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

                                  SCHEDULE 14C

                Information Statement Pursuant to Section 14 (c)
                     of the Securities Exchange Act of 1934

Check the appropriate Box:
  [ ]   Preliminary Information Statement
  [ ]   Confidential, for use of the Commission Only (as permitted by Rule
        14c-5(d)(2))
  [X]   Definitive Information Statement

                              VIKING SYSTEMS, INC.
                (Name of Registrant As Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):
  [X]    No fee required
  [ ]    Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-1:
(1)   Title of each class of securities to which transaction applies: NA
(2)   Aggregate number of securities to which transaction applies: NA
(3)   Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): NA
(4)   Proposed maximum aggregate value of transaction: NA
(5)   Total Fee Paid: NA
  [ ]    Fee paid previously with preliminary materials
         Check box if any part of the fee is offset as provided by Exchange  Act
  [ ]    Rule  0-11(a)(2)  and identify the filing for which the  offsetting fee
         was paid  previously.  Identify the previously  filing by  registration
         statement number, or the Form or Schedule and the date of its filing.
(1)   Amount Previously Paid: $0
(2)   Form, Schedule or Registration Statement No.  NA
(3)   Filing Party: NA
(4)   Date Filed: July 1, 2004


        Contact Person: A. O. Headman, Jr., ESQ, Cohne Rappaport & Segal
 525 East 100 South 5th Floor, Salt Lake City, UT 84102; Tel: 801-532-2666, Fax:
                                  801-355-1813





                              VIKING SYSTEMS, INC.
                         7514 Girard Avenue, Suite 1509
                               La Jolla, CA 92037

          NOTICE OF ACTION TO BE TAKEN WITHOUT A STOCKHOLDERS' MEETING
- --------------------------------------------------------------------------------

TO OUR STOCKHOLDERS:

     Notice is hereby  given that Viking  Systems,  Inc.  plans to take  certain
corporate  action  pursuant to the written consent of our Board of Directors and
the  holders of a  majority  of our  outstanding  voting  securities  ("Majority
Stockholders").  The  action  we  plan  to  take is to  amend  our  Articles  of
Incorporation  to increase (i) the number of shares of common stock which we are
authorized  to issue  from  20,000,000  to  100,000,000;  and (ii) the number of
shares of preferred  stock which we are  authorized  to issue from  5,000,000 to
25,000,000  ("Increased  Capital  Proposal").  We have  recently  completed  the
acquisition of certain assets from Vista Medical Technologies,  Inc. In order to
fund the cash  portion of the purchase  price of these assets we sold  5,000,000
shares  of  our  convertible   Series  A  Preferred  Stock  to  our  controlling
shareholder,  Mr. Donald Tucker.  These  5,000,000  shares of Series A Preferred
Stock are convertible into 20,000,000 shares of our common stock. We sold shares
of our  Series  A  Preferred  Stock  to Mr.  Tucker  because  we did not  have a
sufficient  number of shares of our common stock  authorized to issue 20,000,000
common shares to Mr. Tucker.

     On December  18,  2003,  our Board of  Directors  unanimously  approved the
Increased  Capital  Proposal and the  Majority  Stockholders  have  consented in
writing to the Increased Capital  Proposal.  The Increased Capital Proposal will
be effected through an amendment to our Articles of Incorporation.

     The Board of  Directors  has fixed the close of business  on  February  24,
2004, as the Record Date for determining the stockholders  entitled to notice of
the foregoing.

THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO  STOCKHOLDERS'  MEETING
WILL BE HELD TO  CONSIDER  ANY MATTER  DESCRIBED  HEREIN AND NO PROXY OR VOTE IS
SOLICITED BY THIS NOTICE.


June 30, 2004


                                              By Order of the Board of Directors






                              VIKING SYSTEMS, INC.
                         7514 Girard Avenue, Suite 1509
                               La Jolla, CA 92037

                        PRELIMINARY INFORMATION STATEMENT

                                  June 30, 2004


           This Information Statement is being provided to you by the
                   Board of Directors of Viking Systems, Inc.
                             _____________________
     This  Information  Statement  and the  Notice  of  Action  Taken  Without a
Stockholders' Meeting (jointly, the "Information Statement") is furnished by the
Board of Directors of Viking Systems, Inc. (the "Company" or "Viking"), a Nevada
corporation,  to the holders of the  Viking's  common stock at February 24, 2004
(the "Record Date") to provide  information  with respect to action taken by the
written consent of the Majority Stockholders. The Majority Stockholders approved
by written  consent a proposal (the "Increased  Capital  Proposal") to amend our
Articles of Incorporation to increase the number of shares of common stock which
we are authorized to issue from  20,000,000 to  100,000,000  and to increase the
number of shares of  preferred  stock  which we are  authorized  to issued  from
5,000,000 to 25,000,000.

     The Board of Directors  decided to obtain  written  consent of the Majority
Stockholders  in order to avoid the costs and management time required to hold a
special  meeting  of  stockholders.  All  required  corporate  approvals  of the
Increased  Capital  Proposals  have been  obtained,  subject to furnishing  this
notice  and 20 days  elapsing  from the date of this  notice.  This  Information
Statement is furnished solely for the purpose of informing  stockholders of this
corporate  action in the manner  required by Rule 14c-2(b)  under the Securities
Exchange Act of 1934, as amended.

                        WE ARE NOT ASKING YOU FOR A PROXY
                  AND YOU ARE REQUESTED NOT TO SEND US A PROXY

     THIS IS NOT A NOTICE  OF A MEETING  OF  STOCKHOLDERS  AND NO  STOCKHOLDER'S
MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.

     The  Company  has  asked  brokers  and  other   custodians,   nominees  and
fiduciaries to forward this  Information  Statement to the beneficial  owners of
our common stock held of record by such persons and will  reimburse such persons
for out-of-pocket expenses incurred in forwarding such material.

              INTEREST OF CERTAIN PERSONS IN FAVOR OF OR OPPOSITION
                              TO MATTERS ACTED UPON

     The  Company  is not  aware of any  interest  that  would be  substantially
affected  through  the  adoption  of  the  Increased  Capital  Proposal  whether
adversely or otherwise.

                                       1



                                VOTING SECURITIES

     As of the Record Date, the Company's authorized capitalization consisted of
20,000,000  shares of common  stock,  par value $.001 per share,  and  5,000,000
shares of preferred  stock, par value $.001 per share. At February 24, 2004, the
Record Date, we had 6,294,650  shares of common stock issued and outstanding and
no shares of  Series A  Preferred  Stock  issued  or  outstanding.  Our Board of
Directors has previously designated a Series A of our preferred stock consisting
of all 5,000,000  shares of our preferred  stock. We issued all 5,000,000 shares
of Series A Preferred Stock to Donald Tucker for $400,000.  Each share of Series
A Preferred Stock is convertible into four shares of our common stock.

     Each share of common  stock  entitles its holder to one vote on each matter
submitted to the common  stockholders  for a vote.  We have obtained the written
consent  of  the  Majority  Stockholders  representing  4,700,300  votes  on the
Increased Capital Proposal.

     Subsequent to the Record Date, we issued  3,054,000 shares our common stock
to Vista Medical  Technologies,  Inc. as a portion of the purchase price for the
assets we  purchased  from  Vista  Medical  Technologies,  Inc.  Accordingly  we
currently  have  9,348,650  shares of our common stock  issued and  outstanding.
Assuming that Donald Tucker converts his 5,000,000  shares of Series A Preferred
Stock into 20,000,000 shares of our common stock, we will have 29,348,650 shares
of our common stock issued and outstanding.

                                   BACKGROUND

     Viking was  incorporated  in Nevada on May 28, 1998.  In November  2003, we
adopted a new  business  plan  which has  resulted  in  Viking  engaging  in the
business of acquiring and operating medical device companies.

     We were originally  engaged in the computer  training and services business
but were  unsuccessful  in our  operations and  terminated  those  operations in
December 2002. Our previous business  operations were limited and did not result
in (i)  significant  revenues,  (ii) the  accumulation  of a significant  dollar
amount of assets,  or (iii) in  earnings.  Because  of a lack of funds,  we were
unable to fund the costs of complying with our filing requirements under Section
13 of the  Securities  Exchange Act of 1934, as amended.  In November  2003, our
Board of Directors, as then constituted, considered and approved a proposal from
a third party relating to a change of Viking's  business plan and an infusion of
capital.  Since  November  2003, a new Board of Directors  and new officers have
been  appointed,  a limited amount of capital has been raised.  Our new Board of
Directors  has adopted a new  business  plan which calls for Viking to engage in
the business of development, manufacturing and marketing of medical devices. Our
plan is to identify and attempt to acquire  companies,  assets and operations in
the medical device market,  initially focusing on companies with vision, optics,
laser,  sensor and related medical  technology for the surgeon.  On December 22,
2003,  we  entered  into  an  Asset   Purchase   Agreement  with  Vista  Medical
Technologies,  Inc. for our first  acquisition.  We closed this  acquisition  on
April 15, 2004. Viking Stockholder  approval was not required in connection with
the acquisition of assets from Vista Medical Technologies.

                                       2



     Prior to November 24, 2003,  there were  2,528,500  shares of Viking common
stock  issued and  outstanding.  On November  24,  2003,  we entered  into Stock
Purchase  Agreements  with  Donald E.  Tucker  and  Troika  Capital  Investment.
Pursuant to the Stock  Purchase  Agreement  with Mr.  Tucker,  we sold 3,200,000
shares of our common stock to Mr. Tucker for $64,000 or $.02 per share. Pursuant
to the Stock Purchase Agreement with Troika Capital Investment,  we sold 250,000
shares of our common stock to Troika Capital for $5,000 or $.02 per share. As of
the Record Date,  Mr.  Tucker owned  3,200,000 or 53.5 per cent of the shares of
common stock  issued.  Mr.  Tucker has also  purchased  5,000,000  shares of our
Series A Preferred Stock. As of the Record Date, Troika Capital  Investments and
its  affiliates  owned  600,300  or 9.5 per cent of the  shares of common  stock
issued.

     On  April  15,  2004,  we  acquired   certain  assets  from  Vista  Medical
Technologies,  Inc.  ("Vista").  In connection  with such  acquisition,  we were
required to make a cash payment to Vista in the amount of  $158,717.74.  We also
issued 3,054,000 shares of our common stock to Vista at the closing. In order to
fund the cash portion of the purchase price we issued 5,000,000 shares of Series
A Preferred  Stock to Donald  Tucker for  $400,000.  These  5,000,000  shares of
Series A Preferred  Stock are convertible  into 20,000,000  shares of our common
stock.  Each share of Series A  Preferred  Stock has four  votes in all  matters
submitted to  shareholders  for a vote.  We do not  currently  have a sufficient
number of shares of common stock  authorized for issuance to Mr. Tucker upon his
conversion of Series A Preferred  Stock.  Each share of Series A Preferred Stock
is convertible  into four shares of our common stock. We anticipate that once we
have sufficient shares of common stock  authorized,  Mr. Tucker will convert his
5,000,000  shares of Series A Preferred Stock into  20,000,000  shares of common
stock.

     Attached are copies of our Form 10-KSB for the year ended December 31, 2003
and our Form  10-QSB for the  quarter  ended  March 31,  2004.  These  documents
included,  among other things,  our audited  financial  statements  for the year
ended  December 31, 2003, and our interim  financial  statements for the quarter
ended March 31, 2004.

                            VIKING BUSINESS STRATEGY

     Viking is  strategically  focused  on  developing  a  portfolio  of medical
products,  technologies  and  services  that  serve  the  needs of the  surgical
environment.   Through  its  anticipated  development   capabilities,   targeted
acquisitions  and a network of business  alliances,  Viking  intends to position
itself as a leader in integrated information, visualization and surgical control
solutions.  We  completed  our  first  acquisition  on April 15,  2004,  when we
acquired the assets of Vista Medical Technologies, Inc.'s visualization business
segment.  We intend to attempt to acquire  additional medical product or devices
companies and technologies in the future.

     Early  Stage  Ventures.  We are  interested  in early  stage  ventures  and
research  programs (private or public) with technologies that are either focused
on clinical/surgical  information or leading edge imaging and optics appropriate
to  minimally  invasive  or  complex  surgical  procedures.  We seek  investment
opportunities  and  licensing  agreements  with those that meet our standards of
commercial potential, portfolio alignment and patents of strategic value.

                                       3



     Mergers and Acquisitions.  We are actively seeking  businesses,  operations
and product-lines  that are focused on  clinical/surgical  information,  digital
imaging, 3D visioning,  surgical robotics, endoscopic and laparoscopic solutions
and single-use surgical products. Viking believes there are a substantial number
of  businesses in both North  America and Europe that are  complementary  to its
technologies, portfolio requirements and strategic direction. Viking believes it
offers a pathway for growth and success. We intend to play an increasing role in
the  medical   technology  market,   with  the  goal  of  generating   revenues,
profitability and increased market value.

     Small and midsize  companies,  operations or products that Viking  acquires
will likely meet some or all of the following criteria:

        o     Demonstrated revenue growth;
        o     Strategic patents and/or technology leadership;
        o     Strong relationships in the surgical community;
        o     Regulatory approval (FDA and/or CE);
        o     Solid technical management and skills; and
        o     Distribution and/or Service capability

     Business Alliances and Partnerships. We will invite businesses that require
expanded distribution and have products and services within the scope and intent
of its business to contact us. We are  particularly  interested in organizations
with  clinical/surgical  information  capabilities,  a systems  integration  and
engineering focus and/or have software and imaging products currently recognized
and in-use in the surgical environment.

     Governmental  Regulation.  Our business  plan calls for us to engage in the
business of  marketing  medical  devices.  The  manufacture  and sale of medical
devices   intended  for  commercial   distribution   are  subject  to  extensive
governmental  regulation in the United States.  Medical devices are regulated in
the United States primarily by the FDA and, to a lesser extent, by certain state
agencies.  Generally, medical devices require pre-market clearance or pre-market
approval prior to commercial distribution. In addition, certain material changes
or  modifications  to, and changes in intended use of, medical  devices also are
subject to FDA review and clearance or approval. The FDA regulates the research,
testing, manufacture, safety, effectiveness,  labeling, storage, record keeping,
promotion  and  distribution  of medical  devices  in the United  States and the
export of unapproved  medical devices from the United States to other countries.
Non-compliance  with  applicable  requirements  can  result  in  failure  of the
government to grant pre-market clearance or approval for devices,  withdrawal or
suspension  of  approval,  total or partial  suspension  of  production,  fines,
injunctions,  civil  penalties,  refunds,  recall or  seizure  of  products  and
criminal prosecution.

                 INFORMATION REGARDING PURCHASE OF VISTA ASSETS

     On April 15, 2004 we completed the acquisition of substantially  all of the
assets (the "Asset  Sale") of the Vista  Medical  Technologies,  Inc.  ("Vista")
Visualization  Technology  business  (the  "VT  Business"),  on  the  terms  and

                                       4



conditions set forth in the Asset Purchase  Agreement,  dated December 22, 2003,
(the "Asset  Purchase  Agreement").  A copy of the Asset  Purchase  Agreement is
attached to this Information Statement.

     The  assets  we  purchased  in the  Asset  Sale  are  referred  to in  this
Information  Statement as the "Purchased  Assets." A description of the material
terms of the Asset  Purchase  Agreement  is  presented  below  under the caption
"Description of the Asset Purchase  Agreement."  This discussion is qualified in
its entirety by reference to the copy of the Asset Purchase Agreement,  attached
hereto.

Description of Vista's Visualization Business

     Prior to the  acquisition,  Vista  conducted  its  operations  through  two
separate business units. The Obesity Surgery Management Services business, based
in Carlsbad,  CA, provides services to physicians and hospitals  involved in the
surgical treatment of morbid obesity. Vista's services include management of the
Laparoscopic  Bariatric Surgery Preceptorship,  a comprehensive  introduction to
starting a minimally  invasive  gastric bypass surgical  program.  Additionally,
Vista  offered  management  systems and  consulting  services  which  enable the
efficient operation of obesity surgery programs. For the year ended December 31,
2003, the Obesity Surgery Management Services business represented approximately
30% of Vista's sales.

     On  April  15,  2004,  we  acquired   Vista's  second  business  unit,  the
Visualization  Technology  business,  based in Westborough,  MA. The VT Business
develops,   manufactures  and  markets  products  that  provide  information  to
physicians performing minimally invasive general surgical,  cardiac surgical and
other selected  endoscopic and  interventional  procedures.  Vista's  technology
products  combine a head mounted display with video cameras to provide  surgeons
with critical visual information  during complex minimally invasive  procedures,
and also  incorporate  the  benefit of viewing  complementary  information  in a
voice-controlled,  picture-in-picture  format, to facilitate  real-time decision
making  during  surgery.  The  VT  Business  also  manufactures   compact,  high
resolution endoscopic cameras for original equipment  manufacturer customers and
strategic  partners.  For the year ended  December  31,  2003,  the VT  Business
represented approximately 70% of Vista's total sales.

Background to Visualization Technology Products

     Minimally  invasive  surgery.  The  development  and subsequent  widespread
adoption of minimally  invasive  surgical  procedures have  revolutionized  many
surgical fields, including general surgery, orthopedics, gynecology and urology.
Minimally  invasive  surgical  procedures  are performed  through  strategically
placed  ports or  mini-incisions  as opposed to using  large  incisions  to gain
surgical  access.  These  procedures are designed to be as safe and effective as
conventional  surgery.  The goal in using a minimally  invasive  procedure is to
substantially  reduce trauma,  pain and suffering,  speed recovery,  shorten the
length of hospital stays and decrease many of the costs  associated with patient
care.  A minimally  invasive  procedure is most  advantageous  in cases in which
significant  trauma would  otherwise  result from gaining  surgical access to an
affected organ or site through the use of a large incision. This movement toward
minimally  invasive surgery has been driven by advances in both evice technology
and surgical technique, as well as patient demand.

                                       5



     Minimally  invasive  microsurgery.  Minimally  invasive  microsurgery is an
extension of minimally invasive surgery, characterized by greater complexity and
precision.  Minimally invasive microsurgical  procedures have been made possible
primarily by recent advances in medical technology. These procedures are usually
performed in very  confined  areas of the body,  involve  critical  parts of the
body, and often require dissection, reconstruction and removal of body parts. As
a result of the inherent  complexity  involved in these  procedures,  we believe
that for surgeons to adopt the procedures,  they must have access to specialized
instruments and technology,  including  technology  which will provide them with
better  visualization of the procedure  being  performed.  Examples of minimally
invasive  microsurgery are emerging in general surgery and cardiac  surgery,  as
well as in the fields of gynecology and urology.

      General surgery/gynecology/urology

          Conventional  treatments.   Minimally  invasive  procedures  are  well
     accepted in general  surgery,  gynecology  and  urology.  For less  complex
     procedures  such  as  gallbladder  removal  or  tubal  ligation,  minimally
     invasive endoscopic techniques have become the standard of care, being used
     in approximately 90% of cases. For more complex  procedures,  however,  the
     penetration  rate of minimally  invasive  techniques has been  considerably
     lower,  principally  because the instruments  available make performance of
     the procedure difficult and uncomfortable.

          Minimally invasive microsurgery. Complex minimally invasive procedures
     in general surgery,  gynecology and urology have evolved  relatively slowly
     over the past few years,  slowing  considerably from 1995. According to the
     journal InVivo,  "Though the benefits of MIS (Minimally Invasive Surgery) -
     shorter  recovery  times and less pain and  trauma for the  patient,  lower
     costs and less time lost from work for  employers  - are widely  applicable
     across a range of procedures,  realizing those benefits beyond  gallbladder
     removal proved tricky.  Worse,  for more complex  procedures,  MIS actually
     proved  problematic  for  surgeons,  notwithstanding  its other  benefits -
     longer procedure times,  more difficult  manipulation of instruments,  more
     torturous ergonomics."

          The  Vista  Medical  solution.  The VT  Business  technology  provides
     surgeon  with  enhanced  depth  perception  when  performing   complicated,
     physically  intricate  tasks, and will provide the surgeon with the ability
     to view additional  information in a  voice-controlled,  picture-in-picture
     format,  to facilitate  real-time  decision  making during a procedure.  We
     believe that conventional 2-D visualization  systems compromise the ability
     of a surgeon to maneuver, especially in complex reconstructive surgery, and
     that our natural 3-D picture  will provide the surgeon with an advantage in
     these cases.

The Technology

     The VT Business  technology  provides a 3-D  visualization  solution to the
inherent vision restrictions and demands of minimally invasive microsurgery.  It
provides  the surgeon  with a clear view of the anatomy with the ability to view
additional information in a voice-controlled,  picture-in-picture  format, which
facilitates  real-time  decision making during the procedure.  Our technology is

                                       6




based on the  following  principles  which we believe are essential in advancing
the techniques of minimally invasive  microsurgery.  We believe these principles
offer several key advantages over other visualization approaches:

     3-D View. The surgeon's  ability to view the principal image of the anatomy
     in 3-D  provides  the  accurate  depth  perception  necessary so that vital
     anatomical  structures are accurately identified and located. This improves
     safety, precision and speed of the procedure. Also, a secondary video image
     is available in picture-in-picture  format, when the procedure will benefit
     from two different views of the anatomy.

     High Resolution  Images.  The availability of a high resolution image which
     can be  electronically  managed by the surgeon  significantly  enhances the
     surgeon's  ability to differentiate  critical tissues in a confined setting
     and perform intricate dissection, reconstruction and removal.

     Access.  The surgeon  benefits from technology  which allows for the direct
     insertion of a camera into the body  cavities or organs and  provides  high
     quality images that are easy to see and understand.

     Ergonomics.  Due to the  complex  and time  consuming  nature of  minimally
     invasive microsurgery procedures, the surgeon requires an ergonomic display
     system which allows  comfortable  operating posture and maximizes  hand-eye
     coordination without strain.

     Information  Integration.  The surgeon's access to critical  monitoring and
     diagnostic data, on demand, in real time and integrated with the anatomical
     image within the surgeon's visual field, enhances procedure performance.

