.  SHAREHOLDERS’ EQUITY

Warrants

In connection with the acquisition of the operating assets of BCI, the Company issued warrants to an agent to purchase 10,000 shares of common stock at an exercise price of $8.36 per share that expire on October 23, 2008.  The fair value of those warrants, estimated using the Black-Scholes Model, of approximately $52,000 was treated as a cost directly related to the acquisition (see Note 4).

Stock Options

The Company has four stock option plans: the 1989 Stock Option Incentive Plan, the 1992 Non-Qualified Plan, the 1999 Non-Employee Director and Medical Advisory Board Stock Option Plan and the 1999 Incentive Stock Option Plan.  Under the four plans, a maximum of 1,780,000 options were designated for grant at prices not less than 85% of fair market value at date of grant if a non-qualified option, or 100% if an incentive option as defined under the Internal Revenue Code.  Of these options, approximately 318,700 remain available for future grants.  Options vest over periods ranging from two years to five years and the options expire over periods ranging from six to fifteen years after the date of grant.

As discussed in Note 1 to the financial statements, the Company accounts for employee stock-based compensation under the APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The pro forma fair value of each option grant as presented in Note 1 to the financial statements is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2004, 2003 and 2002:

	2004			2003			2002
Expected dividend yield	0		%	0		%	0		%
Expected stock price volatility	26.7		%	44.1		%	61.3		%
Risk-free interest rate	3.3		%	3.2		%	4.0		%
Expected life of options (years)	6			6			6
Weighted average fair value of options granted	$	3.95		$	2.62		$	4.41

Additional information relating to all outstanding options as of December 31, 2004, 2003 and 2002 is as follows:

44

	2004				2003				2002
			Weighted Avg				Weighted Avg				Weighted Avg
	# Shares		Exercise Price		# Shares		Exercise Price		# Shares		Exercise Price
Options outstanding, beginning of year	802,700		$	7.07	542,900		$	5.34	428,900		$	2.69
Options granted	178,100		12.25		338,500		9.63		179,600		11.37
Options exercised	(52,273	)	3.31		(43,600	)	4.16		(36,600	)	2.29
Options surrendered	(94,300	)	11.04		(35,100	)	8.53		(29,000	)	7.41
Options outstanding, end of year	834,227		$	7.96	802,700		$	7.07	542,900		$	5.34
Options available for grant at end of year	318,700				390,500				204,100
Total reserved shares	1,152,927				1,193,200				747,000
Options exercisable, end of year	451,227		$	5.77	361,525		$	4.45	286,650		$	3.18

The following table summarizes information about stock options outstanding at December 31, 2004:

		Options Outstanding
		Weighted Avg			Options Exercisable
	Number	Remaining			Number
	Outstanding	Contractual Life	Weighed Avg		Exercisable at	Weighed Avg
Range of Exercise Prices	at 12/31/04	Years	Exercise Price		12/31/04	Exercise Price
$1.03 to $1.50	145,975	0.88	$	1.31	145,975	$	1.31
$1.51 to $4.63	139,450	1.86	3.03		108,250	2.83
$4.64 to $8.40	146,401	4.78	7.52		75,101	7.59
$8.41 to $10.37	36,001	4.77	9.09		12,501	8.99
$10.38 to $10.93	139,200	5.03	10.93		41,400	10.93
$10.94 to $18.65	227,200	4.54	13.56		68,000	14.29
$1.03 to $18.65	834,227	3.59	$	7.96	451,227	$	5.77

9.  SIGNIFICANT CUSTOMERS

The Company currently has three major customers that account for more than 10 percent of net sales.  The information below includes the customers’ percent of sales for the years ended December 31, 2004, 2003 and 2002 and the related percent of accounts receivable at December 31, 2004, 2003 and 2002.

	December 31, 2004				December 31, 2003				December 31, 2002
Customer	% Sales		% A/R		% Sales		% A/R		% Sales		% A/R
A	41	%	35	%	44	%	24	%	67	%	67	%
B	16	%	15	%	18	%	8	%	13	%	6	%
C	11	%	7	%	7	%	38	%	N/A		N/A

10.  RETIREMENT PLAN

The Company has a profit-sharing plan (the “Plan”) classified as a defined contribution plan under Section 401(k) of the Internal Revenue Code.  The Plan allows employees to defer a portion of their annual compensation through pre-tax contributions to the Plan.  The Company matches 25% of an employee’s contribution, up to a maximum of 5% of the employee’s compensation.  Matching contributions for the years ended December 31, 2004, 2003 and 2002 were $84,844, $52,732 and $42,852, respectively.  The Company’s Board of Directors may approve discretionary contributions to the Plan.  No discretionary contribution has been made since the Plan’s inception.

45

11.  LICENSE AGREEMENT AND SAFETY NEEDLE ASSET IMPAIRMENT

In August 2000, the Company entered into an agreement with Med-Design Corporation for the right to manufacture and distribute Med-Design’s center-line retractable Safety Seldinger Introducer Needle (the “Safety Needle”) exclusively in the venous access market.  The Safety Needle can be retracted into a protective sheath while still in the patient, greatly reducing the possibility of a needle stick after the needle has been in contact with a patient’s blood.

On September 7, 2001, the Company amended its Development and Licensing Agreement with Med-Design Corporation to obtain exclusive marketing rights to Med-Design’s center-line retractable safety needle technology for the arterial access market in exchange for a payment of $2,000,000.  The $2,000,000 payment to Med-Design consisted of $1,000,000 in cash and $1,000,000 worth of Enpath stock, or 68,027 shares based on the market value of the stock on the effective date of the amendment.  The cost of the licensing rights was being amortized over the estimated useful life of the exclusive rights acquired.

The agreement, as amended, requires the Company to pay Med-Design royalties on sales of the safety needle product.  The royalty fees range varies as a percent of the net sales price, depending on the sales volume achieved.  In order to maintain exclusive rights, the Company must pay royalties on an increasing number of safety needles each year per the Licensing Agreement.  The Company paid royalty fees of $79,000 and $169,000 and $160,000 for 2004, 2003 and 2002, respectively, of which $4,068 and $91,759 was included in current liabilities at December 31, 2004 and 2003, respectively.  Med-Design agreed to waive the minimum sales targets for 2004 and the Company is currently in discussions with Med-Design about either revising the Licensing Agreement or possibly selling the safety needle business to it.  The Company will continue to pay the royalty fee on needle sales in 2005, but does not anticipate that it will need to meet a minimum sales target in 2005 from a royalty standpoint in order to maintain exclusivity.

In order to meet anticipated demand, the Company invested $2,174,000 to purchase automated equipment and tooling to manufacture the safety needle.  The Company also entered into a supply agreement with Medtronic in October 2002 that set forth terms under which Medtronic would begin including the Company’s Axia RSN™ retractable guidewire introducer safety needle as part of Medtronic’s introducer kits in the venous access market.  In April 2003, the Company entered into a supply agreement with Cook Incorporated under which the Company appointed Cook the exclusive distributor of our single pack Axia RSN safety needles in the United States for the arterial market.

In June 2004, the Company held discussions with both Medtronic and Cook related to the lack of safety needle volume.  Both customers indicated that physicians have been slow to adopt the use of safety needles and they were skeptical as to the potential growth of this product in the near future.  Based on this information, the Company determined that the market’s slow adoption rate no longer justified the level of investment the Company had in safety needle intellectual property rights and equipment.

As a result, the Company hired an independent valuation firm to help determine the current fair value of the license agreement and safety needle equipment and tooling.  The Company’s management group put together revised estimates of future sales for the next four years and performed additional analysis.  With this information and the independent valuation firm’s assistance, management determined that the current fair value of the safety needle assets at June 30, 2004 was $315,000.  This resulted in a one-time impairment charge of approximately $2.8 million which was reflected in the results from operations for the three months ended June 30, 2004.  In addition, the Company re-evaluated the future estimated lives of the safety needle assets and the reduced costs basis of these assets is being depreciated using the straight-line method over the terms shown below.

						Preimpairment				June 30, 2004
	Original		Accumulated			Net Book Value		Impairment		Adjusted Book		Revised
Item	Cost		Depr/Amort			June 30, 2004		Write-Off		Value		Life (Years)
License Agreement	$	2,047,894	$	(668,613	)	$	1,379,280	$	1,264,280	$	115,000	2
Automation Equipment for Safety Needle	1,771,528		(221,312		)	1,550,215		1,370,215		180,000		5
Safety Needle Molds and Tooling	402,290		(207,586		)	194,704		174,704		20,000		2
Totals	$	4,221,712	$	(1,097,511	)	$	3,124,199	$	2,809,199	$	315,000

46

On December 31, 2004, the Company had inventory of safety needles totaling $308,000 which amounted to 6.6% of total inventory.  The Company continues to sell safety needles on a monthly basis and is reducing the inventory levels of these products.  The Company estimates that it has 12-18 months of safety needle inventory on hand and will not be purchasing any additional components or manufacturing any additional needles in the near future.

47

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

None

Item 9A Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, James D. Hartman, has reviewed the Company’s disclosure controls and procedures at the end of the period covered by this report.  Based upon this review, this officer believes that the Company’s disclosure controls and procedures are effective in ensuring that material information related to the Company is made known to him by others within the Company.

We are currently in the process of reviewing and formalizing our internal controls and procedures for financial reporting in accordance with Securities and Exchange Commission’s rules implementing the internal control reporting requirements included in Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).  Changes have been and will be made to our internal controls over financial reporting as a result of these efforts.  We are dedicating significant resources, including senior management time and effort, and incurring substantial costs in connection with our ongoing Section 404 assessment.  We are currently documenting and testing our internal controls and considering whether any improvements are necessary for maintaining an effective control environment at our Company.  The evaluation of our internal controls is being conducted under the direction of our senior management in consultation with an independent third party consulting firm.  In addition, our senior management is regularly discussing the results of our testing and any proposed improvements to our control environment with our Audit Committee.  We expect to assess our controls and procedures on a regular basis.  We will continue to work to improve our controls and procedures and to educate and train our employees on our existing controls and procedures in connection with our efforts to maintain an effective controls infrastructure at our Company.

Item 9B Other Information

At Enpath Compensation Committee and Board meetings held on February 16, 2005, the following persons were elected to the positions set forth below and their 2005 salaries and stock option grants were established as follows:

Name	Position	Salary		Stock Options Granted
James D. Hartman	Chief Executive Officer	$	215,000	10,000
Mark C. Kraus	Senior President and Chief Technology Officer	$	173,000	15,000
James L. Mellor	Senior Vice President of Marketing and Sales	$	168,000	15,000
James M. Reed	Vice President of Sales	$	117,000	3,000
Michael D. Erdmann	Secretary and Controller	$	115,000	4,000
James E. McCrave	Vice President of Administration	$	110,000	3,000

In addition, on that date the Compensation Committee and Board authorized the following payments under the Company’s salaried bonus plan based upon the Company’s overall performance plus the completion of certain agreed-upon goals in the Plan:  Mr. Hartman - $9,176; Mr. Kraus - $16,820, Mr. Mellor - $4,144; Mr. Reed - $14,000; Mr. Erdmann - $8,053; and Mr. McGrave - $2,681.

48

PART III

Item 10 Directors and Executive Officers of the Registrant

The information required by Item 10 concerning the executive officers and directors of the Company is incorporated herein by reference to the following sections of the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders to be held on April 28, 2005 (the “2005 Proxy Statement”), which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the close of the fiscal year for which this report is filed:

•Ownership of Voting Securities by Principal Holders and Management

•Proposal one– Election of Directors

•Nominees for Election to Board of Directors

•Audit Committee

•Executive Officers of the Company

•Section 16(a) Beneficial Ownership Reporting Compliance

•Corporate Governance and Board Matters – Code of Ethics and Business Conduct.

A copy of our Code of Ethics and Business Conduct is available by writing to our Investor Relations Department at:

Enpath Medical, Inc.

Investor Relations Department

15301 Highway 55 West

Plymouth, Minnesota 55447

investorrelations@enpathmed.com

Item 11 Executive Compensation

The information required by Item 11 is incorporated herein by reference to the section of the Company’s 2005 Proxy Statement titled “Executive Compensation and Other Information,” except that information under the subsections titled “Compensation Committee Report,” “Comparative Stock Performance” and “Compensation Committee Interlocks and Insider Participation in Compensation Decisions” is not incorporated by reference.

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to the section of the Company’s 2005 Proxy Statement titled “Security Ownership of Certain Beneficial Owners and Management – Summary Ownership Table.”

Item 13 Certain Relationships and Related Transactions

None

Item 14 Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference to the section of the Company’s 2005 Proxy Statement titled “Principal Accountant Fees and Services.”

49

PART IV

Item 15 Exhibits and Financial Statement Schedules

(a)  Documents Filed as Part of This Report

1.FINANCIAL STATEMENTS.  See Item 8 above.

2.FINANCIAL STATEMENT SCHEDULES:

Opinion on financial statement schedules

Schedule II – Valuation and Qualifying Accounts  

3.EXHIBITS.  See “Exhibit Index” on page following signatures.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

		Enpath Medical, Inc.
Date: March 22, 2005	By:	/s/ James D. Hartman
	Chairman, Chief Executive Officer and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

Name	Title	Date
/s/ James D. Hartman	Chairman, Chief Executive Officer and	March 22, 2005
	Chief Financial Officer
/s/ Thomas L. Auth	Director	March 22, 2005
/s/ Michael D. Dale	Director	March 22, 2005
/s/ Albert Emola	Director	March 22, 2005
// Trevor O. Jones	Director	March 22, 2005
/s/ Richard F. Sauter	Director	March 22, 2005

50

EXHIBIT INDEX

Exhibit #	Description
3.1	Articles of Incorporation of the Company.
3.2	By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended December 31, 2003).
*10.1	Employment Agreement dated February 19, 1996, between the Company and James D. Hartman (incorporated by reference to Exhibit 10.3 to the Form 10-KSB for the year ended December 31, 1995).
*10.2	Employment Agreement dated August 22, 2003 between the Company and James L. Mellor (incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended September 30, 2003).
*10.3	Enpath Medical, Inc. 1991 Non-Statutory Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-57944)).
*10.4	Enpath Medical, Inc. 1999 Incentive Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-109875).
*10.5	Enpath Medical, Inc. 1996 Non-Employee Director and Medical Advisory Board Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-57942)).
*10.6	Enpath Medical, Inc. 1999 Non-Employee Director and Medical Advisory Board Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No. 333-62560)).
**10.7	Supply Agreement, dated October 11, 2002, between the Company and Medtronic, Inc. (incorporated by reference to Exhibit 10.3 to the Form 10-QSB for the quarter ended September 30, 2002).
10.8	Lease Agreement, dated January 31, 2004, between the Company and Jagodzinski Properties for premises at 15301 Highway 55 West, Plymouth, Minnesota.
10.9	Lease agreement for premises at 7452 West 78th Street, Bloomington, Minnesota as amended and assigned thought October 23, 2003.
*10.10	Form of Incentive Stock Option Agreement.
*10.11	Form of Non-Employee Director Agreement.
10.12	Revolving Credit and Term Loan Agreement dated October 17, 2003 between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended September 30, 2003).
10.12.1	Letter Amendment No. 1 dated March 18, 2004, to the Revolving Credit and Term Loan Agreement dated as of October 17, 2003 between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.17 to the Form 10-K for the year ended December 31, 2003).
10.12.2	Letter Amendment No. 2 dated July 19, 2004, to the Revolving Credit and Term Loan Agreement dated as of October 17, 2003 between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2004).
10.12.3	Letter Amendment No. 3 dated October 13, 2004, to the Revolving Credit and Term Loan Agreement dated as of October 17, 2003 between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2004).
10.12.4	Letter Amendment No. 4 dated February 9, 2005, to the Revolving Credit and Term Loan Agreement dated as of October 17, 2003 between the Company and M&I Marshall & Ilsley Bank.
10.13	Term Promissory Note dated October 17, 2003 in favor of M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.5 to the Form 10-Q for the quarter ended September 30, 2003).
10.14	Revolving Promissory Note dated October 17, 2003 in favor of M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.6 to the Form 10-Q for the quarter ended September 30, 2003).
10.15	Security Agreement dated October 17, 2003 between the Company and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.7 to the Form 10-Q for the quarter ended September 30, 2003).

51

10.16	Third Party Security Agreement dated October 17, 2003 between the Company’s wholly owned subsidiary and M&I Marshall & Ilsley Bank (incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2003).
10.17	Asset Purchase Agreement among Medamicus, Inc., Medacquisition, Inc., BIOMEC Inc. and BIOMEC Cardiovascular Inc. dated as of July 21, 2003 (attached as Annex A to the Form S-4 Joint Proxy Statement/Prospectus, File No 333-108404.)
10.17.1	Amendment No 1 dated March 14, 2005 to Asset Purchase Agreement dated July 21, 2003.
10.18	Letter agreement dated March 15, 2005 between Enpath Medical Inc, BIOMEC, Inc and Biomec Technology, Inc.
21.1	The Company has no subsidiaries.
23.1	Consent of Independent Registered Public Accounting Firm.
31	Certification of principal executive and financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934).
32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350).

*Indicates a management contract or compensatory plan or arrangement

** Certain portions of this Exhibit have been deleted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 24b-2.  Spaces corresponding to the deleted portions are represented by brackets with asterisks.

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Enpath Medical, Inc.

Minneapolis, Minnesota

Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements of Enpath Medical, Inc. and subsidiary taken as a whole.  The consolidated supplemental schedule II is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not a part of the basic consolidated financial statements.  This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ McGLADREY & PULLEN, LLP

Minneapolis, Minnesota

January 18, 2005 (except for Note 6, as to

which the date is February 9, 2005)

53

Enpath Medical, Inc. and Subsidiary

Schedule II – Valuation and Qualifying Accounts

				Additions								Balance at
	Balance at			Charged to			Charged
	Beginning			Costs and			to Other					End of
Description	Of Period			Expenses			Accounts		Deductions			Period
Year ended December 31, 2002:
Accounts receivable allowances:
Allowance for doubtful accounts	$		21,944	$	38,056		$	0	$	0		$	60,000
Inventory allowance
Allowance for slow-moving inventory	$		91,100	$	12,000		$	0	$	44,201		$	58,899
Year ended December 31, 2003:
Accounts receivable allowances:							Note 1
Allowance for doubtful accounts	$		60,000	$	0		$	20,407	$	10,417		$	69,990
Inventory allowance							Note 1
Allowance for slow-moving inventory	$		58,899	$	24,321		$	72,175	$	0		$	155,395
Year ended December 31, 2004:
Accounts receivable allowances:
Allowance for doubtful accounts	$		69,990	$	0		$	0	$	1,384		$	68,606
Inventory allowance
Allowance for slow-moving inventory	$	155,395		$		0	$	0	$		31,413	$	123,982

Notes

1. Acquired in acquisition of BCI

54

EX-3.1

Exhibit 3.1

RESTATED ARTICLES OF INCORPORATION

OF

ENPATH MEDICAL, INC.

ARTICLE I

The name of this Corporation is Enpath Medical, Inc.

ARTICLE II

The registered office of this Corporation is located at 15301 Highway 55 West, Minneapolis, Minnesota 55447.

ARTICLE III

This Corporation is authorized to issue an aggregate total of 21,000,000 shares, 20,000,000 of which shall be designated Common Stock, having a par value of $.01 per share, and 1,000,000 of which shall be designated as Preferred Stock.

