** **

**UNITEDSTATES**SECURITIES AND EXCHANGE COMMISSION

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|

**For the quarterly period endedJune 30, 2002**

 

**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 000-22743**

 

| **VISTA  MEDICAL TECHNOLOGIES, INC.**                            |
|------------------------------------------------------------------|
| (Exact name of  Registrant as Specified in Its Charter)          |
|                                                             |   |   |
| **DELAWARE**                                                     |   | **94-3184035** |
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |   |
| **5451 AVENIDA ENCINAS, SUITE A**                                |
| **CARLSBAD, CA  92008**                                     |
| (Address of principal  executive offices, including zip code)    |
| **(760) 603-9120**                                               |
| (Registrant’s telephone  number, including area code)       |

 

**Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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:**

** **

**(1)      Yes****ý       No****o**

**(2)      Yes****ý       No****o**

 

As of July 31,2002, there were 4,988,797 shares of $.01 par value common stock outstanding.

 

 

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**VISTA MEDICAL TECHNOLOGIES, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**

 
| PART 1  .FINANCIAL INFORMATION |
|-------------------------------------|
|                                |   |
| Item 1.                             | Financial Statements  (unaudited) |
|                                |   |   |
|                                | Consolidated Balance Sheets  as of June 30, 2002 and December 31, 2001 |
|                                | Consolidated  Statements of Operations for the three months ended June 30, 2002 and 2001,  and the six months ended June 30, 2002 and 2001 |
|                                | Consolidated  Statements of Cash Flows for the six months ended June 30, 2002 and 2001 |
|                                | Notes to  Consolidated Financial Statements |
|                                |   |
| Item  2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                |   |
| Item  3.                            | Quantitative  and Qualitative Disclosures About Market Risk |
|                                |   |
| Risks and Uncertainties             |
|                                |   |
| PART II.  OTHER INFORMATION    |
|                                |   |
| Item 1.                             | Legal Proceedings |
|                                |   |
| Item  2.                            | Changes  in Securities and Use of Proceeds |
|                                |   |
| Item 3.                             | Defaults Upon  Senior Securities |
|                                |   |
| Item  4.                            | Submission  of Matters to a Vote of Security Holders |
|                                |   |
| Item 5.                             | Other Information |
|                                |   |
| Item 6.                             | Exhibits and  Reports on Form 8-K |
|                                |   |
| SIGNATURES                          |

 

2

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PART 1.             FINANCIALINFORMATION

 

Item 1.                FinancialStatements

 

Vista MedicalTechnologies, Inc.

Consolidated Balance Sheets

** **
|                                                                                                                                                          |   | **June  30, 2002** |      | **December  31, 2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|------------------------|--------|
|                                                                                                                                                          |   | **(Unaudited)**    |      |                   |   |
| ASSETS                                                                                                                                                        |   |               |      |                   |   |
| Current assets:                                                                                                                                               |   |               |      |                   |   |
| Cash and cash equivalents                                                                                                                                     |   | $                  | 984,310   |                   | $      | 800,547 |   |
| Marketable securities                                                                                                                                         |   | 362,068            |      | 516,855                |   |
| Accounts receivable, net                                                                                                                                      |   | 1,609,996          |      | 1,862,028              |   |
| Inventories, net                                                                                                                                              |   | 1,478,958          |      | 1,094,574              |   |
| Other current assets                                                                                                                                          |   | 119,009            |      | 154,827                |   |
| Total current assets                                                                                                                                          |   | 4,554,341          |      | 4,428,831              |   |
| Property and equipment, net                                                                                                                                   |   | 221,655            |      | 357,646                |   |
| Patents and other assets, net                                                                                                                                 |   | 18,840             |      | 37,013                 |   |
| TOTAL ASSETS                                                                                                                                                  |   | $                  | 4,794,836 |                   | $      | 4,823,490 |   |
|                                                                                                                                                          |   |               |      |                   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                          |   |               |      |                   |   |
| Current liabilities:                                                                                                                                          |   |               |      |                   |   |
| Accounts payable                                                                                                                                              |   | $                  | 602,424   |                   | $      | 741,003 |   |
| Short term bank borrowings                                                                                                                                    |   | $                  | 536,567   |                   | $      | — |   |
| Accrued compensation                                                                                                                                          |   | 241,658            |      | 203,413                |   |
| Deferred revenue payments                                                                                                                                     |   | 416,667            |      | 416,667                |   |
| Accrued liabilities                                                                                                                                           |   | 565,470            |      | 371,319                |   |
| Total current liabilities                                                                                                                                     |   | 2,362,786          |      | 1,732,402              |   |
|                                                                                                                                                          |   |               |      |                   |   |
| Commitments and Contingencies                                                                                                                                 |   |               |      |                   |   |
| Stockholders' equity:                                                                                                                                         |   |               |      |                   |   |
| Preferred stock, $.01 par value:  Authorized shares - 5,000,000  Issued and outstanding shares - none                                                         |   |               |      |                   |   |
| Common stock, $.01 par value:  Authorized shares - 8,750,000  Issued and outstanding shares - 4,913,031 on   December 31, 2001 and 4,988,797 on June 30, 2002 |   | 49,888             |      | 49,130                 |   |
| Additional paid-in capital                                                                                                                                    |   | 68,060,795         |      | 67,974,087             |   |
| Notes receivable from stockholders                                                                                                                            |   | (78,375            | )         | (78,375                | )      |
| Deferred compensation                                                                                                                                         |   | (72,203            | )         | (76,305                | )      |
| Accumulated deficit                                                                                                                                           |   | (65,528,055        | )         | (64,777,449            | )      |
| Total stockholders' equity                                                                                                                                    |   | 2,432,050          |      | 3,091,088              |   |
|                                                                                                                                                          |   |               |      |                   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                    |   | $                  | 4,794,836 |                   | $      | 4,823,490 |   |

----

Note: The balance sheetat December 31, 2001 has been derived from the audited financial statements atthat date but does not include all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements.

 

See accompanyingnotes.

 

3

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Vista MedicalTechnologies, Inc.