Head mounted display

     The head mounted display was originally developed for critical applications
in military  aerospace by Kaiser  Aerospace.  Vista believed that a head mounted
display was the optimal  solution to the  challenge  of  displaying  information
during minimally  invasive  microsurgery.  The fundamental  technology and human
factors  experience  incorporated  in our surgical  head mounted  display is the
result of substantial investment and development by Kaiser Aerospace, originally
for military applications. This human factors knowledge, derived from many years
of  analysis of the  display  characteristics  which  enable  pilots  performing
critical  physical  tasks  to   simultaneously   absorb  and  react  to  crucial
information,  is a key  element in our head  mounted  display  design.  Kaiser's
original know-how and technical  knowledge have been transferred to us under our
development agreement with Kaiser  Electro-Optics,  Inc., a subsidiary of Kaiser
Aerospace.  We have performed significant  additional development work, and have
proprietary  rights, in the surgical head mounted display design. The Vista head
mounted display  provides 3-D  visualization  of small delicate body structures,
has the capability of  integrating  relevant data and presents the image seen by
the surgeon in the most correct,  intuitive and ergonomic way.  Wearing the head
mounted display,  the surgeon can also perform surgery  "in-line" - meaning with

                                       7




the eyes,  hands,  instruments  and subject  in-line.  In-line surgery cannot be
performed  when the surgeon is  observing  the anatomy on a  remotely-positioned
video monitor.

     The  Vista  head  mounted  display  is  a  proprietary,  lightweight,  high
resolution  display designed to allow the surgeon to view information on demand,
whether such information is generated from attached  endoscopes,  microscopes or
monitoring  equipment in the operating  room.  Further  enhancements to the head
mounted display allow for  voice-activated  control and information display from
other  diagnostic  equipment  in the  hospital  or  from  remote  locations  via
information networks.  The video display in the head mounted display is fixed in
relation to the surgeon's  eyes,  but his or her head may move into any position
necessary for comfort.  The display design allows the surgeon to have a constant
view  of the  surgical  anatomy  required  for  the  procedure  as  well as full
awareness of the  surroundings  in the  operating  room.  The Vista head mounted
display is designed to provide a true 3-D image by replicating the way the human
visual system  works-left  and right acquired  images are delivered  directly to
left and right liquid  crystal  displays.  It is also designed so that it can be
worn with conventional surgical loupes.

Three-dimensional image acquisition

     We believe that three-dimensional  visualization  capability is critical in
minimally invasive  microsurgery  procedures such as cardiac surgery and complex
endoscopic  procedures  in  general  surgery,  gynecology  and  urology.  The VT
Business  technology  for  stereo   visualization   consists  of  the  following
proprietary  elements:  the  optical  system,  the stereo  camera and the stereo
processor.

     The VT Business technology can package the twin cameras in two ways. In the
first  method,  a stereo  micro-camera  is  attached to the end of a flexible or
rigid  guide  which  can then be  inserted  directly  into the body  cavity  and
organs.  The image  is  directly  captured  by the camera  chips  without  being
transmitted  through  multiple  rod  lenses  as in a  conventional  design.  The
elimination of optical surfaces produces several important advantages, including
increased  image quality,  improved  contrast,  better  reliability and improved
ability to sterilize  the  instrument.  Alternatively,  for  applications  where
standard endoscopic  surgical technique remains  preferable,  a stereo camera is
mounted  externally  on a stereo  endoscope.  This second  method is the current
preferred  approach for the procedures in which we are primarily  involved.  The
image  acquired  by either  approach  is then  processed  for display by control
electronics  which  we  have  developed.  The  controller  also  includes  image
management  features which contribute  significantly  to procedure  performance,
such as dual image presentation and picture-in-picture.

Information management

     Medicine is an information rich discipline, but the ability of a surgeon to
obtain  relevant  information  in  real-time  during  a  procedure  has not been
developed to the levels attained,  for example,  in military aviation.  The head
mounted  display is designed to give the surgeon  real-time  access on demand to
critical  information  integrated  with the anatomical  images  generated by our
camera systems. In addition to real-time display,  the information can be stored
or  transmitted  within the  hospital or  transmitted  to remote  locations  for
training,  advisory or  administrative  purposes.  The applications  software to
control  this flow of  information  is a key  element in our  long-term  product

                                       8




strategy which positions visualization within the context of a total information
management system for the surgeon.

Visualization Technology Products

      Our product lines are as follows:

     EndoSite:  3-D visualization and information system for general surgery and
other complex endoscopic procedures.  The visualization system is designed to be
modular and consists of the following major components:

   Component           Description
   ----------------------------------------------------------------------------

   Head-mounted         Head-mounted   display  and  operating  room  personal
   display/EndoSite     computer which  integrates  multiple video images in a
                        picture-in-picture  format using voice  commands  from
                        the head  mounted  display.   Up to three head mounted
                        displays can be used per system.

   Stereo laparoscopes  Ten millimeter  diameter  stereo  laparoscopes in both
                        0 degrees and 30 degrees angles of view.

   StereoScope          Three-dimensional  camera head for  attachment  to our
                        stereo laparoscopes.

   Camera Controller    High resolution stereo image processor.

   Xenon Lightsource    High   intensity   300  watt  xenon  light  source  to
                        illuminate the Stereo Laparoscopes.

   Endoscopy Cart       Cart which holds the Advanced System for Laparoscopy.

All necessary  510(k)  clearances which are required to market the components of
the EndoSite have been received.

     OEM Endoscopic Cameras.  Our endoscopic cameras are the state-of-the-art in
two-dimensional  endoscopic  imaging.  We currently  manufacture  compact,  high
resolution  endoscopic cameras for original equipment  manufacture customers and
strategic partners.

Financial Information

     The  audited   financial   statements   for  Vista   Medical   Technologies
visualization business segment are attached hereto as an exhibit.

                                       9



                   DESCRIPTION OF THE ASSET PURCHASE AGREEMENT

     THE  DESCRIPTION  OF  THE  ASSET  PURCHASE  AGREEMENT  SET  FORTH  IN  THIS
INFORMATION STATEMENT DOES NOT PURPORT TO BE COMPLETE;  HOWEVER,  MATERIAL TERMS
OF THE  AGREEMENT ARE  SUMMARIZED  BELOW.  STOCKHOLDERS  SHOULD REVIEW THE ASSET
PURCHASE  AGREEMENT,  A COPY OF  WHICH  IS  ATTACHED  HERETO.  YOU ARE  URGED TO
CAREFULLY READ THE ASSET PURCHASE AGREEMENT IN ITS ENTIRETY.

Purchase and Sale of Assets

     Under  the  terms  of the  Asset  Purchase  Agreement,  Vista  sold  Viking
substantially  all of the assets  used by Vista to  conduct  the  operations  of
Vista's VT Business. The Purchased Assets included, among others, all machinery,
equipment,  furniture  and  other  tangibles  located  at  Vista's  Westborough,
Massachusetts  offices;  all customer lists,  all contracts used by Vista in the
operation of the VT Business,  all required  permits and  governmental  licenses
used by Vista in the conduct of the VT Business,  and all of the goodwill of the
VT Business.  Viking assumed all accounts payable,  accrued payroll liabilities,
accrued vacation and all other accrued liabilities  relating to the operation of
the VT Business. Vista retained responsibility for all of its other liabilities.
Approximately  $235,000 of inventory  was  included in the sale.  The balance of
inventory  on hand and in work in progress  was not sold in the Asset Sale,  but
rather was  transferred  to Viking on a  consignment  basis for which Vista will
receive payment as such items are ultimately used by Viking.

     Certain assets  excluded from the terms of the Asset Sale included  Vista's
inventory of vitamin  supplements that Vista sold to patients who have undergone
gastric  bypass  surgery,  and the  contents  of the  office  of  Vista's  Chief
Financial  Officer,  Stephen Gorgol, who remained an employee of Vista after the
Asset Sale.

     Vista and Viking also  entered into a License  Agreement  pursuant to which
Vista  exclusively  license to Viking (in  exchange  for royalty  payments)  all
intellectual  property  and product  rights used in operation of the VT Business
and sale of products  related to that business.  Vista retains  ownership of all
intellectual  property and product rights until the required royalty obligations
have been satisfied, at which time Vista will transfer ownership to Viking.

Purchase Price

     The purchase price for the Purchased Assets has several components: cash at
closing,  shares  of stock  at  closing,  royalty  obligations  to be  satisfied
post-closing  and  inventory  relief  payments  to  be  satisfied  (if  at  all)
post-closing.

     Cash at Closing. At closing, we made an initial cash payment of $158,717.74
to Vista.

     Shares of Stock at Closing. At closing, we issued Vista 3,054,000 shares of
Viking common stock. For accounting and tax purposes, Vista valued the shares as

                                       10



of closing at approximately  $62,000,  which is the same per share price paid by
Donald E. Tucker, the principal investor in Viking.

     Royalty  Payments.  In  exchange  for the license by Vista to Viking of all
intellectual  property  rights and product  rights used in  operation  of the VT
Business,  we will make certain royalty payments to Vista over the course of the
five (5) year  period  following  the  closing,  or until  Viking has paid Vista
$4,500,000 in aggregate royalties, whichever comes first. Royalties will be paid
to Vista in three separate categories. Viking will pay Vista a five percent (5%)
royalty on gross  revenues  received by Viking for all sales from the  Aesculap,
Wolf and OEM Camera  product  lines,  including any  improvements,  derivatives,
modifications or enhancements  thereto.  Second, for each of the first two years
following  the closing,  we will pay Vista a ten percent  (10%) royalty on gross
revenues  received by Viking for sales of the Endosite System and the Three Chip
Endosite System product lines (collectively,  the "Vista Products") in excess of
the gross revenues  earned by us for sales of the Vista Products during calendar
year 2003.  Third, for the third,  fourth and fifth years following the closing,
we will pay Vista a ten  percent  (10%)  royalty on gross  revenues  received by
Viking for sales of Vista Products.

     It is difficult to estimate the likely future royalty payments. However, if
the royalty percentages were applied to sales over the past five years, it would
have generated  total  revenues to Vista of $321,911 in 1999,  $396,648 in 2000,
$471,728 in 2001, $529,011 in 2002 and $420,073 in 2003.

     Inventory Relief Payments.  As part of the Asset Sale, Vista transferred to
Viking on a consignment  basis Vista's  entire  inventory of products and parts.
Through the  procedure  we have  agreed to with  Vista,  we will seek to use the
inventory  received  from Vista prior to using any  inventory  we newly  acquire
after closing.  We will pay Vista for any inventory used on a monthly basis over
the course of the twelve (12) month period  following the closing.  Ownership to
all inventory  remaining unsold at the end of such twelve (12) month period will
be transferred to Viking for $1.00.

Assumption of Liabilities

     On the  date of  closing,  we  assumed  selected  liabilities  of  Vista's,
including Vista's accounts payable, certain post-closing obligations and Vista's
obligations  under specified  contracts being assumed by Viking.  Vista remained
liable  for  all  tax   liabilities,   litigation   matters  and  certain  other
liabilities.

Representation and Warranties

     Under the Asset Purchase  Agreement,  Vista  represented and warranted with
respect to, among other things,  its organization,  good standing and authority;
its financial  statements and Securities  and Exchange  reports;  the absence of
conflicts;  its  possession  of  valid  consents  and  approvals;  the  lack  of
undisclosed liabilities;  employee matters; our ownership rights with respect to
intellectual  property, the assets to be sold and our real property; the lack of
litigation  activities;   its  compliance  with  applicable  law;  its  existing
contracts;  environmental matters;  inventory;  plants,  buildings,  structures,
facilities  and  equipment;  customer  lists and  accounts;  relationships  with

                                       11



suppliers  and  licensors;   tax  matters;   permits;   brokers;   and  material
misstatements and omissions; and other customary matters.

     Under the Asset Purchase  Agreement,  Viking represented and warranted with
respect to, among other things,  our organization,  good standing and authority;
our authorized and outstanding capital stock; the lack of litigation activities;
our financial statements and reports; our lack of undisclosed  liabilities;  the
use of brokers;  the absence of conflicts;  our compliance  with applicable law;
consents and governmental  approvals;  trading in our securities;  the status of
the shares to be issued by us; and material  misstatements  and  omissions,  and
other customary matters.

Employee Matters

     Viking  offered  employment to all employees of the VT Business  other than
Stephen Gorgol, who will remain an employee of Vista. Other than Mr. Gorgol, all
employees  in Vista's  Westborough,  MA location  were offered  employment  with
Viking.

Registration Rights

     In connection with the Closing, we executed a registration rights agreement
with Vista  pursuant  to which we granted to Vista the right to include  Vista's
shares of Viking common stock in any registration statement (other than on Forms
S-8 or S-4)  effected by Viking  until the earlier of (i) seven  (7) years  from
Closing or  (ii) such  time that  Vista can sell all of its  Viking  shares in a
three (3) month period under SEC Rule 144.

Regulatory Approvals

     No special regulatory  approvals or compliances are required for completion
of the Asset Sale.

             INCREASE IN AUTHORIZED COMMON STOCK AND PREFERRED STOCK

General

     Our Board of  Directors  has  unanimously  approved a proposal to amend our
Articles of Incorporation to increase the number of shares of common stock which
we are authorized to issue from  20,000,000 to  100,000,000  and to increase the
number  of shares of  preferred  stock  which we are  authorized  to issue  from
5,000,000 to 25,000,000.  Our Board has recommended to our Majority Stockholders
that they  vote in favor of the  Increased  Capital  Proposal  and our  Majority
Stockholders have voted in favor of the Increased Capital Proposal. The votes of
our Majority Stockholders were obtained by written consent.

Consent Required

     Approval of the  Increased  Capital  Proposal,  through an amendment to our
Articles of Incorporation,  required the consent of the holders of a majority of
the  outstanding  voting shares.  As of the Record Date,  Majority  Stockholders

                                       12



beneficially   owned   4,700,300   shares  of  our  common  stock   representing
approximately  74.7%  of the  votes  that  could be cast by the  holders  of our
outstanding voting shares as of the Record Date. The Majority  Stockholders have
given their written consent to this Increased  Capital Proposal and accordingly,
the  requisite  stockholder  approval  of  this  Proposal  was  obtained  by the
execution  of  the  Majority  Stockholders'  written  consent  in  favor  of the
Proposal.

Amendment

     Our Board of Directors  and the Majority  Stockholders  have voted to amend
Article III of our Articles of Incorporation to read as follows:

                                   ARTICLE III
                                  CAPITAL STOCK

     The total  number of  shares  the  Corporation  is  authorized  to issue is
125,000,000, which shall be divided into two classes, as follows: (1) 25,000,000
Preferred  Shares,  par value  $.001 per share,  of which  5,000,000  shares are
designated as Series "A" Preferred Stock, and (2) 100,000,000 Common Shares, par
value $.001 per share. The preferences,  limitations and relative rights of each
class of shares (to the extent  established  hereby),  and the express  grant of
authority to the board of directors to amend these Articles of  Incorporation to
divide the Preferred Shares into series or classes,  to establish and modify the
preferences,  limitations and relative rights of the shares of Preferred Shares,
and to otherwise make changes  affecting the  capitalization of the Corporation,
subject  to the  limitations  and  procedures  set forth in the  Nevada  General
Corporations Act (the "Act"), are as follows:


     A. Common Shares.

          1. Each outstanding Common Share shall be entitled to one vote on each
     matter to be voted on by the shareholders of the Corporation.

          2.  Subject to any rights  that may be  conferred  upon any  Preferred
     Shares,  upon  dissolution of the  Corporation the holders of Common Shares
     then  outstanding  shall be  entitled  to  receive  the net  assets  of the
     Corporation. Such net assets shall be divided among and paid to the holders
     of Common Shares,  on a pro-rata  basis,  according to the number of Common
     Shares held by each of them.

          3.  Subject to any rights  that may be  conferred  upon any  Preferred
     Shares,  dividends may be paid on the outstanding  Common Shares if, as and
     when  declared by the board of directors,  out of funds  legally  available
     therefore.

          4. All rights  accruing to the  outstanding  shares of the Corporation
     not expressly  provided for to the contrary herein or in the  Corporation's
     bylaws or in any amendment  hereto or thereto shall be vested in the Common
     Shares.

                                       13



     B.  Preferred  Shares.  Pursuant to the  authority  granted to the board of
directors by the Act, the board of directors,  without  stockholder  action, may
amend the  Corporation's  Articles  of  Incorporation,  to the extent and in the
manner permitted by the Act.

     C.  Series A  Preferred  Stock.  The  Board  of  Directors  has  designated
5,000,000  shares of our Preferred Stock as Series A Preferred  Stock, the terms
and preferences of which are as follows:

          Section 101.  Designation.  The Series A Preferred Stock shall consist
     of  5,000,000  shares,  which  number  shall  not be  increased  but may be
     decreased  (but not below the number of shares of Series A Preferred  Stock
     then  outstanding)  from time to time by a resolution or resolutions of the
     Board of Directors.  Shares of Preferred  Stock redeemed by the Corporation
     or  converted  into  Common  Stock shall be  canceled  and shall  revert to
     authorized but unissued shares of preferred  stock  designated as to series
     or class upon compliance with the applicable provisions of law.

          Section 102.  Ranking.  The Series A Preferred Stock shall rank senior
     to the Common Stock as to the payment of dividends and the  distribution of
     assets on  liquidation,  dissolution  and  winding up of the affairs of the
     Corporation.  Each share of Series A Preferred Stock shall rank on a parity
     with or senior to each  other  series of  preferred  stock,  other than any
     Junior  Stock,  which may be  hereafter  issued by the  Corporation  in the
     payment of dividends and in the  distribution of assets on any liquidation,
     dissolution or winding up of the Corporation.

          Section  103.  Definitions.  As used herein  with  respect to Series A
     Preferred Stock, the following terms shall have the following meanings:

               (a) the term  "Junior  Stock" shall mean the Common Stock and any
          other class or series of stock of the Corporation hereafter authorized
          or issued  over  which  Series A  Preferred  Stock has  preference  or
          priority in (i) the payment of dividends and (ii) the  distribution of
          assets  on  any   liquidation,   dissolution  or  winding  up  of  the
          Corporation.

               (b) the  term  "Common  Stock"  shall  mean  the  class  of stock
          designated  as the common  stock,  par value  $.001 per share,  of the
          Corporation  at the date of the  adoption  of this  resolution  or any
          other   class  of  stock   resulting   from   successive   changes  or
          reclassifications of such common stock.

          Section 201. No Dividends.  No dividends  shall accrue on the Series A
     Preferred Stock.

          Section 301. Liquidation Preference ($0.08 per share).

               (a) In the event of any  voluntary  or  involuntary  liquidation,
          dissolution  or  winding  up of  the  Corporation,  then,  before  any
          distribution  or  payment  shall be made to the  holders of any Junior
          Stock, the holders of Series A Preferred Stock shall be entitled to be
          paid in full an amount equal to $0.08 per share, together with accrued
          and  unpaid   dividends   and  any   accumulated   dividends  to  such
          distribution or payment date, whether earned or declared.

                                       14



               (b) If, upon any  liquidation,  dissolution  or winding up of the
          Corporation,  such  payment  referred to in Section  301(a) shall have
          been  made in  full to  holders  of  Series  A  Preferred  Stock,  the
          remaining  assets and funds of the  Corporation  shall be  distributed
          among the holders of the Junior Stock,  according to their  respective
          rights and preferences and in each case according to their  respective
          shares.  If, upon any  liquidation,  dissolution  or winding up of the
          Corporation, such payment referred to in Section 301(a) shall not have
          been made in full to the holders of all outstanding shares of Series A
          Preferred Stock, the holders of Series A Preferred Stock and all other
          classes  or series  of stock of the  Corporation  ranking  on a parity
          therewith in the  distribution  of assets,  shall share ratably in any
          distribution of assets in proportion to the full amounts to which they
          would otherwise be respectively  entitled.  Neither the  consolidation
          nor the merger of the Corporation  with or into any other  corporation
          or corporations,  nor a reorganization  of the Corporation  alone, nor
          the sale or transfer of all or any part of its assets, shall be deemed
          a liquidation, dissolution or winding up of the Corporation within the
          meaning of this Section 301.

          Section 302. Notice of Liquidation. Written notice of any voluntary or
     involuntary  dissolution,  liquidation  or winding up of the affairs of the
     Corporation,  stating a payment date and the place where the  distributable
     amounts shall be payable and  containing a statement of or reference to the
     conversion right set forth in Section 501 shall be given by the Corporation
     to the holders or holders of the Series A Preferred Stock.

          Section 401. No Redemption. Shares of Series A Preferred Stock are not
     redeemable by the Corporation.

          Section 501. Conversion.

               (a) Conversion  Ratio.  Subject to and upon  compliance  with the
          provisions  of this Section 501, at the option of the holder  thereof,
          any share of the Series A Preferred Stock may be converted at any time
          by the  holder  thereof  into four (4)  shares of  common  stock.  Not
          withstanding  anything  else  contained  herein to the  contrary,  the
          Series A Preferred Stock may not be converted into common stock unless
          the number of shares of common  stock  authorized  is  sufficient  for
          issuance of common stock in connection with such conversion.

               (b) Conversion Procedure. To convert shares of Series A Preferred
          Stock into Common Stock,  the holder  thereof  shall  surrender at the
          office of any transfer agent for the Series A Preferred  Stock (or, if
          there  be  no  transfer  agent,   at  the  principal   office  of  the
          Corporation) the certificate or certificates therefore,  duly endorsed
          or  assigned  to the  Corporation,  and  give  written  notice  to the
          Corporation  that such  holder  elects to convert  such  shares.  Such
          notice of conversion  shall specify (i) the number of shares of Series
          A Preferred  Stock to be converted and the name or names in which such
          holder wishes the certificate or certificates for Common Stock and for
          any  shares of Series A  Preferred  Stock  not be so  converted  to be
          issued and (ii) the address to which such holder wishes delivery to be
          made of such new certificates to be issued upon such conversion.