The Board of Directors of this Corporation shall have the power and authority, by resolution approved as required by law, to create and authorize the issuance of one or more classes or series of Preferred Stock, and to designate, consistent with these Articles of Incorporation, the number of shares of each class or series of Preferred Stock, and the rights, preferences and limitations of each such class or series (including, without limitation, voting power, dividend and liquidation rights, preferences and limitations, and conversion rights).

ARTICLE IV

No shareholder of this Corporation shall have any cumulative voting rights.

ARTICLE V

No shareholder of this Corporation shall have any preemptive rights to subscribe for, purchase or acquire any shares of the Corporation of any class, whether unissued or now or hereafter authorized, or any obligations or other securities convertible into or exchangeable for any such shares.

ARTICLE VI

Any action required or permitted to be taken at a meeting of the Board of Directors of this Corporation not needing approval by the shareholders under Minnesota Statutes, Chapter 302A, may be taken by written action signed by the number of directors that would be required to take such action at a meeting of the Board of Directors at which all directors are present.

ARTICLE VII

No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this Article shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director’s duty of loyalty to the Corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under section 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction from which the director derived an improper personal benefit, or (v) for any act or omission occurring prior to the effective date of this Article.  No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

As amended through March 15, 2005

EX-10.8

Exhibit 10.8

LEASE AGREEMENT

THIS LEASE AGREEMENT, made this 31^st day of January, 2004 by and between JAMES JAGODZINSKI d/b/a JAGODZINSKI PROPERTIES (“Landlord”) and Enpath Medical, Inc.; a Minnesota corporation (“Tenant”);

WITNESSETH THAT:

1.DEFINITIONS. For purposes of this Lease Agreement the following words or phrases shall have the following meanings:

“Building”.  That certain office/warehouse building situated at the following described address: 15301 Highway 55 West, Plymouth, Minnesota 55447 (the “Building”).

“Leased Premises”. That portion of the Building containing approximately 38,728 square feet measured from the exterior surface of the exterior walls to the center of the interior walls.

“Rentable Area.” Approximately 38,728 square feet, being the sum of the square footage contained in the Leased Premises including Tenant’s proportionate share of the common areas such as lobbies, entry ways, toilets, hallways, loading docks and mechanical rooms that Tenant shares in common with other tenants

“Tenant’s Percentage.” Eighty–four and seven tenths percent (84.7%) being the percentage of the total area of the Building contained within the Rentable Area.

2.DEMISE AND PREMISES.  Subject to the terms and conditions hereof, Landlord leases to Tenant, and Tenant hires and takes of and from Landlord the Leased Premises.

3.TERM.  The Term of this Lease shall commence on February 1, 2004, and shall terminate on June 31, 2006, unless earlier terminated as hereinafter provided.

4.BASE RENT.  Tenant agrees to pay Landlord, at 15301 Highway 55 West, Plymouth, Minnesota 55447, or such other place as Landlord may from time to time designate in writing, an initial monthly base rent of $17,524.42 per month, subject to adjustment as provided in paragraph 28 below, payable in advance on the first day of each month during the term of this Lease without demand therefore or deduction or set off.  In the event the commencement date of this Lease falls on a date other than the first day of the month, the rent payable for the first month shall be adjusted on a pro rata basis and shall be payable on or before the commencement date.

5.ADDITIONAL RENT.  Tenant agrees to pay to Landlord as additional rent hereunder payable at the same time and location as the base rent, the following:

(a)Taxes and Special Assessments.  Tenant’s Percentage is eighty four and seven tenths of a   percent (84.7%) of combined annual real estate taxes and installments of special assessments payable during the Term (amortized over the longest time period)  with respect to the Building and the real estate upon which it is situated (whether or not the same are levied or pending) on the date hereof.  Tenant will receive a copy of annual tax and special assessment statement and Tenant shall pay its pro rata share on a monthly basis concurrent with Base Rental Payments. Real estate taxes are currently estimated to $1.86 per square foot. Landlord will notify Tenant within (30) days of Landlords initial receipt of the final annual tax statement if Tenant’s obligation hereunder increases or decreases from the estimate of $1.86 per square foot.

(b)Common Area Maintenance (Operating Expenses) – The Tenant’s Percentage is eighty-four and seven tenths percent (84.7%) of the total operating expenses for the Building and the real estate upon which it is situated.  For purposes of this Lease, operating expenses shall mean all

costs which, for federal tax purposes, may be expensed rather than capitalized and which Landlord will incur in owning, maintaining and operating the Building and real estate including, but not by way of limitation, property and liability insurance for Building, charges for cutting, fertilizing and maintaining grass, shrubbery and trees, roofs, downspouts, sewer, water; management fees,  building insurance, scheduled HVAC maintenance, sprinkler alarm system, plumbing and other utility service (gas and electric) to the Building and grounds payable by Landlord; cleaning, maintaining, repairing, resurfacing and snow removal of driveways and parking areas; lighting, sodding, planting, operating and policing the grounds.  Operating expenses shall not include principal payments on any mortgage or encumbrance on the Building or real estate.  Currently, operating expenses and common area maintenance charges are approximately $.80 per square foot. This rate will be fixed for the entire Term. Common area maintenance (operating expenses) charges shall be payable monthly concurrent with Base Rental Payments and shall be $30,982.40 or $2,581.86 per month.

6.SERVICE AND UTILITIES. Tenant agrees that it shall pay all costs incurred in operating maintaining and repairing all heating, ventilating, air conditioning, plumbing and other utility systems serving the Leased Premises in as good order and condition as they were at the outset of the Lease, provided that Landlord warrants the condition of and will repair or replace all HVAC, plumbing, electrical and other systems during the first thirty (30) days of the Lease in that area not previously occupied by Tenant prior to the commencement of this lease.  Tenant agrees to pay all charges for heat, air conditioning and utility services furnished to the Leased Premises during the term of this Lease including, but not by way of limitation, gas, electric, sewer, water, telephone, sprinkler alarm system and rubbish removal. Payments for utility services shall be paid by Tenant directly to the appropriate utility authorities, when due, if such utility authorities permit or accept direct payment.  If any HVAC unit should require replacement due to normal wear and tear or as caused by Acts of God, during the term of the Lease, Landlord shall pay for the cost of such replacement.  Landlord’s service technician shall determine replacement needs, but in any case in which repair estimates exceed 50% of replacement costs, the unit shall be replaced and the cost shall be Landlords.

All payments to be made by Tenant pursuant to this Section 6 shall be in addition to payments for repair, maintenance and utility services furnished to the grounds and common areas and payable by Landlord which are included in the operating expenses to be paid by Tenant.  Landlord shall not be liable for failure to furnish, or for delay or suspension in furnishing, lighting, heat, air conditioning, water service or other utilities if such failure or suspension is caused by breakdown, maintenance, repairs, strikes, scarcity of labor or materials, acts of third parties or causes beyond Landlord’s control.

7.USE OF PREMISES. Tenant agrees that it will use and occupy the Leased Premises solely for office/warehouse and processing purposes. Tenant will not use or occupy the Leased Premises for any unlawful purpose and will comply with all future laws, ordinances, regulations and orders of all governmental units having jurisdiction over the Leased Premises. (the “Laws”) Landlord covenants to the best of his knowledge that the Leased Premises complies with all past and present laws. Tenant shall not cause or permit any unusual noise, odors or nuisance in or about the Leased Premises and the Building and grounds nor shall Tenant permit any debris, property or merchandise of Tenant, its officers, employees or agents to be placed or left upon the grounds.  Tenant, its officers and employees shall observe all reasonable rules and regulations adopted by Landlord for the general safety, comfort and convenience of Landlord, Tenant and other Tenants including the reasonable assignment of parking spaces for the exclusive use of Tenant or other tenants of Landlord in the Building.  Landlord disclaims any warranty that the premises are suitable for Tenant’s use and Tenant acknowledges that it has had full opportunity to make its own determination in this regard.

Tenant warrants that the operation of its business will not be harmful to the Building or the mechanical equipment within the Building and Tenant shall be liable in the event of damage arising from such harmful operation.  In the event Landlord’s insurance premiums are increased above the standard building rate as a result of Tenant’s use of the Leased Premises, Tenant will pay to Landlord as additional rent the amount of such increase.

In the event Tenant shall cause or permit any unusual noise, odor or nuisance or the storage of any debris, property or merchandise of Tenant, its officers, employees or agents, in or about the Leased Premises, Building or grounds in violation of the terms of this Section 7, and has not corrected the condition within a reasonable time after written notice from the Landlord of the violation, Landlord will be entitled to take any steps it deems reasonably necessary to correct or remove such violation and Tenant shall pay Landlord, as additional rent hereunder, all costs and expenses incurred in such correction or removal.

8.ASSIGNMENT AND SUBLETTING. Tenant will not assign, transfer, mortgage or encumber its interest in this Lease, nor sublet, rent, nor permit occupancy or use of the Leased Premises, or any part thereof by any third party, nor shall any assignment or transfer of this Lease be effectuated by operation of law or otherwise, without in each such case obtaining the prior written consent of Landlord.  Landlord’s consent will not be unreasonably withheld.  Tenant shall seek such consent of Landlord by a written request, setting forth such information as Landlord may deem necessary.  The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from the terms of any covenant or obligation under this Lease, nor shall the collection or acceptance of rent from any transferee under an assignment constitute an acceptance of the assignment or a waiver or release of Tenant from any covenant or obligation contained in this Lease, nor shall any assignment be construed to relieve Tenant from the requirement of obtaining the consent in writing of Landlord of any further assignment or subletting.  No assignment or sublease or other transfer of this Lease shall be effective unless the assignee, sub-lessee or transferee shall at the time of such assignment, sublease or transfer, assume in writing, all of the terms, covenants and conditions of this Lease to be performed by Tenant. A merger, consolidation or sale of substantially all of the assets of Tenant shall not constitute an assignment hereunder.

Whether or not Landlord has consented to an assignment or sublease, Tenant shall pay directly to Landlord the amount by which the rent or other payments received by Tenant pursuant to such assignment or sublease exceeds, in any month, the base rent and additional rent payable by Tenant to Landlord hereunder (excluding Tenants reletting expenses).  Should the Tenant improve its space (at its own expense) which is then assigned or subleased to a third party at a rental rate higher than Tenant is paying Landlord under this lease or any future lease or extension of this lease, Tenant shall have the right to keep the difference between rent it pays to Landlord and rent it collects from the third party until tenants expense for improvements are amortized.  Tenant shall be allowed to add interest at prime rate plus two (2) percent to its cost of improvements on behalf of such third party.  Interest rate shall be prime rate plus 2% (two percent) set on the date of first day of construction of said improvements.

9.SUBORDINATION.  Tenant agrees that this Lease is subject and subordinate to the lien of all first mortgages which may now or hereafter encumber the Building or real estate and to all renewals, extensions, modifications or re-financings thereof.  Tenant shall, at Landlord’s request, promptly execute any reasonable certificate or other document requested by any first mortgagee.  Tenant agrees that in the event that any proceedings are brought for the foreclosure of any first mortgage, Tenant shall attorn to the purchaser, at such foreclosure sale, if requested to do so by such purchaser and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event that any such foreclosure proceeding is prosecuted or completed.  Notwithstanding anything to the contrary in this Lease, this Lease shall remain in full force and effect and the mortgagee shall not disturb Tenant’s possession hereunder.

10.SALE OR MORTGAGE OF THE BUILDING.  In the event of a sale of the Building, Landlord shall be relieved of all liability under this Lease accruing from and after the date of sale, provided Landlord has obtained the written agreement of its transferee or assignee to assume and carry out all of the covenants and obligations of the Landlord hereunder.

The Tenant agrees at any time and from time to time, upon not less than ten (10) days prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that the Lease is not modified (or if modified, stating the modification) that the Lease is in full force and affect, stating the dates to which the base rent and additional rents have been paid in advance and stating whether

the Landlord is in default hereunder.  It is intended that any such statement may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the Building or real estate.

11.TENANT INSURANCE.  Tenant agrees that it shall purchase in advance and carry the following insurance at its own expense: (a) fire and extended coverage insurance insuring Tenant’s personal property, furniture, trade fixtures, inventory, business record and leasehold improvements against loss from all insurable events for the full replacement value thereof; and (b) comprehensive liability insurance covering all acts of Tenant, its employees, agents, representatives and guests and insuring against all claims arising from injury to persons or damage to property in or about the Leased Premises, Building or real estate in a single limit amount of not less than $500,000.00 for personal injury or death and not less than $100,000.00 for property damage and fire legal liability.

All such insurance shall name Landlord as an additional insured and shall provide for thirty (30) days written notice to Landlord prior to cancellation, non-renewal or material modification.  Certificates of all such insurance shall be delivered to Landlord prior to occupancy of the premises by Tenant and at least thirty (30) days prior to the termination date of any existing policy.  If Tenant fails to produce such insurance after (10) days notice from Landlord, Landlord may obtain such insurance and Tenant shall pay to Landlord, upon demand, as additional rent the cost of securing such insurance. However, it is not Landlord’s duty nor obligation to secure such insurance for Tenant.

12.FIRE OR OTHER CASUALTY.  If the Leased Premises or the Building shall be damaged or destroyed by fire or other cause, without the fault or neglect of Tenant, Landlord may (taking into account the time necessary to effectuate a satisfactory settlement with any insurance company) undertake to repair such damage at its own expense, provided, however, in the event the Leased Premises or the Building are damaged by fire or other cause to such extent that the damage cannot be economically repaired within approximately one hundred twenty (120) days after the date of such damage, Landlord and Tenant shall have the option, by notice given to the other within (30) days of the date of the damage, to terminate this Lease as of the date of the damage.  This Lease shall, unless terminated pursuant to this Section 12, remain in full force and effect following such damage, and the Base Rent and additional rent, prorated to the extent that the Leased Premises are rendered untenantable, shall be equitably abated until such repairs are completed.

13.CONDEMNATION.  If the whole or any part of the Leased Premises shall be taken or condemned or purchased under threat of condemnation by any governmental authority, then the Term of this Lease shall cease and terminate as of the date when the interference with possession, enjoyment or value of the Leased Premises occurs and Tenant shall have no claim against the condemning authority, Landlord or otherwise for any portion of the amount that may be awarded as damages as a result of such taking or condemnation or for the value of any unexpired Term of this Lease, provided, however, that Landlord shall not be entitled to any award made to Tenant for loss of business or the fair value of and the cost of removal of stock and trade fixtures or any other award not otherwise available to Landlord.  In the event part of the Building, but not the Leased Premises, is condemned to the extent that it cannot be economically restored within approximately one hundred twenty (120) days, Landlord and Tenant shall have the option, by notice given to Tenant within thirty (30) days of the date of interference with possession, to terminate this Lease as of the date of such interference with possession.

14.ALTERATIONS AND SIGNS.  Tenant will not make or permit anyone to make any alterations, decorations, additions or improvements, structural or otherwise with a cost in excess of $5,000 in or to the Leased Premises or the Building without the prior written consent of Landlord, except as set forth in Section 29.  Any alterations shall be out of identical or improved building materials and construction methods as was used in original structure.  As a condition precedent to written consent of Landlord hereunder, Tenant agrees to obtain and deliver to Landlord such security against mechanic’s liens as Landlord shall reasonably request.  If any mechanic’s lien is filed against any part of the Building or real estate for work claimed to have been done for or labor or materials claimed to have been furnished to or authorized by Tenant, such mechanic’s lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant’s sole cost and expense, by the payment and satisfaction thereof or by filing any bond required or permitted by law.  Should Tenant fail to obtain the discharge of any such mechanic’s lien within ten (10)

days of the filing thereof, Landlord shall be entitled to obtain such discharge by whatever reasonable means Landlord deems expedient, and all costs incurred by Landlord in obtaining such discharge including reasonable attorneys fees, shall be paid by Tenant as additional rent hereunder.

Unless otherwise agreed, all alterations, decorations, additions or improvements in or to the Leased Premises or the Building made by either party shall immediately become the property of the Landlord and shall remain upon and be surrendered with the Leased Premises as a part thereof at the end of the term hereof without disturbance, molestation or injury; provided that if any and all damage resulting therefrom be repaired, Tenant shall have the right to remove at its own expense, prior to the expiration or termination of the term of this lease, all movable furniture, trade fixtures and manufacturing equipment installed in the Leased Premises.

Tenant shall have the right to remodel any existing monument signs at Tenant’s expense, subject to the approval by the City of Plymouth,and Landlord.  Tenant agrees not to place or maintain any sign, advertisement or notice on any part of the outside or the inside of the Building without Landlord’s prior written approval which shall not be unreasonably withheld.   Any such approved use shall be at the sole expense and cost of Tenant.

15.WAIVER OF SUBROGATION.  Notwithstanding any other provision in this Lease to the contrary, Landlord and Tenant hereby release one another, their respective officers, agents, partners and employees, from any and all liability or responsibility (to the other or anyone claiming through or under them by way of subrogation or otherwise) for any loss or damage covered by casualty insurance actually carried or coverable by the insurance required by Sections 5 (b) and 11 hereof.

16.WAIVER AND INDEMNITY.  Tenant agrees that Landlord, its officers, agents, partners and employees shall not be liable to Tenant or those claiming through or under Tenant for any injury, death or property damage occurring in, on or about the Leased Premises. Without limitation of the foregoing, Landlord shall not be liable to Tenant for any damage, compensation or claims arising from: loss or damage to books, records, files, money, securities, negotiable instruments or other papers in or about the Leased Premises; any fire, robbery, theft, or any other casualty or event; any leakage or bursting of pipes or water vessels or any roof or wall leakage, in any part or portion of the Leased Premises or the Building; water, rain, snow or underground water that may leak into, flow on, or flow from, any part of the Leased Premises.

Tenant agrees to indemnify and hold harmless Landlord from and against all claims of whatever nature arising or resulting from any act, omission or negligence of Tenant, its officers, employees and agents in or about the Leased Premises, Building or grounds or in connection with its use of the Leased Premises and to indemnify and hold harmless Landlord against all costs, expenses and liabilities, including reasonable attorney fees, incurred in connection with any such claim or proceeding brought thereon, and the defense thereof.

Landlord agrees that the Tenant, its officers, agents, partners and employees shall not be liable to Landlord or those claiming through or under Landlord for any injury, death or property damage occurring in, on or about the Building (exclusive of the Leased Premise).

Landlord agrees to indemnify and hold harmless Tenant from and against all claims of whatever nature arising or resulting from any act, omission or negligence of Landlord, its officers, employees and agents in or about the Building or grounds (exclusive of the Leased Premise) or in connection with its use of the Building or its failure to perform his obligation under this Lease, and to indemnify and hold harmless Tenant against all costs, expenses and liabilities, including reasonable attorney fees, incurred in connection with any such claim or proceeding brought thereon, and the defense thereof.

17.REPAIRS.  Tenant shall put, keep, repair and maintain the Leased Premises at all times in a good, neat, clean and sanitary condition and state of repair, reasonable wear and tear and casualty

excepted, free of debris and other similar obstructions, and shall repair and replace broken plate and window glass and damage caused by the negligence or intentional act of Tenant, its officers, employees and agents.  Tenant shall allow Landlord access to the Leased Premises during all reasonable hours to make repairs required to be made by Tenant which Tenant fails or refuses to make, and shall pay Landlord as additional rent the cost of such repairs made for Tenant by Landlord. Landlord shall make all necessary repairs to the outer walls, roof, and structural elements of the Building.  Landlord shall keep the plumbing, sewage, heating, air conditioning, electrical and ventilating systems of the Building outside the perimeter of the Leased Premises in good repair, ordinary wear and tear and casualty damage covered by insurance.   Landlord shall maintain and keep the common areas, grounds, driveways and parking areas in a safe, neat and clean condition.  Notwithstanding the foregoing, any cost of repairs or improvements to the Building, to the Leased Premises or to any common areas which are occasioned by the negligence or default of Tenant, its officers, employees, agents or invitees, or by requirements of law, ordinance or other governmental directive and which arise out of the nature of Tenant’s use and occupancy of the Leased Premises or the installations of Tenant in the Leased Premises shall be paid for by Tenant, as additional rent hereunder, immediately upon billing unless covered by Landlord’s Insurance.

