<PAGE>

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



                                    FORM 10-Q

{ X }  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997




                          COMMISSION FILE NUMBER:  0-28460

                          FUSION MEDICAL TECHNOLOGIES, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



          DELAWARE                                       94-3177221
          --------                                       ----------
(STATE OR OTHER JURISDICTION OF              (IRS EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)



                            1804 N. SHORELINE BOULEVARD
                             MOUNTAIN VIEW, CA  94043
                     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)



                                  (415) 903-4000
                (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS 
REQUIRED 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.


                        (Item 1)   {  X  }  Yes  {         } No
                        (Item 2)   {  X  }  Yes  {         } No

THE NUMBER OF OUTSTANDING SHARES OF THE REGISTRANT'S COMMON STOCK, $.001 PAR 
VALUE, WAS 7,059,823 AS OF MARCH 31, 1997.

<PAGE>

                        FUSION MEDICAL TECHNOLOGIES, INC.

                                      INDEX



PART I:  FINANCIAL INFORMATION

Item 1.  Condensed financial statements - unaudited

         Condensed statements of operations - three months ended March 31, 1997
          and 1996 

         Condensed balance sheets - March 31, 1997 and December 31, 1996

         Condensed statements of cash flows - three months ended March 31, 1997
          and 1996

         Notes to condensed consolidated financial statements

Item 2.  Management's discussion and analysis of financial condition and results
          of operations



PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings

Item 2.  Changes in Securities

Item 3.  Defaults Upon Senior Securities

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

Item 5.  Other Information

Item 5.  Exhibits and Reports on Form 8-K

         Signatures

<PAGE>

Part I:  Financial Statements


<PAGE>

                        FUSION MEDICAL TECHNOLOGIES, INC.
                       (A Company in the Development Stage)
                        CONDENSED STATEMENTS OF OPERATIONS
                                  (In Thousands)



                                       Three Months Ended     Three Months Ended
                                            March 31,              March 31,
                                              1997                   1996
                                          (unaudited)             (unaudited)
                                       ------------------     ------------------

Revenues................................    $    50                $     -
                                            -------                -------
Operating Expenses
  Cost of goods.........................        158                      -
  Research and development..............      1,241                  1,063
  Marketing, general and administrative       1,044                    554
                                            -------                -------
    Total operating expenses                  2,443                  1,617
                                            -------                -------
Operating Loss..........................    $(2,393)               $(1,617)
                                            -------                -------
                                            -------                -------

Interest Income.........................        327                     59
Other Expense...........................        (24)                    (1)
                                            -------                -------
Net loss................................    $(2,090)               $(1,559)
                                            -------                -------
                                            -------                -------

Net Loss Per Share                          $ (0.30)               $ (0.80)
                                            -------                -------
                                            -------                -------

Shares used in computing net loss
per share..............................       7,025                  1,943


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL 
STATEMENTS

<PAGE>

                        FUSION MEDICAL TECHNOLOGIES, INC.
                       (A Company in the Development Stage)
                             CONDENSED BALANCE SHEETS
                                  (In Thousands)


                                                     March 31,      December 31,
                                                       1997             1996
                                                    (unaudited)
                                                    -----------     ------------

                               ASSETS
Current assets:
  Cash and cash equivalents                          $ 13,378          $ 10,778
  Available-for-sale securities                         6,065            11,145
  Other Assets                                            511               414
                                                     --------          --------
    Total Current Assets                               19,954            22,337
  Long Term Assets                                      2,824             2,726
                                                     --------          --------
    Total Assets                                     $ 22,778          $ 25,063
                                                     --------          --------
                                                     --------          --------

               LIABILITIES AND STOCKHOLDERS' EQUITY

  Current Liabilities                                $    958          $  1,265
  Long-term Obligations                                    56                56
                                                     --------          --------
    Total Liabilities                                   1,014             1,321

  Common stock and other stockholders' equity          35,447            35,335
  Deficit accumulated during the development stage    (13,683)          (11,593)
                                                     --------          --------
  Total Stockholders' Equity                           21,764            23,742
                                                     --------          --------
    Total Liabilities and Stockholders' Equity       $ 22,778          $ 25,063
                                                     --------          --------
                                                     --------          --------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL 
STATEMENTS