                                       15



          Shares  of  Series A  Preferred  Stock  shall be  deemed  to have been
     converted  immediately  prior to the  close of  business  on the day of the
     surrender of such shares for  conversion in  accordance  with the foregoing
     provisions,  and the person or persons entitled to receive the Common Stock
     issuable upon conversion shall thereupon be treated for all purposes as the
     record holder or holders of the Common Stock. As promptly as practicable on
     or after the conversion date, the Corporation shall issue and shall deliver
     a certificate or certificates for the number of full shares of Common Stock
     issuable upon  conversion,  together with payment in lieu of any fractional
     share,  as  hereinafter  provided,  to the  person or persons  entitled  to
     receive  the same.  In the event that there shall have been  surrendered  a
     certificate  or  certificates  representing  shares of  Series A  Preferred
     Stock, only part of which are to be converted,  the Corporation shall issue
     and deliver to such holder or such holder's  designee a new  certificate or
     certificates  representing the number of shares of Series A Preferred Stock
     which shall not have been converted.

          Section 502.  Adjustment of Conversion  Ratio. The Conversion Ratio in
     effect at any time and the number and kind of securities  purchasable  upon
     the  conversion  of equal  share of the Series A  Preferred  Stock shall be
     subject  to  adjustment  from time to time upon the  happening  of  certain
     events at any time after December 18, 2003 as follows:

               (a)  Distributions,  Subdivision  or  Reclassification  of Common
          Stock.  In case the  Corporation  shall (i) make a distribution on its
          outstanding  Common Stock in shares of Common Stock; (ii) subdivide or
          reclassify  its  outstanding  shares  of Common  Stock  into a greater
          number of shares;  or (iii)  combine  or  reclassify  its  outstanding
          shares  of Common  Stock  into a smaller  number of  shares,  then the
          Conversion  Ratio in  effect at the time of the  record  date for such
          distribution or the effective date of such subdivision, combination or
          reclassification shall be proportionately adjusted;

               (b) Condition Precedent in Extraordinary Transaction.  In case of
          any reclassification, capital reorganization or other similar activity
          which results in a change in the outstanding shares of Common Stock or
          in case of the merger or consolidation of the Corporation with another
          entity or any sale, assignment,  lease or conveyance to another entity
          of  all  or  substantially  all  of  the  property  or  assets  of the
          Corporation in one or a series of transactions, the Corporation shall,
          as  a  condition  precedent  to  such  transaction,   cause  effective
          provisions to be made so that the holders of Series A Preferred  Stock
          shall have the right thereafter,  by converting the Series A Preferred
          Stock, to purchase the kind and amount of shares and other  securities
          and   property   receivable   upon  such   reclassification,   capital
          reorganization or similar activity,  change,  merger or consolidation,
          or sale,  assignment,  lease  or  conveyance  which  would  have  been
          received had the Series A Preferred  Stock been converted  immediately
          prior  to  such  reclassifications,  capital  reorganization,  similar
          activity, change, merger or consolidation,  or sale, assignment, lease
          or  conveyance.   Any  such  provision  shall  include  provision  for
          adjustments  which shall be as nearly equivalent as may be practicable
          to the adjustments provided for herein.

          Section 503.  Notice of Certain  Corporate  Action.  In case:  (i) the
     Corporation  shall declare a dividend on its Common Stock payable otherwise
     than in cash  out of its  earned  surplus;  or (ii) the  Corporation  shall

                                       16



     authorize  the  granting  to the  holders of its Common  Stock of rights or
     warrants to subscribe  for or purchase  any shares of capital  stock of any
     class or of any other rights;  (iii) the Corporation  shall  reclassify the
     Common Stock of the Corporation  (excluding a subdivision or combination of
     its outstanding  shares of Common Stock);  or (iv) of any  consolidation or
     merger to which the  Corporation  is a party and for which  approval of any
     stockholders of the Corporation is required,  or of the sale or transfer of
     all or substantially  all of the assets of the  Corporation;  or (v) of the
     voluntary  or  involuntary  dissolution,  liquidation  or winding up of the
     Corporation; then the Corporation shall cause to be filed with the transfer
     agent (if any) for the  Series A  Preferred  Stock,  and shall  cause to be
     mailed to all holders of record of the Series A Preferred  Stock,  at least
     20 days (or 10 days in any case  specified  in  clause  (i) or (ii)  above)
     prior to the applicable record date hereinafter specified, a notice stating
     (1) the  record  date,  or (2) the  date on  which  such  reclassification,
     merger, sale, transfer, dissolution,  liquidation or winding up is expected
     to  become  effective,  and the date as of which it is  expected  to become
     effective,  and the date as of which it is expected  that holders of Common
     Stock of record shall be entitled to exchange  their shares of Common Stock
     for   securities,   cash  or   other   property   deliverable   upon   such
     reclassification,  merger,  sale,  transfer,  dissolution,  liquidation  or
     winding up.

          Section 504.  Corporation  Shall  authorized and Reserve Common Stock.
     The Corporation  shall, on or before April 30, 2004,  authorize an increase
     in the  number  of  shares  of its  common  stock  authorized  in an amount
     sufficient  to enable all of the Series A Preferred  Stock to be  converted
     into shares of common stock.  Thereafter,  and for the purpose of effecting
     the conversion of the Series A Preferred  Stock,  the Corporation  shall at
     all times reserve and keep available,  free from preemptive  rights, out of
     its  authorized  but unissued  Common  Stock,  the full number of shares of
     Common Stock then issuable upon the conversion of all outstanding Preferred
     Stock.

          Section 505.  Covenant as to Common Stock.  The Corporation  covenants
     that all shares of Common Stock which may be issued upon  conversion of the
     Series A Preferred Stock will upon issue be fully paid and nonassessable.

          Section 506.  Special  Provision in Case of Merger,  Consolidation  or
     Other   Reorganization   or  Sale  of  Assets.   In  case  of  any  merger,
     consolidation,  reorganization,  sale or transfer  provided  for in Section
     502, the  Corporation  shall as soon as practicable  thereafter (and in any
     event  at  least  ten  (10)  business  days  before  consummation  of  such
     transaction)  give notice of such  agreement and the material terms thereof
     to each  holder of  Series A  Preferred  Stock and each such  holder of any
     Series A Preferred  Stock may elect,  in lieu of  converting  his shares in
     accordance  therewith,  to require the Corporation to, subject to the legal
     availability  of  funds  therefore,  redeem  all  such  shares  held at the
     liquidation value per share, plus an amount equal to all accrued and unpaid
     dividends  and all  accumulated  dividends  thereon  to the date  fixed for
     redemption, which shall be not later than the effective date of the merger,
     sale or  transfer.  Redemption  of the Series A Preferred  Stock shall be a
     condition to the effectiveness of such transaction.

          Section  601.  Voting.  The holders of Series A Preferred  Stock shall
     have, in addition to any voting  rights  provided by law, the right to vote
     by casting four (4) votes for each duly authorized,  issued and outstanding

                                       17



     share of Series A  Preferred  Stock  held by them of record,  as  hereafter
     provided:

               (i) voting  together  with the  holders  of Common  Stock and any
          other class of shares voting with Common Stock,  on any and all issues
          presented  to a vote of the holders of Common Stock or as to which the
          holders of the Common Stock are entitled to vote upon; and

               (ii) as a separate  class,  upon:  (a) each question or matter in
          respect of which such  holders are entitled to vote under the Act; (b)
          any  amendment,  alteration or repeal of any provision of the Articles
          of  Incorporation  or this  Certificate of Designation so as to affect
          adversely the rights,  powers or preferences of the Series A Preferred
          Stock,  and any  proposed  creation of a class or series of  preferred
          stock  ranking  on a parity  with the Series A  Preferred  Stock as to
          dividends or on liquidation.  Authorization of any action set forth in
          (b) above  requires  the  affirmative  vote of the holders of at least
          two-thirds of the outstanding shares of Series A Preferred Stock.

          Section  602.  Adjustment  in Voting  Rights.  The number of votes per
     share which the holders of Series A  Preferred  Stock may cast  pursuant to
     Section  601 shall be  adjusted,  upon any change in the  Conversion  Ratio
     under Article V hereof,  to equal the number of shares of Common Stock into
     which it would  be then  convertible  (whether  or not such  conversion  is
     restricted or prohibited for any reason).

                          (End of Amended Article III)

Reasons for Increase in Capital

     We need to increase our authorized capital for several reasons:

     o    On April 15,  2004,  we acquired  certain  assets  from Vista  Medical
          Technologies,  Inc. ("Vista"). In connection with such acquisition, we
          were  required  to make a cash  payment  to  Vista  in the  amount  of
          $158,717.74.  In order to fund the cash portion of the purchase  price
          for the Vista  assets,  we  issued  5,000,000  shares of our  Series A
          Preferred Stock to Donald Tucker for $400,000.  Each share of Series A
          Preferred  Stock is convertible  into four shares of our common stock,
          20,000,000  total.  We issued  Series A Preferred  Stock to Mr. Tucker
          because we did not have sufficient  shares of common stock authorized.
          We need to  increase  our  authorized  common  stock in order to issue
          these  20,000,000  shares of common  stock when Mr.  Tucker  elects to
          convert his Series A Preferred Stock into common stock;

     o    We intend to attempt to raise cash from the private  placement  of our
          common stock and eventually  from a registered  offering of our common
          stock; and

     o    We intend to use our common stock for additional acquisitions.

                                       18



          Our Board of  Directors  also  believes  that it is  desirable to have
     additional  authorized  shares of common stock available for other possible
     future  financings,  possible  future  acquisition  transactions  and other
     general  corporate  purposes.  Our Board of Directors  believes that having
     such additional authorized shares of common stock available for issuance in
     the future should give us greater  flexibility and may allow such shares to
     be issued without the expense and delay of a special stockholders' meeting.
     Although  such  issuance  of  additional  shares  with  respect  to  future
     financings and acquisitions would dilute existing stockholders,  management
     believes that such  transactions  would increase the value of Viking to its
     stockholders.

          There are  certain  advantages  and  disadvantages  of  voting  for an
     increase in our authorized common stock. The advantages include:

     o    The  ability  to raise  capital  by issuing  capital  stock  under the
          transaction described above, or other financing transactions.

     o    The  ability  to  fulfill  our  obligations  by  having  common  stock
          available  upon the  issuance,  and then  conversion  of our  Series A
          Preferred Stock.

     o    To have shares of common stock available to pursue business  expansion
          opportunities, if any.

     The disadvantages include:

     o    The issuance of authorized but unissued stock could be used to deter a
          potential  takeover  of Viking that may  otherwise  be  beneficial  to
          stockholders  by diluting  the shares  held by a  potential  suitor or
          issuing shares to a shareholder  that will vote in accordance with our
          Board  of  Directors'   desires.  A  takeover  may  be  beneficial  to
          independent  stockholders  because,  among other reasons,  a potential
          suitor may offer such stockholders a premium for their shares of stock
          compared to the  then-existing  market price. We do not have any plans
          or proposals to adopt  provisions  or enter into  agreements  that may
          have material anti-takeover consequences.

     o    Stockholders do not have any preemptive or similar rights to subscribe
          for or  purchase  any  additional  shares of common  stock that may be
          issued in the future, and therefore,  future issuances of common stock
          may,  depending on the  circumstances,  have a dilutive  effect on the
          earnings per share,  voting power and other  interests of the existing
          stockholders.

Increase in Blank Check Preferred Stock

     We  intend to  increase  our  authorized  shares of  preferred  stock  from
5,000,000 shares to 25,000,000  shares.  We have designated  5,000,000 shares of
preferred stock as Series A Preferred Stock. The remaining  20,000,000 shares of
Preferred Stock are "blank check" preferred stock. The term "blank check" refers
to preferred  stock, the creation and issuance of which is authorized in advance
by the stockholders  and the terms,  rights and features of which are determined
by our Board of Directors upon issuance  without further  stockholder  approval.

                                       19



The  authorization of such blank check preferred stock would permit the Board of
Directors to  authorize  and issue  preferred  stock from time to time in one or
more series.

     Subject to the provisions of our amended Articles of Incorporation  and the
limitations  prescribed  by law,  the  Board of  Directors  would  be  expressly
authorized,  at its discretion, to adopt resolutions to issue shares, to fix the
number of shares and to change the number of shares  constituting any series and
to provide  for or change  the  voting  powers,  designations,  preferences  and
relative,  participating,  optional  or other  special  rights,  qualifications,
limitations  or  restrictions  thereof,  including  dividend  rights  (including
whether the  dividends  are  cumulative),  dividend  rates,  terms of redemption
(including sinking fund provisions),  redemption  prices,  conversion rights and
liquidation  preferences of the shares  constituting any series of the preferred
stock, in each case without any further action or vote by the stockholders.  The
Board of Directors would be required to make any  determination  to issue shares
of preferred  stock based on its judgment as to the best interests of Viking and
its stockholders.

     The  increase in the number of  preferred  shares  authorized  provides the
Company  with  increased   financial   flexibility  in  meeting  future  capital
requirements  by  providing  another  type of security in addition to its common
stock,  as it will allow  preferred stock to be available for issuance from time
to time and with such  features as  determined by the board of directors for any
proper  corporate  purpose.  It is  anticipated  that such  purposes may include
exchanging preferred stock for common stock and, without limitation, may include
the  issuance  for cash as a means of  obtaining  capital for use by Viking,  or
issuance as part or all of the  consideration  required to be paid by Viking for
acquisitions of other businesses or assets.

     Any issuance of preferred  stock with voting  rights  could,  under certain
circumstances,  have the effect of delaying or preventing a change in control of
Viking by increasing  the number of outstanding  shares  entitled to vote and by
increasing  the  number of votes  required  to  approve a change in  control  of
Viking.  Shares of voting or  convertible  preferred  stock could be issued,  or
rights to purchase  such shares  could be issued,  to render more  difficult  or
discourage  an attempt to obtain  control of Viking by means of a tender  offer,
proxy  contest,  merger or  otherwise.  The ability of the Board of Directors to
issue such additional shares of preferred stock, with the rights and preferences
it deems advisable, could discourage an attempt by a party to acquire control of
Viking by tender offer or other means.  Such issuances could  therefore  deprive
stockholders  of benefits  that could  result from such an attempt,  such as the
realization of a premium over the market price that such an attempt could cause.
Moreover,  the issuance of such additional  shares of preferred stock to persons
friendly  to the  Board of  Directors  could  make it more  difficult  to remove
incumbent  managers  and  directors  from  office even if such change were to be
favorable to stockholders generally.

     While the increase in the number of preferred  shares  authorized  may have
anti-takeover ramifications,  the Board of Directors believes that the financial
flexibility offered by the amendment outweighs any disadvantages.  To the extent
that  the  increase  in the  number  of  preferred  shares  authorized  may have
anti-takeover  effects,  the amendment may encourage  persons seeking to acquire
Viking to negotiate  directly with the Board of Directors  enabling the board of
directors to consider the proposed  transaction in a manner that best serves the
stockholders' interests.

                                       20



                               DISSENTERS' RIGHTS

     There are no dissenters' rights applicable to the amendment of our Articles
of Incorporation relating to Increased Capital Proposal.

                 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT

     The following table sets forth  information  regarding shares of our Common
Stock  beneficially owned as of February 24, 2004 (the Record Date) by: (1) each
of our officers and directors;  (ii) all officers and directors as a group;  and
(iii) each person  known by us to  beneficially  own five percent or more of the
outstanding shares of its common stock.



                                           Common
Shareholder                                Stock                  Percentage
- -----------                                ------                 ----------

Thomas B. Marsh (1) (2)                      -0-                     -0-
Daniel F. Crowley (1) (3)                    -0-                     -0-
Ronald Walrod (1)                            -0-                     -0-
John R. Lyon      (1)                        -0-                     -0-
Dennis Blomquist (1)                        850,000                 13.5%
Evan Blomquist                              550,000                  8.7%
Richard Wallace                             410,000                  6.5%
Donald E. Tucker (5)                      3,200,000                 50.8%
Troika Capital                              600,300                  9.5%
All officers and directors as a
group 3 persons                             850,000                 13.5%

TOTAL                                     6,294,650                  100%

(1)  These were the officers and directors of the Company.  Effective  April 15,
     2004,  Dennis  Blomquist  resigned as an officer and director of Viking and
     Ronald  Walrod was  appointed a director  of Viking and Joseph  Warrino was
     appointed the Chief Financial  Officer and Secretary of Viking.  On May 10,
     2004, John R. Lyon was appointed a director of Viking.

(2)  Does not include  1,000,000  shares  which are  issuable  under a currently
     exercisable stock option.

(3)  Does not  include  200,000  shares  which are  issuable  under a  currently
     exercisable stock option.

(4)  Does not  include  20,000,000  shares  which may be  issued  if Mr.  Tucker
     converts his  5,000,000  shares of Series A Preferred  Stock into shares of
     our common stock.

                                       21



     The following table sets forth  information  regarding shares of our Common
Stock  beneficially  owned as of June 8,  2004 and as of June 8,  2004  assuming
Donald Tucker  converted all 5,000,000 of his shares of Series A Preferred Stock
into  20,000,000  shares  of  common  stock  by:  (1) each of our  officers  and
directors;  (ii) all  officers and  directors as a group;  and (iii) each person
known by us to beneficially  own five percent or more of the outstanding  shares
of its common stock.

                                           Common
Shareholder                                Stock                  Percentage
- -----------                                ------                 ----------

Thomas B. Marsh (1) (2)                      -0-                     -0-
Daniel F. Crowley (1) (3)                    -0-                     -0-
Ronald Walrod (1)                            -0-                     -0-
Jerry Lyon (1) (4)                        3,054,000
Donald E. Tucker (4)                      23,200,000                 79%

All officers and directors as a
group 3 persons                              850,000               13.5%

TOTAL                                     29,348,650                100%

(1)  These are the officers and directors of the Company.

(2)  Does not include  1,000,000  shares  which are  issuable  under a currently
     exercisable stock option.

(3)  Does not  include  200,000  shares  which are  issuable  under a  currently
     exercisable stock option.

(4)  Mr. Lyon is the president of Vista Medical Technologies,  Inc. These shares
     are owned by Vista Medical Technologies.

(5)  Assumes  all  5,000,000  shares of Series A.  Preferred  Stock owned by Mr.
     Tucker are convertible into 20,000,000 Shares of common stock.

               IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

     The current  directors and officers of Viking who will serve until the next
annual  meeting  of  shareholders  or until  their  successors  are  elected  or
appointed and qualified, are set forth below:

      Name                          Position
      ----                          --------

      Thomas B. Marsh               CEO/President/Director
      Daniel F. Crowley             Director, Audit Committee Chairman
      Ronald Walrod                 Director
      Joseph Lyon                   Director
      Joseph Warrino                Chief Financial Officer/Secretary

                                       23



     Background information about Viking's officers and directors is as follows:

     Thomas B. Marsh.  Mr. Marsh was appointed  President and Director of Viking
in  November   2003.  He  has  also  served  as  secretary,   and  treasurer  of
PurchaseSoft,  Inc.  from August 5, 2002 to Janaury 31,  2004.  He  continues to
serve as a director of  PurchaseSoft,  Inc.  where he has been a director  since
august 5, 2002.  Mr. Marsh was a Partner and  co-founder of Marsh+Flagg in 2001.
Marsh+Flagg is a merger and acquisition advisory firm with offices in La Jolla &
Newport  Beach,  California and Stuttgart  Germany.  Prior to  PurchaseSoft  and
Marsh+Flagg,  Marsh was COO at Co-Mack Technology,  CEO of Emark Corporation and
President of Spectrum Companies  International.  Marsh attended Williams College
with a major in economics.

     Daniel F Crowley.  Mr.  Crowley has been a private  investor  and  business
consultant  since 2002. Mr. Crowley is a principal in and co-founder of Spectrum
Partners LLC, a business strategy and development advisory firm, specializing in
the transportation and logistics industry, with offices in Scottsdale,  Arizona.
Prior to Spectrum Partners LLC, Mr. Crowley was Executive VP & CFO at BAX Global
from 1998 through 2002.  Previous positions include senior management  positions
with Frito-Lay International, and Grand Metropolitan PLC companies including The
Pillsbury Company and Pearle Vision. Mr. Crowley has a CPA from the State of New
York, a MBA in Finance from Columbia University.

     Ronald Walrod.  Mr. Walrod was appointed a director of the Company on April
15, 2004. He has served as President,  Chief  Executive  Officer and director of
JMAR  Technology  since October,  2002.  From 1998 to 2000, Mr. Walrod served as
President and CEO of Kinetic  Probe,  a  privately-held  company  engaged in the
development of semiconductor  probe cards.  From 1996 to 1998, Mr. Walrod served
as President and CEO of Nautronix, a supplier of dynamic positioning,  autopilot
and automation  systems for marine  applications.  From 1984 to 1993, Mr. Walrod
served as President and CEO of Applied Remote Technology,  Inc. (ART), a company
he  founded to develop  autonomous  undersea  vehicle  (AUV)  systems,  advanced
undersea  sensors,  and acoustic  communications  links,  all of which have both
commercial and military applications.  Mr. Walrod graduated with Honors from the
United  States  Coast  Guard  Academy  and earned  both  Masters of Science  and
Professional Engineer Degrees from the Massachusetts  Institute of Technology in
1970,  and  received  a  Masters  of  Business  Administration  degree  from the
University  of San Diego in 1983.  He was  awarded  a  fellowship  for  graduate
studies in Ocean Engineering from the National Science  Foundation and has twice
received  the  Industrial  Research  and  Development  IR 100 Award for Remotely
Operated  Vehicles  developed  under his  direction.  Mr.  Walrod holds a United
States Patent for "Comminution by Cryogenic  Electrohydraulics"  that was issued
in 1998.

     John R. Lyon. Mr. Lyon co-founded  Vista Medical  Technology,  Inc. in July
1993 and has served as its President since July 1993, as Chief Executive Officer
since  December  1996 and as a Director  since July 1995.  Prior to  co-founding
Vista  Medical,  Mr.  Lyon  served for three  years with  Cooper  Companies,  as
President of the  International  Division within Cooper's Health Care Group from

                                       23



January 1991 through  December  1992,  and as  President of Cooper  Surgical,  a
manufacturer  and  distributor of minimally  invasive  surgical  products,  from
January  1992  through  January  1993.  Mr.  Lyon  also was  employed  by Kaiser
Aerospace in a business  development role from February 1993 until Vista Medical
was founded in July 1993.  Mr. Lyon holds a B.A. from the  University of Durham,
United Kingdom.