18ENTRY AND INSPECTION.  Tenant shall permit Landlord, its agents or representatives to enter the Leased Premises to examine and inspect the same or, with Tenant’s written permission, to make such alterations, renovations or repairs to the Leased Premises or the Building as Landlord may deem necessary or desirable, or to exhibit the Leased Premises to prospective Tenants during the last ninety (90) days of the term of this Lease or to Prospective purchasers at any time during the term, upon reasonable notice during normal business hours. Landlord shall take such action as may be necessary to avoid any interruption or interference with Tenant’s use of the Leased Premise.

19.MAINTENANCE.  Tenant shall keep the Leased Premises, and the fixtures and equipment therein, in good, safe and sanitary condition, will suffer no waste or injury thereto and will, at the expiration or termination of the Term of this Lease, surrender the same with all walls, carpets and other improvements in the same order and condition as on the commencement date of this Lease, ordinary wear and tear and casualty damage covered by insurance excepted.

20.IMPROVEMENTS.  Tenant agrees that it has had ample opportunity to inspect the Leased Premises, and agrees to take the same on an “as is” basis and agrees that Landlord shall not be obligated to do any work in the Leased Premises.  The taking of possession of the Leased Premises or renewal of this Lease by Tenant shall be conclusive evidence that the Leased Premises and the Building are in good and satisfactory condition at the time of such taking of possession or renewal (subject to Paragraph 6).

21.WAIVER.  No waiver by either party of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of such covenant, condition, or agreement itself, or of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installations of rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent nor shall any endorsement or statement on any check or letter accompanying a check for payment of rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such rent, to terminate this Lease, to repossess the Leased Premises or to pursue any other remedy provided in this Lease.  No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of the Lease.

22.COVENANTS OF LANDLORD.  Landlord covenants that it has the right to make this Lease for the aforesaid and that there is no interest senior or superior to Tenant’s rights under this Lease. Landlord covenants that if Tenant shall pay the rent and perform all of the covenants, terms and conditions of this Lease to be performed by Tenant, Tenant shall, during the term of this Lease freely, peaceably and quietly occupy and enjoy the full possession of the Leased Premises without molestation or hindrance.

23.DEFAULT.

(a)Any one of the following events shall constitute an Event of Default:

(i)Tenant shall fail to pay any monthly installment of Base Rent or additional rent as herein provided within seven (7) days of when it is due;

(ii)Tenant shall violate or fail to perform any of the other terms, covenants or conditions of this Lease and such default shall continue for thirty (30) days after notice from Landlord; provided, however, if the violation or failure is such that additional time is necessary to effectuate the cure. Tenant will not be in default as long as it acts diligently towards such cure; and

(iii)          Tenant shall file or have filed against it any bankruptcy or other creditor’s action, or make an assignment for the benefit of its creditors.

(b)If any Event of Default shall have occurred and be continuing, Landlord may at its sole option by written notice to Tenant terminate this Lease.  Neither the passage of time after the occurrence of the Event of Default nor exercise by Landlord or any other remedy with regard to such Event of Default shall limit Landlord’s right under this Paragraph 23 (b).

(c)If an Event of Default shall have occurred and be continuing, whether or not Landlord elects to terminate this Lease, Landlord may enter upon and repossess the Leased Premises (said repossession being hereinafter referred to as “Repossession”) by force, summary proceedings, ejectment or otherwise, and may remove Tenant and all other persons and property therefrom.

(d)From time to time after Repossession of the Leased Premises, whether or not this Lease has been terminated, Landlord may attempt to relet the Leased Premises for the account of Tenant in the name of Landlord or otherwise, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and for such terms (which may include concessions or free rent) and for such uses as Landlord, in its sole and unqualified discretion, may determine, and may collect and receive the rent therefor.  Landlord shall not be responsible or liable for any failure to collect any rent due upon any such reletting.

(e)No termination of this Lease pursuant to paragraph 23 (b) and no Repossession of the Leased Premises pursuant to paragraph 23(c) or otherwise shall relieve Tenant of its liabilities and obligations under this Lease, all of which shall survive any such termination or Repossession.

In the event if any termination or Repossession, whether or not the Leased Premises shall have been relet, Tenant shall pay to Landlord the Base Rent and other sums and charges to be paid by Tenant up to the time of such termination or Repossession, and thereafter Tenant, until the end of what would have been the term in the absence of such termination or Repossession, shall pay to Landlord, as and for liquidated and agreed current damages for Tenant’s default, the equivalent of the amount of the Base Rent, additional rent and such other sums and charges which would be payable under this Lease by Tenant if this Lease were still in effect, less the net proceeds, if any, of any reletting effected pursuant to the provisions of paragraph 23(d) after deducting all of Landlord’s expenses in connection with such reletting, including without limitation, all repossession costs, brokerage and management commissions, operating expenses, legal expenses, reasonable attorneys’ fees, alteration costs, and expenses of preparation for such reletting.  Tenant shall pay such current damages to Landlord monthly on the days on which the

Base Rent would have been payable under this Lease if this Lease were still in effect, and Landlord shall be entitled to recover the same from Tenant on each such day.  At any time, after such termination or Repossession, whether or not Landlord shall have collected any current damages as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and agreed final damage for Tenant’s default, an amount equal to the then present worth of the excess of the Base Rent and other sums or charges reserved under this Lease from the day of such termination or Repossession for what would be the then unexpired term if the same had remained in effect, over the then net fair rental value of the Leased Premises for the same period.

(f)If an Event of Default shall have occurred and Landlord places in the hands of an attorney the enforcement of all or any of the terms, covenants, agreements or conditions of this Lease, the collection of any rent due or to become due, or the recovery of possession of the Leased Premises, Tenant agrees to reimburse Landlord, as additional rent hereunder, for Landlord’s reasonable attorneys fees, together with the actual cost of maintaining any action commenced in law or equity by said attorneys for the services of the attorneys, whether suit is actually filed or not.  Such reimbursement shall be payable within thirty (30) days of demand therefore.

(g)If Tenant is required to commence a court action to enforce its rights under this Lease, and Tenant prevails with such action, Landlord shall reimburse Tenant reasonable fees and costs, including attorney fees.

24.SURRENDER.  Tenant shall surrender the Leased Premises to Landlord upon termination of this Lease, whether such termination occurs at the end of the Term or sooner, together with all utility systems, improvements, replacements, alterations and decorations thereto and operating bulbs or tubes in all light fixtures, broom clean and in good order, condition and repair except for ordinary wear and tear.  Tenant shall remove promptly, upon request by Landlord, alterations, modifications and the like to the Leased Premises made by Tenant, or on behalf of Tenant, and not consented to by Landlord, and shall restore and repair damage caused by such removal.  Should Tenant fail to surrender the Leased Premises in the condition required by this section, Landlord shall be entitled to take whatever steps may, in Landlord’s sole discretion, be required to restore the Leased Premises to said condition and Tenant agrees that it shall pay to Landlord all costs incurred by Landlord in so restoring the premises.

25.HOLDING OVER. Should the Tenant continue to occupy the Leased Premises, or any part thereof, after the expiration or termination of the Term of this Lease whether with or against the consent of the Landlord, such Tenancy shall be from month to month and Tenant shall pay Landlord the additional rent set forth in Section 5 plus two times the Base Rent set forth in Section 4 during the entire period that Tenant continues to so occupy the Leased Premises after the term of this Lease.

26.LATE PAYMENT.  Other remedies for nonpayment of rent notwithstanding and without prejudice to such remedies, if Tenant fails to pay the monthly base rent, additional rent or any other payment due hereunder within the seven days immediately following the date on which such payment is due, Tenant shall pay the following amounts to Landlord as additional rent hereunder:

(a)Interest on all such past due payments at the rate of one and one-half % per month or at the maximum rate permitted by law whichever rate is lower.  Interest shall accrue from the date each such late payment became due and shall be payable to the date of payment thereof by Tenant;

(b)A service charge equal to the costs actually incurred by Landlord as a result of Tenant’s failure to make payments due hereunder including, but not limited to, reasonable attorney’s fees and costs incurred in the collection or attempted collection of such past due amounts.

27.HAZARDOUS SUBSTANCES/ENVIRONMENTAL REGUALTIONS.  Tenant warrants and represents that: (a) its use of the Leased Premises and the operation of its business thereon shall not violate any law, statute, ordinance, rule, regulation, order or determination of any governmental authority pertaining to hazardous substances, toxic waste, asbestos, health or the environment (hereinafter if sometimes collectively called “Environmental Regulations”) including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended by the Superfund Amendments and Reauthorization Act of 1986 (“SARA”) (collectively “CERCLA/SARA”) and the Resource Conservation and Recovery Act of 1976 (“RCRA”) and the Minnesota Environmental Response and Liability Act (“MERLA”); (b) Tenant has obtained and shall continue to maintain all permits, licenses or similar authorizations required by Environmental Regulations to conduct its business on the Leased Premises; and (c) Tenant’s use of the Leased Premises will not result in the disposal or release of any hazardous substance, toxic waste, asbestos or other substance regulated by Environmental Regulations on or about the Leased Premises, Building or the real property on which it is situated. In the event Tenant, its officers, agents or employees shall breach or fail to perform any of the warranties and representations contained in this Section: (a) upon notice from Landlord, Tenant shall remove from the Leased Premises, Building or real property on which it is situated, at Tenant’s sole expense, any hazardous substance, toxic waste, asbestos or other substance regulated by Environmental Regulations introduced by Tenant which is not in compliance with Environmental Regulations or this Lease; (b) Landlord and such Environmental Engineers as it may employ shall be entitled to enter upon the Leased Premises for the purpose of conducting such environmental audits or similar tests as Landlord may deem necessary and the cost and expense of such environmental audits or tests incurred by Landlord shall be paid by Tenant as additional rent hereunder with the next installment of base rent; and  (c) Tenant shall protect, indemnify and save Landlord harmless from all costs, fines, claims, demands, actions, proceedings, judgments and damages, including court costs and reasonable attorneys’ fees, resulting from or arising out of any breach or non-performance by Tenant of the representations and warranties contained in this Section including, without limitation, the cost of removal or remediation of any disposal, release or contamination on or about the Leased Premises, Building or the real property on which it is situated.  It is expressly acknowledged by Tenant that all of the terms, covenants and conditions of this paragraph pertaining to Environmental Regulations including, but not by way of limitation, the indemnifications herein provided shall survive the termination of this Lease.

Landlord warrants to Tenant, that in the best of his knowledge, the Building currently complies with all Environmental Regulations. Landlord shall protect, indemnify and save Tenant harmless from all costs, fines, claims, demands, actions, proceedings, judgments, and damages, including court costs and reasonable attorneys’ fees, resulting from or arising out of any breach or non-performance by Landlord of the representations and warranties contained in this Section including, without limitation, the cost of removal or remediation of any disposal, release or contamination on or about the Leased Premises, Building or the real property on which it is situated.

28.BASE RENT ADJUSTMENT.  On June 1, 2005, the monthly base rent will be adjusted from $17,524.42 per month to $19,276.86 per month through the remainder of the initial Term.

29.TENANT IMPROVEMENTS.  The prior lease agreement signed on the 31^st day of January, 2000 (the” Prior Lease”) contained a provision stating the following; Landlord will provide Tenant a remodeling allowance up to an amount not to exceed $150,000.  The allowance shall be used for, but not limited to:  (1) new paint, wallpaper, floor tile replacement and bathroom and office upgrades to Tenant’s existing space, and (2) upgrade of new space to Tenant’s specifications.  Tenant shall use contractors satisfactory to Landlord.  Tenant shall provide invoices of completed work to Landlord and Landlord shall promptly pay each invoice according to the terms of the invoice.

Tenant will continue to repay the disbursed amount of the remodeling allowance on the terms stated in the Prior Lease. The current unpaid balance is $85,984.59. Tenant will repay such amount together, with interest, at a rate of 8% per annum, amortized over the Term of the Lease, exclusive of renewal periods.  Monthly payments of $3,171.83 will be made concurrent with the payment of monthly rent. Tenant shall have the right to prepay the outstanding balance of this loan at any time.

30.EXPANSION SPACE.  If Tenant is not in default under the terms of this Lease, Tenant shall have an option to lease part or all of any space in the Building which is or becomes available during the Term.  Should such an expansion space become available for rent, Landlord or Landlord’s agent shall notify Tenant in writing and Tenant shall have thirty (30) days to notify Landlord or Landlord’s agent in writing whether or not it intends to exercise this option.  Should Tenant elect to exercise this option, Tenant and Landlord shall enter into a mutually acceptable agreement for the lease of the expansion space within thirty (30) days after Tenant’s notice of its intent to exercise the option.  Should Landlord and Tenant be unable to reach an agreement within that thirty (30) day period, Tenant’s option shall expire and become null and void.

31.OPTION TO RENEW.   If Tenant is not in default under the terms of this Lease, Landlord shall grant Tenant the option to renew the term of this Lease for three (3) successive one-year periods.  Tenant may exercise the options to extend the Term of this Lease by providing written notice to Landlord, one hundred eighty (180) days prior to the termination of the initial Term of this Lease or the then current extended Term of this Lease, as the case may be. The monthly rent may be adjusted by the increase or decrease in the Consumers Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for all Urban Consumers; Minneapolis-St. Paul Metropolitan Area, “all-Items Index”, herein referred to as “C.P.I.U.

32.TERMINATION OF PRIOR LEASE. The party hereby terminates the prior Lease.

33.MISCELLANEOUS.

(a)All notices or other communications hereunder shall be in writing and shall be hand delivered or sent by first class United States mail to the following address:

Landlord:

James Jagodzinski d/b/a Jagodzinski Properties

100 Gideon Point Road

Tonka Bay, Minnesota 55331

Tenant:

Enpath Medical, Inc.

15301 Highway 55 W

Plymouth, Minnesota 55447

Mailed notice shall be effective the day following the day of mailing;

(b)This Lease Agreement is made and executed in the State of Minnesota, and shall be constructed according to the laws of Minnesota;

(c)The invalidity or unenforceability of any provision of this agreement shall not affect or impair the validity of any other provisions; and section titles and captions in this Agreement are for convenience only and do not define, limit or construe the contents of such paragraphs;

(d)If more than one person or entity shall sign this Lease as Tenant, the obligations set forth herein shall be deemed joint and several obligations of each such party;

(e)This Lease shall be binding upon and inure to the benefit of the parties thereto and, subject to the restrictions and limitations herein contained, their respective heirs, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement as of the day and year so indicated below.

JAMES JAGODZINSKI d/b/a	ENPATH MEDICAL, INC.
JAGODZINSKI PROPERTIES
/s/ James Jagodzinski	By:   James D. Hartman
James Jagodzinski	Its President and Chief Executive Officer \

EX-10.9

Exhibit 10.9

ASSIGNMENT OF LEASE

This Assignment relates to the tenant’s interest under that certain lease (the “Lease”) originally entered into June 15, 1998, between Principal Mutual Life Insurance Company (“Principal”), as landlord, and R.F. Machining, Inc., a Minnesota corporation (“R.F. Machining”), as tenant, by which the premises therein (commonly described as 13,548 square feet of net rentable area located at 7448 West 78^th Street, Bloomington, Minnesota, and more particularly described in the Lease (the “Leased Premises”)) were demised for a term commencing on June 1, 1998, and ending on May 31, 2005. (The Lease was subsequently amended to increase the size of the Premises and to change the termination date of the Lease to December 31, 2008.) The landlord’s interest under the Lease is presently held by Lakeland Industrial, LLC, a Delaware limited liability company (“Landlord”), and the tenant’s interest under the Lease is presently held by BIOMEC Cardiovascular Inc., a Minnesota corporation (“Tenant”).

ASSIGNMENT BY TENANT

For value received, Tenant does hereby assign all of Tenant’s right, title and interest in and to the Lease from and after October 23, 2003 (the “Assignment Date”) unto Medacquisition, Inc., a Minnesota corporation (“Assignee”), the Leased Premises to be used and occupied for the purposes permitted under the Lease and for no other purpose, and, in consideration of Landlord’s consent to this assignment, does hereby guarantee the performance by Assignee, Assignee’s heirs, successors and assigns all covenants, agreements and conditions contained in the Lease, on the part of Tenant or Assignee to be performed.  It is expressly agreed that this assignment shall not release or relieve Tenant from any liability under the covenants of the Lease, and in the event of a failure of Assignee to perform any of

the promises, covenants or agreements contained in the Lease, this Assignment shall not be taken to modify or limit the obligation of Tenant, and Landlord may have such remedies against Tenant, including any confession of judgment for moneys due as by the Lease provided, in the same manner as if this assignment had not been made.

Dated:	October 23, 2003	Tenant:
		BIOMEC Cardiovascular Inc.
		By:		/s/ Vincent P. Owens
			Its:	President & CEO

ACCEPTANCE OF TENANT’S ASSIGNMENT

In consideration of the above assignment and of the written consent of Landlord thereto, Assignee (binding also Assignee’s heirs, successors and assigns) hereby assumes and agrees to make all payments and to perform and keep all promises, covenants and conditions and agreements of the Lease by Tenant to be made, kept and performed commencing on the Assignment Date, expressly adopting for Assignee the provisions of any confession of judgment clause contained in the Lease as though here restated.

It is further agreed that the taking by Landlord of any remedy as by confession of judgment against Tenant shall not preclude Landlord from the exercise of said remedy against Assignee, but Landlord may have the same remedy against Assignee, its heirs, successors or assigns simultaneously with that against Tenant, and Landlord shall be limited only and at all events to one satisfaction for any debts or obligations which may accrue by virtue of a breach of any covenants, promises or agreement contained in the Lease.

Dated:	October 23, 2003	Assignee:
		Medacquisition, Inc.
		By:		/s/ James D. Hartman
			Its:		CEO

CONSENT TO TENANT’S ASSIGNMENT

Landlord hereby consents to the assignment of the Lease by Tenant to Assignee in consideration of Tenant’s promises, covenants and agreements herein above expressed and upon the express condition that Tenant shall remain liable for the prompt payment of the rent reserved in the Lease and the keeping and performance of all conditions and covenants of the Lease by the Tenant to be kept and performed, and in consideration likewise of the covenants, promises and agreements of Assignee above set forth.  Landlord does not consent to any further assignment of the Lease nor to any subletting of the Leased Premises or any part thereof.

Dated:	, 2003	Landlord:
		Lakeland Industrial, LLC
		By:		/s/ [ILLEGIBLE]
			Its:		V.P.

idmsmpl:512659_3 (8-06-02) 9:14

SECOND AMENDMENT TO LEASE AGREEMENT

THIS SECOND AMENDMENT made this            day of August, 2002 by and between Lakeland Industrial, LLC, a Delaware limited liability company, as “Landlord”, and Biomec Cardiovascular, Inc, a Minnesota corporation, f/k/a InnoMedica, Inc., f/k/a R. F. Machining, Inc., as “Tenant”.