<PAGE>

                        FUSION MEDICAL TECHNOLOGIES, INC.
                       (A Company in the Development Stage)
                             STATEMENTS OF CASH FLOWS
                                  (In Thousands)

                                                      -----------    -----------
                                                       March 31,      March 31,
                                                         1997           1996
                                                      (unaudited)    (unaudited)
                                                      -----------    -----------
CASH FLOWS USED FOR OPERATING ACTIVITIES:

  Net loss                                              $ (2,090)      $ (1,559)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization                              101             46
  Amortization of deferred compensation                       94             94
  Change in assets and liabilities:
    Accounts receivable                                     (115)             -
    Prepaids and other current assets                        187             27
    Accounts payable                                         126            147
    Accrued expenses                                        (398)            (1)
                                                        --------       --------
Net cash used in operating activities                     (2,095)        (1,246)
                                                        --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment                     (199)          (190)
  Purchases of short-term investments                    (14,294)             -
  Sales of short-term investments                         19,172            489
                                                            -
                                                        --------       --------
Net cash provided by investing activities                  4,679            299
                                                        --------       --------

CASH FLOW FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock                      49             16
  Repayment of notes payable                                 (33)           (33)
                                                        --------       --------
Net cash provided (used) by financing activities              16            (17)
                                                        --------       --------

Net increase (decrease) in cash and cash 
equivalents                                                2,600           (964)

Cash and cash equivalents, beginning of period            10,778          4,382
                                                        --------       --------

Cash and cash equivalents, end of period                $ 13,378       $  3,418
                                                        --------       --------
                                                        --------       --------

Supplemental disclosure of cash flow information:
  Cash paid for interest                                       5              8
                                                        --------       --------
                                                        --------       --------
  Cash paid for taxes                                         19              -
                                                        --------       --------
                                                        --------       --------


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL 
STATEMENTS


<PAGE>

                        FUSION MEDICAL TECHNOLOGIES, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                MARCH 31, 1997
                                  (UNAUDITED)


1.   BASIS OF PRESENTATION

The accompanying condensed financial statements of Fusion Medical 
Technologies, Inc. (the "Company" or "Fusion") have been prepared in 
accordance with generally accepted accounting principles for interim 
financial information and with the instructions for Form 10-Q and Article 10 
of Regulation S-X.  The balance sheet as of March 31, 1997, and the 
statements of operations for the three month periods ended March 31, 1997, 
and 1996, and the statements of cash flows for the three month periods ended 
March 31, 1997 and 1996 are unaudited but include all adjustments (consisting 
of normal recurring adjustments) which the Company considers necessary for a 
fair presentation of the financial position at such dates and the operating 
results and cash flows for those periods.  Although the Company believes that 
the disclosures in these financial statements are adequate to make the 
information presented not misleading, certain information normally included 
in financial statements and related footnotes prepared in accordance with 
generally accepted accounting principles have been condensed or omitted 
pursuant to the rules and regulations of the Securities and Exchange 
Commission. The accompanying financial statements should be read in 
conjunction with the financial statements as contained in the Company's 
Annual Report on Form 10-K and notes thereto.

Results for any interim period are not necessarily indicative of results for 
any other interim period or for the entire year.

2.   NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares of 
common stock outstanding during the periods presented.  Common equivalent 
shares are excluded from the computation as their effect is antidilutive, 
except that, pursuant to the Securities and Exchange Commission Staff 
Accounting Bulletins, common and common equivalent shares (stock options, 
warrants and preferred stock) issued during the 12 month period prior to the 
Company's initial public offering have been included in the calculation as if 
they were outstanding for all periods through June 7, 1996 (using the 
treasury stock method for stock options and warrants and if-converted method 
for preferred stock).

3.   INITIAL PUBLIC OFFERING

On June 7, 1996, the Company's registration statement for its initial public 
offering of 2,1000,000 shares of common stock at $13.00 per share (the 
"IPO"), was declared effective by the Securities and Exchange Commission.  
The Company received net proceeds of approximately $24,5000,000 after 
deducting underwriting discounts, commissions and offering costs.

Upon completion of the IPO all outstanding shares of convertible preferred 
stock were automatically converted into 3,172,739 shares of common stock.

4.   CASH AND CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES

The Company considers all highly liquid investments purchased with an 
original maturity of three months or less to be cash equivalents.  Cash and 
cash equivalents include money market funds and various deposit accounts.