     Joseph Warrino.  Mr. Warrino was appointed the Chief Financial  Officer and
Secretary of Viking on April 15, 2004.  From 2000 to April 15, 2004,  he was the
controller  of  Vista  Medical  Technologies,  Inc.  From  1999 to 2000 he was a
Division  Controller and Human  Resources  Manager of DT Industries,  Inc. Lasko
Company.  M From 1998 to 1999, he was a senior cost accountant for Vista Medical
Technologies,  Inc. From 1989 to 1998,  Mr.  Warrino worked as an accountant for
several different companies. Mr. Warrino earned his BS Degree in accounting from
Salem State College and his AS Degree in  Management  from  Middlesex  Community
College.

Control Persons

     Our change of business  plan was  proposed to our  previous  management  by
Donald E. Tucker.  In connection  with our change of business  plan,  Mr. Tucker
acquired  voting  control of Viking.  Information  about  Donald E. Tucker is as
follows:

     Donald E. Tucker.  Donald E. Tucker,  age 49, has been  employed by a large
consulting and technology firm for the past twenty four (24) years, and has been
a  Partner  for  thirteen   (13)  years.   Currently,   Mr. Tucker   has  global
responsibility  for the Medical  Technology,  Diagnostics  and Devices  industry
segment, as well as the west coast Biotech/Pharmaceutical market. He has primary
responsibility  for  establishing  global market and  operational  leadership in
these industry  segments and is also an advisor to a number of  associations  in
the life science industry. Mr. Tucker's experience is in the strategy,  planning
and  implementation  of  large-scale  complex  change  programs  with  extensive
involvement in new product  development,  supply chain management and commercial
operations.  He has served  numerous  Fortune  100  companies  in  planning  and
executing  global  mergers,   consolidating   operations  and  implementing  new
strategic  capabilities.  He has worked extensively  throughout the Americas and
Europe.  Mr.  Tucker  graduated  Magna  Cum Laude  with a BS degree in  business
management from Northern Michigan University.

                      ADDITIONAL AND AVAILABLE INFORMATION

     Viking is subject to the informational  filing requirements of the Exchange
Act and, in accordance  therewith,  is required to file periodic reports,  proxy
statements  and  other  information  with  the  SEC  relating  to its  business,
financial condition and other matters. Such reports,  proxy statements and other
information  can be  inspected  and  copied  at the  public  reference  facility
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, and Washington, D.C.
20549.  Information  regarding the public  reference  facilities may be obtained
from the SEC by  telephoning  1-800-SEC-0330.  Our filings are also available to
the public on the SEC's website  (http://www.sec.gov).  Copies of such materials

                                       24



may also be obtained by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.

                            STATEMENT OF ADDITIONAL INFORMATION

     Viking's  Annual Report on Form 10-KSB for the year ended December 31, 2003
and Quarterly  Reports on Form  10-QSB's,  for the quarter ended March 31, 2004,
have been  incorporated  herein by this reference.  We have also incorporated by
reference the following Form 8-K's:


            Form 8-K filed:   December 16, 2003
            Form 8-K filed:   December 24, 2003
            Form 8-K filed:   March 17, 2004
            Form 8-K filed:   April 1, 2004
            Form 8-K filed:   April 19, 2004
            Form 8-K filed:   May 10, 2004
            Form 8-K/A filed: June 9, 2004
            Form 8-K/A filed: June 30, 2004


     Our Form  10-KSB for the year ended  December  31, 2003 and our Form 10-QSB
for the  quarter  ended  march 31,  2004,  are  enclosed  with this  Information
Statement.

     For each other document incorporated herein, we will provide without charge
to each person, including any beneficial owner of such person, to whom a copy of
this  Information  Statement has been delivered,  on written or oral request,  a
copy of any and all of the documents  referred to above that have been or may be
incorporated by reference  herein other than exhibits to such documents  (unless
such exhibits are specifically incorporated by reference herein).

     All documents  filed by Viking  pursuant to Sections  13(a),  13(c),  14 or
15(d) of the Exchange Act subsequent to the date of this  Information  Statement
shall be deemed to be incorporated  by reference  herein and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or  superseded  for  purposes of this  Information  Statement to the
extent  that a statement  contained  herein or in any other  subsequently  filed
document  which  also is or is deemed to be  incorporated  by  reference  herein
modifies  or  supersedes  such  statement.  Any such  statement  so  modified or
superseded  shall  not be  deemed,  except  as so  modified  or  superseded,  to
constitute a part of this Information Statement.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

                                       25



                           COMPANY CONTACT INFORMATION

     All inquiries  regarding  the Company  should be addressed to the Company's
principal executive offices:

                                    Viking Systems, Inc.
                               7514 Girard Avenue, Suite 1509
                                     La Jolla, CA 92037
                                       (858) 456-6608

                                           By order of the Board of Directors:

                                           /s/ Thomas B. Marsh
                                           President and Chief Executive Officer




                              INDEX TO ATTACHEMENTS

Asset Purchase Agreement
Viking Systems, Inc. 10-KSB  for the year ended December 31, 2003
Viking Systems, Inc. for the Quarter ended March 31, 2004
Audited Financial Statement of Vista Medical Technologies Visualization Business
      Segment for the years ended December 31, 2003 and 2002
Proforma Financial Information












                                       26



                            ASSET PURCHASE AGREEMENT

                                  by and among

                        Vista Medical Technologies, Inc.

                                       and

                              Viking Systems, Inc.

                             dated December 22, 2003













                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
ARTICLE I DEFINITIONS........................................................1
      1.1   Defined Terms....................................................1
      1.2   Construction of Certain Terms and Phrases........................6

ARTICLE II PURCHASE AND SALE OF ASSETS.......................................6
      2.1   Purchase and Sale of Certain Assets of the Company...............6
      2.2   Excluded Assets..................................................6
      2.3   Assumed Liabilities/Excluded Liabilities.........................7
      2.4   Purchase Price...................................................7
      2.5   Allocation of Aggregate Purchase Price...........................7
      2.6   Private Placement................................................7
      2.7   Sales, Use and Other Taxes.......................................7
      2.8   Bulk Sales Compliance............................................7
      2.9   Closing..........................................................8

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................9
      3.1   Organization of the Company......................................9
      3.2   Authority........................................................9
      3.3   Financial Statements and Reports.................................9
      3.4   No Conflicts....................................................10
      3.5   Consents, Approvals and Filings.................................10
      3.6   No Undisclosed Liabilities......................................10
      3.7   Purchased Assets................................................11
      3.8   Benefit Plans; ERISA............................................11
      3.9   Real Property...................................................11
      3.10  Intellectual Property Rights....................................11
      3.11  Litigation......................................................13
      3.12  Compliance with Law.............................................13
      3.13  Contracts.......................................................13
      3.14  Environmental Matters...........................................14
      3.15  Inventory.......................................................14
      3.16  Plants, Buildings, Structures, Facilities and Equipment.........14
      3.17  Customer Lists and Accounts.....................................14
      3.18  Relationships with Suppliers and Licensors......................14
      3.19  Tax Matters.....................................................14
      3.20  Permits.........................................................15
      3.21  Brokers.........................................................15
      3.22  Material Misstatements and Omissions............................15
      3.23  Investment Representations......................................15

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER......................16
      4.1   Organization....................................................16
      4.2   Capital Stock of Purchaser......................................16
      4.3   Authority.......................................................16
      4.4   Litigation......................................................16
      4.5   Financial Statements and Reports................................17
      4.6   Financial Statements............................................17

                                       i



                          TABLE OF CONTENTS (Continued)
                                                                            Page
                                                                            ----

      4.7   No Undisclosed Liabilities......................................17
      4.8   Brokers.........................................................17
      4.9   No Conflicts....................................................17
      4.10  Consents and Governmental Approvals and Filings.................18
      4.11  Compliance with Law.............................................18
      4.12  Trading of Securities...........................................18
      4.13  Closing Shares..................................................18
      4.14  Material Misstatements and Omissions............................18

ARTICLE V COVENANTS OF THE PARTIES..........................................18
      5.1   Operation of Business Prior to Closing Date.....................19
      5.2   Investigation by Purchaser......................................19
      5.3   Consents........................................................19
      5.4   Notification of Certain Matters.................................20
      5.5   Cooperative Efforts.............................................20
      5.6   Filings.........................................................20
      5.7   Inconsistent Activities.........................................20
      5.8   Public Announcements............................................20
      5.9   Employee Matters................................................21
      5.10  Prorations......................................................21
      5.11  Confidentiality.................................................21
      5.12  Approval of the Company's Stockholders..........................22
      5.13  Updating of Disclosure Schedules................................22
      5.14  Board of Directors of Purchaser.................................22

ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.....................22
      6.1   No Material Adverse Effect......................................22
      6.2   Stockholder Approval............................................22
      6.3   Closing Deliveries..............................................22

ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF PURCHASER......................23
      7.1   Material Adverse Effect.........................................23
      7.2   Stockholder Approval............................................23
      7.3   Closing Deliveries..............................................23

ARTICLE VIII ACTIONS BY THE PARTIES AFTER THE CLOSING.......................23
      8.1   Survival of Representations, Warranties, Etc....................23
      8.2   Indemnification.................................................23
      8.3   Restriction on Transferability of the Securities................25
      8.4   Agreement not to dispose of Indemnity Shares....................26
      8.5   Further Assurances..............................................26
      8.6   Reports Under Securities Exchange Act of 1934...................26
      8.7   Transfer of Rights to Name......................................26
      8.8   Access to Records...............................................26
      8.9   Transitional Use of Financial System............................26
      8.10  Payment of Royalties............................................26
      8.11  Payment for Inventory...........................................26

                                       ii



                          TABLE OF CONTENTS (Continued)
                                                                            Page
                                                                            ----

ARTICLE IX MISCELLANEOUS....................................................27
      9.1   Termination.....................................................27
      9.2   Notices.........................................................28
      9.3   Entire Agreement................................................28
      9.4   Waiver..........................................................29
      9.5   Amendment.......................................................29
      9.6   No Third Party Beneficiary......................................29
      9.7   No Assignment; Binding Effect...................................29
      9.8   Headings........................................................29
      9.9   Severability....................................................29
      9.10  Governing Law...................................................29
      9.11  Consent to Jurisdiction and Forum Selection.....................29
      9.12  Expense.........................................................30
      9.13  Construction....................................................30
      9.14  Counterparts....................................................30

                                      iii





                             Schedules and Exhibits


Schedules
- ---------

Schedule 2.1(a)     Products
Schedule 2.1(b)     Property
Schedule 2.1(c)     Customer Lists and Accounts
Schedule 2.1(d)     Assumed Contracts
Schedule 2.1(e)     Permits
Schedule 2.1(g)     Inventory
Schedule 2.1(h)     Accounts
Schedule 2.2        Excluded Assets
Schedule 2.3        Assumed Liabilities
Schedule 2.5        Allocation

Disclosure Schedule

Exhibits
- --------

Exhibit A           License Agreement
Exhibit B           Bill of Sale
Exhibit C           General Assignment
Exhibit D           Registration Rights Agreement
Exhibit E           Inventory Procedure

                                       iv








                            ASSET PURCHASE AGREEMENT


     This Asset Purchase Agreement  ("Agreement") is made and entered into as of
December  22,  2003,  by and among Viking  Systems,  Inc., a Nevada  corporation
("Purchaser") and Vista Medical Technologies,  Inc., a Delaware corporation (the
"Company").

                                    RECITALS

     WHEREAS,  Purchaser  desires to acquire from the  Company,  and the Company
desires to sell to Purchaser, certain assets of the Company's medical device and
technology  business (the "Business") on the terms and subject to the conditions
set forth in this Agreement; and

     WHEREAS,  the  Purchaser  desires  to  assume  certain  liabilities  of the
Business as more fully described herein; and

     WHEREAS,  the Company shall retain  certain  product rights with respect to
the  products  and  assets  of  the  Business,  which  product  rights  will  be
exclusively  licensed  to  Purchaser  pursuant  to  the  terms  of  the  License
Agreement; and

     WHEREAS,  certain other assets and  liabilities  of the Company will remain
with the Company and not be transferred to Purchaser,  all as more  particularly
set forth herein; and

     WHEREAS,  Purchaser and the Company acknowledge that this Agreement and the
agreements  attached as exhibits hereto  collectively  constitute the agreements
necessary to accomplish the transactions  contemplated by this Agreement and are
parts of an  integrated  arrangement  between  the parties  with  respect to the
purchase  and sale of the  Purchased  Assets (as  defined  in  Section  1.1) and
certain licenses and other relationships  between the parties, and that separate
agreements have been used for the sake of convenience.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and promises  contained herein,  and for other good and valuable  consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.1 Defined Terms. As used in this Agreement,  the following  defined terms
have the meanings indicated below:

     "Actions or Proceedings" means any action, suit,  proceeding,  arbitration,
Order,  inquiry,  hearing,  assessment  with  respect to fines or  penalties  or
litigation (whether civil, criminal, administrative,  investigative or informal)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental or Regulatory Authority.

     "Affiliate"  means,  with  respect  to  any  Person,  another  Person  that
directly,  or  indirectly  through  one or  more  intermediaries,  controls,  is
controlled by or is under common control with such Person.

     "Assets and Properties" and "Assets or Properties" of any Person each means
all assets and  properties  of every kind,  nature,  character  and  description
(whether  real,  personal  or mixed,  whether  tangible or  intangible,  whether
absolute,  accrued,  contingent,  fixed or  otherwise  and  wherever  situated),
including  the  goodwill  related  thereto,  operated,  owned or  leased by such

                                       1



Person,  including,  without  limitation,  cash, cash equivalents,  accounts and
notes receivable,  chattel paper, documents,  instruments,  general intangibles,
real estate, equipment, inventory, goods and Intellectual Property.

     "Assumed Contracts" has the meaning set forth in Section 2.1(d) below.

     "Assumed Liabilities" has the meaning set forth in Section 2.3(a) below.

     "Books and Records" of any Person means all files, documents,  instruments,
papers,  books,  computer files  (including but not limited to files stored on a
computer's hard drive or on floppy disks),  electronic  files and records in any
other medium relating to the business, operations or condition of such Person.

     "Business Day" means a day other than Saturday,  Sunday or any day on which
banks located in the State of California are authorized or obligated to close.

     "Cash Purchase Price" means the sum of (i) $132,000 and (ii) the difference
(at Closing) between the Company's  aggregate accounts  receivable and aggregate
accounts payable.  To the extent the Cash Purchase Price exceeds $400,000,  only
$400,000 will be paid at Closing and the remainder will be paid upon the earlier
of (i) collection of the associated  accounts receivable or (ii) forty-five (45)
days after Closing.

     "Claim Notice" has the meaning set forth in Section 8.2(c).

     "Closing" has the meaning set forth in Section 2.9(a) below.

     "Closing Date" has the meaning set forth in Section 2.9(a) below.

     "Closing  Shares" means that number of shares of  Purchaser's  Common Stock
equal to 10% of Purchaser's fully-diluted capitalization (which, for purposes of
calculation,   includes  all  outstanding  common  stock,  preferred  stock  and
convertible or exercisable securities) as of Closing.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Company"  has  the  meaning  set  forth  in the  first  paragraph  of this
Agreement.

     "Company Disclosure  Schedule" means the disclosure schedule of the Company
attached  hereto  which sets forth the  exceptions  to the  representations  and
warranties  contained in Article III hereof and certain other information called
for by this Agreement.

     "Company Intellectual Property" means any Intellectual Property exclusively
relating to the conduct of the Business that is owned by,  exclusively  licensed
to or managed by the Company.

     "Company Records" has the meaning set forth in Section 2.1(f) below.

     "Company Reports" has the meaning set forth in Section 3.3 below.

     "Confidentiality  Agreement"  has the  meaning  set forth in  Section  5.11
below.

     "Customer  Lists and Accounts" has the meaning set forth in Section  2.1(f)
below.

     "Damages" has the meaning set forth in Section 8.2(a) below.

                                       2



     "Dispute Notice" has the meaning set forth in Section 8.2(c).

     "Encumbrances" means any mortgage, pledge,  assessment,  security interest,
deed of trust,  lease, lien, adverse claim, levy, charge or other encumbrance of
any  kind,  or any  conditional  sale or  title  retention  agreement  or  other
agreement to give any of the foregoing in the future.

     "Environment" means any surface water, ground water, drinking water supply,
land surface or subsurface strata, ambient air and any indoor workplace.

     "Environmental  Laws" means all  national,  state,  local and foreign laws,
codes,   regulations,   common  law,  requirements,   directives,   Orders,  and
administrative or judicial interpretations thereof, all as in effect on the date
hereof or on the  Closing  Date,  that may be enforced  by any  Governmental  or
Regulatory Authority,  relating to pollution,  the protection of the Environment
and the safety of workers and the public,  or the  regulation  of the  emission,
discharge,  disposal,  release or threatened release of Materials in or into the
Environment.

     "Environmental  Notice"  means any  written  notice by any Person  alleging
potential  liability  (including,  without  limitation,  potential liability for
investigatory  costs,  cleanup  costs,  governmental  costs,  harm or damages to
person, property, natural resources or other fines or penalties) arising out of,
based on or resulting  from (a) the emission,  discharge,  disposal,  release or
threatened  release  in  or  into  the  Environment  of  any  Materials  or  (b)
circumstances forming the basis of any violation,  or alleged violation,  of any
applicable Environmental Law.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended, and the rules and regulations promulgated thereunder.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Excluded Assets" has the meaning set forth in Section 2.2 below.

     "Fair Market Value" has the meaning set forth in Section 8.2(e)(iv) below.

     "Financial System" has the meaning set forth in Section 8.9 below.

     "GAAP" means United States generally accepted accounting principles.

     "General Assignment" has the meaning set forth in Section 2.9(b)(iv) below.

     "Governmental  or  Regulatory   Authority"   means  any  court,   tribunal,
arbitrator,  authority, agency, commission, official or other instrumentality of
the United States or other country,  any state,  county, city or other political
subdivision.

     "Indemnity  Shares" means 10% of the Closing Shares,  al of which are to be
held by the Company in accordance with the terms of this Agreement.

     "Intellectual  Property" means (i) trademarks,  service marks, trade names,
trade dress,  labels,  product  configurations,  logos,  and all other names and
slogans  associated with any products or embodying the goodwill of the Business,
whether  or not  registered,  and any  applications  or  registrations  therefor
(including any goodwill or common law rights associated therewith),  (ii) plans,
design drawings, specifications and performance criteria, operating instructions
and  maintenance  manuals,   manufacturing   information  (including  production
documentation,  methods,  layouts and supplier and cost information),  copies of

                                       3



on-site  computer  software  and  related  documentation   (including,   without
limitation, source and object code to the extent available),  prototypes, models
or  samples,  ideas,  concepts  and  data,  research  records,  all  promotional
literature, customer and supplier lists and similar data and information and all
other  confidential  or proprietary  technical and business  information,  (iii)
copyrights,  copyright  registrations  and applications for  registration,  (iv)
patent   and   patent   applications   (including   all   reissues,   divisions,
continuations, continuations-in-part, renewals, and extensions of the foregoing)
owned by the Company and (v) all other intellectual property rights and goodwill
related thereto.

     "Knowledge  of the  Company"  or "Known to the  Company"  means the  actual
knowledge of any Company executive officer after reasonable inquiry.

     "Leased Real Property" has the meaning set forth in Section 3.9 below.

     "Liabilities" means any liability, debts, obligations of any kind or nature
(whether known or unknown, whether asserted, or unasserted,  whether absolute or
contingent,  whether accrued or unaccrued,  whether  liquidated or unliquidated,
and whether due or to become due),  including  but not limited to any  liability
for Taxes.

     "License Agreement" has the meaning set forth in Section 2.2 below.

     "Materials"  means  pollutants,   contaminants  or  chemical,   industrial,
hazardous,   radioactive  or  toxic  materials  or  wastes,  including,  without
limitation, petroleum, petroleum products and radiation.

     "Material Adverse Effect" means, for any Person, a material adverse effect,
whether  individually  or in the  aggregate,  (a) on the  business,  operations,
financial  condition,  Assets and  Properties,  Liabilities or prospects of such
Person,  or (b) on the ability of such  Person to  consummate  the  transactions
contemplated hereby. For an event or condition to have a Material Adverse Effect
hereunder, such event or condition must specifically and particularly affect the
Person in question as opposed to affecting generally the economy, an industry or
society (or a segment thereof).

     "Offer Recipients" has the meaning set forth in Section 5.9(a) below.

     "Order" means any writ,  judgment,  decree,  injunction or similar order of
any Governmental or Regulatory  Authority (in each such case whether preliminary
or final).

     "Ordinary  Course  of  Business"  means  the  action  of a  Person  that is
consistent  with the past  practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.

     "Permits"   means  all  licenses,   permits,   certificates  of  authority,
authorizations,  approvals, registrations and similar consents granted or issued
by any  Governmental  or  Regulatory  Authority  relating to the  Business,  the
Purchased Assets or the Assumed Liabilities.

     "Permitted  Encumbrances"  means (i)  anyEncumbrance for taxes that are not
yet due or payable,  (ii) any  Encumbrance for tax assessments and other charges
or claims with respect to taxes,  the  validity of which are being  contested in
good faith by  appropriate  proceedings  for which  adequate  reserves have been
established in accordance with generally accepted accounting  principles,  (iii)
any minor imperfection of title or similar Encumbrances which individually or in
the  aggregate  with  other such  Encumbrances  does not impair the value of the
property  subject to such Encumbrance or the use of such property in the conduct
of the  Business,  (iv)  mechanics'  and  materialmen's  liens  incurred  in the

                                       4



Ordinary Course of Business for construction or alterations, (v) statutory liens
of landlords and  workmen's,  repairmen's,  warehousemen's  and carriers'  liens
arising in the Ordinary Course of Business,  (vi) requirements incurred or other
Encumbrances  relating to deposits  made in the  Ordinary  Course of Business in
connection with workers' compensation,  unemployment insurance and other similar
statutory  requirements and (vii) Eencumbrances  constituted by the terms of (A)
any equipment  lease;  (B) any capital  lease;  (C) any license and (D) any real
property lease.