WITNESSETH

WHEREAS; Landlord’s predecessor-in-interest, Principal Life Insurance Company, an Iowa corporation, f/k/aPrincipal Mutual Life Insurance Company, c/o Principal Capital Management, LLC, a Delaware LLC, and Tenant entered into a certain Lease Agreement (the “Lease”) dated June 15, 1998, for certain premises consisting of approximately 13,548 square feet of net rentable area located at 7448 W 78^th Street, Bloomington, Minnesota (the “Premises”) and

WHEREAS; the Lease was amended pursuant to a certain First Amendment to Lease dated October 3, 2000, by and between Landlord and Tenant (the “First Amendment”); and

WHEREAS; Landlord has succeeded to all right, title and interest of Principal Life Insurance Company, an Iowa corporation, f/k/a Principal Mutual Life Insurance Company, c/o Principal Capital Management, LLC, a Delaware LLC, as Landlord under the Lease, and

WHEREAS; Tenant desires to extend and expand the term of the Lease and First Amendment and Landlord is willing to grant such extension and expansion, subject to the terms and provisions hereinafter set forth.

NOW THEREFORE, in consideration of the foregoing and for other consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows:

1.Expansion Space:  Beginning September 1, 2002, the Premises shall be expanded by an additional 5,931 square feet of adjacent space (“Expansion Space”).  The Leased Premises shall then total 24,928 square feet.

2.Expiration Date:  The Expiration Date of the Lease shall be modified from the last day of December, 2005 to the last day of December, 2008.

3.Extension of Term:  Commencing September 1, 2002 and continuing through December 31, 2008 Tenant shall pay the following monthly base rent for the Leased Premises:

Period	Monthly Base Rent		Rent/SF		Total Rent/period
September 1, 2002 – October 31, 2002	$	10,047.00	$	4.84	$	20,094.00
November 1, 2002 – December 31, 2003	$	13,151.00	$	6.33	$	197,265.00
January 1, 2004 – December 31, 2008	$	14,189.00	$	6.83	$	851,340.00

4.Additional Rent: Pursuant to Article 3 of the Lease, Tenant’s proportionate share of common area maintenance charges and real estate taxes for the property (“Additional Rent”) shall be increased from 25.62% to 33.62% effective November 1, 2002.

5.Utilities:Beginning September 1, 2002, Tenant shall be responsible to pay directly all gas and electric bills for services provided to the Expansion Space.

6.Improvement Allowance:Landlord agrees to provide an improvement reimbursement allowance up to $135,000 (the “TIA”) to be used specifically for improvements to the Premises to be constructed in accordance with plans and specifications prepared by Genesis Architecture dated July 9, 2002 and revised July 18, 2002 (the “Approved Plans”).  The TIA shall be applied against all costs and expenses incurred in connection with the design of the tenant improvements, the preparation of the Approved Plans and the construction of the tenant improvements.  Such tenant improvements include work performed by or at the request of Tenant prior to the date hereof; provided, however, that the TIA shall not be applied against the cost of any such work which was not performed in accordance with the Approved Plans.  All improvements in excess of the $135,000 allowance shall be completed at the Tenant’s sole cost and expense, and must receive the Landlord’s prior written approval, which approval shall not be unreasonably delayed, conditioned or denied.

Tenant, at Tenant’s sole cost and expense, shall cause any and all construction work at or about the Premises performed by or at the instance of Tenant, prior to the date hereof to comply in all respects with city ordinances, building codes and all other applicable laws.

The Landlord, prior to the commencement of the work, shall approve the general contractor, which approval shall not be unreasonably delayed, conditioned or denied.  The Landlord will disburse the improvement allowance directly to Tenant after the work has been completed and all lien waivers and a certificate of occupancy (or, if the City of Bloomington does not issue certificates of occupancy, written approval or “sign off” from responsible city officials as to compliance of the tenant improvements with city ordinances and codes) have been delivered to the Landlord evidencing payment of the improvements and compliance with applicable laws.

7.First Right of Offer as to Additional Space:

a.Provided Tenant is not in default hereunder, Landlord agrees to notify Tenant of the availability of leasable premises within the Building (“Available Tenant Space”) prior to marketing or leasing such available Tenant Space to third parties.  When Landlord determines that any tenant space is or will within six (6) months thereafter become available for leasing, Landlord shall provide written notice thereof to Tenant (a “Landlord’s Space Availability Notice”).  Thereafter, Landlord agrees to negotiate in good faith and exclusively with Tenant for a period of thirty (30) days after the giving of such Landlord Space Availability Notice.  If at the end of such thirty (30) day period, Landlord and Tenant have not reached agreement on the full and final terms of the lease of the Available Tenant Space, Landlord shall be free to pursue leasing opportunities for the Available Tenant Space with third parties.  Notwithstanding anything contained herein to the contrary, Landlord shall not be obligated to give Tenant the right of first offer with respect to any Available Tenant Space which becomes, or will become, available within the last twelve (12) calendar months of the term of this Lease, unless such term is extended, whether by exercise of any available extension options as provided in the Lease or by other written agreement between Landlord and Tenant.

b.If the Lease or Tenant’s right to possession of the Premises shall terminate in any manner whatsoever before Tenant shall exercise its rights under this Article 7, then immediately upon such termination this Article 7 and Tenant’s rights hereunder shall simultaneously terminate and become null and void.

c.The first right of offer set forth in Section 7(a) above hereby granted is personal to Biomec Cardiovascular, Inc., a Minnesota corporation (“Biomec”), and is not transferable, except to subsidiaries of Biomec or affiliates controlled by, or under common control with, Biomec.  In the event of an assignment or sublease (of more than 25% of the leased premises) of the Lease, the first right of offer shall automatically become null and void thereafter.

8.Signage: Tenant shall have the right to erect a sign on the side of the building.  Tenant must first have approval from the City of Bloomington and from the Landlord on the size and design of the sign, which Landlord approval shall not be unreasonably delayed, conditioned or denied.  Tenant agrees to remove said signage upon vacating the building and return the building to the condition it was in prior to the installation of the signage.

9.Roof: Landlord acknowledges that Tenant has experienced leakage of water by and to the premises in response, Landlord has, in addition to roof patching, engaged the services of John A. Dalsin & Son, Inc. (“Dalsin”), roofing contractor, to perform roof repairs pursuant to a certain proposal letter dated April 11, 2002, a copy of which has been provided to and reviewed by Tenant, which roof repairs have been completed.  In the event Tenant experiences further roof leakage, Tenant shall notify Landlord thereof and Landlord shall diligently seek to (i) determine the cause of such leaks, and (ii) engage the services of Dalsin or another roofing contractor to remedy the identified cause of such leaks.

10.Deletion of Articles: The parties agree that Article 38 (Termination Upon Demolition of Sale of Building) shall be and hereby is terminated and deemed removed from the Lease.

11.Brokers: Each of the parties represents and warrants that except as hereafter provided, there are no claims for brokerage commissions or finder’s fees (collectively “Leasing Commissions”) in connection with this Lease Amendment, and agrees to indemnify the other against, and hold it harmless from all liabilities arising from any such claim, including without limitation, the cost of attorney’s fees in connection therewith.  Landlord agrees to pay any Leasing Commission payable to Landlord’s broker, Welsh Companies on account of this Lease Amendment.  Landlord further agrees to pay a Leasing Commission to Tenant’s broker, Staubach Company pursuant to the Lease Proposal Letter dated May 9, 2002 from Welsh Companies to Mr. Mark Evenson.

12.Option to Renew: Landlord acknowledges that Tenant shall continue to have the right and option to renew pursuant to Article 42 of the Lease, except it shall be applicable with respect to the end of the Term as extended pursuant to Paragraph 2 above, or if an Extended Term becomes applicable pursuant to Article 7 above, then at the end of such Extended Term.

Except as hereinabove amended, all other terms, covenants and conditions of the Lease shall remain in full force and effect and the same are hereby ratified and confirmed.

IN WITNESS WHEREOF, Landlord and Tenant respectively have duly signed and sealed these presents as of the day and year first above written.

LANDLORD:		TENANT:
Lakeland Industrial, LLC a Delaware limited		Biomec Cardiovascular, Inc.,
liability company		a Minnesota corporation
By:	/s/ Dennis Doyle	By:	/s/ Vincent P. Owens
Dennis Doyle		Vincent Owens
Its:	V.P.	Its:	President & CEO

FIRST AMENDMENT TO LEASE

This First Amendment to Lease is made this 3rd day of October, 2000, by and between Principal Life Insurance Company (an Iowa corporation), f/k/a Principal Mutual Life Insurance Company, c/o Principal Capital Management, LLC, (a Delaware limited liability company), as “Landlord” and Biomec Cardiovascular, Inc. (a Minnesota corporation), f/k/a InnoMedica, Inc., f/k/a R.F. Machining, Inc., as “Tenant”.

W I T N E S S E T H :

WHEREAS, Landlord and Tenant have heretofore entered into a certain lease dated June 3, 1998 of a certain space consisting of approximately 13,548 square feet, located at 7448 West 78^th Street, Bloomington, Minnesota (the “Premises”), upon terms and conditions described in the Lease; and

WHEREAS, Landlord and Tenant desire to amend said Lease as described below:

NOW THEREFORE, in consideration of rents reserved and of the covenants and agreements set forth, it is agreed that the Lease be hereby amended from and after the date hereof as follows:

1.Expansion Space: Beginning January 1, 2001, the Premises shall be expanded by an additional 5,449 square feet (1,880 square feet of office and 3,569 square feet of warehouse) of adjacent space (“Expansion Space”).

2.Expiration Date: The Expiration Date of the Lease shall be modified from the last day of May, 2005 to the last day of December, 2005.

3.Base Rent: The Base Rent for the Premises shall be as follows:

Period	Monthly Base Rent		Total Per Period
January 1, 2001 thru and
Including December 31, 2003	$	10,047.00	$	361,692.00
January 1, 2004 thru and
Including December 31, 2005	$	10,839.00	$	260.136.00
	Total Base Rent		$	621,828.00

4.Additional Rent: Pursuant to Article 3 of the Lease, Tenant’s proportionate share of common area maintenance charges and real estate taxes for the property (“Additional Rent”) shall be increased from 18.27% to 25.62% effective January 1, 2001.

5.Utilities: Beginning January 1, 2001, Tenant shall be responsible to pay directly all gas and electric bills for services provided to the Expansion Space.

6.The Landlord agrees to provide an improvement allowance up to $54,000.00 to be used specifically for Landlord approved improvements to the Premises and the completion of any additional space planning or construction drawings.  The improvements to the Premises shall be substantially the same

Amendment to Lease

as those described on the preliminary space plan and construction bid shown in Exhibit “A”.  All improvements in excess of the $54,000.00 allowance shall be completed at the Tenant’s sole cost and expense, and must receive the Landlord’s prior written approval.

Any code items or upgrades which may be required by the City of Bloomington must be completed within the improvement allowance, or in the event the allowance is exceeded, at the Tenant’s expense.

The Landlord will disburse the improvement allowance after the work as been completed by a contractor which has been previously approved by the Landlord and all lien waivers have been delivered.

7.Contingency: This First Amendment to Lease is contingent upon the Landlord executing an acceptable lease termination with the existing tenant in the Expansion Space, Spectralytics, Inc., no later than October 31, 2000.  In the event such agreement is not executed on or before October 31, 2000, this agreement shall be null and void.

Except as is hereinabove set forth, all terms, provisions and covenants of the Lease shall remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Lease as of the date and year first above written.

TENANT:		LANDLORD:
BIOMEC CARDIOVASCULAR, INC.		PRINCIPAL LIFE INSURANCE
(A Minnesota corporation)		COMPANY
		(f/k/a Principal Mutual Life Ins. Co.)
By:	/s/ Vincent P. Owens	By:	Principal Capital Management, LLC
			A Delaware limited liability company
Its:	President & CEO	Its:	Authorized Signatory
		By:	/s/ Mark Scholz
			MARK SCHOLZ
		Its:	DIRECTOR

2

EXHIBIT “A”

09/07/00

WELSH CONSTRUCTION
PROJECT COST ESTIMATE	Requested By: Jeff Jiovanazzo
Innomedica Expansion	7456 W 78th Street
Preliminary Estimate

Proj. Mgr./Est Dave Laumb   Plan Date:

5200 Use S.F.

ACTIVITY CODE	DESCRIPTION	PRELIM ESTIMATE			COST PER SQ. FT.
0210	Demolition	$	864.00	• Remove door. VCT at restroom, remove cabinets.	$	0.17
0925	Carpentry Drywall	$	8,824.00	• New demising wall (104 if), 9' wall at new restrooms, install 2 doors.	$	1.70
0622	Millwork	$	0.00		$	0.00
0810/0870	Doors/ Frames /Hardware	$	3,025.00	• 2-3070 doors, 2- 8x8 overhead doors, lever latches.	$	0.58
0885	Ceramic Tile	$	2,100.00	• Standard grade floor and wall tile @ restrooms.	$	0.40
0950	Acoustical ceiling	$	1,882.00	• Replace existing ceiling tile.	$	0.36
0980	Flooring	$	4,216.00	• Carpet and wall base, $15.00/sy installed.	$	0.81
0990/0995	Painting / VWC/ SSV	$	3,429.00	• Paint office walls, ssv new doors.  Clean warehouse ceiling.  Paint ne wdemising wall only.	$	0.66
	Specialties
	Restroom Accessories	$	330.00	• Grab bars, accessories.	$	0.06
1530	Plumbing	$	5,800.00	• Plumbing rough in and concrete work.	$	1.12
1551	Sprinkler Adjust	$	830.00	• Add sprinklers as required.	$	0.16
1595	HVAC	$	7,150.00	• Add 3 unit heaters, separate warehouse distribution, gas piping.	$	1.38
1601	Electrical	$	4,679.00	• Relocate distribution for service separation, switches for new restroom 2 exit lights.	$	0.90
	General Conditions	$	5,631.00	• Cleanup, supervision, insurance, permits, dumpster.	$	1.08
	SUBTOTAL	$	48,760.00	NOTE:	$	9.38
1700	CM FEE	$	4,876.00	• Existing ceiling and floor coverings to remain.	$	0.94
				• No allowance for removal of existing warehouse equipment. To include air lines, exhaust piping or fans, electrical disconnects or panels.
				• Two separate electrical services are existing, metering to remain as is.
				• No allowance for ADA strobes or horns.
	TOTAL	$	53,636.00	• Existing VCT flooring to remain.	$	10.31

LANDLORD’S WAIVER AND AGREEMENT

WHEREAS, Principal Mutual Life Insurance Company, an Iowa corporation, (hereinafter “Landlord”), is the landlord and R.F. Machining, Inc., a Minnesota corporation, (hereinafter Tenant”), is the tenant by executed lease date June 1,1998 (hereinafter “Lease”) covering a portion or all of the real property located at 7452 West 78^th Street, Minneapolis, Minnesota 55439-2513, as more particularly described in Exhibit A hereto (hereinafter “Property”); and

WHEREAS, Riverside Bank (hereinafter “Lender”) has made or will make a certain loan or will sell subject to and be secured by a security interest in the personal property or equipment described in Exhibit B hereto (hereinafter “personal property”) which is now or about to be located on the real property.

NOW, THEREFORE, so long as the aforementioned Lease exists on the Property and the loan secured by Lender’s security interest in the personal property remain outstanding and in consideration of the mutual covenants and agreements herein contained, Landlord, Tenant and Lender hereby covenant and agree as follows:

1.Except as limited in this waiver and agreement, Landlord waives its interest in the personal property and agrees that the personal property shall not become part of the Property regardless of the manner in which the personal property may be attached or affixed to the Property provided that the Property is not materially damaged or altered thereby.  This waiver and agreement shall be effective only to the extent of the principal indebtedness owed to the Lender.  To the extent such principal indebtedness is less than the fair market value of the personal property, this waiver and agreement shall be void and in effective and Landlord’s lien or other interest in or to the Property shall control with respect to such excess.  Furthermore, full payment of the principal indebtedness shall render this waiver and agreement void and ineffective and not subject to renewal without a written agreement of the parties hereto.

2.Landlord agrees it will not prevent Lender or its designee upon written request to Landlord from entering upon the Property at all reasonable times to inspect or remove the personal property and Lender agrees to promptly and fully repair any resulting damage to the Property.  Upon written request and notification by Landlord of the termination of the Lease or the exercise of its rights to possession of the property by virtue thereof, Lender agrees to cause the personal property to be removed from the Property and any resulting damage to the Property to be promptly repaired.  Lender further agrees to pay Landlord a per diem fee based upon the average monthly rental provided for in the Lease for each day that Lender is in possession of the Property after termination of the Lease for purposes of removing the personal property.  Within thirty (30) days after written request and notice to Lender, if the personal property has not been removed and Lender is not prohibited from removing its because of bankruptcy or other legal proceedings, Landlord may remove the personal property and repair any resulting damage to the Property, at Lender’s expense, wholly without liability to Lender for any damage to the personal property or impairment of Lender’s security interest.

3.All requests, notices or service provided for or permitted to be given or made pursuant to this waiver and agreement shall be deemed to have been properly given or made by depositing the same in the United States Mail, postage prepaid and registered or certified return receipt requested and addressed to the addresses set forth below, or to such other addresses as may from time to time be specified in writing by either party to the other:

RESA 63	BRAEMAR
	7424-7500 78TH STREET BLOOMINGTON, MN

If to Lender:	If to Tenant:
Riverside Bank	R.F. MACHINING
7760 France Aves.	7452 W 70TH STREET
Bloomington MN 55435	MINNEAPOLIS MN 55439

and to Landlord:

711 High Street

Des Moines IA 50392-1370

Attn: Commercial Real Estate Equities (RESA# 63)

4.Inno event shall Leasing Company/Lender cause to be recorded any financing statements, Uniform Commercial Code filings or their equivalents in connection with this Agreement which affect or otherwise impair title to Landlord’s fixtures and real or personal property located on the Property.

5.This waiver and agreement is binding upon and inures to the benefit of Landlord and Lender and their respective successors and assigns, and to no other person or entities, and shall become effective on the date it is fully executed and acknowledged by Landlord, Tenant and Lender and Landlord has been served with a fully executed and acknowledged copy.

Lender:			Landlord:
RIVERSIDE BANK			PRINCIPAL MUTUAL LIFE INS. CO.
By:	/s/ [ILLEGIBLE]		By:		/s/ Mark Scholz
					Mark Scholz
Its:	Vice President		Its:		Senior Regional Asset Manager
Date:		6-30-98	Date:			6/30/98
			Tenant:
			R.F. MACHINING, INC.
			By:	/s/ [ILLEGIBLE]
			Its:	CEO
			Date:			6-30-98

EXHIBIT “A”

EXHIBIT B

PERSONAL PROPERTY

Personal property shall include all corporate assets.

Notwithstanding anything in this Exhibit B to the contrary, personal property shall expressly exclude those fixtures not owned or acquired by Tenant and that are required solely for the operation of the building(s) located on the Property described in Exhibit A including, without limitation, the HVAC system, flooring, plumbing and electrical systems and other items of similar nature.