<PAGE>

The Company has classified its investments as available-for-sale.  Such 
investments are recorded at fair market value and unrealized gains and 
losses, if material, are recorded as a separate component of equity until 
realized.  Interest income is recorded using an effective interest rate, with 
associated premium or discount amortized to "investment income."  The cost of 
securities sold is based upon the specified identification method.

5.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued 
Statement No. 128 ("SFAS 128"), "Earnings per Share", which specifies the 
computation, presentation and disclosure requirements for income per share of 
common stock. SFAS 128 will become effective for the Company's year ending 
December 31, 1997.  The Company believes that the adoption of SFAS 128 will 
not have a material impact on the Company's financial statements and results 
of operations.

ITEM 2.

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

The following discussion of the Financial Condition and Results of Operations 
of the Company for the three months ended March 31, 1997, should be read in 
conjunction with the Company's Annual Report on Form 10-K for the fiscal year 
ended December 31, 1996 under the heading "Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Factors Affecting 
Operating Results and Market Price of Common Stock".  The following 
discussion contains forward-looking statements which involve risks and 
uncertainties.  The Company's actual results could differ materially from 
those anticipated by these forward-looking statements as a result of certain 
factors, including those set forth in "Additional Factors That Might Affect 
Future Results" below.

OVERVIEW

Fusion Medical Technologies, Inc. ("Fusion" or the "Company") was 
incorporated in Delaware in 1993. The Company is developing proprietary wound 
closure products which the Company believes may have broad application in a 
variety of surgical procedures, including lung resections for cancer and 
emphysema, procedures requiring anastomoses, and minimally invasive 
surgeries. The Company's RapiSeal bioresorbable patch and Fusion liquids are 
designed to effectively treat surgical wounds in a wide variety of organs and 
blood vessels by rapidly forming flexible seals across the targeted tissue.  
The Company believes that its wound closure products have the potential to 
reduce post-operative complications associated with air and fluid leaks and 
consequently reduce hospital costs.  In a 26 patient, multi-center trial, the 
Company's initial product, RapiSeal, was effective in treating 96% of the 
previously untreatable air leaks identified during lung resection surgery.

The Company received 510(k) pre-market clearance from the United States Food 
and Drug Administration (the "FDA") to market its RapiSeal patch in 
connection with lung surgery in June 1996.  In February 1997, the Company 
also received 510(k) pre-market clearance to sell a patch product for the 
treatment of bleeding which occurs in solid organ surgeries, such as liver, 
spleen and kidney surgeries.  The Company's patch product is designed to 
effectively treat surgical wounds by creating barriers across the targeted 
tissue. The Company believes that its patch products have the potential to 
reduce post-operative complications associated with air and fluid leaks and 
consequently reduce hospital costs.

In May 1997, the Company received 510(k) pre-market clearance from the FDA to 
market in the United States the Company's SilverBullet-TM- electrode.  The 
SilverBullet allows surgeons to utilize standard electrosurgical equipment 
available in the operating room as an energy source for the application of 
Fusion's RapiSeal patch. 

<PAGE>

To expand its product offerings, the Company is developing a collagen-based 
flowable-gel product to enable surgeons to quickly and easily stop bleeding 
which occurs in connection with a wide variety of surgeries, such as those 
performed by cardiac, vascular and general surgeons. Pre-clinical tests 
indicate the Company's flowable-gel product may be effective in controlling 
heavy active bleeding. The first version of the flowable-gel product will be 
targeted for open surgery, and work has begun on a device appropriate for use 
in minimally invasive surgery. The Company currently believes it will begin 
clinical evaluation of this product in open surgical procedures in the second 
half of 1997.

Future revenues, if any, and results of operations may fluctuate 
significantly from quarter to quarter and will depend upon, among other 
factors, actions relating to regulatory and reimbursement matters, the extent 
to which the Company's product or products gain market acceptance, the rate 
at which the Company establishes its distribution network, the timing and 
size of any distributor purchases, the progress of clinical trials, and the 
introduction of competitive products for wound sealing.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

REVENUES

The Company recorded revenues of $50,000 for the quarter ended March 31, 1997 
and no revenue for the quarter ended March 31, 1996. The Company's sales 
representatives began selling activities in October 1996.