Consolidated Statements of Operation

(Unaudited)

 
|                                                       |   | **Three Months Ended June 30,** |      | **Six Months Ended June 30,** |   |
|------------------------------------------------------------|--------|---------------------------------|-----------|-------------------------------|--------|
|                                                       |   | **2002**                        |      | **2001**                      |   | **2002** |   | **2001** |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Sales                                                      |   | $                               | 2,809,577 |                          | $      | 2,072,069 |   | $ | 5,482,486 |   | $ | 4,004,602 |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Cost of sales                                              |   | 1,507,888                       |      | 1,731,686                     |   | 2,871,028 |   | 3,263,592 |   |
| Research and  development                                  |   | 473,844                         |      | 479,533                       |   | 898,068 |   | 869,433 |   |
| Sales and  marketing                                       |   | 735,837                         |      | 595,676                       |   | 1,459,271 |   | 1,083,373 |   |
| General and  administrative                                |   | 471,515                         |      | 554,747                       |   | 1,014,951 |   | 1,050,730 |   |
| Total cost and expenses                                    |   | 3,189,084                       |      | 3,361,642                     |   | 6,243,318 |   | 6,267,128 |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Loss from operations                                       |   | (379,507                        | )         | (1,289,573                    | )      | (760,832 | ) | (2,262,526 | ) |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Interest income                                            |   | 4,975                           |      | 17,879                        |   | 10,225 |   | 50,617 |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Net loss                                                   |   | $                               | (374,532  | )                             | $      | (1,271,694 | ) | $ | (750,607 | ) | $ | (2,211,909 | ) |
|                                                       |   |                            |      |                          |   |   |   |   |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Basic and diluted loss per share                           |   | $                               | (0.08     | )                             | $      | (0.26 | ) | $ | (0.15 | ) | $ | (0.45 | ) |
|                                                       |   |                            |      |                          |   |   |   |   |   |
|                                                       |   |                            |      |                          |   |   |   |   |   |
| Shares used in computing basic and diluted loss per  share |   | 4,966,569                       |      | 4,905,643                     |   | 4,941,171 |   | 4,900,874 |   |

 

See accompanying notes.

 

4

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Vista MedicalTechnologies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 
|                                                                          |   | **Six Months  Ended June 30,** |     |
|-------------------------------------------------------------------------------|--------|--------------------------------|----------|
|                                                                          |   | **2002**                       |     | **2001** |   |
| OPERATING ACTIVITIES                                                          |   |                           |     |   |   |
| Net loss                                                                      |   | $                              | (750,607 | ) | $ | (2,211,909 | ) |
| Adjustments to reconcile net loss to net cash used  for operating activities: |   |                           |     |   |   |
| Depreciation and  amortization                                                |   | 209,741                        |     | 360,989 |   |
| Amortization of  deferred compensation                                        |   | 40,102                         |     | 118,723 |   |
| Changes in  operating assets and liabilities:                                 |   |                           |     |   |   |
| Accounts  receivable                                                          |   | 252,032                        |     | (299,315 | ) |
| Inventories                                                                   |   | (384,384                       | )        | 326,563 |   |
| Other current  assets                                                         |   | 35,818                         |     | 67,250 |   |
| Accounts payable                                                              |   | (138,578                       | )        | (53,543 | ) |
| Accrued  compensation                                                         |   | 38,245                         |     | 19,977 |   |
| Deferred revenue                                                              |   | —                         |     | 416,667 |   |
| Accrued  liabilities                                                          |   | 194,151                        |     | (40,163 | ) |
| Net cash flows used for operating activities                                  |   | (503,480                       | )        | (1,294,761 | ) |
|                                                                          |   |                           |     |   |   |
| INVESTING ACTIVITIES                                                          |   |                           |     |   |   |
| Purchases of short-term investments                                           |   | 154,787                        |     | 30,079 |   |
| Purchases of property and equipment                                           |   | (55,577                        | )        | (22,113 | ) |
| Net cash flows provided by investing activities                               |   | 99,210                         |     | 7,966 |   |
|                                                                          |   |                           |     |   |   |
| FINANCING ACTIVITIES                                                          |   |                           |     |   |   |
| Issuance of common stock                                                      |   | 51,466                         |     | 16,772 |   |
| Net short term bank borrowings                                                |   | 536,567                        |     | — |   |
| Net cash flows provided by financing activities                               |   | 588,033                        |     | 16,772 |   |
| Net increase (decrease) in cash and cash equivalents                          |   | 183,763                        |     | (1,270,023 | ) |
| Cash and cash equivalents at beginning of period                              |   | 800,547                        |     | 2,589,006 |   |
| Cash and cash equivalents at end of period                                    |   | 984,310                        |     | 1,318,983 |   |
|                                                                               |        |                                |          |  |  |  |  |

 

See accompanyingnotes.

 

5

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VISTA MEDICALTECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

(UNAUDITED)

 

1.   Basis of Presentation

 

The auditedfinancial statements of Vista Medical Technologies, Inc. (the “Company”) andthe notes thereto for the year ended December 31, 2001 included in theCompany’s Annual Report on Form 10-K filed with the Securities and ExchangeCommission, contain additional information about the Company, its operations, andits financial statements and accounting practices, and should be read in conjunction with this quarterly reporton Form 10-Q.  These unauditedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles and with the instructions on Form 10-Qexcept that certain information and footnote disclosures normally contained infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted.

 

The accompanyingunaudited consolidated financial statements of the Company reflect alladjustments of a normal recurring nature which are, in the opinion ofmanagement, necessary for a fair presentation of the financial position,results of operations and cash flows for all periods presented.  The interim financial information containedherein is not necessarily indicative of results for any future interim periodsor for the full fiscal year ending December 31, 2002.