LEASE AGREEMENT

BY AND BETWEEN

THE PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, as LANDLORD

AND

R.F. MACHINING, INC., as TENANT

RESA 63	BRAEMAR
	7424-7500 78TH STREET
	BLOOMINGTON, MN

INDUSTRIAL

TABLE OF CONTENTS

1.	Demise
2.	Term
3.	Rent
4.	Permitted Use
5.	Operating Expenses
6.	Additional Rent
7.	Repairs and Maintenance
8.	Sorting and Separation of Refuse and Trash
9.	Hazardous Waste
10.	Insurance
11.	Damage or Restoration
12.	Indemnification
13.	Assignment and Subletting
14.	Care of Premises
15.	Alteration by Tenant
16.	Condemnation
17.	Subordination
18.	Access to Premises
19.	Rules and Regulations
20.	Covenants of Right to Lease
21.	Mechanic’s Liens
22.	Expiration of Lease and Surrender of Possession
23.	Default-Remedies

24.	Re-Entry by Landlord
25.	Additional Rights to Landlord
26.	Successors, Assigns and Liability
27.	Notices
28.	Mortgagee’s Approval
29.	Estoppel Certificates
30.	Miscellaneous
31.	Default Rate of Interest
32.	Exculpatory Provisions
33.	Mortgage Protection
34.	Reciprocal Covenant on Notification of ADA Violations
35.	Laws that Govern
36.	Financial Statements
37.	Relocation of Tenant
38.	Upon Demolition or Sale of Building
39.	Confidentiality
40.	Contingency
41.	Handicapped Parking
42.	Option to Renew

LEASE AGREEMENT

THIS LEASE AGREEMENT by and between The Principal Mutual Life Insurance Company, whose address for the purpose of this lease shall be 711 High Street, Des Moines, Iowa 50392, collectively hereinafter referred to as “Landlord”, and R.F. Machining, Inc. (a Minnesota corporation), whose address for the purpose of this lease (Lease) shall be 7448 West 78^th Street, Bloomington, Minnesota 55439, hereinafter referred to as “Tenant”.

IT IS AGREED AS FOLLOWS:

1.DEMISE.

Landlord does hereby lease to Tenant and Tenant hereby rents the premises (Premises) described as: 13,548 square feet of net rentable area consisting of approximately 5,135 square feet of office space and 8,413 square feet of warehouse space located at 7448 West 78^th Street, Bloomington, Minnesota which, more particularly, includes the space and Premises shown on the site plan attached hereto and marked Exhibit “A”.

Improvements.  Landlord shall prepare and furnish the drawings and specifications as needed for all improvements set forth in Exhibit “B”. which is attached hereto and made a part hereof.  The total cost for space planning, construction drawings, the actual construction and construction management is to be paid by Landlord up to a maximum amount of $500.00 (“the Allowance”).  In the event total costs exceed the Allowance, Tenant shall be responsible for paying to Landlord within 30 days of the lease commencement date, costs exceeding the Allowance or, at the sole option of Landlord, execute a lease amendment providing for an increase in Base Rent over the lease term equal to the costs that exceed the Allowance when amortized at N/A%.

2.TERM.

The term of this Lease shall be for a period of seven (7) years, commencing on the first day of June, 1998 and ending at midnight on the last day of May, 2005 (Lease Term).  Notwithstanding said commencement date, if for any reason Landlord cannot deliver possession of the leased Premises to the Tenant on or by June 1, 1998.  Tenant shall not be obligated to pay rent until possession of the Premises is tendered to Tenant.  In such event, the term of the Lease shall be extended so that the term remains eighty-four months.  If the leased Premises are delivered on a date other than the 1st day of the month, rent for that month shall be prorated and the term extended for the full term from the first day of the following month.  In the event that the delay of delivery of possession results from Tenant’s failure to perform work for which Tenant is responsible, or fails to furnish or approve, as agreed, the plans and specifications as provided above, or fails to make timely selections of materials, color choices or other matters for which Tenant is responsible, the rent shall, nonetheless, commence on the commencement date stated above.  If Tenant occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof and shall not advance the termination date, and Tenant shall pay rent for such period at the initial monthly rate set forth below.

1

3.RENT.

(A)Rent.  Tenant shall pay for the use and occupancy of the Premises a base rental sum (Rent) as follows:

Months	Monthly Rent		Annual Rent
1 - 12	$	6,353.00	$	76,236.00
13 - 24	$	6,793.00	$	81,516.00
25 - 36	$	6,793.00	$	81,516.00
37 - 48	$	6,793.00	$	81,516.00
49 - 60	$	7,358.00	$	88,296.00
61 - 72	$	7,358.00	$	88,296.00
73 - 84	$	7,358.00	$	88,296.00

Such Rent shall be payable on the first day of each month in advance without demand during the Lease Term.  Rent of any period during the Lease Term hereof which is less than one month shall be a pro-rata portion of the monthly installment.  Rent shall be payable in lawful money of the United States to Landlord at the address stated herein or to such other persons or at such other places as Landlord may designate in writing.

(B)Place of Payment.  All such rentals shall be paid to Landlord at c/o Welsh Companies, CM 9660. St. Paul, Minnesota 55170-9660  or at such place as Landlord may designate from time to time, in writing addressed to Tenant.

(C)Late Charge.  Tenant hereby acknowledges that late payment by Tenant of Rent or other sums due thereunder will cause Landlord to incur costs not contemplated by this Lease.  Therefore, if any installment of Rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount is due, Tenant shall pay to Landlord a late charge of six percent (6%) of such overdue amount.  Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default with respect to such overdue amount or prevent Landlord from exercising any other right or remedy available to Landlord.

(D)Receipt.  Receipt is hereby acknowledged of the sum of $6,353.00 in payment of the base monthly Rent for the first month of the Lease Term.

(E)Security Deposit.  Tenant shall deposit with Landlord upon execution hereof $15.000.00 as security for Tenant’s faithful performance of Tenant’s obligation hereunder.  If Tenant fails to pay Rent or other charges due hereunder or otherwise defaults with respect to any provision of the Lease, Landlord may use, apply or retain all or any portion of said deposit for the payment of any Rent or other charge in default or for the payment of any other sum to which Landlord may become obligated by reason of Tenant’s default, or to compensate Landlord for any loss or damage which Lessor may suffer thereby.  If Landlord so uses or applies all or any portion of said deposit, Tenant shall within ten (10) days after written demand therefor deposit cash with Landlord in an amount sufficient to restore said deposit to me full amount herein above stated and Tenant’s failure to do so shall be a material breach of this Lease.  If the monthly Rent shall, from time to time increase during the Lease Term, Tenant shall thereupon deposit with Landlord additional security deposit so that the amount of security deposit held by Landlord shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly Rent set forth in Paragraph 3A hereof.  Landlord shall not be required to keep said deposit separate from its general accounts.  If Tenant performs all of Tenant’s obligations hereunder, said deposit, or so much

2

thereof as has not theretofore been applied by Landlord shall be returned, without payment of interest or other increment for its use to Tenant (or at Landlord’s option, to the last assignee, if any, of Tenant’s interest hereunder) at the expiration of the Lease Term hereof, and after Tenant has vacated the Premises.  No trust relationship is created herein between Landlord and Tenant with respect to said Security Deposit.

Tenant hereby agrees not to look to any mortgagee as mortgagee, mortgagee-in-possession or successor in title to the Premises for accountability for any security deposit required by Landlord hereunder, unless said sums have actually been received by said mortgagee as security for Tenant’s performance of this Lease.  Landlord may deliver the funds deposited hereunder by Tenant to the purchaser of Landlord’s interest in the Premises, in the event that such interest is sold, and thereupon Landlord shall be discharged from any further liability with respect to said security deposit.

(F)Pro Rata Share.  Tenant’s proportionate share shall be the percentage which the square footage of the Premises bears to the total square footage of the following-described building(s): 13,548 square feet of 74,142 total square feet = 18.27%

(G)Guarantee.  The Landlord has required, as a condition of this Lease, execution of a Guarantee of Lease, shown as Exhibit C.

4.PERMITTED USE.

Tenant covenants that the Premises will be used as general office and warehouse (Permitted Use) together with the incidental activities of Tenant, its affiliated companies or other subsidiary companies and for no other use or purpose.  Tenant further covenants that the Premises will not be used or occupied for any unlawful purposes.  Tenant agrees to and shall use the Premises solely for the purpose of conducting the Permitted Use and for no other business or purpose.  Tenant also agrees not to conduct any catalogue, mail or telephone order sales in or from the Premises, except of merchandise which Tenant is permitted to sell “over the counter” in the Premises.  Tenant agrees to conduct Tenant’s business in the Premises under Tenant’s Trade Name, which Tenant represents that it has the right to use.  Tenant acknowledges that the Permitted Use is not a use granted exclusively to Tenant and that Landlord reserves the right to lease premises in the building to others for the same or a similar Permitted Use.  Tenant further acknowledges that it has received no written or oral inducements from Landlord or any of Landlord’s representatives concerning this Lease (other than as specifically set forth herein) or that Tenant will be granted any such exclusive rights.

5.OPERATING EXPENSES.

TAXES, UTILITIES, REPAIRS, MAINTENANCE AND REPLACEMENT

(1)Taxes

(a)The Landlord shall pay all taxes payable during the Lease Term before the same are delinquent.

(b)If in the future a tax or other charge on Rents shall be imposed by any governing body having the authority to impose such tax or charge, then such tax or charge shall likewise be the obligation of the Landlord.

3

(c)As used herein, the term “taxes” shall mean real estate taxes, assessments (whether they be general or special), sewer rents, rates and charges, transit and transit district taxes, taxes based upon the receipt of rent, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary (but not including income or franchise taxes or any other taxes imposed upon or measured by Landlord’s income or profits, except as provided herein), which may now or hereafter be levied, assessed or imposed against the Premises.

(2)Tenant shall be separately metered and pay all utility bills incurred for which the Tenant is not separately metered including but not limited to water, gas, electricity, fuel, light, heat and power bills.

(3)Landlord shall be responsible for providing the following: (a) trash removal for the building common areas; (b) any vendor services to the building common areas; (c) landscaping; (d) all labor costs and supply costs involved in the operation of the building; (e) all other services of any kind and nature which may be used in or upon the Premises (except as provided for elsewhere in this Lease); (f) management fees paid for the management of the Premises; (g) and the repair, maintenance and replacement of the building and improvements as follows: (i) the roof; (ii) all interior and exterior components of the building and improvements both structural or otherwise; (iii) parking lot, (iv) sidewalks, alleys and any and all access drives, including the removal of snow and ice therefrom; (v) heating and air conditioning equipment, lines and fixtures; (vi) plumbing equipment, lines and fixtures, including but not limited to fire sprinkler and fire control systems; (vii) electrical equipment, lines and fixtures; (viii) all ingress-egress doors; (ix) plate glass; (x) all utility lines and services; (xi) preventive maintenance to all the building heating and air conditioning systems; (xii) and any and all other repairs, maintenance and replacements to the building and improvements during the term of this Lease.

(4)Landlord shall be responsible for providing Property and Liability Insurance for the Premises.  Should Landlord choose to self-insure, the cost of maintaining such self insurance shall be considered an expense of the property.  In no event will the cost exceed the cost of maintaining first dollar coverage.

(5)Tenant, at Tenant’s sole expense, shall comply with all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county, and municipal authorities now in force or which may hereafter be in force, which shall impose any duty upon the Landlord or Tenant with respect to the use, occupation or alteration of the Premises.

(6)All items listed in this paragraph 5(1) through paragraph 5(5) shall hereinafter be referred to as “Operating Expenses.”

6.ADDITIONAL RENT.

It is understood that the Rent set forth in paragraph 3 of the Lease was negotiated in anticipation that the Tenant pays for a pro-rata share of the Operating Expenses not paid directly by Tenant, defined in paragraph 5 of the Lease.  Therefore, in order that Rent payable throughout the term of this Lease shall reflect such costs, Tenant shall pay its pro-rata share of the Operating Expenses defined in paragraph 5.  At the beginning of the Lease Term and within 60 days after the first day of each calendar year.  Landlord shall furnish to Tenant an estimate of Tenant’s

4

pro-rata share of Operating Expenses, not paid directly by Tenant, defined in Paragraph 5 for the ensuing calendar year.  Tenant shall pay to Landlord 1/12th of said estimate at the same time and place as the base rent is to be paid pursuant to paragraph 3, above.  Landlord will furnish a statement of the actual cost with respect to the reimbursable expenses no later than sixty (60) days following the calendar year-end including the year following the year in which the Lease terminates.  In the event that Landlord is, for any reason, unable to furnish the accounting for the prior year within the time specified above, the Landlord will furnish such accounting as soon thereafter as practicable with the same force and effect as the statement would have had if delivered within the time specified above.  Tenant will pay any deficiency to Landlord as shown by such statement within thirty (30) days after receipt of statement.  If the total amount paid by Tenant during any calendar year exceeds the actual amount of its share of the Operating Expenses due for such calendar year, the excess will be refunded by Landlord within thirty (30) days of the date of the statement.  Landlord will keep books and records showing the Operating Expenses in accordance with generally accepted accounting principles.  Upon five (5) business days notice, Tenant shall have the right to inspect the books and records at the office of the Landlord or its Manager.

7.REPAIRS AND MAINTENANCE

Notwithstanding anything to the contrary contained herein, the Tenant will keep, maintain and preserve the Premises in a first class condition.  The Tenant at its sole cost and expense will provide janitorial and window washing for the interior of the Premises.  When and if needed, at the Tenant’s sole cost and expense, the Tenant will make all interior repairs and replacements including but not limited to interior walls, doors and windows, floors, floor coverings, light bulbs, plumbing fixtures, and electrical fixtures.  The Tenant will also repair and replace at its sole cost and expense any broken windows and/or damage to the building or Premises caused by the negligence of the Tenant or its employees, agents, guests or invitees during the Lease Term hereof.  The above repairs, replacements, and/or services must be performed by an approved contractor of the Landlord.  Should Tenant fail to perform all interior repairs and replacements to Tenant’s Premises such repairs may be performed by the Landlord and charged to the Tenant at the Tenant’s sole cost and expense.  Tenant will comply with all ordinances of the City of Bloomington, rules and regulations of the Board of Health and the laws of the State of Minnesota.  The tenant is also responsible for compliance with all laws, rules and regulations of any governmental authority required of either the Landlord or the Tenant relative to the repair, maintenance and replacement in the Premises.

8.SORTING AND SEPARATION OF REFUSE AND TRASH.

(A)The Tenant covenants and agrees, as its sole cost and expense, to comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash.  The Tenant shall sort and separate waste products, garbage, refuge and trash into such categories as provided by law.  Each separately sorted category of waste products, garbage, refuse and trash shall be placed in separate receptacles reasonably approved by the Landlord.  Such separate receptacles may, at the Landlord’s option, be removed from the Premises in accordance with a collection schedule prescribed by law.

(B)The Landlord reserves the right to refuse to collect or accept from the Tenant any waste products, garbage, refuse or trash that is not separated and sorted as required by law, and to require the Tenant arrange for such collection at the Tenant’s sole cost and expense, utilizing a contractor satisfactory to the Landlord.  The Tenant shall pay all costs, expenses, fines, penalties or damages that may be imposed on the Landlord or the Tenant by reason of the Tenant’s failure to comply with the provisions of this paragraph 8(B), and, at the Tenant’s sole cost and expense, shall indemnify, defend and hold the Landlord

5

harmless (including legal fees and expenses) from and against any actions, claims and suits arising from such noncompliance, utilizing counsel reasonably satisfactory to the Landlord.

9.HAZARDOUS WASTE.

The term “Hazardous Substances”, as used in this lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the use and/or the removal of which is required or the use of which is restricted, prohibited or penalized by any “Environmental Law”, which term shall mean any federal, state or local law, ordinance or other statute of a governmental or quasi-governmental authority relating to pollution or protection of the environment.  Tenant hereby agrees that (A) no activity will be conducted on the Premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Tenant’s business activities (the “Permitted Activities”) provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Landlord; Tenant shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency; (B) the Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Tenant’s business (the “Permitted Materials”) provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Landlord; Tenant shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency; (C) no portion of the Premises will be used as a landfill or a dump; (D) Tenant will not install any underground tanks of any type; (E) Tenant will not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (F) Tenant will not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials described above, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws.  Landlord or Landlord’s representative shall have the right but not the obligation to enter the Premises for the purpose of inspecting the storage, use and disposal of Permitted Materials to ensure compliance with all Environmental Laws.  Should it be determined, in Landlord’s sole opinion, that said Permitted Materials are being improperly stored, used, or disposed of, then Tenant shall immediately take such corrective action as requested by Landlord.  Should Tenant fail to take such corrective action within 24 hours, Landlord shall have the right to perform such work and Tenant shall promptly reimburse Landlord for any and all costs associated with said work.  If at any time during or after the term of the Lease Term, the Premises are found to be so contaminated or subject to said conditions, Tenant shall diligently institute proper and thorough cleanup procedures at Tenant’s sole cost, and Tenant agrees to indemnify, defend and hold harmless Landlord, its lenders, any managing agents and leasing agents of the Premises, and their respective agents, partners, officers, directors and employees, from all claims, demands, actions, liabilities, costs, expenses, damages (actual or punitive) and obligations of any nature arising from or as a result of the use of the Premises by Tenant.  The foregoing indemnification and the responsibilities of Tenant shall survive the termination or expiration of this Lease.

During the Lease Term, Tenant shall promptly provide Landlord with copies of all summons, citations, directives, information inquiries or requests, notices of potential responsibility, notices of violation or deficiency, orders or decrees, claims, complaints, investigations, judgments, letters, notice of environmental liens, and other communications, written or oral, actual or threatened, from the United States Environmental Protection Agency, Occupational Safety and Health Administration, The State of Minnesota Environmental Protection Agency or other federal, state or local agency or authority, or any other entity or individual, concerning (i) any Hazardous Substance and the Premises; (ii) the imposition of any lien on the Premises; or (iii) any alleged violation of or responsibility under any Environmental Law.

6

10.INSURANCE.

(A)INSURANCE BY LANDLORD.

Landlord shall, during the Lease Term, procure and keep in force the following insurance, the cost of which may be deemed as additional Rent payable, by Tenant pursuant to Paragraph 5 or Paragraph 6:

(1)PROPERTY INSURANCE. “All Risk” property insurance, including, without limitation, coverage for earthquake and flood; and machinery (if applicable); sprinkler damage; vandalism; malicious mischief.  Such Insurance shall not cover Tenant’s equipment, trade fixtures, inventory, fixtures or personal property located on or in the Premises;

(2)LIABILITY INSURANCE.  Commercial general liability (lessor’s risk) insurance against any and all claims for bodily injury, death or property damage occurring in or about the Building or the Land.  Such insurance shall have a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence per location with a Two Million Dollar ($2,000,000) aggregate limit; and

(3)OTHER.  Such other insurance as Landlord deems necessary and prudent.

(B)INSURANCE BY TENANT.

Tenant shall, during the Lease Term, procure and keep in force the following insurance:

(1)Personal Property Insurance.  “All Risk” property insurance, including, without limitation, coverage for earthquake and flood; boiler and machinery (if applicable); sprinkler damage; vandalism; malicious mischief on all equipment, trade fixtures, inventory, fixtures and personal property located on or in the Premises, including fixtures hereinafter constructed or installed on the Premises.  Such insurance shall be in an amount equal to the full replacement cost of the aggregate of the foregoing and shall provide coverage comparable to the coverage in the standard ISO all risk form, when such form is supplemented with the coverages required above.

(2)Liability Insurance.  Commercial general liability insurance for the mutual benefit of Landlord and Tenant, against any and all claims for personal injury, death or property damage occurring in, or about the Premises (and Tenant’s operations on the Premises), or arising out of Tenant’s or Tenant’s agents’ use or occupancy of the Premises.  Such insurance shall have a combined single limit of not less than One Million Dollars ($1,000,000) per occurrence per location with Two Million Dollars ($2,000,000) aggregate limit.  Such insurance shall contain a cross-liability (severability of interests) clause and an extended (“broad form”) liability endorsement, including contractual coverage.  The minimum limited specified above are the minimum amounts required by Landlord, and may be revised by Landlord from time to time to meet changed circumstances, including without limitation to reflect (i)changes in the purchasing power of the dollar, (ii) changes indicated by the amount of plaintiff’s verdicts in personal injury actions in the State of Minnesota or (iii) changes consistent with the standards required by other landlords in the county in which the Premises are located.  Such liability insurance shall be primary and not contributing to any insurance available to Landlord, and Landlord’s insurance (if any) shall be in excess thereto.