RESEARCH AND DEVELOPMENT

Research and development expenses increased 17% to $1,241,000 in the three 
months ended March 31, 1997 versus $1,063,000 in the three months ended March 
31, 1996. The increase for the three month period of 1997 was attributable to 
an increased number of employees and related use of supplies, consultants and 
laboratory research as the Company substantially increased its activities.  
Expenses for the three month period ended March 31, 1997, included costs 
associated with the Company's Flowable-gel product.

MARKETING, GENERAL AND ADMINISTRATIVE

Marketing, general and administrative expenses increased 88% to $1,044,000 in 
the three months ended March 31, 1997, versus $554,000 for the three months 
ended March 31, 1996. The increase in the quarter ended March 31, 1997, 
compared to the year earlier period were primarily the result of increases in 
sales and administrative personnel, expanded marketing activities and 
occupancy related costs.

Net interest income increased 454% to $327,000 for the three months ended 
March 31, 1997 versus $59,000 for the three months ended March 31, 1996. The 
increase was attributable to the Company's initial public offering in June 
1996, which increased its average cash balance.

As a result of the items discussed above, net loss was $2,090,000 for the 
three months ended March 31, 1997.  This compares to a net loss of $1,559,000 
for the three months ended March 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, the Company's cash, cash equivalents and 
available-for-sale securities were $19,443,000, compared to $4,465,000 for 
March 31, 1996.  On June 7, 1996, the Company completed its initial public 

<PAGE>

offering of 2,100,000 shares of common stock at a price of $13.00 per share.  
The net proceeds to the Company from the IPO were approximately $24,500,000.

During the three months ended March 31, 1997 and 1996, Fusion's operations 
consumed cash of $2,095,000 and $1,246,000, respectively.  The changes in 
cash used in operations were due primarily to funding increased levels of 
research and development of RapiSeal and Fusion's liquids, as well as 
increased marketing activities and associated personnel costs.  The Company 
expects the increased use of cash will continue through the end of 1998 as it 
increases its operations to reflect the sales and marketing of RapiSeal and 
the continued expansion of research and development for the flowable-gel and 
other liquid products.

Although Fusion believes that the proceeds from its initial public offering, 
augmented by cash generated by sales of the RapiSeal product, will be 
sufficient to meet the Company's operating and capital requirements at least 
through 1998, there can be no assurance that the Company will not require 
additional financing within this time frame.  Fusion's future liquidity and 
capital requirements will depend on numerous factors,  including market 
acceptance of RapiSeal, the receipt of and the time required to obtain 
regulatory clearances and approvals for other products or other uses of 
RapiSeal, the resources the Company devotes to developing, manufacturing and 
marketing its products and other factors.  There can be no assurance that 
additional financing, if required, will be available on satisfactory terms or 
at all.  Any additional equity financing may be dilutive to stockholders, and 
debt financing, if available, may include restrictive covenants.

ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

RISKS ASSOCIATED WITH LVR.  A statistically significant body of clinical data 
does not exist from which to draw final conclusions concerning the 
effectiveness and long-term outcomes associated with the Lung Volume 
Reduction ("LVR") procedure.  Independent studies of patients who have 
undergone the LVR procedure reported that patients experienced reduced 
shortness of breath, improved exercise tolerance and improved quality of 
life.  However, the number of patients who have undergone the LVR procedure 
in the United States and for whom a clinically acceptable post-operative 
evaluation period has elapsed is relatively small.  As a result, there can be 
no assurance concerning the safety, effectiveness and long-term outcomes 
associated with the LVR procedure.  The Health Care Financing Administration 
("HCFA") has suspended payment for, and is reviewing the appropriate 
reimbursement, if any, for LVR.  In connection with such review, HCFA has 
announced its intention to collaborate with the National Institutes of Health 
("NIH") on a large-scale, multi-center trial to be conducted by the NIH to 
evaluate the long-term benefits of the LVR procedure for patients with 
late-stage emphysema. There can be no assurance as to when this trial will be 
completed or whether the results of the trial will demonstrate the safety or 
long-term efficacy of LVR. It is not known when HCFA will make a final 
determination as to reimbursement for LVR, and it may be several years before 
a determination is made. There can be no assurance that reimbursement for LVR 
will be reinstated or, if reinstated that HCFA will not impose limitations on 
reimbursement. The Company believes a significant portion of the candidates 
for the LVR procedure could be affected by HCFA's determination with respect 
to reimbursement. Failure to reinstate reimbursement or the imposition of 
limitations on reimbursement would have a material adverse effect on the 
Company's business prospects. If reimbursement is not available for LVR 
procedures, if the LVR procedure is not widely adopted or if RapiSeal cannot 
be used successfully in LVR procedures, it would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.