 

2.   Inventories

 

|                |   | **June 30, 2002** |      | **December 31, 2001** |   |
|---------------------|--------|-------------------|-----------|-----------------------|--------|
|                |   | **(Unaudited)**   |      |                  |   |
|                |   |              |      |                  |   |
| Parts and materials |   | $                 | 1,687,492 |                  | $      | 1,587,253 |   |
| Work in process     |   | 401,939           |      | 170,815               |   |
| Finished goods      |   | 714,910           |      | 858,202               |   |
|                |   | 2,804,341         |      | 2,616,270             |   |
| Less: reserves      |   | (1,325,383        | )         | (1,521,696            | )      |
| Inventories, net    |   | $                 | 1,478,958 |                  | $      | 1,094,574 |   |

 

6

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3.   Loss Per Share

 
|                                             |   | **Three  Months Ended June 30,** |     |
|--------------------------------------------------|--------|----------------------------------|----------|
|                                             |   | **2002**                         |     | **2001** |   |
|                                             |   |                             |     |   |   |
| Net (loss)                                       |   | $                                | (374,532 | ) | $ | (1,271,694 | ) |
| Weighted average  common shares outstanding      |   | 4,966,569                        |     | 4,905,643 |   |
| Shares used in  basic and diluted loss per share |   | 4,966,569                        |     | 4,905,643 |   |
| Basic and  diluted loss per share                |   | $                                | (0.08    | ) | $ | (0.26 | ) |

 

4.  Other Comprehensive Income

 

Othercomprehensive income equals net income as marketable securities did notgenerate any material unrealized gains or losses.

 

5.  New Accounting Standards

 

In June 2001, theFASB issued SFAS No. 141, “BUSINESS COMBINATIONS,” and No. 142, “GOODWILL ANDOTHER INTANGIBLE ASSETS,” effective for fiscal years beginning after December15, 2001.  Under the new rules,goodwill, along with intangible assets deemed to have indefinite lives, will nolonger be amortized but will be subject to annual impairment tests inaccordance with the Statements.  Also,business combinations initiated after June 30, 2001 must be accounted for usingthe purchase method of accounting. Adoption of SFAS 141 and 142 is not expected to have a material impacton the Company’s financial statements.

 

In August 2001,the FASB issued SFAS No. 144, “ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OFLONG LIVED ASSETS,” effective for fiscal years beginning after December 15,2001.  Adoption of SFAS 144 is notexpected to have a material impact on the Company’s financial statements.

 

7

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

 

THIS QUARTERLYREPORT MAY CONTAIN PREDICTIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTSTHAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSEDBELOW AT “RISKS AND UNCERTAINTIES.” WHILE THIS OUTLOOK REPRESENTS OUR CURRENT JUDGMENT ON THE FUTUREDIRECTION OF OUR BUSINESS, SUCH RISKS AND UNCERTAINTIES COULD CAUSE ACTUALRESULTS TO DIFFER MATERIALLY FROM ANY FUTURE PERFORMANCE SUGGESTED BELOW.  WE UNDERTAKE NO OBLIGATION TO RELEASEPUBLICLY THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TOREFLECT EVENTS OR CIRCUMSTANCES ARISING AFTER THE DATE OF THIS QUARTERLYREPORT.  THE FOLLOWING DISCUSSION SHOULDBE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTESTHERETO INCLUDED IN ITEM 1 OF THIS QUARTERLY REPORT ON FORM 10-Q AND OUR 2001ANNUAL REPORT ON FORM 10-K, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

# **Overview of our business**

 

We develop, manufactureand market products that provide information to doctors performing minimallyinvasive general surgical, cardiac surgical and other selected microsurgicalprocedures.  We also develop and sponsortraining and support programs for medical personnel which enhance the adoptionof procedures incorporating use of our visualization technology.  Our products combine a head mounted displaywith video cameras to provide surgeons with critical visual information duringthese microsurgical procedures, combined with the ability to view newadditional information in a voice-controlled, picture-in-picture format, tofacilitate real-time decision making during surgery.  Our product lines include the ORPC Advanced Visualization andInformation System for general surgery and other complex endoscopic proceduresand the Series 8000 Advanced Visualization and Information System, for use incardiac surgery.  In general terms,endoscopic surgery involves a telescopic viewing device which is inserted intoa small incision in the body and which allows the surgeon an adequate view ofthe internal part of the body being repaired.

 

**Critical Accounting Policies**

 

RevenueRecognition

 

Revenue generatedfrom LBS program sales are recognized upon shipment of equipment and marketing materialsand completion of the related training component, provided that a purchaseorder has been received, there are no uncertainties regarding customeracceptance, the sales price is fixed and determinable and collectibility isdeemed probable.  Sales of all otherproducts are similarly recognized upon shipment provided that a purchase orderhas been received, there are no uncertainties regarding customer acceptance,the sales price is fixed and determinable and collectibility is deemedprobable.

 

8

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The Companyreceives semiannual payments as a result of fulfilling certain obligationsrelated to its strategic alliance agreement with Ethicon Endo-Surgery, Inc.(EES).  These payments are recognized asrevenue on a straight-line basis over the related contract term, provided thatthe Company has complied with all contractual obligations.

 

Inventory

 

Inventory isaccounted for on a first-in first-out basis and is valued at the lower of costor market. The Company regularly evaluates inventory for obsolescence andreserves for 100% of inventory considered to be obsolete.  At June 30, 2002 such inventory reservesapproximated $1,325,000.  The Companybelieves it is adequately reserved for obsolescence of current inventory.  However, future product introductions andrelated inventories may require additional reserves based upon changes inmarket demand or introduction of competing technologies.

 

**Our results of operations forthree-months and six-months ended June 30, 2002 versus three-months andsix-months ended June 30, 2001**

 

Revenues.  We had revenue from product sales andcontract revenue of $2,810,000 and $5,482,000 for the three-and six monthsended June 30, 2002, respectively, compared to revenues from product sales of$2,072,000 and $4,005,000 for the three- and six-months ended June 30, 2001,respectively.  The increase in revenuefor both the three-and six-month periods was due primarily to increased unitsales from our Laparoscopic Bariatric Surgery Programs coupled with contractrevenue recognition of $500,000 for the six-month period ending June 30, 2002from our Supply and Promotion Agreement with Ethicon Endo-Surgery, Inc.

 

Cost ofRevenues.  Our cost of revenues were$1,508,000 and $2,871,000 for the three- and six-months ended June 30, 2002,respectively, and $1,732,000 and $3,264,000 for the three-and six-months endedJune 30, 2001, respectively.  Our grossmargins were 46% and 47% for the three- and six-months ended June 30, 2002,respectively, and 16% and 19% for the three-and six-months ended June 30, 2001,respectively.  The increase in grossmargin was primarily due to increased unit sales of our higher marginLaparoscopic Bariatric Surgery Program.