7

(3)Other.  Such other insurance as required by law, including, without limitation, workers’ compensation insurance.

(4)Form of the Policies.  The policies required to be maintained by Tenant pursuant to Paragraphs 10(B)(1), (2), and (3) above shall be with companies rated A10 or better in Best Insurance Guide, licensed to do business in the State of Minnesota and domiciled in USA, on forms, with deductible amounts (if any), and loss payable clauses satisfactory to Landlord, shall include Landlord and the beneficiary or mortgagee of any deed of trust or mortgage encumbering the Premises as additional insureds, and shall provide that such parties may, although additional insureds, recover for any loss suffered by Tenant’s negligence.  Certified copies of policies or certificates of insurance shall be delivered to Landlord prior to the Commencement Date; a new policy or certificates shall be delivered to Landlord at least thirty (30) days prior to the expiration date of the old policy.  Tenant shall have the right to provide insurance coverage which it is obligated to carry pursuant to the terms hereof in a blanket policy, provided such blanket policy expressly affords coverage to the Premises and to Tenant as required by this Lease.  Tenant shall obtain a written obligation on the part of Tenant’s insurer(s) to notify Landlord and any beneficiary or mortgagee of a deed of trust or mortgage encumbering the Premises in writing of any delinquency in premium payments and at least thirty (30) days prior to any cancellation or modification of any policy.

(5)An amount equal to five percent (5%) of the monthly minimum base Rental shall be charged as additional Rent for each month in which Tenant fails to deliver to Landlord a current certificate(s) evidencing that the insurance required hereunder is being maintained.  Each such policy and certificate shall provide for at least thirty (30) days prior written notice to Landlord in the event of cancellation.

(C)FAILURE BY TENANT TO OBTAIN INSURANCE.

If Tenant does not take out the insurance required pursuant to Paragraph 10(B) or keep the same in full force and effect, Landlord may, but shall not be obligated to take out the necessary insurance and pay the premium therefor, and Tenant shall repay to Landlord, as additional Rent, the amount so paid promptly upon demand.  In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional Rent, any and all reasonable expenses (including attorneys’ fees) and damages which Landlord may sustain by reason of the failure to Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon.

(D)SUBROGATION.

In the event of loss or damage to the Premises, each party will look first to any insurance in its favor before making any claim against the other party.  The Tenant will obtain for each policy in effect a provision permitting waiver of any claim against the Landlord for loss or damage within the scope of the insurance.  In addition, each party, its agents, employees or guests to the extent permitted, for itself and its insurers waives all such insured claims against the other party.

11.DAMAGE OR RESTORATION.

If, prior to or during the Lease Term, or any extension thereof, the Premises or the building of which the Premises may be a part, shall be so damaged or destroyed by fire or other casualty so as to render them untenantable for the

8

purposes set forth in Paragraph 4 hereof, then Landlord, at its sole option, shall have the right to cancel and terminate this Lease.  If not terminated, then Landlord shall repair and restore the Premises with all reasonable speed to substantially the same condition as immediately prior to such damage or destruction, and the Rent or a just and proportionate part thereof, according to Tenant’s ability to utilize the Premises in its damaged condition, shall be abated until the Premises shall have been repaired and restored by Landlord.  But if the Premises shall be so lightly damaged by fire or other casualty as not to be rendered untenantable, then Landlord agrees to repair the Premises with reasonable promptness and the rent accrued and accruing, shall not cease. “Untenantable” Premises shall be such as to not allow Tenant to transact and effectuate its operations in the ordinary course of business.

12.INDEMNIFICATION.

Tenant shall indemnify, hold harmless, and defend Landlord (except for Landlord’s gross negligence or willful misconduct) against all claims, losses or liabilities for injury or death to any person or for damage to or loss of use of any property arising out of any occurrence in, on or about the Building or land, if caused or contributed to by Tenant or Tenant’s agents, or arising out of any occurrence in, upon or at the Premises or on account of the use, condition, occupational safety or occupancy of the Premises.  It is the intent of the parties hereto that the indemnity contained in this Paragraph 12 shall not be limited or barred by reason of any negligence on the part of Landlord or Landlord’s agents, except as expressly provided herein.  Such indemnification shall include and apply to attorneys’ fees, investigation costs, and other costs actually incurred by Landlord.  Tenant shall further indemnify, defend and hold harmless Landlord from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant’s part to be performed under the terms of this Lease.  The provisions of this Paragraph 12 shall survive Lease Termination with respect to any damage, injury, death, breach or default occurring prior to such termination.  This Lease is made on the express conditions that Landlord shall not be liable for, or suffer loss by reason of, injury to person or property, from whatever cause, in any way connected with the condition, use, occupational safety or occupancy of the Premises specifically including, without limitation, any liability for injury to the person or property of Tenant or Tenant’s agents.

13.ASSIGNMENT AND SUBLETTING.

Tenant may assign, sublet or transfer this Lease to any person, firm or corporation with the written consent of Landlord which consent shall not be unreasonably withheld, provided, however, that no such assignment, sublease or transfer shall act as a release of Tenant from any of the obligations and agreements on its part to be kept and performed hereunder.  Any assignment, sublease or transfer without the prior written consent of Landlord shall be null and void at Landlord’s option.  Landlord’s approval of any subtenant or assignee is conditioned upon there being no additional compliance required with any laws, rules and regulations of any governmental authority required of either the Landlord or the Tenant and such approval shall create no responsibility or liability on the part of the Landlord for any non-compliance with laws, rules and regulations of any governmental authority.

Request for consent to assign Tenant’s interest or to sublease the Premises shall be accompanied by a statement setting forth the name of the prospective assignee or sublessee, the financial details of the assignment or sublease (i.e. the rental and security deposit), the term, other relevant information concerning the proposed assignee or sublessee.  Landlord shall have the right within ten (10) days after receipt of such written request from Tenant to (A) withhold consent to the assignment or sublease if the withholding of such consent is reasonable, or (B) consent to such sublease or Assignment, in which case any rent payable by the assignee or sublessee (including any lump sum of additional payment or other consideration for the assignment or sublease) which exceeds the rent payable by Tenant hereunder shall be shared fifty percent (50%) by Tenant and fifty percent (50%) by Landlord, or (C) terminate this Lease, effective as of the commencement date of the term of such sublease or the effective date of such assignment in which case Landlord shall have the right to enter into a direct Lease with such proposed assignee

9

or sublessee.  If Landlord elects to so terminate the Lease, then this Lease shall be canceled and terminated as of the effective date of the proposed assignment or the commencement date of the proposed sublease, as set forth in Tenant’s notice.

14.CARE OF PREMISES.

Tenant further covenants and agrees that during said Lease Term it will keep said Premises and every part thereof and all buildings at any time situated thereon in a clean and wholesome condition and generally that it will in all respects and at all times duly comply with all lawful health and police regulations and also that it will keep the improvements at any time situated upon the Premises safe, secure and comfortable to the lawful and valid requirements applicable thereto.

15.ALTERATION BY TENANT.

(A)Tenant is hereby given the right, at its sole cost and expense, at any time during the term hereof, to make any alterations or improvements to the interior of the demised premises which the Tenant may deem necessary or desirable for its purposes; provided, however, that no alterations or improvements shall be made without the written approval of the Landlord, which written approval shall not be unreasonably withheld.  Landlord’s approval of any plans, specifications or work drawings shall create no responsibility or liability on the part of the Landlord for their completeness, design sufficiency or compliance with any laws, rules and regulations of governmental agencies or authorities.

(B)All work herein permitted shall be done and completed by the Tenant in a good and workmanlike manner and in compliance with all requirements of law and of governmental rules and regulations.  Tenant agrees to indemnify the Landlord against all mechanics’ or other liens arising out of any of such work, and also against any and all claims for damages or injury which may occur during the course of any such work.  The Landlord agrees to join with the Tenant in applying for all permits necessary to be secured from governmental authorities and to promptly execute such consents as such authorities may require in connection with any of the foregoing work.

(C)Landlord may require that Tenant remove any or all said alterations, improvements or additions at the expiration of the term, and restore the Premises to their prior condition.  Unless Landlord requires their removal, all alterations, additions and improvements which may be made on the Premises, shall become the property of Landlord and remain upon and be surrendered with the Premises at the expiration of the Lease Term.  Tenant shall repair any damage to the Premises caused by the installation or removal of Tenant’s trade fixtures, furnishings and equipment.

16.CONDEMNATION.

(A)If the leased Premises shall be wholly taken by exercise of right of eminent domain, then this Lease shall terminate from the day the possession of the whole of the Premises shall be required under the exercise of such power of eminent domain.  Any award for the taking of all or part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of the Landlord.  Tenant reserves such separate rights as it may have against the condemning authority to claim damages for loss of its trade fixtures and the cost of removal and relocation expenses.

(B)If such part of the building or buildings in which Tenant’s business is operated shall be condemned so as to the substantially and materially hamper the operation of Tenant’s business, then the Rent payable

10

hereunder shall be reduced in the proportion that the remaining area of the Premises bears to the original area of the entire Premises leased hereunder.  If the parties are unable to agree upon the amount of the reduction in Rent within seven (7) days from the date the Tenant’s business is substantially and materially hampered, then it shall be arrived at by arbitration, each party to select an arbitrator and if the two arbitrators are unable to agree they shall select a third arbitrator and the three arbitrators so selected shall determine the amount of such reasonable reduction.  It is agreed that the findings of the arbitrators shall be binding upon the parties.

17.SUBORDINATION.

Tenant shall, upon the written request of Landlord, agree to the subordination of this Lease and the lien hereof to the lien of any present or future mortgage upon the premises irrespective of the time of execution or the time of recording of any such mortgage.  In the event of subordination of this Lease, Landlord will attempt to obtain from the holder of any such mortgage, a written agreement with Tenant to the effect that (A) in the event of a foreclosure or other action taken under the mortgage by the holder thereof, this Lease and the rights of Tenant hereunder shall not be disturbed but shall continue in full force and effect so long as Tenant shall not be in default hereunder; and (B) such holder will agree that in the event it or any successor assign shall be in possession of the premises, that so long as Tenant shall observe and perform all of the obligations of Tenant to be performed pursuant to this Lease, such Mortgagee will perform all obligations of Landlord required to be performed under this Lease.  The word “Mortgage” as used herein includes mortgages, deeds of trust and any sale-leaseback transactions, or other similar instruments, and modifications, extensions, renewals, and replacements thereof, and any and all advances thereunder.

18.ACCESS TO PREMISES

Landlord and its authorized agents shall have free access to said Premises at any and all reasonable times to inspect the same and for the purposes pertaining to the rights of the Landlord.

19.RULES AND REGULATIONS.

Tenant agrees to comply with all rules and regulations promulgated by Landlord concerning the use and enjoyment of the Premises.  Among other things, the rules and regulations specifically prohibit outdoor storage.

20.COVENANTS OF RIGHT TO LEASE.

Landlord covenants that it has good and sufficient right to enter into this Lease and that they alone have full right to lease the Premises for the Lease Term aforesaid.  Landlord further covenants that upon performing the terms and obligations of Tenant under this Lease, Tenant will have quite enjoyment throughout the Lease Term and any renewal or extension thereof.

21.MECHANIC’S LIENS.

Neither the Tenant nor anyone claiming by, through, or under the lease, shall have the right to file or place any mechanic’s lien or other lien of any kind or character whatsoever upon said Premises or upon any building or improvement thereon, or upon the leasehold interest of the Tenant therein, and notice is hereby given that no contractor, subcontractor, or anyone else who may furnish any material, service or labor for any building, improvements, alteration repairs or any part thereof, shall at any time be or become entitled to any lien thereon, and for the further security of the Landlord, the Tenant covenants and agrees to give actual notice thereof in

11

advance, to any and all contractors and subcontractors who may furnish or agree to furnish any such material, service or labor.

22.EXPIRATION OF LEASE AND SURRENDER OF POSSESSION.

(A)Holding Over.  Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord.  If Tenant retains possession of the Premises or any part thereof after such termination, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes any one of (i) renewal of this Lease for one year, and from year to year thereafter, or (ii) creation of a month-to-month tenancy, upon the terms and conditions set forth in this Lease, or (iii) creation of a tenancy at sufferance, in any case upon the terms and conditions set forth in this Lease; provided, however, that the monthly Rent (or daily Rent under (iii)) shall, in addition to all other sums which are to be paid by Tenant hereunder, whether or not as additional Rent, be equal to double the Rent being paid monthly to Landlord under this Lease immediately prior to such termination (prorated in the case of (iii) on the basis of a 365-day year for each day Tenant remains in possession).  If no such notice is served, then a tenancy at sufferance shall be deemed to be created at the Rent in the preceding sentence.  Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the Premises.  The provisions of this paragraph shall not constitute a waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any Rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on Tenant’s part to be performed.

(B)Upon the expiration of this Lease, by lapse of time or otherwise, any and all buildings, improvements or additions erected on said Premises by Tenant shall be and become the property of the Landlord without any payment therefor and Tenant shall surrender said Premises, together with all buildings and improvements thereon, whether erected by Tenant or Landlord, ordinary wear and tear and damage by fire or other casualty excepted.

(C)Tenant may install adequate equipment, fixtures and machinery for the carrying on of its business and upon the termination of this Lease by lapse of time or otherwise, provided all Rents and other amounts that may be due and owing to Landlord have been paid and the provisions of this Lease complied with, the Tenant may remove such equipment, fixtures and machinery installed by it at Tenant’s cost.  However, upon removal of such equipment, fixtures and machinery, the Tenant shall also repair any damage caused by such removal or installation.

23.DEFAULT-REMEDIES.

The occurrence of one or more of the following events shall constitute a material default and breach of this Lease by Tenant:

(A)Failure by Tenant to make payment of any Rent herein agreed to be paid or any other payment required to be made by Tenant hereunder, as and when due, and such a failure shall continue for a period of ten (10) days;

(B)The making by Tenant of any assignment or arrangement for the benefit of creditors;

12

(C)The filing by Tenant of a petition in bankruptcy or for any other relief under the Federal Bankruptcy Law or any other applicable statute;

(D)The levying of an attachment, execution of other judicial seizure upon the Tenant’s property in or interest under this lease, which is not satisfied or released or the enforcement thereof stayed or superseded by an appropriate proceeding within thirty (30) days thereafter;

(E)The filing of an involuntary petition in bankruptcy or for reorganization or arrangement under the Federal Bankruptcy Law against Tenant and such involuntary petition is not withdrawn, dismissed, stayed or discharged within sixty (60) days from the filing thereof;

(F)The appointment of a Receiver or Trustee to take possession of the property of Tenant or of Tenant’s business or assets and the order or decree appointing such Receiver or Trustee shall have remained in force undischarged or unstayed for thirty (30) days after the entry of such order or decree;

(G)The vacating or abandonment of the Premises.

(H)The failure by Tenant to perform or observe any other term, covenant, agreement or condition to be performed or kept by the Tenant under the terms, conditions, or provisions of this lease, and such a failure shall continue uncorrected for thirty (30) days after written notice thereof has been given by Landlord to the Tenant.

Then and in any such event Landlord shall have the right, at the option of the Landlord, then or at any time thereafter while such default or defaults shall continue, to elect either (1) to cure such default or defaults at its own expense and without prejudice to any other remedies which it might otherwise have, any payment made or expenses incurred by Landlord in curing such default with interest thereon at eighteen percent (18%) per annum to be and become additional Rent to be paid by Tenant with the next installment of Rent falling due thereafter; or (2) to re-enter the Premises, without notice, and dispossess Tenant and anyone claiming under Tenant by summary proceedings or otherwise, and remove their effects, and take complete possession of the Premises and either (a) declare this Lease forfeited and the Lease Term ended, or (b) elect to continue this Lease in full force and effect, but with the right at any time thereafter to declare this Lease forfeited and the Lease Term ended.  In such re-entry the Landlord may, with or without process of law, remove all persons from the Premises, and Tenant hereby covenants in such event, for itself and all others occupying the Premises under Tenant, to peacefully yield up and surrender the Premises to the Landlord.  Should Landlord declare this Lease forfeited and the Lease Term ended, the Landlord shall be entitled to recover from Tenant the Rent and all other sums due and owing by Tenant to the date of termination, plus the costs of curing all of Tenant’s defaults existing at or prior to the date of termination, plus the cost of recovering possession of the Premises, plus the deficiency, if any, between Tenant’s Rent for the balance of the Lease Term provided hereunder and the Rent obtained by Landlord under another lease for the Premises for the balance of the Lease Term remaining under this lease.  Landlord shall use its best efforts to rent the Premises with or without advertising, and on the best terms available for the remainder of the Lease Term hereof, or for such longer or shorter period as Landlord shall deem advisable.  Tenant shall remain liable for payments of all Rent and other charges and costs imposed on Tenant herein, in the amounts, at the times and upon the conditions as herein provided, but Landlord shall credit against such liability of the Tenant all amounts received by Landlord from such reletting after first reimbursing itself for all costs incurred in curing Tenant’s defaults and re-entering, preparing and refinishing the Premises for reletting, and reletting the Premises, and for the payment of any procurement fee or commission paid to obtain another tenant, and for the attorney fees and legal costs incurred by Landlord.

13

24.RE-ENTRY BY LANDLORD.

No re-entry by Landlord or any action brought by Landlord to oust Tenant from the Premises shall operate to terminate this Lease unless Landlord shall have given written notice of termination to Tenant, in which event Tenant’s liability shall be as above provided.  No right or remedy granted to Landlord herein is intended to be exclusive of any other right or remedy, and each and every right and remedy herein provided shall be cumulative and in addition to any other right or remedy hereunder or now or hereafter existing in law or equity or by statute.  In the event of termination of this Lease, Tenant waives any and all rights to redeem the Premises either given by any statute now in effect or hereafter enacted.

25.ADDITIONAL RIGHTS TO LANDLORD.

(A)In addition to any and all other remedies, Landlord may restrain any threatened breach of any covenant, condition or agreement herein contained but the mention herein of any particular remedy or right shall not preclude the Landlord from any other remedy or right it may have either at law or equity, or by virtue of some other provision of this Lease; nor shall the consent to one act, which would otherwise be a violation or waiver of or redress for one violation either of covenant, promise agreement undertaking or condition, prevent a subsequent act which would originally have constituted a violation from having all the force and effect of any original violation.

(B)Receipt by Landlord of Rent or other payments from the Tenant shall not be deemed to operate as a waiver of any rights of the Landlord to enforce payment of any Rent, additional Rent, or other payments previously due or which may thereafter become due, or of any rights of the Landlord to terminate this Lease or to exercise any remedy or right which otherwise might be available to the Landlord, the right of Landlord to declare a forfeiture for each and every breach of this Lease is a continuing one for the life of this Lease.

26.SUCCESSORS, ASSIGNS AND LIABILITY.

The terms, covenants, conditions and agreements herein contained and as the same may from time to time hereafter be supplemented, modified or amended, shall apply to, bind, and inure to the benefit of the parties hereto and their legal representatives, successors and assigns, respectively.  In the event either party now or hereafter shall consist of more than one person, firm or corporation, then and in such event all such person, firms and/or corporations shall be jointly and severally liable as parties hereunder.