     "Person"  means  any  natural  person,  corporation,  general  partnership,
limited partnership, limited liability company,  proprietorship,  other business
organization, trust, union, association or Governmental or Regulatory Authority.

     "Products" has the meaning set forth in Section 2.1(a) below.

     "Property" has the meaning set forth in Section 2.1(b) below.

     "Purchased Assets" has the meaning set forth in Section 2.1 below.

     "Purchaser"  has the  meaning  set  forth in the  first  paragraph  of this
Agreement.

     "Purchaser  Disclosure  Schedule"  means  the  disclosure  schedule  of the
Purchaser attached hereto which sets forth the exceptions to the representations
and  warranties  contained  in Article IV hereof and certain  other  information
called for by this Agreement.

     "Purchaser Group" has the meaning set forth in Section 8.2(a) below.

     "Registration  Rights  Agreement" means the agreement  substantially in the
form of Exhibit D attached hereto.

     "SEC" means the United States  Securities and Exchange  Commission,  or any
successor entity.

     "Securities" means, collectively, the Closing Shares and Indemnity Shares.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Survival Period" has the meaning set forth in Section 8.1 below.

     "Tax" (and,  with  correlative  meaning,  "Taxes,"  "Taxable" and "Taxing")
means all sales and use taxes, real and personal  property taxes,  income taxes,
gross receipts taxes,  documentary transfer taxes, employment taxes, withholding
taxes,  unemployment  insurance  contributions  and other taxes or  governmental
charges of any kind,  however  denominated,  including  any Liability in respect
thereto, under any federal, state, local, foreign or other applicable tax law.

     "Tax Return"  means any return,  report,  information  return,  schedule or
other  document  (including  any  related or  supporting  information)  filed or
required to be filed with respect to any taxing authority with respect to Taxes.

     "Updated  Capitalization  Representation"  has the  meaning  set  forth  in
Section 4.2 below.

     "Updated Company Disclosure  Schedule" has the meaning set forth in Section
5.13 below.

     "Updated  Purchaser  Disclosure  Schedule"  has the  meaning  set  forth in
Section 5.13 below.

                                       5



     1.2  Construction of Certain Terms and Phrases.  Unless the context of this
Agreement otherwise requires, (a) words of any gender include each other gender;
(b) words  using the  singular  or plural  number  also  include  the  plural or
singular number,  respectively;  (c) the terms "hereof,"  "herein," "hereby" and
derivative  or  similar  words  refer to this  entire  Agreement;  (d) the terms
"Article"  or  "Section"  refer to the  specified  Article  or  Section  of this
Agreement;  (e) the  term  "or"  has,  except  where  otherwise  indicated,  the
inclusive meaning represented by the phrase "and/or";  and (f) "including" means
"including  without  limitation."  Whenever this Agreement refers to a number of
days,  such  number  shall  refer to  calendar  days  unless  Business  Days are
specified.  All  accounting  terms used herein and not expressly  defined herein
shall have the meanings given to them under GAAP.

                                   ARTICLE II
                           PURCHASE AND SALE OF ASSETS

     2.1  Purchase  and Sale of Certain  Assets of the  Company.  Subject to the
terms and conditions hereof, the Company shall sell,  assign,  grant,  transfer,
convey and deliver to Purchaser,  and Purchaser  shall  purchase and accept from
the Company as of the Closing, other than the Excluded Assets, all of the assets
of the Business,  wherever situated, as the same shall exist on the Closing Date
(collectively,   the  "Purchased  Assets"),  including  without  limitation  the
following:

          (a)  Products.  All  products  listed on  Schedule  2.1(a),  including
     without   limitation  all   specifications,   documentation,   supplements,
     improvements,  modifications, updates, corrections and enhancements to past
     versions of such products,  shipping versions of such products and versions
     of such products currently under development (the "Products")

          (b)  Property.  All fixed assets and tangible  personal  property used
     exclusively  in the  operation  of the  Business  and set forth in Schedule
     2.1(b) attached hereto (the "Property");

          (c) Customer Lists. All customer lists and customer  accounts owned by
     the Company and used  primarily  in operation of the Business and set forth
     in Schedule 2.1(c) attached hereto (the "Customer Lists and Accounts");

          (d) Assumed Contracts.  All rights of the Company under the agreements
     entered into  between the Company and third  parties  named  therein in the
     operation  of the Business and listed in Schedule  2.1(d)  attached  hereto
     (the "Assumed Contracts");

          (e) Permits.  All Permits  (other than Permits that are not assignable
     pursuant to applicable  laws) issued to or held by the Company  relating to
     the  Purchased  Assets,  the  Business or Assumed  Liabilities  as forth in
     Schedule 2.1(e) attached hereto;

          (f)  Company  Records.  All of the Books and  Records  of the  Company
     exclusively   related  to  the  Business,   Purchased  Assets  and  Assumed
     Liabilities (the "Company Records");

          (g) Inventory.  All inventory of the Business as set forth in Schedule
     2.1(g); and

          (h)  Accounts.  All accounts  receivable  and accounts  payable of the
     Business as set forth in Schedule 2.1(h).

     2.2 Excluded Assets. The Company shall retain all of its rights,  title and
interest in and to all the assets of the Company other than the Purchased Assets
including,  without limitation, the Company Intellectual Property and the assets
set forth in Schedule 2.2 (collectively, the "Excluded Assets"). Certain Company

                                       6



Intellectual  Property  shall be licensed to  Purchaser  in exchange for royalty
payments  pursuant  to the  terms  of a  License  Agreement  to be  executed  in
connection herewith, substantially in the form of Exhibit A hereto (the "License
Agreement").

     2.3 Assumed Liabilities/Excluded Liabilities.

          (a) As of the Closing  Date,  Purchaser  agrees to assume,  satisfy or
     perform when due those liabilities and obligations of the Company listed in
     Schedule 2.3 (the "Assumed Liabilities").

          (b) Other than the Assumed Liabilities, Purchaser shall not assume, or
     be deemed to have assumed or guaranteed,  or otherwise be  responsible  for
     any liability,  obligation or claims of any nature of the Company,  whether
     matured or unmatured,  liquidated  or  unliquidated,  fixed or  contingent,
     known or unknown,  or whether arising out of acts or occurrences  prior to,
     at or  after  the date  hereof.  Without  limiting  the  generality  of the
     foregoing,  the  Company  shall  remain  liable for all,  Tax  liabilities,
     litigation matters involving the Company and the payment of all Liabilities
     and  obligations to personnel of the Company with respect to the notice and
     continuation  coverage  requirement  of  Section  4980B(e)  of the Code and
     regulations thereunder,  payroll,  overtime, accrued vacation time, holiday
     time, severance  arrangements or worker's  compensation of any nature which
     are accrued but unpaid as of the Closing Date.

     2.4 Purchase Price. On the Closing Date, as consideration for the Purchased
Assets, Purchaser agrees:

          (a) To pay and deliver to the Company the Cash Purchase Price; and

          (b) To deliver to the  Company a  certificate  evidencing  the Closing
     Shares;

          (c) To assume the Assumed Liabilities.

     2.5 Allocation of Aggregate  Purchase Price. The allocation of the purchase
price  set forth in  Section  2.4 above  shall be as set forth on  Schedule  2.5
attached  hereto.  Purchaser and the Company agree (a) to report the sale of the
Purchased  Assets for federal  and state Tax  purposes  in  accordance  with the
allocations  set forth on Schedule  2.5 hereto and (b) not to take any  position
inconsistent with such allocations on any of their respective tax returns.

     2.6 Private Placement.  The Closing Shares to be issued to the Company will
be exempt from the  registration  requirements of the Securities Act pursuant to
the private placement exemption provided by Rules 505 and/or 506 of Regulation D
promulgated  under the  Securities Act and/or Section 4(2) of the Securities Act
and applicable state securities laws, based in part upon the representations and
warranties of the Company  contained  herein.  The Company hereby agrees to take
all actions and execute all  subscription  and other  documents  which Purchaser
reasonably  deems  necessary to qualify the  issuance of the Closing  Shares for
such exemption.

     2.7 Sales,  Use and Other Taxes.  The Company shall be responsible  for all
sales,  use,  documentary stamp and other Taxes, if any, arising out of the sale
of the Purchased  Assets to Purchaser  pursuant to this  Agreement or any of the
transactions contemplated by this Agreement.

     2.8 Bulk Sales  Compliance.  The Purchaser hereby waives  compliance by the
Company with the  provisions of any and all laws  relating to bulk  transfers in
connection  with the sale of the  Purchased  Assets.  The Company  covenants and

                                       7



agrees to indemnify  and hold  harmless  Purchaser  from and against any and all
Damages arising out of noncompliance with such bulk transfers laws.

     2.9 Closing.

          (a) Time and Place.  The  consummation of the purchase and sale of the
     Purchased  Assets under this Agreement (the "Closing")  shall take place at
     the offices of Heller Ehrman White & McAuliffe,  LLP, 4350 La Jolla Village
     Drive,  Suite 700,  San Diego,  California,  92122-1246,  at 10:00 a.m.  on
     January  21,  2004 or at such other time and in such  manner as the parties
     mutually agree in writing (the "Closing Date").

          (b) Closing  Deliveries  by the Company.  At the Closing,  the Company
     shall have delivered or caused to be delivered to Purchaser: (i) possession
     of all of the Purchased Assets;

               (ii) the License Agreement, duly executed by the Company;

               (iii) a Bill of  Sale  substantially  in the  form of  Exhibit  B
          attached hereto,  conveying good and marketable title in and to all of
          the Purchased Assets, duly executed by the Company;

               (iv) an Assignment and Assumption Agreement  substantially in the
          form of Exhibit C attached  hereto (the  "General  Assignment"),  duly
          executed by the Company;

               (v) the  Registration  Rights  Agreement,  duly  executed  by the
          Company;

               (vi) the Updated Company Disclosure Schedule;

               (vii) a certificate  of an officer of the Company with respect to
          the matters set forth in Section 7.1 hereof;

               (viii) a certificate of the Secretary of the Company,  certifying
          as of the Closing Date (A) a true and complete copy of the Certificate
          of Incorporation  of the Company,  (B) a true and complete copy of the
          resolutions of each of the board of directors and  stockholders of the
          Company  authorizing  the execution,  delivery and performance of this
          Agreement  by the  Company  and the  consummation  of the  transaction
          contemplated hereby, (C) a certificate of good standing as of a recent
          date of the  Company  in the  State  of  Delaware  and (D)  incumbency
          matters; and

               (ix) consents to assignment of the Assumed  Contracts in form and
          substance satisfactory to Purchaser and its counsel.

          (c) Closing Deliveries By Purchaser.  At the Closing,  Purchaser shall
     have delivered or caused to be delivered:

               (i) the Cash Purchase Price to the Company;

               (ii) the Closing Shares to the Company;

               (iii) the License Agreement, duly executed by Purchaser;

                                       8



               (iv) the General Assignment, duly executed by Purchaser;

               (v)  the  Registration   Rights   Agreement,   duly  executed  by
          Purchaser;

               (vi) the Updated Purchaser Disclosure Schedule;

               (vii) a  certificate  of an officer of Purchaser  with respect to
          the matters set forth in Section 6.1 hereof;

               (viii) a certificate of the Secretary of Purchaser, certifying as
          of the Closing Date (A) a true and complete copy of the Certificate of
          Incorporation  of the  Purchaser,  (B) a true and complete copy of the
          resolutions of the board of directors of the Purchaser authorizing the
          execution, delivery and performance of this Agreement by the Purchaser
          and the consummation of the transactions  contemplated  hereby,  (C) a
          certificate  of good  standing as of a recent date of the Purchaser in
          the State of Nevada and (D) incumbency matters; and

               (ix) such other  documents as the Company may reasonably  request
          for the purpose of facilitating  the  consummation of the transactions
          contemplated herein.

                                  ARTICLE III
                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company  represents  and  warrants to  Purchaser as of the date hereof,
except as set forth on the Disclosure Schedule furnished separately to Purchaser
or as set forth in the Company  Reports,  which exceptions shall be deemed to be
representations and warranties as if made hereunder, as follows:

     3.1  Organization  of  the  Company.  The  Company  is a  corporation  duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.  The Company has the requisite corporate power and corporate authority
to carry on its business and own its Assets and Properties  except where failure
to have such power and authority would not have a Material Adverse Effect on the
Business.  The Company is duly qualified to conduct its respective  business and
is in good standing under the laws of each jurisdiction where such qualification
is required  except for any  jurisdiction  where failure so to qualify would not
have a Material Adverse Effect upon the Business.

     3.2 Authority.  The Company has all necessary corporate power and corporate
authority  and has taken  all  corporate  action  necessary  to enter  into this
Agreement, to consummate the transactions contemplated hereby and to perform its
respective  obligations  hereunder  and no other  proceedings  or  corporate  or
stockholder  action on the part of the Company is necessary  to  authorize  this
Agreement or to consummate the transactions  contemplated hereby. This Agreement
has been duly and validly  executed and  delivered by the Company and  (assuming
due  authorization,  execution  and  delivery  by  the  other  parties  to  this
Agreement)  constitutes  a legal,  valid and binding  obligation  of the Company
enforceable  against  the  Company in  accordance  with its terms  except (i) as
limited by applicable  bankruptcy,  insolvency,  reorganization,  moratorium and
other laws of general  application  affecting  enforcement of creditors'  rights
generally and (ii) as limited by laws relating to the  availability  of specific
performance, injunctive relief or other equitable remedies.

     3.3 Financial  Statements and Reports.  The reports and documents  filed by
the  Company  under  Section 13 or  subsections  (a) or (c) of Section 14 of the
Exchange Act with the SEC since January 1, 2001 (such  reports are  collectively
referred to herein as the "Company  Reports")  constitute all of the reports and
documents  required to be filed by the Company under  Section 13 or  subsections
(a) or (c) of Section 14 of the  Exchange  Act with the SEC from January 1, 2001

                                       9



through  the date of this  Agreement.  The  Company  Reports  have been duly and
timely filed,  were in compliance in all material respects with the requirements
of the Exchange Act and the rules and  regulations  thereunder  when filed,  and
were complete and correct in all material  respects as of the dates at which the
information  therein was furnished.  As of their  respective  dates, the Company
Reports did not contain any untrue statement of a material fact or omit to state
a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein,  in light of the circumstances  under which they were made,
not misleading. The audited financial statements and unaudited interim financial
statements of Company included in the Company Reports (i) complied as to form in
all material respects with applicable accounting  requirements and the published
rules and  regulations  of the SEC with respect  thereto  when filed,  (ii) were
prepared in accordance  with GAAP applied on a consistent  basis  throughout the
periods  covered  thereby  (except as may be  indicated  therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act),  (iii) fairly present the  consolidated  financial
condition,  results of operations and cash flows of Company as of the respective
dates thereof and for the periods  referred to therein,  and (iv) are consistent
with the books and records of Company. Since the date of the filing with the SEC
of Company's most recent Form 10-Q, there has been no material adverse change in
the financial  condition or results operations of Company that has resulted in a
Material  Adverse Effect on the Business or the Purchased  Assets.  There are no
restatements  of  Company's  financial  statements  currently   contemplated  as
discussed with Company's Audit Committee.

     3.4 No  Conflicts.  The  execution  and  delivery  by the  Company  of this
Agreement does not, and the performance by the Company of its obligations  under
this Agreement and the consummation of the transactions contemplated hereby will
not:

          (a)  conflict  with or result in a  violation  or breach of any of the
     terms,  conditions or provisions of the  Certificate  of  Incorporation  or
     Bylaws of the Company;

          (b)  conflict  with or result in a violation  or breach of any term or
     provision of any law,  Order,  Permit,  statute,  rule or  regulation  of a
     Governmental  or  Regulatory  Authority  applicable  to the Business or the
     Purchased Assets;

          (c) result in a breach of, or default  under (or give rise to right of
     termination,   cancellation  or  acceleration  under)  any  of  the  terms,
     conditions or provisions of any note, bond, mortgage,  indenture,  license,
     permit, agreement, lease or other similar instrument or obligation to which
     the Business or the Purchased Assets may be bound; or

          (d) result in an  imposition  or  creation of any  Encumbrance  on the
     Business or any of the Purchased Assets.

     3.5  Consents,  Approvals and Filings.  No consent,  approval or action of,
filing  with or notice to any  Governmental  or  Regulatory  Authority  or other
Persons on the part of the Company is required in connection with the execution,
delivery  and  performance  of  this  Agreement  or  the   consummation  of  the
transactions   contemplated   hereby  other  than   approval  by  the  Company's
stockholders  in accordance with the Company's  bylaws and the Delaware  General
Corporation Law.

     3.6 No Undisclosed Liabilities.  Except as disclosed in the Company Reports
(including financial  statements  contained therein),  there are no Liabilities,
nor any  basis for any  claim  against  the  Company  for any such  Liabilities,
relating to or  affecting  the  Business  or the  Purchased  Assets,  other than
Liabilities incurred after the date of the latest Company Report in the Ordinary
Course of Business  which have not had, and could not  reasonably be expected to
result in,  individually or in the aggregate,  a Material  Adverse Effect on the
Business or the Purchased Assets.

                                       10



     3.7  Purchased  Assets.  Section  3.7 of the  Company  Disclosure  Schedule
contains a complete and accurate schedule  specifying the location of all of the
Purchased  Assets,  as of the Closing Date.  The Company has good and marketable
title to, or a valid leasehold interest in all of the Purchased Assets, free and
clear of all  Encumbrances  (other than Permitted  Encumbrances).  The Purchased
Assets  (together  with the  Excluded  Assets),  constitute  all property of any
nature owned by the Company used in, or useful to, the operation of the Business
as  conducted  as of the date  hereof.  All  tangible  personal  property of the
Company  and/or used in or useful to the  operation  of the  Business is in good
operating  condition and repair,  ordinary wear and tear  excepted.  The Company
shall be in actual possession of all of the Purchased Assets at the Closing.

     3.8 Benefit Plans; ERISA. Except as set forth on Section 3.8 of the Company
Disclosure  Schedule,  Purchaser  will incur no liability with respect to, or on
account of, and the Company  will retain any  liability  for, and on account of,
any  employee  benefit  plan of the  Company,  including,  but not  limited  to,
liabilities  the  Company  may  have  to  such  employees  under  all  incentive
compensation  plans, bonus plans,  pension and retirement plans,  profit-sharing
plans (including,  any profit-sharing  plan with a cash-or-deferred  arrangement
subject to Section 401(k) of the Code) stock purchase and option plans,  savings
and similar plans, medical, dental, travel, accident, life, disability and other
insurance and other plans or  arrangements,  whether written or oral and whether
"qualified" or "non-qualified" under the Code, or to any employee as a result of
termination of employment by the Company as contemplated by this Agreement.  The
Company has not, with respect to any Offer Recipients,  maintained,  contributed
to, or been obligated or required to contribute to, a  "multiemployer  plan," as
such term is defined in Section  3(37) of ERISA.  The  Company is not a party to
any  collective  bargaining  agreement  covering  any Offer  Recipients  and the
Company  knows of no  effort  to  organize  any such  employee  as a part of any
collective bargaining unit.

     3.9 Real Property. The Company does not own any real property.  Section 3.9
of the Company  Disclosure  Schedule  contains the complete and accurate  street
address  of each  parcel of real  property  leased by the  Company or any of its
Affiliates  in the conduct of the  Business  (as lessee or lessor)  (the "Leased
Real Property"). The Company has a valid leasehold interest in all real property
used in or  relating  to the  conduct  of the  Business,  free and  clear of all
Encumbrances (other than Permitted Encumbrances). Each lease with respect to the
Leased Real Property is a legal, valid and binding agreement  subsisting in full
force and effect  enforceable  in accordance  with its terms,  and except as set
forth in Section 3.9 of the Company  Disclosure  Schedule,  there is no, and the
Company  has not  received  notice of any,  default (or any  condition  or event
which,  after  notice  or lapse of time or both,  would  constitute  a  default)
thereunder.  Such  leases in effect  allow the  particular  use of the  premises
involved, and no provision of any lease prohibits or unduly limits the Company's
ability to conduct the Business so as to have a Material  Adverse  Effect on the
Business if enforced.  The Company does not owe any brokerage  commissions  with
respect to any such Leased Real Property.

     3.10 Intellectual Property Rights.

          (a) Section  3.10(a) of the  Company  Disclosure  Schedule  contains a
     true,  correct,  complete  and  current  list and  summary of all  patents,
     trademarks and copyright  registrations or applications  comprising Company
     Intellectual Property. The Company owns and has good and exclusive title to
     (or valid right to use) each item of Company Intellectual Property free and
     clear of any Encumbrance (other than Permitted Encumbrances).

          (b)  Section  3.10(b) of the  Company  Disclosure  Schedule  lists all
     Actions or  Proceedings  before any  Governmental  or Regulatory  Authority
     (including  the United  States  Patent and  Trademark  Office or equivalent
     authority  anywhere  in the  world)  related  to any  Company  Intellectual
     Property.  No Company  Intellectual  Property  or product or service of the
     Business  is  subject  to any  proceeding  or  outstanding  decree,  order,

                                       11



     judgment,  agreement,  or  stipulation  restricting  in any manner the use,
     transfer,  or  licensing  thereof by the  Company,  or which may affect the
     validity, use or enforceability of such Company Intellectual Property.

          (c) To the Knowledge of the Company, each item of Company Intellectual
     Property is valid and subsisting,  all necessary registration,  maintenance
     and renewal fees in connection with such Company Intellectual Property have
     been made and all necessary  documents and  certificates in connection with
     the Company Intellectual Property have been filed with the relevant patent,
     copyright,  trademark or other  authorities in the United States or foreign
     jurisdictions,  as the case may be, for the  purposes of  maintaining  such
     Company Intellectual Property.

          (d) To the extent  that any  Company  Intellectual  Property  has been
     developed  or created by a third party for the  Company,  the Company has a
     written  agreement  with such third  party  with  respect  thereto  and the
     Company  thereby has obtained  ownership of, and is the exclusive owner of,
     or has a valid  license to use,  all  Intellectual  Property  in such work,
     material or invention by operation of law or by valid assignment.