 

Research andDevelopment Expenses.  Our research anddevelopment expenses were $474,000 and $898,000 for the three-and six-monthsended June 30, 2002, respectively, and $480,000 and $869,000 for the three-andsix-months ended June 30, 2001, respectively. The increase in research and development expenses was primarilyattributable to next generation product development.  We expect our research and development expenses to remain at ornear current levels in the next several quarters as we finalize our nextgeneration of products for the general surgery market.

 

Sales andMarketing Expenses.  Sales and marketingexpenses were $736,000 and $1,459,000 for the three-and six-months ended June30, 2002, respectively, and $596,000 and $1,083,000 for the three-andsix-months ended June 30, 2001, respectively. The increase in sales andmarketing expense reflects an increase of field activities for the obesitysurgery market.  We

 

9

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expect our salesand marketing expenses to increase proportionately during the next severalquarters as we continue to increase our field activities for the obesitysurgery market.

 

General andAdministrative Expenses.  General andadministrative expenses were $472,000 and $1,015,000 for the three-andsix-months ended June 30, 2002, respectively, and $555,000 and $1,051,000 forthe three-and six-months ended June 30, 2001, respectively.  We expect our general and administrativeexpenses to remain at or near current levels for the next several quarters.

 

InterestIncome.  Our net interest income was$5,000 and $10,000 for the three-and six-months ended June 30, 2002,respectively, and $18,000 and $51,000 for the three-and six-months ended June30, 2001, respectively.  The decrease innet interest income during the 2002 period was due primarily to decreasing cashbalances.

 

**Liquidity and capital resources**

 

Net cash used foroperating activities for the six-months ended June 30, 2002 was $503,000compared to net cash used of $1,295,000 for the corresponding six-month periodin 2001.  The decrease in net cash usedin operating activities during the 2002 period was primarily attributable to adecreased net loss partially offset by higher inventory purchases.

 

Net cash providedby investing activities was $99,000 for the six-months ended June 30, 2002compared to $8,000 of net cash used in the same period in 2001.  The increase in net cash provided byinvesting activities during the 2002 period was primarily attributable toincreasing balances of short term investments reaching maturity offset by decreasingpurchases of property and equipment.

 

Net cash providedby financing activities was $588,000 for the six-months ended June 30, 2002,compared to $17,000 for the same period in 2001.  The increase in net cash provided by financing activities duringthe 2002 period was primarily attributable to advances from our credit facilityand a higher level of stock option exercises

 

During fiscal 2000and 2001, the Company incurred significant operating losses. However, in June2001, the Company entered into a Supply and Promotion Agreement with EthiconEndo-Surgery, Inc. (EES) which will provide a significant source of revenue infiscal 2002.    We are also working oninitiatives to extend our business, most immediately in the surgical obesitymarket, by adding new products and services which could provide new sources ofrevenue in fiscal 2002.  In October2001, we also obtained an additional financing source through a $2,000,000 bankline of credit facility for one year with automatic yearly renewals.  At June 30, 2002 $1,463,000 was availableunder this credit facility.

 

We believe thatour existing cash resources, line of credit facility and cash from operationswill meet working capital and research and development requirements over thenext twelve months.  However, managementhas outlined a number of action steps that may be taken if operating resultsare worse than planned to ensure that we have adequate sources of cash to meetour working capital needs.  During thesecond half of 2001, we received approval from our

 

10

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Board of Directorsto implement an action plan in fiscal 2002 if necessary to sustain operations.The key elements of the plan are as follows:

 

•                                          Furtherreduce operating expenses by eliminating certain expenditures that are notessential to achieving critical business objectives (e.g., discretionaryspending, further development efforts);

 

•                                          Eliminateplanned expansion into new services and production of new products;

 

•                                          Borrowagainst the company’s $2,000,000 credit facility.

 

Unanticipateddecreases in operating revenues, increases in expenses or delays in productdevelopment may adversely impact the Company’s cash position and requirefurther cost reductions. No assurance can be given that the Company will beable to achieve profitability or operate profitably on a consistent basis inthe future.  As of June 30, 2002, ouraccumulated deficit was approximately $65,528,000.

 

 

We have a$2,000,000 credit facility with a financial institution.  Interest on this facility was prime plus 2%at June 30, 2002.  At June 30, 2002, wehad advances of $537,000 outstanding under this credit facility.  If we were to draw under this facility,changes in interest rates would affect the interest expense we would pay andcould impact our cash flows and results of operations.

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

 

At June 30, 2002,our investment portfolio included fixed-income securities of $0.8 million.  These securities are subject to interestrate risk and will decline in value if interest rates increase.  These investments are not held for tradingor other speculative purposes. Due to the short duration of our investmentportfolio, an immediate 10 percent increase in interest rates would have nomaterial impact on our financial condition or results of operations.

 

We generallyconduct business, including sales to foreign customers, in U.S. dollars and asa result have limited foreign currency exchange rate risk.  The effect of an immediate 10 percent changein foreign exchange rates would not have a material impact on our financialcondition or results of operations.

 

RISKS AND UNCERTAINTIES

 

You shouldconsider the following factors carefully in evaluating an investment in ourcompany in addition to the other information in this report.  You are cautioned that the statements inthis annual report that are not descriptions of historical facts may beforward-looking statements that are subject to risks and uncertainties.  Our actual results could differ materiallyfrom those currently anticipated due to a number of factors, including thoseidentified in this section and elsewhere in this annual report.  We undertake no obligation to release publiclythe results of any revisions to these forward-looking statements to reflectevents or circumstances arising after the date of this annual report.  The following discussion should be read inconjunction with our

 

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consolidated financial statements and notes thereto.

 

**We may need additional funds tosupport our currently proposed operations. If we are unable to obtain them, we may have to significantly scale backour operations or forgo opportunities in new market segments.**

 

We are working oninitiatives to extend our business, most immediately in the surgical obesity****market,by****addingnew products and services. As a result, we may be required to raise additionalfunds to support our operations.  Inaddition, if we are unable to sustain our cash flow under our current businessplan, we will be required to raise additional funds.  If we are unable to raise sufficient funds from an offering ofsecurities or otherwise, we may be unable to continue operations at theircurrent level and may be unable to pursue this new objective.  Moreover, our liquidity and capitalrequirements will depend upon other numerous factors, including the following:

 

•              Theextent to which our products gain market acceptance;

 

**•             **The progress and scope ofproduct evaluations;

 

•              Thetiming and costs of filing future regulatory submissions;

 

•                                          Thetiming and costs required to receive both domestic and internationalgovernmental approvals;

 

•              Thetiming and costs of product introductions;

 

•              Theextent of our ongoing research and development programs;

 

•                                          Thecosts of sponsorship training of the physicians to become proficient in the useof our products and procedures; and

 

•              Thecosts of developing marketing and distribution capabilities.