27.NOTICES.

All notices required under this Lease shall be in writing and shall be deemed to be properly served when posted by certified United States mail, postage prepaid, return receipt requested, addressed to the party to whom directed at the address herein set forth or at such other address as may be from time to time designated in writing by the party changing such address.

Landlord	Tenant
The Principal Mutual Ins. Co.	R.F. Machining, Inc.
711 High Street	7448 West 78th Street
Des Moines. IA 50392	Bloomington, MN 55439

14

28.MORTGAGEE’S APPROVAL.

If Landlord’s mortgagee shall require modifications of the terms and provisions of this Lease, Tenant agrees to execute and deliver to Landlord the agreements required to affect such Lease modification within thirty (30) days after Landlord’s request therefor.  In no event, however, shall Tenant be required to agree to any modification of the provision of this Lease relating to: the amount of Rent or other charges reserved herein; the size and/or general location of the Premises; the duration and/or commencement date of the Lease Term; or reducing the improvements to be made by Landlord to the Premises prior to the delivery of possession.

29.ESTOPPEL CERTIFICATES.

Tenant agrees that at any time within ten (10) days following written notice from Landlord, it will execute, acknowledge and deliver to Landlord or any proposed mortgagee or purchaser a statement in writing certifying whether this Lease is in full force and effect and, if it is in full force and effect, what modifications have been made to the date of the certificates and whether or not any defaults or offsets exist with respect to this Lease and, if there are, what they are claimed to be and setting forth dates to which Rent or other charges have been paid in advance, if any, and stating whether or not Landlord is in default, if so, specifying what the default may be.  The failure of Tenant to execute, acknowledge, and deliver to Landlord a statement as above shall constitute an acknowledgment by Tenant that this Lease is unmodified and in full force and effect and that the Rent and other charges have been duly and fully paid to and including the respective due dates immediately preceding the date of Landlord’s notice to Tenant and shall constitute as to any person, a waiver of any defaults which may exist prior to such notice.

30.MISCELLANEOUS.

(A)In the event that Tenant desires to store or maintain the type or character of goods or materials in the Premises which cause an increase in insurance premiums, Tenant shall first obtain the written consent of Landlord and Tenant shall reimburse Landlord for any increase in premiums caused thereby.

(B)If any term or provision of this Lease is declared invalid or unenforceable, the remainder of this Lease shall not be affected by such determination and shall continue to be valid and enforceable.

(C)This agreement contains the entire Lease contract between the parties hereto.  A short form of this Lease, for the purpose of recording, may be executed by the parties simultaneously herewith and if either party desires to record this Lease, the short form shall be used for that purpose.

(D)The parties executing this Lease warrant that this agreement is being executed with full corporate authority and that the officers whose signatures appear hereon are duly authorized and empowered to make and execute this Lease in the name of the corporation by appropriate and legal resolution of its Board of Directors.

(E)Unless the context clearly denotes the contrary, the word “Rent” or “Rental” as used in this Lease not only includes cash Rental, but also all other payments and obligations to pay assumed by the Tenant, whether such obligations to pay run to the Landlord or to other parties.

(F)It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall, and they hereby do, waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use of or occupancy of the Premises or any claim of

15

injury or damage and any emergency statutory or any other statutory remedy.  If Landlord commences any summary proceeding for nonpayment of Rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding.

31.DEFAULT RATE OF INTEREST

All amounts owed by Tenant to Landlord pursuant to any provision of this Lease shall bear interest from the date due until paid at eighteen percent (18%) per annum, unless a lesser rate shall then be the maximum rate permissible by law with respect thereto, in which event said lesser rate shall be charged.

32.EXCULPATORY PROVISIONS

It is expressly understood and agreed by and between the parties hereto, anything herein to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings and agreements herein made on the part of Landlord while in form purporting to be the representations, warranties, covenants, undertakings and agreements of Landlord are nevertheless each and every one of them made and intended, not as personal representations, warranties, covenants, undertakings and agreements by Landlord or for the purpose or with the intention of binding Landlord personally, but are made and intended for the purpose only of subjecting Landlord’s interest in the Premises to the terms of this Lease and for no other purpose whatsoever, and in case of default hereunder by Landlord, Tenant shall look solely to the interests of Landlord in the Premises; and that Landlord shall not have any personal liability to pay any indebtedness accruing hereunder or to perform any covenant, either express or implied, herein contained, all such personal liability, if any, being expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.

33.MORTGAGE PROTECTION

Tenant agrees to give any holder of any first mortgage or first trust deed in the nature of a mortgage (both hereinafter referred to as a “First Mortgage”) against the Premises, or any interest therein, by registered or certified mail, a copy of any notice or claim of default served upon Landlord by Tenant, provided that prior to such notice Tenant has been notified in writing (by way of service on Tenant of a copy of an assignment of Landlord’s interest in leases, or otherwise) of the address of such First Mortgage holder.  Tenant further agrees that if Landlord shall have failed to cure any such default within twenty (20) days after such notice to Landlord (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if Landlord has commenced within such twenty (20) days and is diligently pursuing the remedies or steps necessary to cure or correct such default), then the holder of the First Mortgage shall have an additional thirty (30) days within which to cure or correct such Default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if such holder of the First Mortgage has commenced with such thirty (30) days and is diligently pursuing the remedies or steps necessary to cure or correct such default, including the time necessary to obtain possession if possession is necessary to cure or correct such default.

34.RECIPROCAL COVENANT ON NOTIFICATION OF ADA VIOLATIONS

Within ten (10) days after receipt, Landlord and Tenant shall advise the other party in writing, and provide the other with copies of (as applicable), any notices alleging violation of the Americans with Disabilities Act of 1990 (“ADA”) relating to any portion of the property or the Premises; any claims made or threatened in writing regarding noncompliance with the ADA and relating to any portion of the property or the Premises; or any governmental or regulatory actions or investigations instituted or threatened regarding noncompliance with the ADA and relating to any portion of the property or the Premises.

16

35.LAWS THAT GOVERN.

Landlord and Tenant agree that the term and conditions of this Lease shall be governed by the Laws of the State of Minnesota.

36.FINANCIAL STATEMENTS

Within ten (10) business days after Landlord’s request, Tenant shall deliver to Landlord the current financial statements of Tenant, and financial statement of the two (2) years prior to the current financial statements year, with an opinion of a certified public accountant.  This information includes a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied.

37.RELOCATION OF TENANT

At any time hereafter, Landlord may substitute for the Premises other premises (herein referred to as “the new Premises”) provided:

a)the new Premises shall be similar to the Premises in area and use for Tenant’s purposes and shall be located in the Building; and, if Tenant is already in occupancy of the Premises, then in addition:

b)Landlord shall pay the expenses of Tenant for moving from the Premises to the new Premises so that they are substantially similar to the Premises;

c)such move shall be made during evenings, weekends or otherwise, so as to incur the least inconvenience to Tenant; and

d)Landlord shall first give the tenant at least thirty (30) day’s notice before making such change.  If Landlord shall exercise its right hereunder, the new Premises shall thereafter be deemed for the purposes of this Lease as the Premises.

38.UPON DEMOLITION OR SALE OF BUILDING

Landlord shall have the right to terminate this Lease at any time if Landlord, or the holder of legal title to the Building proposes or is required, for any reason, to remodel or demolish the Building or any substantial portion of the Building or if Landlord decides to sell or cause to be sold the Building by conveyance of a deed or by assignment of the beneficial interest in the land trust holding legal title to the Building or, Landlord’s stockholders decide to sell at least sixty-six and two-thirds percent of Landlord’s capital stock (if Landlord is a corporation), or if Landlord decides to convey or cause to be conveyed its interest in the ground lease affecting the Building (if any), or to make or cause to be made a ground lease, or to lease or cause to be leased to one tenant for a term of ten years or more either all the Building or all the Building except the ground floor.  Such termination shall become effective and conclusive by notice of such termination to the tenant.  If Landlord sells or causes to be sold the Building by conveyance of a deed or by assignment of the beneficial interest in the land trust holding legal title to the land thereunder, then the purchaser of the Building or the ground lessee under such ground lease shall also have the right to terminate this Lease.  Such termination shall become effective and conclusive of such sale, or not more than ninety (90) days after execution of such ground lease, as the case may be, and not less than ninety (90) days prior to the effective date of such termination.  No money or other consideration shall be payable by Landlord or such purchaser

17

or ground lessee to Tenant for this right and the right hereby reserved to Landlord, the purchaser of ground lessee shall inure to all purchasers, assignors, lessees, transferees and ground lessees, as the case may be, and in addition to all other rights of Landlord.

39.CONFIDENTIALITY

Tenant agrees that this Agreement of Lease will be kept confidential and shall not, without Landlord’s prior written consent, be disclosed by the Tenant or by its agents, representatives and employees who have a need to know and who are informed by Tenant of the confidential nature of the Agreement of Lease.

40.CONTINGENCY

The Lease shall be contingent upon Landlord obtaining an acceptable Termination of Lease Agreement from Innovex, Inc.

41.HANDICAPPED PARKING STALL

Landlord agrees to provide, at its expense, one (1) handicapped parking stall and curb cut in front of the Premises.

42.OPTION TO RENEW

Provided Tenant has not been in default and has performed all of its covenants and obligations hereunder, Tenant shall have the option to extend the Term of this Lease (hereinafter, the “Option”) for one consecutive period of three (3) years upon the same terms and conditions, except the Base Rent shall be at the then current market rates.  Tenant shall provide Landlord with six (6) months prior written notice of it’s intent to exercise said Option.

It is understood and agreed that this Option is personal to R.F. Machining, Inc. and is not transferable; in the event of any assignment or subleasing of any or all of the Demised Premises said Option shall be null and void.

If and from the date Tenant exercises the Option, Tenant agrees that it waives any right it may have to assign or sublet all or part of the Demised Premises.

18

IN WITNESS WHEREOF, the parties hereto may execute this Lease in counterpart copies, each of which shall be deemed originals or Landlord and Tenant have executed this Lease the date and year noted below.

Signed at               , on this 15^th day of June, 1998.

LANDLORD:
PRINCIPAL MUTUAL LIFE INS. CO.
By		/s/ [ILLEGIBLE]
	[ILLEGIBLE]		Title
Counsel
By		/s/ Dennis D. Ballard
	DENNIS D. BALLARD, Counsel		Title

Signed at              , on this         day of                           , 1998.

TENANT:
R.F. MACHINING, INC.
(a Minnesota corporation)
By		/s/ [ILLEGIBLE]
	CEO		Title
By
			Title

State of Minnesota	)
	)	ss.
County of Hennepin	)

On this 3 day of June, 1998, before me, the undersigned, Notary Public in and for the State of Minnesota personally appeared [ILLEGIBLE] and                        , to me personally known, who being by me duly sworn, did say that they are the CEO and                                 respectively of said corporation executing the within and foregoing instrument, that the seal affixed thereto is the seal of the said corporation; that the instrument was signed and sealed on behalf of the corporation by authority its Board of Directors; and that the said CEO and                              as such officers acknowledged the execution of said instrument to be the voluntary act and deed of the corporation by it and by them voluntarily executed.

/s/ Lynne Plowman

Notary Public in and for the State of Minnesota

[SEAL]	LYNNE PLOWMAN
	NOTARY PUBLIC - MINNESOTA
	HENNEPIN COUNTY
	My Commission Expires Jan 31, 2000

19

EXHIBIT B

The Landlord agrees to re-key the Leased Premises and service and certify that the HVAC unit(s) serving the Leased Premises are in good working condition as of the Commencement Date.

Other than the improvements described above, Tenant agrees to accept the Leased Premises in its “AS-IS” condition.

20

EXHIBIT C

GUARANTY OF LEASE

In consideration of and as an inducement to Lessor to enter into that certain Lease dated the      day of June, 1998, (“Lease”) between The Principal Mutual Life Insurance Company, (“Landlord”) and R.F. Machining, Inc., (a Minnesota corporation), (“Tenant”) and in reliance on this Guaranty, Innovex, Inc., a Minnesota corporation, (“Guarantor”) hereby unconditionally guarantees the due and punctual payment of all Rent, both Basic and Additional, if any (as defined in the Lease), and all the other sums due (including interest and penalties) and to be paid by Tenant pursuant to the Lease and the performance by Tenant of all the terms, conditions, covenants and agreements of the Lease, and Guarantor agrees to pay all of Landlord’s costs, expenses and reasonable attorney’s fees incurred in enforcing the covenants and agreement of Tenant in the Lease or incurred by Landlord in enforcing this Guaranty.

Guarantor waives notice of the acceptance of this Agreement, presentment, protest, notice of protest and any and all demand for performance of any and all notices of nonperformance which might otherwise be a condition precedent to the liability of Guarantor, without first proceeding or making claim or exhausting any remedy against Tenant or pursuing any particular remedy or remedies available to Landlord.

Guarantor agrees that in the event of any one of the following: (a) Tenant shall become insolvent or shall be adjudicated a bankrupt; (b) Tenant shall file a petition for reorganization, arrangement or similar relief under any present or future provision of the Bankruptcy Code; (c) such a petition filed by creditors of Tenant shall be approved by court; (d) Tenant shall see a judicial readjustment of the rights of its creditors under any present or future federal or state law; or (e) a receiver of all or part of its property and assets is appointed by any state or federal court, and in any such proceeding the Lease shall be terminated or rejected or the obligations of Tenant hereunder shall be modified, the Guarantor will immediately pay to Landlord, or its successors or assigns (i) an amount equal to all Rent accrued to the date of such termination, rejection or modification, plus (ii) an amount equal to the then cash value of all Rent which would have been payable under the Lease for the unexpired portion of the term thereby demised, less the then cash rental value of the Leased Premises for such unexpired portion of the term, together with interest on the amounts designated (i) and (ii) above at the highest rate then payable in the state in which the Leased Premises are located or, in the absence of such a maximum rate, at the rate of fourteen percent (14%) per annum from the date of such termination, rejection or modification to the date of payment.

Neither Guarantor’s obligation to make payment in accordance with the terms of this Agreement nor any remedy for the enforcement thereof shall be impaired, modified, changed, released or limited in any manner whatsoever by an impairment, modification, change, release or limitation of the liability of Tenant or its estate in bankruptcy or of any remedy for the enforcement thereof resulting from the operation of any preset or future provision of the national Bankruptcy Act or the decisions of any court.

The Landlord agrees that this Guaranty shall terminate on December 31, 1999 provided, however, that Guarantor shall remain liable for any defaults which occur on or before December 31, 1999.

This Guaranty of Lease shall be binding upon the successors and assigns of the Guarantor and inure to the benefit of the successors and assigns of the Landlord (including any assignee of the Lease, which may be assigned as additional security for a loan).

IN WITNESS WHEREOF, Guarantor has caused the Agreement to be executed and notarized this 4th day of June, 1998.

INNOVE. INC.
By:	/s/ [ILLEGIBLE]
Its:	[ILLEGIBLE]

STATE OF MINNESOTA	)
	)	SS:
COUNTY OF HENNEPIN	)

On this 4^th day of June 1998, before me, a Notary Public in and for said County, appeared Timothy S. McIntee, to me personally known, who being duly sworn, did say that he is the person named in an who executed the within instrument, and that said instrument was made and executed of his/her free act and will.

		/s/ Lois E. McKenzie
	LOIS E MCKENZIE	Notary Public
[SEAL]	NOTARY PUBLIC - MINNESOTA
	HENNEPIN COUNTY
	My Commission Expires Jan 31, 2000	My Commission Expires:	1-31-2000

2

EX-10.10

Exhibit 10.10

ENPATH MEDICAL, INC.

INCENTIVE STOCK OPTION AGREEMENT

THIS AGREEMENT is by and between Enpath Medical, Inc. (“Company”) and                 (“Optionee”).

RECITALS:

The Company’s 1999 Incentive Stock Option Plan (“Plan”), as amended through October 23, 2003, was created for the purpose of encouraging ownership of shares of the Common Stock of the Company (“Common Shares”) by key employees. The option is intended to qualify as an incentive stock option under Section 422A of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, in consideration of the promises and covenants contained herein, Company and Optionee hereby agree as follows:

1.OPTION.  Company grants to Optionee on                     (“Date of Grant”) the option (“Option”) to purchase an aggregate of           of the Common Shares (“Shares”) of the Company upon the terms and conditions set forth herein and in the Plan.

2.OPTION PRICE.  Subject to any adjustments pursuant to the provisions of Section 7, the purchase price of the Shares subject to the Option (“Option Price”) is           per share, which represents the fair market value on the Date of Grant.

3.TIME OF EXERCISE.  This Option will be exercisable, in accordance with the vesting schedule set forth in Section 4, any time prior to                         (“Exercise Period”) unless terminated prior thereto pursuant to the provisions of Section 6.   The Option will become void and expire as to all unexercised Shares at 12:00 a.m. (midnight, Central Standard Time) at the end of the Exercise Period.

4.VESTING OF OPTIONS.  This Option is   0%  vested as of the Date of Grant and will vest in amounts of one-fifth of the shares on                    and on each of the succeeding one-year anniversaries thereafter, until 100% vested.  In the event the Company or the stockholders of the Company enter into an agreement to dispose of all or substantially all of the assets or stock of the Company by means of a sale, merger, reorganization, liquidation or otherwise, the Option shall become immediately exercisable with respect to the full number of Shares.

5.EXERCISE OF OPTION - MANNER.  Subject to the terms and conditions hereof, the Option may be exercised by written notice to the Company at its offices in Plymouth, Minnesota, signed by Optionee (or Optionee’s heirs, legal representative(s) or guardian).  Notice of exercise of the Option must be accompanied by payment in full of the Option Price of the Shares as to which the Option is to be exercised and the Company will issue and deliver a certificate or certificates representing such Shares as soon as practicable after such notice and payment are received.  Payment of such Option Price will be made by a check payable to the order of the Company.

6.TERMINATION OF EMPLOYMENT.

(a)This Option will terminate and may no longer be exercised in the event and at the time Optionee’s employment is involuntarily terminated for “cause”.  “Cause” shall include gross negligence, gross neglect of duties, gross insubordination, dishonesty, disloyalty to the Company, public conduct detrimental to employees or the Company’s reputation, willful violation of any law applicable to the conduct of the Company’s business and affairs, and conviction of or pleas of no contest to any crime other than minor traffic offenses.

(b)In the event of termination of employment by reason of death or Permanent Disability of the Optionee, (“Permanent Disability” means complete inability to engage in one’s regular occupation or employment and under the regular care and attendance of a licensed physician for in excess of six (6) consecutive months,) the estate, successors or legal representative of the Optionee may exercise the Option within one (1) year after such termination (but not thereafter) on any Options vested in the Optionee at such termination of employment.

(c)In the event of voluntary termination or involuntary termination but not for cause, Optionee may exercise all vested Options within three (3) months after termination (but not thereafter).

7.ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.  In the event of a merger, consolidation, reorganization, stock dividend, stock split, or any other change in corporate structure or capitalization affecting the Company’s shares, appropriate adjustment shall be made in the maximum number of shares available under the Plan or to any one individual and in the number, kind, option, price, etc. of shares subject to options granted under the Plan.

8.NON-TRANSFERABILITY OF OPTION.  The Option granted under this Agreement may not be sold, pledged, assigned or transferred by the Optionee except by will or the laws of descent and distribution.  Any attempt to do so will void the Option.  The Option is exercisable during an Optionee’s lifetime only by the Optionee, subject to Section 6(b) above.