UNCERTAINTY OF MARKET ACCEPTANCE.  The Company's success will depend upon the 
medical community's active sponsorship and ultimate acceptance of the 
RapiSeal patch and the Fusion liquid products.  The Company is unable to 
predict how quickly, if at all, the medical community will accept its 
products or, if accepted, the number of products that will be used.  Use of 
the Company's products may require changes in surgical practices, and there 
can be no assurance that surgeons will be willing to make such changes.  To 
achieve market acceptance of its products, the Company must also demonstrate 
that its products offer clinically 

<PAGE>

significant advantages.  The Company conducted its multi-center clinical 
trial of RapiSeal in support of its 510K application in only 26 patients, 
which may not provide sufficient data to demonstrate clinically significant 
advantages, if any, to surgeons.  Moreover, this limited experience with 
patients may initially make it difficult for the Company to ascertain those 
factors most relevant to the surgeon's decision whether to use the Company's 
products. Air leaks associated with lung resections require the insertion of 
chest tubes in the patient. While the Company believes that the RapiSeal 
patch may reduce hospital costs by shortening the duration of patient 
dependence on chest tubes, RapiSeal will not eliminate the need for chest 
tubes. In addition, air leaks may occur in the patient after the lung 
resection procedure, and RapiSeal cannot address such leaks. Failure of the 
RapiSeal patch and the Fusion liquids to achieve significant clinical 
adoption would have a material adverse effect on the Company's business, 
financial condition and results of operations.

DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY.  The Company's ability to 
compete effectively will depend in part on its ability to develop and 
maintain the proprietary aspects of its technology.  The Company as pursued 
its own patents covering its technologies in various forms.  In addition, the 
Company has licensed technology to further broaden its patent portfolio.  The 
Company owns one and has licensed 2 issued United States patents, and has 14 
pending United States patent applications related to its patch technology and 
liquid formulations.  The Company has also licensed 1 United States patent 
related to the manufacture of its patch technology.  There can be no 
assurance that the pending patent applications will issue, or that the issued 
patent or any patents that may issue in the future will provide any 
competitive advantages for the Company's products or that they will not be 
successfully challenged, invalidated or circumvented in the future.  
Moreover, litigation or interference proceedings associated with enforcing or 
defending patents or trade secrets is expensive and can divert the efforts of 
technical and management personnel. The Company has filed certain 
corresponding patent applications in certain foreign countries and may file 
additional patent applications outside the United States. The Company 
believes that obtaining foreign patents may be more difficult than obtaining 
domestic patents because of differences in patent laws and believes the 
protection provided by foreign patents, if obtained, and any other foreign 
intellectual property protection may be weaker than that provided 
domestically. In addition, there can be no assurance that competitors will 
not seek to apply for and obtain patents that will prevent, limit or 
interfere with the Company's ability to make, use and sell its products. A 
number of medical device and other companies, universities and research 
institutions have filed patent applications or have issued patents relating 
to compositions and methods for wound closure. In addition, the medical 
device industry has been characterized by extensive litigation regarding 
patents and other intellectual property rights, and many companies in the 
medical device industry have employed intellectual property litigation to 
gain competitive advantage. There can be no assurance that suits will not be 
brought against the Company in the future challenging its patent rights or 
claiming infringement on patents held by third parties.