 

Even if we aresuccessful in raising additional funds, circumstances, such as a slow rate ofmarket acceptance of our products or our inability to scale up manufacturing,could accelerate our use of proceeds from any offering of securities we mightdo and require us to seek additional funds to support our operatingrequirements.

** **

**We have a history of losses and maynot become profitable.**

 

Since ourformation in July 1993, and as of June 30, 2002, we have incurred cumulativenet losses of $65.5 million.  We expectto incur losses for at least the next 6 months.  We may never achieve or sustain profitability in the future.  Even if we achieve profitability, we may notbe able to sustain it on an ongoing basis.

 

12

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**We are, to a significant extent,dependent on distribution partners to sell our products.**

 

We only have asmall direct sales force and, in the past, we were primarily dependent onagreements with third parties for sales of the majority of products derivedfrom our core three-dimensional technology. Two of our primary distribution agreements were terminated in 2000.  We entered into an arrangement with JomedN.V. in May, 2000 to transition to Jomed N. V. the distribution of our cardiacsurgery products and to continue supporting our cardiac customer base.  However, the success of this transitiondepends upon the concurrent development of new technology by Jomed N.V. and maynot be achieved in a reasonable timeframe, or at all.  If we are unable to make this transition, we may be unsuccessfulin distributing our cardiac surgery products and may lose revenues.

 

In addition,during 2000, we changed our strategic emphasis for our core three-dimensionaltechnology to focus on applications in general surgery, gynecology andurology.  We cannot assure you that wewill be successful in these areas of sales. Even if we are successful, we cannot assure you that the revenueachieved in these areas of emphasis will be sufficient to compensate for anyloss of sales revenue from the termination of our previous distributionagreements for cardiac products.  Eitherof these results could have an adverse affect on our financial condition andresults of operations.

** **

**Our profitability is primarilydependent upon the successful development and commercialization of our productsbased on our core three-dimensional technology.**

 

Products, such asthe ORPC for general surgery and the Series 8000 for minimally invasive cardiacsurgery, or their successors, which are derived from our core three-dimensionaltechnology, are expected to account for the majority of our revenues over thenext several years.  The demand forthese products may not be sufficient to allow us to achieve profitableoperations.

 

Our developmentefforts for improvements to these products may not be successful.  In addition, other products underdevelopment may not be shown to be safe or effective, capable of beingmanufactured in commercial quantities at acceptable costs, acquire appropriateregulatory clearances or be successfully marketed.

** **

**Our success is dependent uponacceptance of a minimally invasive approach to complex procedures as areliable, safe and cost effective alternative to existing treatments.**

 

Complex minimallyinvasive procedures are only performed on a very limited basis by a relativelysmall number of highly skilled surgeons. We are unable to predict how quickly, if at all, complex minimallyinvasive procedures will be adopted by the medical community or, if they areadopted, the number of procedures that will be performed.

 

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Even if theclinical safety and effectiveness of complex minimally invasive procedures isestablished in general surgery, cardiac, urology and other specialties,surgeons and other physicians may choose not to recommend the procedures forany number of other reasons.  Adoptionof these procedures by doctors will depend, for example, upon our ability tofacilitate and sponsor training of surgeons to perform complex minimallyinvasive procedures and the willingness of these surgeons to perform suchprocedures.  Doctors may also elect notto recommend the minimally invasive procedures based on possible unavailabilityof acceptable reimbursement from health care payors.  Health care payor acceptance may require evidence of the costeffectiveness of minimally invasive procedures as compared to other currentlyavailable treatments.  We believe thatphysician endorsements will be essential for clinical adoption of minimallyinvasive procedures and these endorsements may not be obtained.  Patient acceptance of new procedures willdepend upon doctor recommendations, as well as other factors, including theeffectiveness of, and the rate and severity of complications associated with,the procedure as compared to other treatments.

** **

**Widespread use of our products willrequire sponsoring the training of a large number of surgeons, and the timerequired to institute a training program and to train such surgeons couldadversely affect near term market acceptance.**

 

Evaluations of visualizationtechnology, such as ours, which have been conducted to date, have shown thatthere is a learning process involved for surgeons and other members of thesurgery team to become proficient with the use of the systems.  Based on the clinical and laboratoryprocedures performed to date, we cannot assure you that visualization andinformation system enhancements incorporated, or to be incorporated, in ourproducts will prove suitable for use by a substantial number of surgeons.  If they prove unsuitable for use by a largenumber of surgeons, the potential markets and applications for our productswould be significantly limited.

** **

**There are significant risksassociated with any scale-up of manufacturing which may be required to meetmarket demand and become profitable.**

 

We have neverestablished high-volume manufacturing operations and if we are required to doso to meet market demand or to become profitable, we may not be able toestablish or maintain reliable operations at commercially reasonable costs.  We may also require additional manufacturingfacilities if production volumes increase. Acquisition of new manufacturing facilities would also likely involverelocation.  Difficulties in scaling upmanufacturing of products could result from problems involving:

 

•             quality control and assurance;

 

•             component and service availability;

 

•             adequacy of control policies andprocedures;

 

•             lack of qualified personnel;

 

•             compliance with FDA regulations andthe need for further FDA approval of new manufacturing processes andfacilities; and

 

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•                                          otherproduction constraints.

 

We have consideredand will continue to consider as appropriate, the internal manufacture ofsub-assemblies currently provided by third-party subcontractors, as well as theimplementation of new production processes. Our manufacturing yields or costs may increase as a result of thetransition to in-house production or to new production processes when suchefforts are undertaken.  In addition,costs to comply with FDA good manufacturing practices or changes in suchpractices may exceed our expectations.