          (e) Except as set forth in Section  3.10(e) of the Company  Disclosure
     Schedule,  the Company  has not  transferred  ownership  of, or granted any
     license   (exclusive  or   non-exclusive)   with  respect  to  any  Company
     Intellectual Property to any third party.

          (f)  Section  3.10(f) of the  Company  Disclosure  Schedule  lists all
     contracts, licenses and agreements to which the Company is a party that are
     currently in effect (i) with respect to the Company  Intellectual  Property
     licensed or offered to any third party;  or (ii)  pursuant to which a third
     party has licensed or transferred any Company Intellectual  Property to the
     Company.  Each of the contracts,  licenses and agreements listed in Section
     3.10(f) of the Company Disclosure Schedule is in full force and effect. The
     consummation  of the  transactions  contemplated  by  this  Agreement  will
     neither  violate  nor  result in the  breach,  modification,  cancellation,
     termination or suspension of such contracts,  licenses and agreements.  The
     Company is in compliance with, and has not breached any term of any of such
     contracts,  licenses  and  agreements.  To the  Knowledge  of the  Company,
     following the Closing Date  Purchaser  will be permitted to exercise all of
     the Company's rights under the contracts,  licenses and agreements required
     to be listed in Section  3.10(f) to the same extent the Company  would have
     been  able to had the  transactions  contemplated  by  this  Agreement  not
     occurred and without the payment of any additional amounts or consideration
     other than  ongoing  fees,  royalties or payments  which the Company  would
     otherwise be required to pay.

          (g) To the Knowledge of the Company, the operation of the Business, as
     currently   conducted,   has  not,  does  not  and  will  not  infringe  or
     misappropriate  the Intellectual  Property of any third party or constitute
     unfair competition or trade practices under the laws of any jurisdiction.

          (h) The Company has not received  notice from any third party that the
     operation  of the  Business or any act,  product or service of the Business
     infringes or misappropriates  the Intellectual  Property of any third party
     or constitutes  unfair competition or trade practices under the laws of any
     jurisdiction.

          (i)  To  the  Knowledge  of  the  Company,  (i)  no  Person  has or is
     infringing or misappropriating any Company  Intellectual  Property and (ii)
     there have been, and are, no claims asserted against the Company or against
     any  customer  of the  Company,  related  to any  product or service of the
     Business.

                                       12



     3.11  Litigation.  Except  as set  forth  in  Section  3.11 of the  Company
Disclosure  Schedule,  there are no Actions or  Proceedings  pending  or, to the
Knowledge of the Company,  threatened  or  anticipated  against,  relating to or
affecting  (i) the  Business or the  Purchased  Assets or (ii) the  transactions
contemplated by this Agreement,  and, to the Knowledge of the Company,  there is
no basis for any such Action or  Proceeding.  The Company is not in default with
respect  to any  Order,  and  there are no  unsatisfied  judgments  against  the
Company.

     3.12  Compliance  with  Law.  To the  Knowledge  of the  Company,  it is in
compliance  with  all  applicable  laws,   statutes,   Orders,   ordinances  and
regulations,  whether federal, state, local or foreign, except where the failure
to comply,  in each  instance  and in the  aggregate,  would not  reasonably  be
expected to have a Material Adverse Effect on the Business.  The Company has not
received any notice to the effect that,  or otherwise  has been advised that, it
is not in  compliance  with any of such laws,  statutes,  Orders,  ordinances or
regulations,  where the failure to comply could reasonably be expected to result
in a Material Adverse Effect on the Business.

     3.13  Contracts.

          (a)  Section  3.13 of the  Disclosure  Schedule  contains  a true  and
     complete  list of each of the  following  contracts,  agreements  or  other
     arrangements  to which  the  Company  is a party  and by  which  any of the
     Purchased Assets are bound:

               (i) all loan agreements, indentures, debentures, notes or letters
          of  credit  relating  to the  borrowing  of  money  or to  mortgaging,
          pledging or otherwise placing an Encumbrance on any Purchased Assets;

               (ii) all leases or  agreements  under which the Company is lessee
          or lessor of, or holds, or operates,  any property,  real or personal,
          owned by any other  party used in  connection  with the conduct of the
          Business;

               (iii)  all  commitments,  contracts,  sales  contracts,  purchase
          orders,  mortgage  agreements or groups of related agreements with the
          same party or any group or affiliated  parties which require or may in
          the future require payment of any consideration by the Company;

               (iv) all license agreements, distribution agreements or any other
          agreements involving any of the Company Intellectual Property;

               (v) all  contracts  or  commitments  that in any way restrict the
          Company from carrying on the Business;

               (vi) all other contracts and agreements pertaining to the conduct
          of the Business or by which any of the Purchased  Assets is bound that
          (A) involve the payment or potential payment, pursuant to the terms of
          any such  contract  or  agreement,  by the  Company  and (B) cannot be
          terminated  within thirty (30) days after giving notice of termination
          without resulting in any cost or penalty to the Company; and

               (vii) all contracts or commitments that in any way grants a third
          party  a  right  of  first  refusal  for  the  purchase  of any of the
          Purchased Assets.

          (b) A correct and complete copy of each  contract,  agreement or other
     arrangement  disclosed in Section 3.13 of the Company  Disclosure  Schedule
     has been  previously  provided to Purchaser.  Each  contract,  agreement or

                                       13



     other  arrangement  disclosed  in Section  3.13 of the  Company  Disclosure
     Schedule  is in full force and effect and  constitutes  a legal,  valid and
     binding agreement, enforceable in accordance with its terms.

     3.14 Environmental  Matters. The Business is in compliance with, and has at
all times complied with, all applicable  Environmental Laws in all respects and,
to the Knowledge of the Company, there are no circumstances which may prevent or
interfere  with such  compliance in the immediate  future.  In the last five (5)
years, the Company has not received any communication (whether written or oral),
whether from a Governmental or Regulatory Authority,  citizen group, employee or
otherwise, that alleges that the Company or any predecessor of any of the Leased
Real Property or Purchased  Assets is not in full compliance with  Environmental
Laws. All Permits, licenses, registrations and other governmental authorizations
currently held by the Company pursuant to  Environmental  Laws are identified in
Section 3.14 of the Company  Disclosure  Schedule  and are in good  standing and
without any violation and represent all such environmental Permits necessary for
the conduct of the  Business as  currently  conducted.  The Company has not been
notified by any  Governmental  or Regulatory  Authority  that any  environmental
Permit will be modified,  suspended or revoked or cannot be renewed, reissued or
transferred,  and, to the Knowledge of the Company, no environmental Permit will
be  modified,   suspended  or  revoked,  or  cannot  be  renewed,   reissued  or
transferred.

     3.15 Inventory.  The inventory of the Business is in good and  merchantable
condition,  and suitable and usable at its carrying value in the Ordinary Course
of Business for the purposes for which  intended.  There is no material  adverse
condition  affecting  the supply of  materials  available  to the Company in the
conduct of the Business.  All inventories  used in or relating to the conduct of
the Business are owned by the Company free and clear of any Encumbrances  (other
than Permitted Encumbrances).

     3.16 Plants, Buildings,  Structures,  Facilities and Equipment. All plants,
buildings,  structures,  facilities  and  equipment  used by the  Company in the
conduct of the Business are  structurally  sound with no known material  defects
and are in good operating condition and repair (subject to normal wear and tear)
so as to permit the  operation  of the  Business  as  presently  conducted.  The
current  condition of such plants,  buildings,  structures and facilities comply
with applicable zoning and permit requirements.

     3.17 Customer Lists and Accounts. The Customer Lists and Accounts set forth
in Schedule  2.1(b) is a true and correct list of the  Company's  customers  and
accounts as of the date hereof.

     3.18 Relationships with Suppliers and Licensors. No current supplier to the
Company  with the  respect  to the  Business  has  notified  the  Company  of an
intention to terminate or substantially alter its existing business relationship
with the Company nor has any licensor under a license agreement with the Company
that  constitutes  part of the  Assumed  Contracts  notified  the  Company of an
intention to terminate or  substantially  alter the Company's  rights under such
license.

     3.19 Tax  Matters.  All Taxes of the Company have been or will be paid on a
timely  basis.  The Company has duly and timely filed (or will file prior to the
Closing) all Tax Returns required to be filed prior to Closing, and all such Tax
Returns and reports are true,  correct,  and complete in all material  respects.
There are no Encumbrances  (other than Permitted  Encumbrances) for Taxes on any
of the Purchased  Assets.  The Company has complied with all record  keeping and
tax  reporting  obligations  relating  to income and  employment  taxes due with
respect to  compensation  paid to  employees  or  independent  contractors.  The
Company is not a "foreign  person"  within the meaning of Section  1445(f)(3) of
the Code.  There are no pending or, to the Knowledge of the Company,  threatened
proceedings  with  respect to Taxes for which  Purchaser  could  bear  successor
liability  beyond  what is set forth in the  Disclosure  Schedule or which could
become a charge  against  the  Purchased  Assets,  and there are no  outstanding

                                       14



waivers or extensions of statutes of limitations  with respect to assessments of
Taxes, of the Company for which Purchaser could bear successor  liability beyond
what is set forth in the  Disclosure  Schedule  or which  could  become a charge
against the Purchased Assets.

     3.20 Permits.  Section 3.20 of the Disclosure  Schedule contains a true and
complete list of all Permits used by the Company in the conduct of the Business.
All such Permits are currently  effective and valid and have been validly issued
and are freely transferable to Purchaser at the Closing. To the Knowledge of the
Company,  no  additional  Permits are necessary to enable the Company to conduct
the Business in compliance with all applicable federal, state and local laws. To
the Knowledge of the Company,  the  execution,  delivery or  performance of this
Agreement  will not have any effect on the continued  validity or sufficiency of
the  Permits,  nor will any  additional  Permits  be  required  by virtue of the
execution,  delivery or  performance  of this Agreement to enable the Company to
conduct the Business as now operated. To the Knowledge of the Company,  there is
no pending  Action or Proceeding  by any  Governmental  or Regulatory  Authority
which could affect the Permits or their  sufficiency  for the current conduct of
the Business or of the conduct of the Business after the Closing.

     3.21 Brokers.  The Company has not retained any broker in  connection  with
the  transactions  contemplated  hereunder.  Purchaser  has,  and will have,  no
obligation  to  pay  any  broker's,  finder's,  investment  banker's,  financial
advisor's or similar fee in connection  with this Agreement or the  transactions
contemplated  hereby  by  reason  of any  action  taken by or on  behalf  of the
Company.

     3.22 Material Misstatements and Omissions. The statements,  representations
and  warranties  of the  Company  contained  in this  Agreement  (including  the
exhibits and schedules hereto) and in each document,  statement,  certificate or
exhibit  furnished or to be  furnished  by or on behalf of the Company  pursuant
hereto,  or in  connection  with the  transactions  contemplated  hereby,  taken
together, do not contain and will not contain any untrue statement of a material
fact and do not or will not omit to state a material fact  necessary to make the
statements or facts contained herein or therein,  in light of the  circumstances
made, not misleading.

     3.23 Investment Representations. The Company is an "accredited investor" as
such term is defined in Rule 501(a)  promulgated  under the Securities  Act. The
Company is aware that the  Closing  Shares  have not been  registered  under the
Securities Act or any applicable  state  securities laws, and hereby agrees that
the Closing Shares may not be offered or sold (i) in the absence of registration
under  the  Securities  Act  and  any  applicable  state  securities  laws or an
exemption  from the  registration  requirements  of the  Securities  Act and any
applicable  state  securities  laws and (ii) unless in compliance with the terms
and provisions of this  Agreement.  The Company  represents  that the Company is
familiar with Rule 144 promulgated by the SEC pursuant to the Securities Act, as
presently in effect, and understands the resale limitations  imposed thereby and
by the Securities Act. The Company understands that the offering and sale of the
Closing Shares is intended to be exempt from  registration  under the Securities
Act, by virtue of the private  placement  exemption  provided by Rule 505 and/or
506 of Regulation D promulgated  under the Securities Act and/or Section 4(2) of
the Securities Act, based,  in part,  upon the  representations,  warranties and
agreements  contained  in  this  Agreement,  and  Purchaser  may  rely  on  such
representations, warranties and agreements in connection therewith.

     The Company agrees that it will be acquiring the Closing Shares for its own
account and for investment,  and not with a view to the distribution  thereof or
with any present  intention of distributing or selling any of the Closing Shares
except in compliance with the Securities Act,  applicable  state securities laws
and this  Agreement.  The Company  represents that by reason of its business and
financial experience,  the Company has knowledge,  sophistication and experience
in business and financial  matters as to be capable of evaluating the merits and
risk of the prospective  investment.  The financial condition and investments of
the Company  are such that the  Company is in a  financial  position to hold the

                                       15



Closing  Shares for an  indefinite  period of time and to bear the economic risk
of, and withstand a complete loss of, the investment in the Closing Shares.

                                   ARTICLE IV
                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Purchaser  represents  and  warrants to the Company as of the date  hereof,
except as set forth on the Purchaser Disclosure Schedule furnished separately to
the  Company,  which  exceptions  shall  be  deemed  to be  representations  and
warranties as if made hereunder, as follows:

     4.1  Organization.  Purchaser  is a  corporation  duly  organized,  validly
existing, and in good standing under the laws of the State of Nevada.  Purchaser
has the  requisite  corporate  power  and  corporate  authority  to carry on its
business and own its Assets and  Properties  except  where  failure to have such
power and  authority  would not have a  Material  Adverse  Effect on  Purchaser.
Purchaser is duly  qualified to conduct its  respective  business and is in good
standing  under  the  laws of each  jurisdiction  where  such  qualification  is
required except for any jurisdiction  where failure so to qualify would not have
a Material Adverse Effect upon Purchaser.

     4.2 Capital Stock of Purchaser.  The authorized capital stock of Purchaser,
consists of (i) 20,000,000  shares of common stock,  par value $0.001 per share,
of which  6,294,650  shares were issued and  outstanding  as of the date hereof;
(ii) no shares of capital  stock of Purchaser in treasury;  and (iii)  5,000,000
shares of Preferred  Stock,  $0.001 par value per share,  all of which have been
designated Series A Preferred Stock and all of which were issued and outstanding
as of the date hereof (each of which shares is  convertible  into four shares of
common  stock).  Each  share of the  issued  and  outstanding  capital  stock of
Purchaser is duly  authorized,  validly  issued,  fully paid and  nonassessable.
Purchaser  will  provide  at Closing an  updated  version of this  Section  4.2,
updated  and   accurate  as  of  the  Closing   (the   "Updated   Capitalization
Representation").   The  fully   diluted   percentage   ownership  of  Purchaser
represented by the Closing  Shares will not  materially  change between the date
hereof and the Closing.

     Except for outstanding options to purchase up to 1,200,000 shares of common
stock, there are no outstanding options,  warrants, rights (including conversion
or  preemptive  rights) or  agreements  for the  purchase  or  acquisition  from
Purchaser of any shares of its capital stock.

     4.3 Authority.  Purchaser has all necessary  corporate  power and corporate
authority  and has taken  all  corporate  action  necessary  to enter  into this
Agreement, to consummate the transactions contemplated hereby and to perform its
respective  obligations  hereunder  and no other  proceedings  or  corporate  or
stockholder  action on the part of Purchaser  is  necessary  to  authorize  this
Agreement or to consummate the transactions  contemplated hereby. This Agreement
has been duly and validly  executed and delivered by Purchaser and (assuming due
authorization,  execution and delivery by the other  parties to this  Agreement)
constitutes  a legal,  valid and binding  obligation  of  Purchaser  enforceable
against  Purchaser  in  accordance  with its  terms  except  (i) as  limited  by
applicable bankruptcy, insolvency, reorganization,  moratorium and other laws of
general  application  affecting  enforcement of creditors'  rights generally and
(ii) as limited by laws relating to the  availability  of specific  performance,
injunctive relief or other equitable remedies.

     4.4 Litigation.  Except as set forth in the Purchaser  Disclosure Schedule,
there are no Actions or  Proceedings  pending or, to the Knowledge of Purchaser,
threatened  or  anticipated  against,  relating to or affecting (i) Purchaser or
(ii) the transactions  contemplated by this Agreement,  and, to the Knowledge of
Purchaser, there is no basis for any such Action or Proceeding. Purchaser is not
in default with  respect to any Order,  and there are no  unsatisfied  judgments
against Purchaser.

                                       16



     4.5 Financial Statements and Reports. Purchaser is required to file reports
and documents  under Section 13 or  subsections  (a) or (c) of Section 14 of the
Exchange Act with the SEC (such reports are  collectively  referred to herein as
the  "Purchaser  Reports").  Purchaser is not current with respect to filing the
Purchaser Reports.  However,  Purchaser will become current in the filing of the
Purchaser  Reports  within  ninety  (90) days  following  the  Closing  and such
Purchaser  Reports,  when filed,  will be in compliance in all material respects
with  the  requirements  of the  Exchange  Act and  the  rules  and  regulations
thereunder  and will be complete and correct in all material  respects as of the
applicable filing dates. The Purchaser Reports,  when brought current,  will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated  therein or necessary to make the statements  therein,  in
light of the  circumstances  under  which they were made,  not  misleading.  The
audited  financial  statements  and unaudited  interim  financial  statements of
Purchaser to be included in the Purchaser  Reports will (i) comply as to form in
all material respects with applicable accounting  requirements and the published
rules and  regulations  of the SEC with  respect  thereto  when  filed,  (ii) be
prepared in accordance  with GAAP applied on a consistent  basis  throughout the
periods  covered  thereby  (except as may be  indicated  therein or in the notes
thereto, and in the case of quarterly financial statements, as permitted by Form
10-Q under the Exchange Act),  (iii) fairly present the  consolidated  financial
condition,  results  of  operations  and  cash  flows  of  Purchaser  as of  the
respective  dates thereof and for the periods  referred to therein,  and (iv) be
consistent with the books and records of Purchaser.  Purchaser acknowledges that
it has access to, and has reviewed (to the extent it has deemed  necessary)  the
Company Reports.

     4.6  Financial  Statements.  Purchaser  has  delivered  to the  Company its
unaudited  balance sheet and  unaudited  statements of income and cash flows for
the nine month period ending  September 30, 2003 (the "Statement  Date") (all of
the foregoing financial statements,  collectively,  the "Financial Statements").
The  Financial  Statements,  together with the notes  thereto,  are complete and
correct  in all  material  respects,  have  been  prepared  in  accordance  with
generally  accepted   accounting   principles  applied  on  a  consistent  basis
throughout  the periods  indicated,  except as  disclosed  therein,  and present
fairly the financial  condition  and position of Purchaser as of the dates,  and
for the  periods,  specified  therein;  provided,  however,  that the  unaudited
Financial  Statements are subject to normal recurring year-end audit adjustments
(which are not  expected  to be  material),  and do not  contain  all  footnotes
required under generally accepted accounting principles.

     4.7 No Undisclosed  Liabilities.  Purchaser has no material liabilities and
knows of no material  contingent  liabilities  not  disclosed  in the  Financial
Statements,  except  current  liabilities  incurred  in the  ordinary  course of
business  subsequent  to the Statement  Date which have not been,  either in any
individual case or in the aggregate, materially adverse.

     4.8 Brokers.  Purchaser has not retained any broker in connection  with the
transactions  contemplated  hereunder.  Purchaser will have no obligation to pay
any broker's,  finder's investment banker's,  financial advisor's or similar fee
in connection with this Agreement or the transactions contemplated hereby.

     4.9 No Conflicts. The execution and delivery by Purchaser of this Agreement
does not, and the performance by Purchaser of its respective  obligations  under
this Agreement and the consummation of the transactions contemplated hereby will
not:

          (a)  conflict  with or result in a  violation  or breach of any of the
     terms,  conditions or provisions of the  Certificate  of  Incorporation  or
     Bylaws of Purchaser;

                                       17



          (b)  conflict  with or result in a violation  or breach of any term or
     provision of any law,  Order,  Permit,  statute,  rule or  regulation  of a
     Governmental or Regulatory Authority applicable to Purchaser,  the business
     or Assets or Properties of Purchaser or the capital stock of Purchaser; or

          (c) result in a breach  of, or default  under (or give rise to a right
     of  termination,  cancellation  or  acceleration)  under any of the  terms,
     conditions or provisions of any note, bond, mortgage,  indenture,  license,
     agreement,  lease  or  other  similar  instrument  or  obligation  to which
     Purchaser may be bound; or

          (d) result in an imposition or creation of any Encumbrance (other than
     a  Permitted  Encumbrance)  on the  business  or  Assets or  Properties  of
     Purchaser except as contemplated by this Agreement.

     4.10 Consents and Governmental Approvals and Filings. No consent,  approval
or other  action of,  filing with or notice to any  Governmental  or  Regulatory
Authority on the part of Purchaser is required in connection with the execution,
delivery  and  performance  of  this  Agreement  or  the   consummation  of  the
transactions contemplated hereby.

     4.11  Compliance  with Law.  To the  Knowledge  of  Purchaser,  except with
respect  to the  lack  of  timeliness  and  currency  of the  Purchaser  Reports
described in Section 4.5 above,  it is in compliance  with all applicable  laws,
statutes,  Orders, ordinances and regulations,  whether federal, state, local or
foreign,  except  where the  failure  to  comply,  in each  instance  and in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Purchaser.  Purchaser  has not  received  any  notice  to the  effect  that,  or
otherwise has been advised that, it is not in compliance  with any of such laws,
statutes,  Orders, ordinances or regulations,  where the failure to comply could
reasonably be expected to result in a Material Adverse Effect on Purchaser.

     4.12 Trading of  Securities.  Neither  Purchaser  nor any of its  officers,
directors  or ten percent  (10%) or greater  shareholders,  nor, to  Purchaser's
Knowledge  any of its  employees,  affiliates,  agents or  representatives  have
violated  any  laws,  statutes,  Orders,  ordinances  and  regulations,  whether
federal,  state,  local or foreign,  arising out of or in any way related to the
issuance  of or trading  in the  capital  securities  of  Purchaser,  including,
without limitation, Rule 10b-5 of the Exchange Act.