9.WITHHOLDING TAXES.

(a)The Company is entitled to withhold and deduct from future wages of the Optionee or from other amounts due from the Company to the Optionee all legally required amounts necessary to satisfy any or all federal, state and local withholding and employment-related tax requirements attributable, directly or indirectly, to the Optionee’s exercise of this Option or otherwise incurred with respect to this Option; or to require the Optionee to promptly remit the amount of such withholding and employment-related taxes to the Company before acting on the Optionee’s notice of exercise of this Option or before taking any further action with respect to this Agreement.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state and local law.  Until the required withholding is remitted to the Company by the employee, the Company will retain the stock associated with the exercise of this Option.

(b)If the Optionee exercises the Option subsequent to leaving the Company, then the obligation to comply with related taxes is the Optionee’s.

10.RIGHTS AS A SHAREHOLDER.  No rights of a shareholder of the Company will attach to Optionee with respect to any of the Shares until this Option is duly exercised as to such Shares and the person has become holder of record of such Shares.  No adjustments will be made for cash dividends or other distributions or other rights as to which there is a record date preceding the date such person becomes the holder of record of such Shares.

11.LIMITATION OF LIABILITY.  Nothing in this Agreement will be construed to:

(a)Limit in any way the right of the Company or any of its subsidiaries to terminate the employment of Optionee at any time and for any reason.

(b)Be evidence of any agreement or understanding, express or implied, that the Company or one of its subsidiaries will employ the Optionee in any particular position at any particular rate of compensation or for any particular period of time.

12.GOVERNING LAW. This Agreement will be construed in accordance with and governed by the laws of the State of Minnesota.

13.CONTROLLING AUTHORITY.  Options granted hereunder are subject to the Plan.  If inconsistencies exist between this Agreement and the Plan, the Plan provisions will be the controlling determinant.  The Board of Directors retains full authority to interpret or modify the Plan.

IN WITNESS WHEREOF, Company and Optionee have executed this Agreement as of the day and year first above written.

		ENPATH MEDICAL, INC.
Dated:	By:
		Its CEO
		Optionee

EX-10.11

Exhibit 10.11

ENPATH MEDICAL, INC.

1999 NON-EMPLOYEE DIRECTOR AND MEDICAL ADVISORY BOARD STOCK OPTION

THIS AGREEMENT is by and between Enpath Medical, Inc. (“Company”) and          (“Optionee”).

RECITALS:

Pursuant to the Company’s 1999 Non-Employee Director and Medical Advisory Board Stock Option Plan (“Plan”), adopted in July 1999, for the purpose of encouraging ownership of shares of the Common Stock of the Company (“Common Shares”) by Non-Employee Directors and Medical Advisory Board Members (as defined in the Plan), the Company desires to afford Optionee an option to purchase Common Shares.  This option does not qualify as an incentive stock option under Section 422A of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, in consideration of the promises and covenants contained herein, Company and Optionee hereby agree as follows:

1.OPTION.  Company grants to Optionee on                  (“Date of Grant”) the option (“Option”) to purchase an aggregate of          of the Common Shares (“Shares”) of the Company upon the terms and conditions set forth herein and in the Plan.

2.OPTION PRICE.  Subject to any adjustments pursuant to the provisions of Section 8, the purchase price of the Shares subject to the Option (“Option Price”) is                per share, which represents the fair market value on the Date of Grant.

3.TIME OF EXERCISE.  This Option will become exercisable, in accordance with the vesting schedule set forth in Section 4, any time prior to                  (“Exercise Period”), unless terminated prior thereto pursuant to the provisions of Section 7.   The Option will become void and expire as to all unexercised Shares at 12:00 a.m. (midnight, Central Standard Time) at the end of such Exercise Period.

4.VESTING OF OPTIONS.  This Option vests in amounts of one-third of the Shares on the date of grant and one-third upon each subsequent annual re-election to the Board.  In the event the Company or the stockholders of the Company enter into an agreement to dispose of all or substantially all of the assets or stock of the Company by means of a sale, merger, reorganization, liquidation or otherwise, this Option shall become immediately exercisable with respect to the full number of Shares.

5.EXERCISE OF OPTION - MANNER.  Subject to the terms and conditions hereof, the Option may be exercised by written notice to the Company at its offices in Plymouth, Minnesota, signed by the Optionee (or Optionee’s heirs, legal representative(s) or guardian).  Notice of exercise of the Option will be accompanied by payment in full of the Option Price of the Shares as to which the Option is to be exercised and the Company will issue and deliver a certificate or certificates representing such Shares as soon as practicable after such notice and payment are received.  Payment of such Option Price will be made by a check payable to the order of the Company.

6.DELIVERY OF STOCK.  The exercise of the Option shall be conditioned upon the receipt from Optionee (or Optionee’s heirs, legal representative(s) or guardian) of a representation that, at the time of such exercise, it is the intent of such person to acquire the Shares for investment and not with a view to distribution, or the receipt of an opinion of counsel satisfactory to the Company that the issuance of shares in conjunction with the exercise of this Option would not constitute a violation by the Optionee or the Company of any applicable law or regulation of any governmental authority; provided, however, that the receipt of this representation will not be required upon exercise of the Option in the event, at the time of such exercise, the Shares subject to the Option are covered by an effective registration statement under the Securities Act of 1933, as amended.  The certificates for unregistered shares issued for investment will be restricted by the Company as to transfer unless the Company receives an opinion of counsel satisfactory to the Company that such restriction is not necessary.

7.TERMINATION AS DIRECTOR.

(a)The right to exercise this Option will be suspended upon formal written notice to the Optionee by the Chief Executive Officer of the Company of his or her belief that an act of misconduct has been committed by Optionee.  If the Board (excluding Optionee) determines that such misconduct has occurred, then neither the Optionee nor Optionee’s estate shall be entitled to exercise any Option whatsoever.  Optionee shall be notified of such finding in writing.  “Misconduct” is defined in Paragraph 12 of the Plan.

(b)If Optionee ceases to be a director of the Company, the Option may, within one year after Optionee’s death or termination as a director, be exercised to the extent that Optionee was entitled to exercise the Option on the date of Optionee’s termination, by the Optionee or the person or persons to whom Optionee’s rights under the Option pass by will or the applicable laws of descent or distribution, or Optionee’s personal representative, as may be appropriate, but in no case after the expiration of the term of this Option.

8.ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.  In the event of a merger, consolidation, reorganization, stock dividend, stock split, or any other change in corporate structure or capitalization affecting the Company’s Common Shares, appropriate adjustment shall be made in the maximum number of shares available under the Plan or to any one individual and in the number, kind, option, price, etc. of shares subject to options granted under the Plan.

9.NON-TRANSFERABILITY OF OPTION.  The Option granted under this Agreement may not be sold, pledged, assigned or transferred by the Optionee except by will or the laws of descent and distribution.  Any attempt to do so will void the Option.  The Option is exercisable during an Optionee’s lifetime only by the Optionee or by the Optionee’s guardian.

10.WITHHOLDING TAXES.  The obligation to comply with related federal, state and local taxes is the Optionee’s.

11.RIGHTS AS A SHAREHOLDER.  No rights of a shareholder of the Company will attach to Optionee with respect to any of the Shares until this Option is duly exercised as to such Shares and the person has become holder of record of the Shares.  No adjustments will be made for cash dividends or other distributions or other rights as to which there is a record date preceding the date such person becomes the holder of record of such Shares.

12.LIMITATION OF LIABILITY.  Nothing in this Agreement shall confer on any Optionee any right to continue as a director of the Company or affect, in any way, the right of the Company to terminate his or her services as a director at any time.

13.GOVERNING LAW.  This Agreement will be construed in accordance with and governed by the laws of the State of Minnesota.

IN WITNESS WHEREOF, Company and Optionee have executed this Agreement as of the day and year first above written.

	ENPATH MEDICAL, INC.
Dated:	By:
		Its: President and Chief Executive Officer
	By:
		Optionee

EX-10.12.4

Exhibit 10.12.4

February 9, 2005

Enpath Medical, Inc.

Attn: Mike Erdmann

15301 Highway 55 West

Minneapolis, MN 55447

Dear Mr. Erdmann:

Pursuant to the provisions of Section 5.1(f) of the Revolving Credit And Term Loan Agreement (the “Loan Agreement”) dated October 17, 2003, the Borrower agreed it would maintain Tangible Net Worth of not less than $10,000,000 at December 31, 2004.

Pursuant to the provisions of Section 5.1(g) of the Loan Agreement and as amended via Letter Amendment No. 1 dated March 18, 2004 and Letter Amendment No. 2 dated July 19, 2004, the Borrower agreed it would maintain a Senior Funded Debt Ratio to not be greater than 1.25 to 1.0 for the period ending December 31, 2004.

The Borrower’s financial statements for the period ending 12/31/04 indicate the Borrower violated the aforementioned Tangible Net Worth and Senior Funded Debt Ratio covenants.  The Borrower has requested waiver of such covenant violations.

M&I Marshall & Ilsley Bank (the “Bank”) hereby notifies the Borrower that the Bank agrees to waive, and by issuance of this letter do hereby waive, the aforementioned covenant violations.  This waiver is solely for the requirements described above and shall not constitute a waiver or amendment by the Bank of any other covenant or term under the Loan Agreement.  The Loan Agreement remains in full force and effect, except as specifically waived by the terms herein.

Sincerely,

/s/ Steve Nolander

Commercial Banking Officer

EX-10.17.1

Exhibit 10.17.1

AMENDMENT TO
ASSET PURCHASE AGREEMENT

This Amendment to Asset Purchase Agreement (the “Amendment”) is entered into as of this 14^th day of March, 2005 among Enpath Medical Inc., a Minnesota corporation formerly known as Medamicus, Inc. (“Buyer”), Enpath Lead Technologies, Inc., a Minnesota corporation formerly known as Medacquisition, Inc. and a wholly-owned subsidiary of Buyer (“Acquisition Sub”), BIOMEC Inc., an Ohio corporation (“Parent”)and BIOMEC Technology Inc., a Minnesota corporation formerly known as BIOMEC Cardiovascular Inc. (“Subsidiary”).

WHEREAS, the Buyer, Acquisition Sub, Parent, and Subsidiary have previously entered into that certain Asset Purchase Agreement dated as of July 21, 2003 (the “Agreement”), with respect to the sale and purchase of the Assets and the assumption of the Assumed Liabilities of the Business;

WHEREAS, the Agreement provided for a 2004 contingency payment based upon the level of Proprietary Sales payable in cash and shares of Buyer, in such allocation as Buyer shall determine, provided that the cash payment is at least equal to the lesser of (a) 25% of the total 2004 Contingent Payment or (b) $2.0 million;

WHEREAS, the parties desire to enter into this amendment for purposes of amending and restating certain provisions of the Agreement.

NOW THEREFORE, the parties, for good and other valuable consideration, the receipt of which is hereby acknowledged, covenant and agree as follows:

1.Definitions.  Capitalized terms used but not defined in this Amendment shall have the meaning ascribed to them in the Agreement.

2.Section 2.4.  Section 2.4 is hereby amended and restated in its entirety as follows:

2004 Contingent Payment.Buyer will make a payment to Subsidiary equal to the difference of the Proprietary Sales (as defined in Section 2.5.1) of the Acquisition Sub in the 2004 calendar year minus the combined Proprietary Sales of Subsidiary and Acquisition Sub in the 2003 calendar year (as it may be increased pursuant to the immediately following sentence, the “2004 Contingent Payment”.  The amount of the 2004 Contingent Payment will be doubled if, on or before December 31, 2004, Acquisition Sub executes a supply agreement with one or more of the companies listed on Schedule 2.4 having the minimum terms listed on Schedule 2.4.  Buyer will pay the 2004 Contingent Payment on or before March 31, 2005 in cash via wire transfer to a bank designated by Subsidiary or in shares of Buyer Common Stock, which allocation shall be determined solely by Buyer; provided that the cash portion of the payment must be at least the lesser of (the “Payment Allocation”) (a) 25% of the total 2004 Contingent Payment, any stock portion of which being valued in accordance with Section 2.5.3, or (b) $2.0 million; provided further, however, that notwithstanding the foregoing, the Payment Allocation may be varied upon the written mutual agreement of all of the parties.

2.Section 2.5.3.  Section 2.5.3 is hereby amended and restated in its entirety as follows:

Stock Values for Contingent Payments.  The number of shares of Buyer Common Stock to be delivered in connection with each Contingent Payment, if any, will be equal to the value of the stock portion of the applicable Contingent Payment, as determined by Buyer in accordance with Section 2.3 or 2.4, as the case may be, divided by the average closing price of Buyer Common Stock for the period of 15 trading days preceding the date on which Buyer makes its first public announcement of its earnings for the fiscal year immediately prior to the year in which the Contingent Payment is payable.  Buyer shall pay Subsidiary cash in lieu of any fractional share, equal to the fraction times the average price of Buyer Common Stock calculated in accordance with the immediately preceding sentence.  Notwithstanding the foregoing, the parties may mutually agree in writing to amend the manner in which the stock values are computed for purposes of determining the number of shares of Buyer Common Stock to be delivered in connection with each Contingent Payment.

3.Section 7.6.  Section 7.6 is hereby amended and restated in its entirety as follows:

Board Representation.  Simultaneous with the Closing, Buyer will increase the size of its board of directors and appoint Trevor O. Jones, Chairman of Parent, or his successor as Chairman of Parent, as a director of Buyer.  Buyer will continue to nominate and solicit proxies for re-election of the Chairman of Parent until the later of (a) the date on which the 2004 Contingent Payment is paid (or, if no 2004 Contingent Payment is due, March 31, 2005) or (b) such time as Sellers and their affiliates hold less than 5% in the aggregate of the outstanding voting power of Buyer.  The board of directors of Buyer will take appropriate action to elect the Chairman of Parent as Vice Chairman of the board of directors of Buyer.  For purposes of this Section 7.6, the parties shall cooperate and negotiate in good faith with respect to the designation of the affiliates of Seller and the process for determining the ownership interests of such affiliates.

[Remainder of this Page Intentionally Left Blank].

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

ENPATH MEDICAL, INC.
By:		James D. Hartman
Name:		James D. Hartman
Title:	CEO
ENPATH LEAD TECHNOLOGIES, INC.
By:		James D. Hartman
Name:		James D. Hartman
Title:	CEO
BIOMEC TECHNOLOGY INC.
By:					Trevor O. Jones
Name:					Trevor O. Jones
Title:				Chairman
BIOMEC INC.
By:					Trevor O. Jones
Name:					Trevor O. Jones
Title:			Chairman

EX-10.18

Exhibit 10.18

Letter Agreement

This letter agreement is entered into as of this 15^th day of March 2005 among Enpath Medical, Inc., a Minnesota corporation formerly known as Medamicus, Inc. (“Enpath”), BIOMEC Inc., an Ohio corporation (“BIOMEC”) and BIOMEC Technology Inc., a Minnesota corporation formerly known as BIOMEC Cardiovascular Inc. (“Subsidiary”) to document the agreement and understanding of the parties.  Enpath, BIOMEC and Subsidiary agree as follows:

1.In a letter agreement dated February 26, 2004 (“February 26 Agreement”), Enpath and BIOMEC agree to amend the Asset Purchase Agreement dated July 21, 2003 to set a value for the shares of common stock of Enpath to be delivered to BIOMEC under the 2004 Contingent Payment equal to a Base Price of $13.62, with the price to be no higher than $15.63 per share and no lower than $11.56 per share.

2.In the February 26 Agreement, BIOMEC and Enpath also agreed that that 20 percent of the value of the 2004 Contingent Payment would be made in cash, and 80 percent of the value would be made in Enpath common stock as computed above.

3.In the February 26 Agreement, Enpath also agree that BIOMEC would be allowed to distribute to its shareholders 1,066,901 shares of Enpath common stock immediately after March 31, 2004, rather than only distribute 500,000 shares as allowed under the Agreement, and BIOMEC distributed substantially all the 1,066,901 shares to its shareholders in April 2004.

4.In the February 26 Agreement, Enpath agreed that it would continue to nominate and solicit proxies for re-election of the Chairman of BIOMEC until the later of (a) the date on which the 2004 Contingent Payment is paid (or, if no 2004 Contingent Payment is due, March 31, 2005) or (b) such time as BIOMEC and its affiliatesheld less than 5% in the aggregate of the outstanding voting power of Enpath.

5.BIOMEC advised ENPATH that Action #1 and #2 would require approval by BIOMEC shareholders and BIOMEC received shareholder approval in April 2004 and, as a result the price and payment provisons of the February 26 Agreement and this letter are in effect.

6.Enpath and BIOMEC together with Subsidiary subsequently entered into Amendment No.1 substantially in the form approved by shareholders of BIOMEC, which memorialized changes to Section 2.4, Section 2.5.3 and Section 7.6 of the Agreement.

7.The February 26 Agreement and the amendment to Section 7.6 of the Agreement stated that Enpath and BIOMEC would cooperate and negotiate in good faith with respect to the designation of the affiliates of BIOMEC and the process for determining the ownership interests of such affiliates.

8.Enpath and BIOMEC hereby agree, that in order to enable Enpath to prepare and mail its proxy statements in a timely manner and include the Chair of BIOMEC (or such other person as Enpath and BIOMEC may mutually agree) as a director, on or prior to March 15, 2005 and on or prior to February 1 of each subsequent year in which it believes its affiliates own five percent to Enpath, BIOMEC will provide to Enpath a list of BIOMEC’s affiliates and the current Enpath shareholdings of these affiliates.  If Enpath is unable to confirm the ownership from its books and records, BIOMEC will provide Enpath with documentation from its affiliates confirming their ownership.

IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the as of the date first written above.

ENPATH MEDICAL, INC.
By:		James D. Hartman
Name:		James D. Hartman
Title:	CEO
BIOMEC TECHNOLOGY INC.
By:		Trevor O. Jones
Name:		Trevor O. Jones
Title:	Chairman
BIOMEC INC.
By:		Trevor O. Jones
Name:		Trevor O. Jones
Title:	Chairman

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the

(i)Form S-8, File No.333-109875, (1999 Incentive Stock Option Plan);

(ii)Form S-4, File No. 333-108404, (registration of 2,066,667 shares of common stock in connection with asset acquisition);

(iii)Form S-8, File No. 333-62560, (1999 Incentive Stock Option Plan);

(iv)Form S-8, File No. 333-57944, (1991 Non-Statutory Stock Option Plan);

(v)Form S-8, File No. 333-57942 (1996 Non-Employee Director and Medical Advisory Stock Option Plan);

(vi)Form S-8, File No. 333-57938 (1999 Incentive Stock Option Plan);

(vii)Form S-8, File No. 333-57934 (1999 Non-Employee Director and Medical Advisory Board Stock Option Plan);

of our report dated January 18, 2005 (except for Note 6, as to which the date is February 9, 2005) with respect to the consolidated financial statements of Enpath Medical, Inc., included in this Annual Report on Form 10-K for the year ended December 31, 2004.

	/s/ McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 22, 2005

EX-31

Exhibit 31

CERTIFICATION

I, James D. Hartman, certify that:

1.I have reviewed this Annual Report on Form 10-K of Enpath Medical, Inc.;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date  March 22, 2005	/s/ James D. Hartman
	Chairman, Chief Executive Officer and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

The undersigned certifies pursuant to 18 U.S.C. Section 1350, that:

(1)The accompanying Annual Report on Form 10-K for the period ended December 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date  March 22, 2005	/s/ James D. Hartman
	Chairman, Chief Executive Officer and Chief Financial Officer