 

**We may face component shortages andare dependent in some instances on single sources of supply.**

 

Any significantsupply interruption, or inventory shortage or overage, would negatively impactour ability to manufacture our products. We use and rely on specific components and services used in our systemsfor which we have only a single source of supply.  The manufacture of our products in larger commercial quantitieswill require a substantial increase in component supplies and will likelynecessitate the replacement of current suppliers or the addition of newsuppliers.  The qualification of additionalor replacement vendors for specified components or services is a lengthyprocess.  In addition, the substitutionof replacement vendors may entail re-engineering time and cost and could delaythe supply of our products.

 

We expect tomanufacture our products based on forecasted product orders and intend topurchase subassemblies and components prior to receipt of purchase orders fromcustomers.  Lead times for orderedmaterials and components vary significantly and depend on factors such as thebusiness practices of the specific supplier, contract terms and general demandfor a component at a given time.  Somecomponents used in our products have long lead times.  As a result, there is a risk of excess or inadequate inventory iforders do not match forecasts.

 

**We are subject to significant domesticand international regulation and may not be able to obtain necessary regulatoryclearances to sell our products.**

 

The manufactureand sale of medical devices intended for commercial distribution are subject toextensive governmental regulation.  Ourfailure to comply with regulatory requirements would jeopardize our ability tomarket our products.  Noncompliance withapplicable requirements can result in failure of the regulatory agency to grantpre-market clearance or approval for devices, withdrawal or suspension ofapproval, total or partial suspension of production, fines, injunctions, civilpenalties, refunds, recall or seizure of products and criminal prosecution.

 

Medical devicesare regulated in the United States primarily by the FDA and, to a lesserextent, by state agencies.  Sales ofmedical device products outside the United States are subject to foreignregulatory requirements that vary from country to country.  Generally, medical devices requirepre-market clearance or pre-market approval prior to commercialdistribution.  A determination thatinformation available on the medical device is not sufficient to grant theneeded clearance or approval will delay market introduction of the product.  In addition, material

 

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changes ormodifications to, and changes in intended use of, medical devices also aresubject to FDA review and clearance or approval.  The FDA regulates the research, testing, manufacture, safety,effectiveness, labeling, storage, record keeping, promotion and distribution ofmedical devices in the United States and the export of unapproved medicaldevices from the United States to other countries.  The time required to obtain approvals required by foreigncountries may be longer or shorter than that required for FDA clearance, andrequirements for licensing may differ from FDA requirements.  The current regulatory environment in Europefor medical devices differs significantly from that in the United States.

 

**We expect to encounter rapidtechnological change and significant competition.**

 

The medical devicemarket in which we compete is characterized by intensive development effortsand rapidly advancing technology.  Ourfuture success will depend, in large part, upon our ability to anticipate andkeep pace with advancing technology and competing innovations.  We may not be successful in identifying,developing and marketing new products or enhancing our existing products.

 

We believe that anumber of large companies, with significantly greater financial, manufacturing,marketing, distribution and technical resources and experience than ours, arefocusing on the development of visualization products for minimally invasivemicrosurgery.  Several companies arecurrently developing and marketing visualization products for minimallyinvasive microsurgery which could be applied to general surgery or heartsurgery.

 

Technologicaladvances with other therapies such as drugs, interventional procedures orfuture innovations in surgical techniques could make such other therapies moreeffective or lower in cost than minimally invasive microsurgery procedures andcould diminish growth prospects for minimally invasive microsurgery.

 

**We expect fluctuations in ouroperating results.**

 

Our results of operations may vary significantly from quarter toquarter depending upon numerous factors, including the following:

 

                •               timing and results of productevaluations;

 

                •               delays associated with the FDAand other regulatory approval processes;

 

                •               demand for and utilization of ourproducts;

 

                •               changes in our pricing policiesor those of our competitors;

 

                •               changes in third-party paymentguidelines;

 

                •               the number, timing andsignificance of product enhancements and new product announcements by us or ourcompetitors;

 

                •               our ability to develop, introduceand market new and enhanced versions of our products on a timely basis;

 

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•               customer order deferrals in anticipation ofenhancements or new product introductions by us or our competitors;

 

•               product quality problems;

 

•               personnel changes; and

 

•               thelevel of international sales.

 

**Our profitability is directly relatedto the level of reimbursements for surgical procedures using our products.**

 

Our profitabilityis directly related to the level of payments for the surgical procedures inwhich our products are involved, either by Medicare or private insurancecompanies.  We could be adverselyaffected by changes in payment policies of government or private health carepayors, particularly to the extent any such changes affect payment for theprocedure in which our products are intended to be used.  It is a continuing trend in U.S. health carefor such payments to be under continual scrutiny and downward pressure.  We believe that reimbursement in the futurewill be subject to increased restrictions, both in the United States and inforeign markets and that the overall escalating cost of medical products andservices has led to and will continue to lead to increased pressures on thehealth care industry, both foreign and domestic, to reduce the cost of productsand services, including products which we offer.

 

We expect that ourproducts typically will be used by hospitals and surgical centers, which billvarious third-party payors, such as governmental programs and private insuranceplans, for the health care services provided to their patients.  Third-party payors carefully review andincreasingly challenge the prices charged for medical products and services ornegotiate a flat rate fee in advance. Payment rates from private companies also vary depending on theprocedure performed, the third-party payor, the insurance plan and otherfactors.  Medicare compensates hospitalsat a predetermined fixed amount for the costs associated with an in-patienthospitalization based on the patient’s discharge diagnosis and compensatesphysicians at a pre-determined fixed amount based on the procedure performed,regardless of the actual costs incurred by the hospital or physician infurnishing the care and unrelated to the specific devices or systems used inthat procedure.  Medicare and otherthird-party payors are increasingly scrutinizing whether to cover new productsand the level of payment for new procedures. The flat fee reimbursement trend is causing hospitals to control costsstrictly in the context of a managed care system in which health care providerscontract to provide comprehensive health care for a fixed cost per person.  We are unable to predict what changes will bemade in the reimbursement methods utilized by such third-party payors.

 

If we obtain thenecessary foreign regulatory registrations or approvals, market acceptance ofour products in international markets would be dependent, in part, upon theacceptance by the prevailing health care financing system in each country.  Health care financing systems ininternational markets vary significantly by country and include both governmentsponsored health care programs and private insurance.  We cannot assure you that these financing systems will endorsethe use of our products.