     4.13 Closing Shares.  The Closing Shares,  upon issuance  thereof,  will be
duly authorized,  validly issued, fully paid, nonassessable,  and not subject to
any  Encumbrance.  The Closing  Shares  shall be issued in  compliance  with all
applicable securities laws.

     4.14 Material Misstatements and Omissions. The statements,  representations
and warranties of Purchaser contained in this Agreement  (including the exhibits
and schedules  hereto) and in each document,  statement,  certificate or exhibit
furnished or to be furnished by or on behalf of Purchaser pursuant hereto, or in
connection with the transactions  contemplated  hereby,  taken together,  do not
contain and will not contain any untrue  statement of a material fact and do not
or will not omit to state a material  fact  necessary to make the  statements or
facts  contained  herein or therein,  in light of the  circumstances  made,  not
misleading.

                                   ARTICLE V
                            COVENANTS OF THE PARTIES

      Each of the parties covenants with the others to act, as follows:

                                       18



     5.1  Operation  of  Business  Prior to Closing  Date.  Except as  otherwise
contemplated by this Agreement, between the date hereof and the Closing Date (or
earlier termination of this Agreement), the Company will operate the Business in
the Ordinary Course of Business and, to the extent consistent therewith, with no
less  diligence  and  effort  than  would  be  applied  in the  absence  of this
Agreement,  use all commercially  reasonable  efforts to seek to preserve intact
its  current  Business  organizations,  keep  available  the  service of current
managers, officers and employees of the Business and preserve relationships with
customers, suppliers,  distributors,  lessors, employees, contractors and others
having business  dealings with the Business with the intention that the Business
shall be unimpaired at the Closing Date.  Without limiting the generality of the
foregoing,  except as otherwise  expressly provided in this Agreement,  prior to
the Closing Date (or earlier termination of this Agreement), the Company:

          (a) will not  create,  incur or  assume  any  obligation  which  would
     adversely affect the Purchased Assets or Purchaser's ability to conduct the
     Business in substantially the same manner and condition as conducted by the
     Company on the date of this Agreement;

          (b) except to the extent an  obligation  is  established  in a written
     agreement  in existence  prior to the date  hereof,  will not change in any
     manner the compensation of, or agree to provide additional  benefits to, or
     enter into any employment  agreement with, any Offer  Recipient,  except as
     contemplated in Section 5.9 below and except for such benefits  provided to
     substantially all of the Company's similarly situated employees;

          (c) will maintain  insurance coverage in amounts adequate to cover the
     reasonably anticipated risks of the Business;

          (d) will not sell,  dispose of or encumber any of the Purchased Assets
     or license any  Purchased  Assets to any Person except object code licenses
     on a  non-exclusive  basis in a manner  and on terms  consistent  with past
     practice;

          (e) will  not  enter  into  any  material  agreements  or  commitments
     relating to the Business,  except on commercially  reasonable  terms in the
     Ordinary Course of Business of the Business;

          (f) will comply in all material respects with all laws and regulations
     applicable to the Business;

          (g) will not enter  into any  agreement  with any third  party for the
     distribution of any of the Purchased Assets;

          (h) will not  materially  amend its  Certificate of  Incorporation  or
     Bylaws (except as necessary to comply with the terms of this Agreement)

     5.2  Investigation  by  Purchaser.   Subject  to  all  applicable   patient
confidentiality laws and confidentiality obligations of the Company, the Company
shall allow  Purchaser or its authorized  representatives,  at  Purchaser's  own
expense  during  regular  business  hours,  or otherwise with the consent of the
Company  (which  consent  shall  not be  unreasonably  withheld),  to make  such
inspection of the Company and to inspect (and,  if  applicable,  make copies of)
Books and Records,  plants,  offices,  warehouses  and other  facilities  of the
Company as reasonably requested by Purchaser or its authorized representatives.

     5.3 Consents.  As soon as practicable  after  execution of this  Agreement,
each party will commence all action required  hereunder to obtain all applicable
Permits, consents, approvals and agreements of, and to give all notices and make

                                       19



all filings with, any third parties as may be necessary to authorize, approve or
permit  the full and  complete  consummation  of the  transactions  contemplated
hereby by the Closing Date. In this regard,  the Company will use its reasonable
best  efforts  to obtain  consent  from its  landlord  to  assign  to  Purchaser
(effective  at Closing) the real  property  lease  pertaining  to the  Company's
facility  located at 134 Flanders Rd.,  Westborough,  MA 01581. In the event the
Company is unable to obtain such  assignment,  the Company  will  sublease  such
facility to Purchaser effective at Closing.

     5.4 Notification of Certain Matters.  Each of the parties shall give prompt
notice to the other party,  of (i) the discovery of a fact or facts of which the
notifying party has actual  knowledge which cause it to conclude that any of the
representations,  warranties  or  statements  made  by it or in an any  exhibit,
schedule or other document delivered pursuant to this Agreement, may be false or
misleading   or  omission  of  any  facts   necessary  in  order  to  make  such
representations,  warranties or  statements  not false or  misleading;  (ii) the
occurrence,  or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty made by them in this Agreement
to be untrue or  inaccurate  any time from the date hereof to the Closing  Date;
and (iii) any  failure of the  notifying  party to comply  with or  satisfy  any
covenant,  condition  or  agreement  to be  complied  with  or  satisfied  by it
hereunder.  Each party  hereto  shall use all  reasonable  efforts to remedy any
failure  on its part to  comply  with or  satisfy  any  covenant,  condition  or
agreement to be complied with or satisfied by it hereunder.

     5.5  Cooperative  Efforts.  Subject  to the  terms and  conditions  of this
Agreement,  each of the  parties  hereto  will use its  commercially  reasonable
efforts  to take,  or cause to be taken,  all  action,  or to do, or cause to be
done,  all things  necessary,  proper or  advisable  under  applicable  laws and
regulations to consummate and make effective the  transactions  contemplated  by
this  Agreement,  including,  without  limitation,  obtaining  all  consents and
approvals of all Persons and Governmental or Regulatory Authorities and removing
any injunctions or other  impairments or delays or otherwise which are necessary
to the consummation of the transactions contemplated by this Agreement.

     5.6 Filings.  Each of the parties  hereto will use its best efforts to make
or cause to be made all such filings and  submissions  as may be required  under
applicable  laws  and  regulations  for  the  consummation  of the  transactions
contemplated  by this  Agreement.  The Company and Purchaser will coordinate and
cooperate with one another in exchanging such information and provide each other
such assistance as any other party may reasonably request in connection with the
foregoing.

     5.7 Inconsistent Activities.  Unless and until this Agreement is terminated
pursuant to Section 9.1, the Company  will not directly or  indirectly  solicit,
initiate or encourage  any  inquiries or  proposals  from,  discuss or negotiate
with,  provide  any  non-public  information  to or  consider  the merits of any
unsolicited  inquiries  or proposals  from,  any Person  (other than  Purchaser)
relating to any transaction  involving the sale of the Business or the Purchased
Assets,  or  any  merger,   consolidation,   business   combination  or  similar
transaction involving the Business (each a "Proposed Acquisition  Transaction").
The Company will immediately notify Purchaser if any discussions or negotiations
are sought to be initiated,  any inquiry or proposal is made, or any information
is requested  with respect to any Proposed  Acquisition  Transaction  and notify
Purchaser of the terms of any proposal which it or its  Affiliates,  if any, may
receive in  respect  of any such  Proposed  Acquisition  Transaction,  including
without  limitation  the identity of the  prospective  purchaser  or  soliciting
party.

     5.8 Public  Announcements.  Except as may be  required by  applicable  law,
including any  determination  that a press release or other public  statement or
filing is required under applicable securities or regulatory rules, prior to the
Closing,  none of the parties hereto shall issue or cause the publication of any
press  release  or  otherwise  make any  public  statement  with  respect to the
transactions  contemplated  hereby without the prior written  consent of each of
the other parties hereto.

                                       20



     5.9 Employee Matters.

          (a)  Offer  of  Employment.  Subject  to and in  accordance  with  the
     provisions  of this Section 5.9,  Purchaser  will offer  employment  to all
     employees  other than Stephen Gorgol who are employed in the Business as of
     the date of this Agreement  (such employees to receive offers of employment
     are referred to as the "Offer  Recipients").  The Company has  delivered to
     Purchaser a list  setting  forth the names,  home  addresses,  compensation
     levels,  stock  option  position,  if any,  and  job  titles  of all  Offer
     Recipients. Prior to the Closing, Purchaser, after notice to the Company as
     to the timing and method of contact,  shall have the right to contact  each
     of the Offer  Recipients  for the purposes of making  offers of  employment
     with Purchaser to be effective after the Closing Date and receiving written
     acceptances of such  employment (in each case contingent on consummation of
     the transactions contemplated by this Agreement).  Upon Closing,  Purchaser
     shall hire all Offer  Recipients  who  accept  such offer in the manner and
     within  the time  frame  reasonably  established  by  Purchaser.  Each such
     employee  who is  employed  by the  Company  on the  Closing  Date  and who
     actually  transfers to  employment  with  Purchaser at or after the Closing
     Date as a result of an offer of  employment  made by Purchaser is hereafter
     referred to as a "Transferred  Employee." On a periodic basis following the
     date hereof and prior to the Closing, Purchaser shall advise the Company of
     its intentions with respect to Offer Recipients it desires to extend or has
     extended  offers  to and  the  general  status  of  discussions  with  such
     employees.

          (b)  Transition.  The employment of the  Transferred  Employees by the
     Company  shall end at the close of  business  on the  Closing  Date and the
     employment  of the  Transferred  Employees by Purchaser  shall  commence at
     12:01  a.m.  on  the  day  after  the  Closing  Date,  except  as to  those
     Transferred  Employees who are on disability  leave of less than twenty-six
     (26)  weeks,  authorized  leave of  absence or  military  service as of the
     Closing  Date,  in which  case  such  Transferred  Employees  shall  remain
     employees of the Company until, and will commence employment with Purchaser
     as of, 12:01 a.m. on the date they return to active employment. Transferred
     Employees  shall not include any person on a disability  leave of more than
     twenty-six  (26) weeks.  The terms of employment with Purchaser shall be as
     mutually agreed to between each Transferred Employee and Purchaser, subject
     to the succeeding provisions of this Section 5.9.

          (c) Retention of Employees Prior to Closing. The Company agrees to use
     reasonable  efforts to (i) retain the Offer  Recipients as employees of the
     Business until the Closing Date, and (ii) assist  Purchaser in securing the
     employment  after the  Closing  Date of the Offer  Recipients.  The Company
     shall  notify  Purchaser   promptly  if  any  Offer  Recipient   terminates
     employment  with the Company after the date of this  Agreement but prior to
     the Closing.

          (d) Employees Other than Transferred  Employees.  Any employees of the
     Company who do not become  Transferred  Employees will remain  employees of
     the Company after the Closing. Any severance  obligations to such employees
     shall be the Company's responsibility.

     5.10  Prorations.  The Purchaser  and the Company  agree to make  customary
prorations (as of the Closing Date) in respect of items customarily  prorated in
connection with the sale of assets similar to the Purchased  Assets,  including,
without  limitation,  if  applicable,  real  estate  taxes and power and utility
charges.

     5.11  Confidentiality.   Each  of  the  parties  hereto  will  maintain  in
confidence,  and  will  cause  its  respective  directors,   officers,  members,
managers,  employees,  agents, Affiliates and advisors to maintain in confidence
any written, oral or other information furnished at any time by another party to
this  Agreement  in  connection  with  the  transactions  contemplated  by  this
Agreement, unless (a) such information is already known to such party or to such
others other than on a confidential basis, (b) such information becomes publicly

                                       21



available  through no fault of such party,  (c) the use of such  information  is
necessary  or  appropriate  in making any  filing or  obtaining  any  consent or
approval required for the consummation of the transactions  contemplated by this
Agreement,  or (d) the furnishing or use of such information is required by law.
If the transactions contemplated hereby are not consummated, the confidentiality
obligations of each party pursuant to this Section 5.111 will continue, and each
party will,  at the request of the party  supplying the  information,  return or
destroy  (and  provide  appropriate  certification  thereof)  any and  all  such
written, electronic or computer-based information.

     5.12  Approval of the  Company's  Stockholders.  The Company shall take the
actions necessary to conduct a special meeting of the Company's  stockholders to
consider  and vote on the  transactions  contemplated  by this  Agreement at the
earliest  practicable  date after the date of this  Agreement  and in connection
therewith  the  Company's  Board of Directors  shall  recommend to the Company's
Stockholders that they approve this Agreement and the transactions  contemplated
thereby.  The Company agrees to use its commercially  reasonable efforts to take
all necessary steps to obtain approval of the Company's stockholders,  including
the filing and distribution of a proxy  statement,  calling of a special meeting
and the holding of that meeting.  Such a special  meeting shall be called,  held
and conducted and proxies shall be solicited,  in compliance  with the Company's
Certificate of Incorporation and Bylaws, both as amended, and in compliance with
applicable law.

     5.13  Updating  of  Disclosure  Schedules.  The Company  shall  prepare and
deliver an updated  version of the Company  Disclosure  Schedule  (the  "Updated
Company Disclosure  Schedule") and all schedules and exhibits thereto to include
all  information  necessary to make the  representations  and  warranties of the
Company  contained in this  Agreement,  as  supplemented  by the Updated Company
Disclosure Schedule,  accurate as of the Closing Date. The Company shall deliver
a reasonably  complete  version of the Updated  Company  Disclosure  Schedule to
Purchaser approximately five (5) days prior to Closing.  Purchaser shall prepare
and  deliver  an updated  version  of the  Purchaser  Disclosure  Schedule  (the
"Updated Purchaser Disclosure  Schedule") and all schedules and exhibits thereto
to include all information  necessary to make the representations and warranties
of  Purchaser  contained  in this  Agreement,  as  supplemented  by the  Updated
Purchaser Disclosure Schedule,  accurate as of the Closing Date. Purchaser shall
deliver a  reasonably  complete  version  of the  Updated  Purchaser  Disclosure
Schedule to the Company approximately five (5) days prior to Closing.

     5.14 Board of Directors of  Purchaser.  Purchaser  shall take all necessary
steps  such that,  upon the  Closing,  John Lyon will be elected to  Purchaser's
Board of Directors if he so chooses to serve  thereon.  This option for Mr. Lyon
shall be available for 90 days following the Closing.

                                   ARTICLE VI
                  CONDITIONS TO THE OBLIGATIONS OF THE COMPANY

     The  obligations  of the  Company to effect the  transactions  contemplated
hereby are subject to the satisfaction, at or before the Closing, of each of the
following conditions:

     6.1 No Material  Adverse  Effect.  Purchaser shall not have acted or caused
any Person to have acted in any manner which has created or could  reasonably be
expected to create (individually or in the aggregate), a Material Adverse Effect
on Purchaser.

     6.2 Stockholder Approval. Purchaser shall have obtained the approval of its
shareholders   (if  necessary)  for  the   consummation   of  the   transactions
contemplated by this Agreement.

     6.3 Closing  Deliveries.  Purchaser  shall have  executed and delivered the
documents required to be executed and delivered by Purchaser pursuant to Section
2.9(c) above.

                                       22



                                  ARTICLE VII
                   CONDITIONS TO THE OBLIGATIONS OF PURCHASER

     The obligation of Purchaser to effect the transactions  contemplated hereby
is  subject  to the  satisfaction,  at or  before  the  Closing,  of each of the
following conditions:

     7.1 Material Adverse Effect. The Company shall not have acted or caused any
Person to have acted in any manner  which has  created  or could  reasonably  be
expected to create (individually or in the aggregate), a Material Adverse Effect
on the Business or the Purchased Assets.

     7.2 Stockholder  Approval.  The Company shall have obtained the approval of
its stockholders  for the consummation of the transactions  contemplated by this
Agreement.

     7.3 Closing  Deliveries.  The Company shall have executed and delivered the
documents  required  to be executed  and  delivered  by the Company  pursuant to
Section 2.9(b) above.

                                  ARTICLE VIII
                    ACTIONS BY THE PARTIES AFTER THE CLOSING

     8.1 Survival of  Representations,  Warranties,  Etc.  The  representations,
warranties and covenants  contained in or made pursuant to this Agreement or any
certificate,  document or instrument delivered pursuant to or in connection with
this  Agreement  in the  transactions  contemplated  hereby  shall  survive  the
execution   and   delivery  of  this   Agreement   and  the  Closing   hereunder
(notwithstanding  any investigation,  analysis or evaluation by any party hereto
or their  designees  of the  Assets  and  Properties,  business,  operations  or
condition  (financial  or otherwise) of the other  party),  and  thereafter  the
representations  and  warranties of the Parties herein shall continue to survive
in full force and effect for a period of twelve  (12)  months  after the Closing
Date (the "Survival Period").

     8.2 Indemnification.

          (a) By the  Company.  The  Company  shall  indemnify,  defend and hold
     harmless Purchaser and each of its officers, directors,  employees, agents,
     successors  and  assigns  (collectively  the  "Purchaser  Group")  from and
     against  any  and  all  costs,  losses,  Liabilities,   damages,  lawsuits,
     deficiencies, claims and expenses, including without limitation, penalties,
     costs of mitigation,  clean-up or remedial  action,  reasonable  attorneys'
     fees and all amounts  paid to third  parties in  investigation,  defense or
     settlement of any of the foregoing (collectively,  the "Damages"), suffered
     by Purchaser,  incurred in connection with,  arising out of, resulting from
     or incident to (i) any breach of any covenant, representation,  warranty or
     agreement or the inaccuracy of any  representation,  made by the Company in
     or pursuant to this  Agreement  and (ii)  Liabilities  that are not Assumed
     Liabilities.

          (b) By Purchaser.  Purchaser shall indemnify, defend and hold harmless
     the Company,  its officers,  managers,  employees,  agents,  successors and
     assigns (the "Company Group") from and against any and all Damages incurred
     in connection  with,  arising out of, resulting from or incident to any (i)
     breach  of any  covenant,  representation,  warranty  or  agreement  or the
     inaccuracy of any  representation  made by Purchaser in or pursuant to this
     Agreement and (ii) Assumed Liabilities.

          (c) Resolution of Claims. A claim for  indemnification  for any matter
     not involving a third-party  claim may be asserted by written notice to the
     party from whom  indemnification  is sought to the other  party (the "Claim
     Notice").   Upon   receipt  of  a  Claim   Notice,   the  party  from  whom
     indemnification  is sought shall have fifteen (15) Business Days to object,
     in  writing,  to such claim (the  "Dispute  Notice"),  otherwise  the party
     seeking  indemnification  shall  have the right to  enforce  its  indemnity

                                       23



     rights as  defined  hereunder.  If the party from whom  indemnification  is
     sought  provides the other party with a Dispute Notice in a timely fashion,
     the  parties  shall  attempt  in good faith to agree upon the rights or the
     respective  parties with respect to such claim.  If the parties agree as to
     the resolution of such claim, they shall prepare a memorandum setting forth
     the terms of such  resolution  signed  by each of the  parties  hereto  and
     enforce the  indemnification  rights hereunder.  If no agreement is reached
     within thirty (30) days after delivery of the Dispute  Notice,  the dispute
     resolution provisions of this Agreement shall govern.

          (d) Third Party Claims; Defense of Claims. If any Action or Proceeding
     is  filed or  initiated  against  any  party  entitled  to the  benefit  of
     indemnity  hereunder,   written  notice  thereof  shall  be  given  to  the
     indemnifying  party as promptly as practicable (and in any event within ten
     (10) days after the service of the citation or summons); provided, however,
     that a delay or  failure of any  indemnified  party to give  timely  notice
     shall not affect rights to  indemnification  hereunder except to the extent
     that the  indemnifying  party  demonstrates  actual  damage  caused by such
     failure.  Any such notice  shall state (with  reasonable  specificity)  the
     basis on which indemnification is being asserted, the amount of Damages for
     which  indemnification  is  being  asserted  and  copies  of  all  relevant
     pleadings,  demands and other papers being served on the indemnified party.
     After  such  notice,  the  indemnifying  party may,  if it so elects,  take
     control of the defense and  investigation  of such Action or Proceeding and
     to employ and engage  attorneys  of its own choice to handle and defend the
     same,  such  attorneys to be  reasonably  satisfactory  to the  indemnified
     party, at the indemnifying  party's sole cost, risk and expense (unless the
     indemnifying  party has  failed to assume  the  defense  of such  Action or
     Proceeding),  and  compromise  or settle such Action or  Proceeding,  which
     compromise or settlement shall be made only with the written consent of the
     indemnified  party,  such  consent  not to be  unreasonably  withheld.  The
     indemnified   party  may  withhold  such  consent  if  such  compromise  or
     settlement  would adversely affect the conduct of business or requires less
     than an unconditional  release to be obtained.  If the  indemnifying  party
     fails to assume the defense of such  Action or  Proceeding  within  fifteen
     (15) days after receipt of notice thereof pursuant to this Section 8.2, the
     indemnified party against which such Action or Proceeding has been filed or
     initiated will (upon  delivering  notice to such effect to the indemnifying
     party) have the right to undertake,  at the  indemnifying  party's own cost
     and  expense,  the  defense,  compromise  or  settlement  of such Action or
     Proceeding  on behalf of and for the account  and risk of the  indemnifying
     party;  provided,  however,  that such  Action or  Proceeding  shall not be
     compromised  or settled  without  the written  consent of the  indemnifying
     party, which consent shall not be unreasonably  withheld.  In the event the
     indemnified  party  assumes  defense  of  the  Action  or  Proceeding,  the
     indemnified party will keep the indemnifying  party reasonably  informed of
     the progress of any such defense, compromise or settlement and will consult
     with,  when  appropriate,  and consider  any  reasonable  advice from,  the
     indemnifying  party of any such  defense,  compromise  or  settlement.  The
     indemnifying party shall be liable for any settlement of any action subject
     to  indemnification  and effected  pursuant to and in accordance  with this
     Section  8.2 and for any final  judgment  (subject to any right of appeal),
     and the  indemnifying  party  agrees to  indemnify  and hold  harmless  the
     indemnified party from and against any Damages by reason of such settlement
     or judgment.