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

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT.  In the United States, 
health care providers that purchase medical devices, such as the RapiSeal 
patch and the Fusion liquids, generally rely on third-party payors, 
principally federal Medicare, state Medicaid and private health insurance 
plans to reimburse all or part of the cost of the procedure in which the 
medical device is used. The Company's success will be dependent, in part, 
upon its ability to obtain satisfactory third-party reimbursement from health 
care payors for 

<PAGE>

surgical procedures that may use RapiSeal and the Fusion liquids.  HCFA has 
suspended payment for, and is reviewing the appropriate reimbursement, if 
any, for LVR. See "Risks Associated with LVR."  The Company anticipates that 
in a prospective payment system, such as the Diagnostic Related Group System 
utilized by Medicare, and in many managed care systems used by private health 
care payors, the cost of the Company's products will be incorporated into the 
overall cost of the procedures and that there will not be separate 
reimbursement for the Company's products. Rergardless of the type of 
reimbursement system, the Company believes that surgeon advocacy of the 
RapiSeal patch and the Fusion liquids will be required to obtain 
reimbursement. There can be no assurance that any reimbursement will be 
sufficient to assure profitability. Failure by physicians, hospitals and 
other users of the Company's products to obtain sufficient reimbursement from 
health care payors for procedures in which the Company's products are used or 
adverse changes in governmental and private third-party payors' policies 
toward reimbursement for such procedures would have a material adverse effect 
on the Company's business, financial condition and results of operations.

If the Company obtains the necessary foreign regulatory approvals, market 
acceptance of the Company's products in international markets would be 
dependent, in part, upon the availability of reimbursement within prevailing 
health care payment systems for the Company's products or the procedures in 
which the products are used.  Reimbursement and health care payment systems 
in international markets vary significantly by country, and include both 
government-sponsored health care and private insurance.  The Company intends 
to seek international reimbursement approvals.  There can be no assurance 
that any such approvals will be obtained in a timely manner, if at all, and 
failure to receive international reimbursement approvals could have a 
material adverse effect on market acceptance of the Company's products in the 
international markets in which such approvals are sought.

LIMITED MANUFACTURING EXPERIENCE; SCALE-UP RISK.  The Company received a 
manufacturing license from the California Department of Health Services 
(CDHS) and commenced shipment of RapiSeal for use in its clinical trial in 
November 1995 and, in the quarter ended March 31, 1997 produced revenues of 
approximately $50,000.  However, the Company has limited experience 
manufacturing RapiSeal, and no experience manufacturing any other products, 
in the volumes necessary to achieve significant commercial sales, and there 
can be no assurance that reliable, high-volume manufacturing can be achieved 
at a commercially reasonable cost.  The Company may encounter difficulties in 
scaling up production, including problems involving production yield, quality 
control and assurance, and shortages of qualified personnel.  The Company's 
manufacturing facilities will be subject to GMP regulations, international 
quality standards and other regulatory requirements.  Difficulties 
encountered by the Company in manufacturing  scale-up or failure by the 
Company to implement and maintain its facilities in accordance with GMP 
regulations, international quality standards or other regulatory requirements 
would entail a delay or termination of production, which could have a 
material adverse effect on the Company's business, financial condition and 
results of operations. Any manufacturing difficulties involving production 
yields, quality control and assurances, supplies of components or shortages 
of qualified personnel encountered by the Company could also have a material 
adverse effect on its business, financial condition and results of 
operations. There can be no assurance that the Company will be able to 
manufacture and supply sufficient quantities of products to meet product 
requirements for United States and international clinical trials and 
commercial sales.

DEPENDENCE ON SINGLE SOURCE SUPPLIERS.  The Company acquires several 
components of its products from single source suppliers.  Generally, the 
Company believes that there are alternative suppliers of equivalent materials 
available, and that the Company could substitute suppliers with minimal 
regulatory consequences from this substitution. However, there can be no 
assurance that such substitute suppliers will be available, or that such 
substitutions could be made in a timely manner or on commercially reasonable 
terms.  In the case of collagen, there are only a few suppliers that could 
meet the Company's requirements. The company currently relies exclusively on 
one supplier of collagen, Kensey Nash Corporation, and expects to continue to 
do so through at least the end of 1997.  Fusion and this supplier have 
entered into a long-term supply agreement.  However, if this supplier were 
unable to meet the Company's demands there can be no assurance that the 

<PAGE>

Company would be able to secure alternative sources of collagen to produce 
sufficient product to meet its customers' needs. A transition to alternate 
arrangements could involve additional costs and delays in production. There 
can be no assurance that such transition would be successful in entering into 
alternate arrangements on commercially reasonable terms, if at all. 
Sterilization of the Company's product is out-sourced to a single vendor. While 
the Company believes alternative sterilization vendors are readily available, 
there can be no assurance that such vendors would be available or that such a 
transition could be made in a timely, cost-effective manner. In the event the 
Company is not able to acquire sufficient supplies from its current sources 
or to locate alternate sources on commercially reasonable terms, the Company 
may not be able to manufacture its products on a timely and cost-competitive 
basis, or at all, which would have a material adverse efect on the Company's 
business, financial condition and results of operations.

LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE.  The Company has had 
limited sales to date and only has a small sales and marketing organization.  
The Company intends to sell the RapiSeal patch for use in lung surgeries in 
the United States through a direct sales force. In other markets, the Company 
intends to sell its products primarily through agreement with distributors or 
by means of collaborative arrangements, and the Company has entered into some 
such agreements or arrangements to date.  There can be no assurance that the 
Company will be able to build a direct sales force or marketing organization, 
that establishing a direct sales force or marketing organization will be cost 
effective, or that the Company's sales and marketing efforts will be 
successful.  There can be no assurance that the Company will be able to enter 
into agreements with additional distributors or collaborative arrangements on 
a timely basis or at all, or that such distributors or collaborators will 
devote adequate resources to selling the Company's products. In addition, to 
the extent that the Company enters into distribution agreements or 
collaborative arrangements for the sale of its products, the Company will be 
dependent upon the efforts of third parties, and there can be no assurance 
that such efforts will be successful. Failure to build an effective sales and 
marketing organization or to establish effective distribution or 
collaborative arrangements would have a material adverse effect on the 
Company's business, financial condition and results of operations.

COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE.  The wound closure market 
is highly competitive, and the Company expects competition in its targeted 
markets to intensify.  The Company expects to encounter direct competition 
from companies offering pericardial strips, synthetic strips, and synthetic 
fibrin glues.  In addition, several large companies targeting the wound 
closure market may be developing products that would compete with the 
Company's products.  The Company is also aware of several potential 
competitors that are working on biological tissue sealants.  Many of the 
competitors or potential competitors have greater name recognition, broader 
product lines, greater distribution capabilities, substantially greater 
capital resources and larger marketing research and development staffs and 
facilities than the Company.  Broad product lines may give the Company's 
competitors or potential competitors the ability to negotiate exclusive, 
long-term medical device supply contracts and, consequently, the ability to 
offer comprehensive pricing for their products, including those that may 
compete with the Company's products. By offering a broader product line, 
these potential competitors may also have a significant advantage in 
marketing competing products to group purchasing organizations and other 
managed care organizations that increasingly seek to reduce costs through 
centralization of purchasing functions. There can be no assurance that the 
Company will be able to effectively compete against such competitors or 
potential competitors. In addition, there can be no assurance that the 
Company's current competitors or other companies will not succeed in 
developing technologies and products that are more effective than the 
Company's or that would render the Company's technology or products obsolete 
or uncompetitive.

PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE.  The medical device 
industry has historically been litigious, and the Company faces an inherent 
business risk of financial exposure to product liability claims in the event 
that the use of its products results in personal injury.  Although the 
Company has not experienced any claims to date, there can be no assurance 
that the Company will not experience losses due to product liability claims 
in the future.  The Company currently maintains liability insurance with 
coverage 

<PAGE>

limits of $3.0 million on a claims-made basis.  There can be no assurance 
that the coverage limits of the Company's insurance policies will be 
adequate.  Such insurance is expensive, difficult to obtain and may not be 
available in the future at acceptable terms, or at all.  Any claims against 
the Company regardless of their merit or eventual outcome, could have a 
material adverse impact upon the Company's business, financial condition and 
results of operations.




PART II:    OTHER INFORMATION

Item 1      LEGAL PROCEEDINGS
            None.

Item 2      CHANGES IN SECURITIES
            None.

Item 3      DEFAULTS UPON SENIOR SECURITIES
            None.

Item 4      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            None.

Item 5      OTHER INFORMATION
            None.

Item 6      EXHIBITS AND REPORTS ON FORM 8-K
            Exhibit 11.1 Computation of net loss per share.
            Exhibit 27.1 Financial Data Schedule.

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto.



                        FUSION MEDICAL TECHNOLOGIES, INC.



Date: May 13, 1997                By:
                                     ------------------------------------
                                       Philip Sawyer
                                       President, Chief Executive Officer
                                       and Acting Chief Financial Officer