 

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**We have limited experience directlymarketing our products overseas and may not be successful in expanding intointernational markets without experienced partners.**

 

We have limitedexperience in directly marketing our products overseas.  Changes in overseas economic conditions,currency exchange rates, foreign tax laws or tariffs or other trade regulationscould negatively impact our business. The anticipated international nature of our business is also expected tosubject our representatives, agents and distributors to laws and regulations ofthe foreign jurisdictions in which they operate or in which our products  are sold, including laws regulatingmanufacture and sale of medical devices. In addition, the laws of some foreign countries do not protect ourintellectual property rights to the same extent as do the laws of the UnitedStates.

 

**We may be subject to productliability claims and have limited insurance coverage.**

 

We face aninherent and significant business risk of exposure to product liability claimsin the event that the use of our products results in personal injury ordeath.  Also, in the event that any ofour products proves to be defective, we may be required to recall or redesignsuch products.  Our current productliability insurance coverage limit is $10.0 million per occurrence and in theaggregate.  Our coverage limits may notbe adequate to protect us from any liabilities we might incur in connectionwith the development, manufacture and sale of our products.  In addition, increased product liabilitycoverage may be required if additional products are used in clinicalevaluations or successfully commercialized. Product liability insurance is expensive and in the future may not beavailable to us on acceptable terms, if at all.  A successful product liability claim or series of claims broughtagainst us in excess of our insurance coverage or a product recall would negativelyimpact our business.

 

**If we are unable to protect ourintellectual property, we may be unable to prevent other companies from usingour technology in competitive products.**

 

Our future successwill depend, in part, on our ability to continue developing patentableproducts, enforcing our patents and obtaining patent protection for ourproducts both in the United States and in other countries.  The patent positions of medical devicecompanies, however, are generally uncertain and involve complex legal andfactual questions.  Patents may neverissue from any patent applications owned by or licensed to us.  Even if patents do issue, the claims allowedmay not be sufficiently broad to protect our technology.  In addition, issued patents owned by orlicensed to us may be challenged, invalidated or circumvented, or the rightsgranted thereunder may not provide us with competitive advantages.

 

The medical deviceindustry has been characterized by extensive litigation regarding patents andother intellectual property rights. Litigation, which would result in substantial expense, may be necessaryto enforce any patents issued or licensed to us and/or to determine the scopeand validity of proprietary rights of third parties or whether our products,processes or procedures infringe any such third-party proprietary rights.  We may also have to participate ininterference proceedings declared by the United States Patent and TrademarkOffice, which could result in substantial expense, to determine the priority ofinventions covered by our issued United States patents or pending patentapplications.  Furthermore, we may haveto participate at

 

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substantial costin International Trade Commission proceedings to enjoin importation of productswhich would compete unfairly with our products.  Any adverse outcome of any patent litigation, includinginterference proceedings, could subject us to significant liabilities to thirdparties, require disputed rights to be licensed from or to third parties orrequire us to cease using the technology in dispute.  Any such licenses may not be available on acceptable terms, if atall.  Furthermore, parties making suchclaims may be able to obtain injunctive or other equitable relief that couldeffectively block our ability to make, use, sell or otherwise practice ourintellectual property, whether or not patented or described in pending patentapplications, or to further develop or commercialize our products in the UnitedStates and abroad and could result in the award of substantial damages.  Defense of any lawsuit or failure to obtainany such license could damage our business.

 

In addition topatents, we rely on unpatented trade secrets to protect our proprietarytechnology.  Others may independentlydevelop or otherwise acquire the same or substantially equivalent technologiesor otherwise gain access to our proprietary technology or disclose thistechnology.  It is difficult to protectrights to unpatented proprietary technology. Third parties may obtain patent rights to these unpatented tradesecrets, which patent rights could be used to assert infringement claimsagainst us.  We also rely onconfidentiality agreements with our collaborators, employees, advisors, vendorsand consultants to protect our proprietary technology.  These agreements may be breached, we may nothave adequate remedies for any breach and our trade secrets may otherwisebecome known or be independently developed by competitors.  In addition, our agreements with employeesand consultants require disclosure of ideas, developments, discoveries orinventions conceived during employment or consulting, as the case may be, andassignment to us of proprietary rights to such matters related to our businessand technology.  The extent to whichefforts by others will result in patents and the effect on us of the issuanceof such patents is unknown.

 

**We have licensed some aspects of ourproducts from third parties and may lose the rights to these essential aspectsunder the agreements which govern those relationships.**

 

We have licensedsome aspects of our technology from third parties.  The rights under the governing agreements may be terminated if webreach our obligations or in other circumstances.  Our failure to retain rights to these licensed rights couldnegatively impact our business.

 

**If we are not able to attract andretain key technical and senior management personnel and doctors to participatein our advisory boards, it may adversely affect our ability to obtain financingor develop our products.**

 

Our futurebusiness and operating results depend in significant part upon the continuedcontributions of our key technical and senior management personnel, many ofwhom would be difficult to replace and some of whom perform important functionsbeyond those suggested by their job titles or descriptions.  Our business and future operating resultsalso depend in significant part upon our ability to attract and retainqualified management, manufacturing, technical, marketing and sales and supportpersonnel for our operations. Competition for such personnel is intense, and we may not be successfulin attracting or retaining such personnel.

 

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Members of ourclinical advisory boards consult with us exclusively in the field ofvisualization, but are free to consult with other non-competing instrumentationcompanies and are employed elsewhere on a full-time basis.  As a result, they only spend a limitedamount of time on our business.  Althoughwe have entered into consulting agreements, including confidentialityprovisions, with each of the members of our clinical advisory boards, theconsulting and confidentiality agreements between us and each of the members ofour clinical advisory boards may be terminated or breached.

 

**Our stock price could continue to bevolatile and your investment in our common stock could suffer a decline invalue, adversely affecting our ability to raise additional capital.**

 

The market pricesand trading volumes for securities of emerging companies, like ours, havehistorically been highly volatile and have experienced significant fluctuationsunrelated to  operatingperformance.  The market price of ourcommon stock has historically been highly volatile and may be significantlyaffected by factors such as:

 

•               actual or anticipated fluctuations in our operatingresults;

 

•               changesin financial estimates by securities analysts;

 

•               announcementsof technological innovations;

 

•               newproducts or new contracts by us or our competitors;

 

•               regulatoryannouncements;

 

•               developmentswith respect to patents or proprietary rights;

 

•               conditionsand trends in the medical device and other technology industries;

 

•               adoptionof new accounting standards affecting the medical device industry; and

 

•               generalmarket conditions.

 

In addition, thestock market has from time to time experienced significant price and volumefluctuations that have particularly affected the market prices for shares ofearly stage companies.  These broad marketfluctuations may adversely affect the market price of our common stock.  In the past, following periods of volatilityin the market price of a particular company’s securities, securities classaction litigation has often been brought against that company.  Such litigation, if brought against us,could result in substantial costs and a diversion of management’s attention andresources.

 

**Our use of hazardous materials mayresult in unexpected and substantial claims against us for which we do not havesufficient financial resources.**

 

Our research anddevelopment activities may involve the controlled use of hazardous materialsand chemicals.  The risk of accidentalcontamination or injury from these materials cannot be completely eliminated.  In the event of such an accident, we couldbe held liable for any resultant damages, and any such liability could exceedour resources.  We may incur substantialcost to comply with environmental regulations.

 

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**We do not anticipate paying anydividends and any gains from your investment in our stock will have to comefrom increases in the price of such stock.**

 

We currentlyintend to retain any future earnings for use in our business and do notanticipate paying any cash dividends in the foreseeable future.

 

**Our charter documents may prevent usfrom participating in transactions that could be beneficial to you.**

 

Our charter documents contain provisions that maymake it more difficult or discourage a change in control.  This may adversely affect the market priceof our common stock.

 

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PART II.  OTHERINFORMATION

 

Item 1.   LegalProceedings

 

From time to time,we may be involved in litigation relating to claims arising out of ouroperations in the normal course of business. We are currently not a party to any litigation that could have amaterial adverse effect on our results of operations or the financial positionof our business.

 

Item 2.  Changes in Securities and Use of Proceeds

 

a.             Notapplicable

 

b.                  Not applicable

 

c.                   Not applicable

 

d.                  Not applicable

 

Item 3.  Defaults upon Senior Securities

 

None.

 

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

 
| I.     | 2002 Annual Meeting of Stockholders held on June 5,  2002. |
|--------|------------------------------------------------------------|
|   |                                                       |
|   | a.                                                         | The 2002 Annual Meeting of Stockholders of Vista  Medical Technologies, Inc. (the   “Annual Meeting”) was held on June 5, 2002.  The holders of 4,504,118 of the 4,936,067 shares of our Common  Stock outstanding on April 12, 2002, the record date for the Annual Meeting  (approximately 91.25%), were present at the Annual Meeting in person or by  proxy. |
|   |                                                       |   |
|   | b.                                                         | At the Annual Meeting, Nicholas B. Binkley and Larry  M. Osterink were duly nominated and properly elected as Directors of our  company to serve until the 2005 Annual Meeting of stockholders or until their  respective successors are elected and qualified.  The number of votes cast for and withheld with respect to each  nominee for office, as well as broker non-votes are indicated below: |

 
|                 |   |      |   | **Against/   Withheld** |   | **Broker   Non-Votes** |   |
|----------------------|--------|-----------|--------|-------------------------|--------|------------------------|--------|
|                 |   | **For**   |   |                    |   |
| Nicholas B.  Binkley |   | 4,499,639 |   | 4,479                   |   | 0                      |   |
| Larry M.  Osterink   |   | 4,450,553 |   | 53,565                  |   | 0                      |   |

 

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|   |   | George B. DeHuff and Daniel J. Holland, whose terms  as Directors of our company expire at our 2003 Annual Meeting of  Stockholders, and James C. Blair and John R. Lyon, whose terms as Directors  of our company expire at our 2004 Annual Meeting of Stockholders, continue to  serve as Directors of our company until their respective terms expire and  were not voted upon at the Annual Meeting. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | c.     | At the Annual Meeting, a proposal to ratify the  appointment of Ernst & Young LLP as our independent auditors for fiscal  2002 was approved.  The number of  votes cast for and against, as well as the number of abstentions and  broker non-votes relating to such  proposal, are indicated below:                                                                                       |

 
|      |   |        |   |            |   | **Broker   Non-Votes** |   |
|-----------|--------|-------------|--------|-----------------|--------|------------------------|--------|
| **For**   |   | **Against** |   | **Abstentions** |   |                   |
| 4,047,858 |   | 453,952     |   | 2,308           |   | 0                      |   |

 

Item 5.   OtherInformation

 

None.

 

Item 6.  Exhibits and Reports on Form 8-K

 

A)           Exhibits

 
| 3.1  | (1)    |   | Second Restated Certificate of Incorporation                              |
|------|--------|--------|---------------------------------------------------------------------------|
| 3.2  | (2)    |   | Certificate of Amendment of Second Restated  Certificate of Incorporation |
| 3.3  | (3)    |   | Restated Bylaws                                                           |
| 4.1  | (3)    |   | Form of Certificate for Common Stock                                      |
| 99.1 |   |   | Certification under Section 906 of the Sarbanes –  Oxley Act of 2002 |

 

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(1)                                                                              Incorporatedby reference to our Form 10-K/A filed on September 10, 1998.

 

(2)                                                                                  Incorporatedby reference to our Form 10-Q filed on November 14, 2001.

 

(3)                                                                                  Incorporatedby reference to our Registration Statement on Form S-1, as amended, Filed onJuly 2, 1997.

 

B)         Reportson Form 8-K

 

No reports on Form8-K were filed by the Company during the three months ended June 30, 2002.

 

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SIGNATURES

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |            | VISTA MEDICAL TECHNOLOGIES,INC.                                   |
|--------|-----------------|-------------------------------------------------------------------|
|   |            |                                                              |
|   |            |                                                              |
| Date:  | August 13, 2002 |                                                              |   | /s/ John R. Lyon |   |
|   |            | John R. Lyon                                                      |
|   |            | President, Chief Executive Officer and                            |
|   |            | Director                                                          |
|   |            |                                                              |
|   |            |                                                              |
| Date:  | August 13, 2002 |                                                              |   | /s/ Stephen A.  Gorgol |   |
|   |            | Stephen A. Gorgol                                                 |
|   |            | Vice President of Finance, Chief Financial  Officer and Secretary |
|        |                 |                                                                   |  |  |  |  |

 

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