          The indemnified party shall cooperate in all reasonable  respects with
     the indemnifying  party and its attorneys in the  investigation,  trial and
     defense of such  Action or  Proceeding  and any appeal  arising  therefrom;
     provided,  however,  that  the  indemnified  party  may,  at its own  cost,
     participate  in the  investigation,  trial and  defense  of such  Action or
     Proceeding and any appeal arising therefrom.

          (e) Limitations on Indemnity.

               (i) The Company  shall have no liability to Purchaser for amounts
          payable  pursuant to its  indemnification  obligations in this Section
          8.2 until the total of all such Damages  incurred by any member of the
          Purchaser  Group,  individually  or in  the  aggregate,  exceed  Fifty

                                       24



          Thousand  Dollars  ($50,000)  (the  "Threshold   Amount"),   and  then
          indemnification  by the  indemnifying  party  shall  apply to all such
          Damages  exceeding  the  Threshold  Amount.  Purchaser  shall  have no
          liability  to  the  Company  for  amounts  payable   pursuant  to  its
          indemnification obligations in this Section 8.2 until the total of all
          such Damages incurred by any member of the Company Group, individually
          or in the  aggregate,  exceed Fifty  Thousand  Dollars  ($50,000) (the
          "Threshold  Amount"),  and then  indemnification  by the  indemnifying
          party shall apply to all such Damages exceeding the Threshold Amount.

               (ii) The Indemnity  Shares shall be the sole and exclusive  means
          for  Purchaser  to collect  any  Damages  for which it is  entitled to
          indemnification  under this Article VIII. The maximum aggregate amount
          of  indemnification  for any Damages for which the Company is required
          to indemnify the members of the Purchaser  Group under this  Agreement
          shall be limited to the aggregate value of the Indemnity  Shares.  The
          maximum aggregate amount of indemnification  for any Damages for which
          Purchaser  is required to indemnify  the members of the Company  Group
          under this  Agreement  shall be limited to the aggregate  value of the
          Indemnity  Shares.  Purchaser  shall  have the  right to  satisfy  any
          indemnification claims made by the Company through the issuance to the
          Company of shares of Purchaser's common stock.

               (iii)  The   limitations   on  the  Company's   and   Purchaser's
          indemnification  obligations in 8.2(e)(i) and  8.2(e)(ii)  above shall
          not apply to any  Damages  arising  out of or in  connection  with any
          fraud  or  intentional  breach  by  Purchaser  or the  Company  of any
          representation,  warranty, covenant or agreement or obligation of such
          party.

               (iv)  For all  purposes  of  this  Article  VIII,  the  value  of
          Indemnity Shares shall be determined at the time a claim for indemnity
          is made and shall be the "Fair Market Value" of the  Indemnity  Shares
          at that time. For purposes hereof,  "Fair Market Value" shall mean the
          average of the  closing  price of the  common  stock of  Purchaser  as
          quoted or traded on its primary  inter-dealer  quotation system or any
          securities exchange, over the ten (10) trading day period ending three
          (3)  trading  days  prior to the date on which the  subject  claim for
          indemnification is made hereunder.  However, if at any time the common
          stock of Purchaser is not listed on any securities  exchange or quoted
          on an inter-dealer  quotation  system,  "Fair Market Value" shall mean
          the fair  value of the class or series of capital  stock of  Purchaser
          constituting  Indemnity  Shares as determined in good faith and in the
          sole discretion of a reputable appraiser chosen by the Company's Board
          of Directors and Purchaser's  Board of Directors,  together.  If these
          respective  Boards of Directors  cannot  agree on an appraiser  within
          thirty (30) days from the making of the claim, each Board of Directors
          shall choose a reputable appraiser within ten (10) days thereafter and
          such appraiser shall have ten (10) additional days to choose the final
          appraiser,  whose appraisal shall be binding on the parties.  The cost
          of such process shall be borne equally by the Company and Purchaser.

     8.3  Restriction on  Transferability  of the Securities.  The  certificates
representing the Securities (if and when issued) shall bear the following legend
restricting  transfer,  and  such  other  legends  as  may  be  required  by any
applicable state securities law:

          THESE  SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
          1933, AS AMENDED.  THEY MAY NOT BE SOLD,  OFFERED FOR SALE, PLEDGED OR
          HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
          RESPECT TO THE  SECURITIES  UNDER SUCH ACT OR UNLESS SOLD  PURSUANT TO
          RULE 144 OF SUCH ACT OR ANOTHER AVAILABLE EXEMPTION.

                                       25



     8.4 Agreement not to dispose of Indemnity Shares.  The Company agrees that,
for purposes of keeping the Indemnity  Shares  available for satisfaction of any
claims for indemnification  pursuant to this Article VIII hereof (if necessary),
it will make no transfer,  sale or  hypothecation  of the Indemnity Shares until
twelve (12) months following the Closing Date.

     8.5 Further  Assurances.  In case at any time after the Closing any further
action is necessary  or  desirable to carry out the purposes of this  Agreement,
each of the parties will take such further  action  (including the execution and
delivery  of  such  further  instruments  and  documents)  as  the  other  party
reasonably  may request,  at the sole cost and expense of the  requesting  party
(unless the requesting party is entitled to indemnification  therefor under this
Article VIII).

     8.6 Reports Under  Securities  Exchange Act of 1934.  With a view to making
available to the Company the benefits of Rule 144 promulgated  under the Act and
any other rule or  regulation of the SEC that may at any time permit the Company
to sell Purchaser's Common Stock to the public without  registration,  Purchaser
agrees to use its best efforts to:

          (a) make and keep  public  information  available,  as those terms are
     understood and defined in SEC Rule 144, at all times ; and

          (b)  file  with the SEC in a  timely  manner  all  reports  and  other
     documents required of Purchaser under the Act and the 1934 Act.

     8.7  Transfer  of Rights to Name.  Subject  to  approval  of the  Company's
stockholders,  the Company shall  transfer and assign to Purchaser all rights in
the name "Vista Medical Technologies," as the same may be used in whole.

     8.8 Access to Records. After the Closing Date, Purchaser shall retain for a
period consistent with Purchaser's record-retention policies and practices those
records of the Company  relating to the Purchased  Assets.  Purchaser also shall
provide  the  Company   (including  the  Company's   accountants  and  auditors)
reasonable  access  thereto,  during normal business hours and on at least three
days' prior written notice,  to enable them to prepare  financial  statements or
Tax Returns or deal with Tax audits.  After the Closing Date,  the Company shall
provide Purchaser  (including  Purchaser's  accountants and auditors) reasonable
access to records relating to Excluded Assets,  during normal business hours and
on at least  three days'  prior  written  notice,  for any  reasonable  business
purpose specified by Purchaser in such notice.

     8.9 Transitional Use of Financial System.  The Company may designate one of
its  employees  who will have the right,  for a period of 90 days  following the
Closing,  to use the financial  reporting  and auditing  system  transferred  to
Purchaser in  connection  herewith (the  "Financial  System") for the purpose of
generating and maintaining  the Company's  financial  reporting  obligations and
practices.  Such  employee  shall have full use of (and access to) the Financial
System for such 90 day period.

     8.10 Payment of Royalties.  Purchaser agrees to pay the royalties described
in the License Agreement.

     8.11 Payment for Inventory. The Company and Purchaser acknowledge and agree
that the Company is assigning to Purchaser,  in connection with the Closing, the
Company's inventory of Products.  The Company agrees to account and pay for such
inventory in accordance with the procedure set forth on Exhibit E.

                                       26



                                   ARTICLE IX
                                  MISCELLANEOUS

     9.1 Termination.

          (a) This Agreement may be terminated and the transactions contemplated
     hereby abandoned:

               (i) at any time prior to the Closing,  by mutual written  consent
          of Purchaser and the Company;

               (ii) at any time after January 31, 2004 (the "Termination Date"),
          by the  Purchaser  or the  Company  in  writing,  if the  transactions
          contemplated by this Agreement have not been  consummated on or before
          the  Termination  Date  and  such  terminating  party  is not  then in
          material  breach  of  this  Agreement;  provided  that  no  party  may
          terminate this Agreement  pursuant to this clause (ii) if such party's
          failure to fulfill any of its  obligations  under this Agreement shall
          have been a principal  reason that the Closing shall not have occurred
          on or before said date;

               (iii) by the Company on written  notice to the  Purchaser  if (i)
          there  shall have been a  material  breach of any  representations  or
          warranties on the part of Purchaser set forth in this  Agreement or if
          any  representations  or  warranties  of  Purchaser  shall have become
          untrue in any  material  respect,  provided  that the  Company has not
          breached any of its obligations  hereunder in any material respect; or
          (ii)  there  shall  have  been a  breach  by  Purchaser  of any of its
          covenants  or  agreements   hereunder  in  any  material   respect  or
          materially adversely affecting (or materially delaying) the ability of
          Purchaser or the Company to consummate the  transactions  contemplated
          hereby,  and  Purchaser  has not cured  such  breach  within  ten (10)
          Business Days after notice by the Company  thereof,  provided that the
          Company  has not  breached  any of its  obligations  hereunder  in any
          material respect;

               (iv) by Purchaser  on written  notice to the Company if (i) there
          shall have been a material breach of any representations or warranties
          on the  part of the  Company  set  forth in this  Agreement  or if any
          representations  or warranties of the Company shall have become untrue
          in any material respect,  provided that Purchaser has not breached any
          of its obligations  hereunder in any material  respect;  or (ii) there
          shall  have been a breach by the  Company of any of its  covenants  or
          agreements  hereunder in any material respect or materially  adversely
          affecting  (or  materially  delaying)  the  ability  of  Purchaser  to
          consummate the transactions  contemplated  hereby, and the Company has
          not cured such breach  within ten (10)  Business  Days after notice by
          Purchaser thereof, provided that Purchaser has not breached any of its
          obligations hereunder in any material respect;

               (v) by  Purchaser,  if the  Company  becomes  insolvent  or seeks
          protection under any bankruptcy,  receivership,  trust deed, creditors
          arrangement,  composition  or  comparable  proceeding,  or if any such
          proceeding is instituted against the Company;

               (vi) by  Purchaser,  if the Company  becomes  insolvent  or seeks
          protection under any bankruptcy,  receivership,  trust deed, creditors
          arrangement,  composition  or  comparable  proceeding,  or if any such
          proceeding is instituted against the Company; and/or

          (b) In the event of the  termination  of this Agreement as provided in
     this Section 9.1,  except as  otherwise  provided in this  Agreement or the
     instruments and agreements executed in connection herewith,  no party shall
     have any other  liability  hereunder of any nature  whatsoever to any other
     party, including any liability for Damages; provided,  however, that if, at

                                       27



     the time of such termination, any party is in default under its obligations
     hereunder,  the party in default  shall be liable to the other  parties for
     such default;  and provided,  further,  that the provisions of Section 5.11
     and Article IX shall continue in full force and effect.

          (c) In the event that a condition  precedent to its obligations is not
     satisfied, nothing contained herein shall be deemed to require any party to
     terminate this Agreement, rather than to waive such condition precedent and
     proceed with the Closing.

     9.2 Notices. All notices,  requests and other communications hereunder must
be in  writing  and will be deemed to have been  duly  given  only if  delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail,  return
receipt  requested)  or by  overnight  courier to the  parties at the  following
addresses or facsimile numbers:

If to the Company, to:                        Vista Medical Technologies, Inc.
                                              2101 Faraday Avenue
                                              Carlsbad, CA  92008
                                              Attention:  John R. Lyon
                                              Facsimile No.:  760-603-9170

with copies to:                               Craig S. Andrews, Esq.
                                              Heller Ehrman White & McAuliffe
                                              LLP 4350 La Jolla Village Drive
                                              #700 San Diego, CA 92122-1246
                                              Facsimile No.: 858-450-8499

If to Purchaser, to:                          Viking Systems, Inc.
                                              7514 Girard Ave., Suite 1509
                                              La Jolla, CA  92037
                                              Facsimile No.:  (619) 839-3793
                                              Attention:  Thomas B. Marsh

with copies to:                               A.O. "Bud" Headman, Jr.
                                              Cohne, Rappaport & Segal, P.C.
                                              525 E. 100 S., Suite 500
                                              Salt Lake City, Utah  84102
                                              Facsimile No.:  (801) 355-1813

All such  notices,  requests  and  other  communications  will (i) if  delivered
personally  to the address as provided in this Section 9.2, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided  in this  Section  9.2,  be deemed  given  upon  receipt,  and (iii) if
delivered  by mail in the manner  described  above to the address as provided in
this  Section  9.2, be deemed  given upon  receipt (in each case  regardless  of
whether such  notice,  request or other  communication  is received by any other
Person to whom a copy of such notice,  request or other  communication  is to be
delivered  pursuant to this Section 9.2). Any party from time to time may change
its address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.

     9.3 Entire  Agreement.  This  Agreement  (and all  Exhibits  and  Schedules
attached hereto,  all other documents  delivered in connection  herewith and the
Confidentiality Agreement) supersedes all prior discussions and agreements among

                                       28



the parties with respect to the subject  matter hereof and contains the sole and
entire agreement among the parties hereto with respect hereto.

     9.4 Waiver.  Any term or condition of this  Agreement  may be waived at any
time by the party that is entitled to the  benefit  thereof,  but no such waiver
shall be effective unless set forth in a written  instrument duly executed by or
on behalf of the party  waiving such term or  condition.  No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or  construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion.  All remedies,  either under
this  Agreement  or by law or otherwise  afforded,  will be  cumulative  and not
alternative.

     9.5 Amendment. This Agreement may be amended, supplemented or modified only
by a written instrument duly executed by or on behalf of each party hereto.

     9.6 No Third Party Beneficiary.  The terms and provisions of this Agreement
are intended  solely for the benefit of each party  hereto and their  respective
successors or permitted  assigns,  and it is not the intention of the parties to
confer  third-party  beneficiary  rights  upon any other  Person  other than any
Person entitled to indemnity under Section 8.2 above.

     9.7 No Assignment;  Binding  Effect.  Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior  written  consent of the other  parties  hereto  and any  attempt to do so
without  such  consent  will  be  void,   except  that  any  party's  rights  to
indemnification  under  Section 8.2 may be freely  assigned.  This  Agreement is
binding upon,  inures to the benefit of and is enforceable by the parties hereto
and their respective successors and assigns.

     9.8 Headings.  The headings used in this  Agreement  have been inserted for
convenience of reference only and do not define or limit the provisions hereof.

     9.9 Severability. If any provision of this Agreement is held to be illegal,
invalid or  unenforceable  under any present or future law, and if the rights or
obligations  of any party hereto under this Agreement will not be materially and
adversely  affected  thereby,  (i) such provision will be fully severable,  (ii)
this  Agreement  will be construed and enforced as if such  illegal,  invalid or
unenforceable  provision had never comprised a part hereof,  (iii) the remaining
provisions of this  Agreement  will remain in full force and effect and will not
be  affected  by the  illegal,  invalid  or  unenforceable  provision  or by its
severance  herefrom and (iv) in lieu of such illegal,  invalid or  unenforceable
provision,  there  will be added  automatically  as a part of this  Agreement  a
legal,  valid and  enforceable  provision  as similar in terms to such  illegal,
invalid or unenforceable provision as may be possible and mutually acceptable to
the parties herein.

     9.10 Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of  California  applicable  to  contracts
executed and performed in such State, without giving effect to conflicts of laws
principles.

     9.11 Consent to Jurisdiction and Forum Selection.  The parties hereto agree
that all actions or proceedings  arising in connection with this Agreement shall
be initiated and tried  exclusively  in the State and Federal  courts located in
the County of San Diego, State of California. The aforementioned choice of venue
is intended by the parties to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation  between the parties with respect to or
arising out of this Agreement in any  jurisdiction  other than that specified in
this Section 9.11.  Each party hereby waives any right it may have to assert the
doctrine of forum non conveniens or similar  doctrine or to object to venue with

                                       29



respect  to any  proceeding  brought  in  accordance  with this  paragraph,  and
stipulates that the State and Federal courts located in the County of San Diego,
State of California  shall have in personam  jurisdiction and venue over each of
them for the purposes of  litigating  any  dispute,  controversy  or  proceeding
arising out of or related to this  Agreement.  Each party hereby  authorizes and
accepts  service of process  sufficient for personal  jurisdiction in any action
against it as contemplated by this Section 9.11 by registered or certified mail,
return  receipt  requested,  postage  prepaid,  to its address for the giving of
notices  as set forth in this  Agreement,  or in the manner set forth in Section
9.2 of this  Agreement  for the giving of notice.  Any final  judgment  rendered
against  a party in any  action  or  proceeding  shall be  conclusive  as to the
subject of such final judgment and may be enforced in other jurisdictions in any
manner provided by law.

     9.12 Expense.  Each of the parties hereto shall pay the fees,  expenses and
costs incurred by such party incidental to the preparation of this Agreement and
to the consummation of the transactions contemplated hereby.

     9.13  Construction.  No provision of this  Agreement  shall be construed in
favor of or  against  any party on the  ground  that such  party or its  counsel
drafted the provision. Any remedies provided for herein are not exclusive of any
other lawful  remedies  which may be available to either party.  This  Agreement
shall at all times be construed so as to carry out the purposes stated herein.

     9.14  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

IN WITNESS  WHEREOF,  this Agreement has been duly executed and delivered by the
parties  hereto,  or their duly authorized  officer,  as of the date first above
written.

                                         "Purchaser"

                                         Viking Systems, Inc.
                                         a Nevada corporation

                                         By      /s/ Thomas B. Marsh
                                                 -------------------------------
                                         Name:   Thomas B. Marsh
                                         Title:  President

                                          "Company"

                                         Vista Medical Technologies, Inc.,
                                         a Delaware corporation

                                         By      /s/ John R. Lyon
                                                 -------------------------------
                                         Name:   John R. Lyon
                                         Title:  President and Chief Executive
                                                 Officer



                                       30



                          [LETTERHEAD OF TANNER + CO.]
                          Certified Public Accountants
                       215 South State Street, Suite 800
                           Salt Lake City, Utah 84111
                              Telephone: 532-7444


                                                  INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Viking Systems, Inc.


We have audited the accompanying balance sheet of the Vista Medical Technologies
Visualization  Business  Segment  (the  Segment),  a  segment  of Vista  Medical
Technologies, Inc., as of December 31, 2003 and 2002, and the related statements
of operations,  equity, and cash flows for the years then ended. These financial
statements   are  the   responsibility   of  the   Segment's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Vista Medical Technologies
Visualization Business Segment as of December 31, 2003 and 2002, and the results
of its operations and its cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Segment will continue as a going concern.  The Segment has incurred  substantial
losses from  operations.  As  discussed in Note 1 to the  financial  statements,
there is  substantial  doubt  about the  ability of the Segment to continue as a
going concern. Management's plans in regard to that matter are also described in
Note 1. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.



/s/ Tanner + Co.


Salt Lake City, Utah
May 21, 2004






                                        VISTA MEDICAL TECHNOLOGIES VISUALIZATION
                                                                BUSINESS SEGMENT
                                                                   Balance Sheet

                                                                    December 31,
- --------------------------------------------------------------------------------

       Assets                                           2003           2002
                                                  ------------------------------
Current assets:
  Cash and cash equivalents                       $            - $       17,842
  Short-term investments                                       -        369,745
  Accounts receivable, net                               693,725      1,026,816
  Inventories, net                                     1,113,931      1,478,668
  Prepaids and other current assets                        5,925              -
                                                  ------------------------------

          Total current assets                         1,813,581      2,893,071

Property and equipment, net                                    -         77,431
Patents and other assets, net                                  -          3,061
                                                  ------------------------------

          Total assets                            $    1,813,581 $    2,973,563
                                                  ==============================
- --------------------------------------------------------------------------------
         Liabilities and Equity

Current liabilities:
  Accounts payable                                $      557,302 $      739,037
  Current portion of long-term debt                        7,467         11,788
  Payable to affiliate                                    84,941              -
  Accrued compensation                                   106,658        145,504
  Other accrued expenses                                  31,169        101,741
  Deferred revenue                                        37,500              -
                                                  ------------------------------

          Total current liabilities                      825,037        998,070

Long-term debt                                                 -          7,467
                                                  ------------------------------

          Total liabilities                              825,037      1,005,537

Commitments and contingencies

Equity:
  Contributed capital                                 67,947,643     67,939,199
  Accumulated deficit                                (66,959,099)   (65,971,173)
                                                  ------------------------------

          Total equity                                   988,544      1,968,026
                                                  ------------------------------

          Total liabilities and equity            $    1,813,581 $    2,973,563
                                                  ==============================




- --------------------------------------------------------------------------------
See accompany notes to financial statements.                                 F-1




                                        VISTA MEDICAL TECHNOLOGIES VISUALIZATION
                                                                BUSINESS SEGMENT
                                                         Statement of Operations

                                                        Years Ended December 31,
- -------------------------------------------------------------------------------


                                                       2003           2002
                                                 -------------------------------

Revenues                                          $   6,220,091  $    7,477,540
                                                 -------------------------------

Costs and expenses:

Cost of revenues                                      5,048,878       5,084,550
Research and development                                739,017       1,626,607
Sales and marketing                                     330,612         249,996
General and administrative                            1,091,005       1,065,779
                                                 -------------------------------

         Total costs and expenses                     7,209,512       8,026,932
                                                 -------------------------------

Loss from operations                                   (989,421)       (549,392)
                                                 -------------------------------

Other income (expense):
  Interest expense                                         (134)              -
  Other income                                            1,629          17,367
                                                 -------------------------------

         Total other income                               1,495          17,367
                                                 -------------------------------

Net loss before income taxes                           (987,926)       (532,025)

         Income tax benefit                                   -               -
                                                 -------------------------------

Net loss                                          $    (987,926)  $    (532,025)
                                                 ===============================





- --------------------------------------------------------------------------------
See accompany notes to financial statements.                                 F-2




                                        VISTA MEDICAL TECHNOLOGIES VISUALIZATION
                                                                BUSINESS SEGMENT
                                                             Statement of Equity

                                        Years Ended December 31, 2003 and 2002
- --------------------------------------------------------------------------------


                                     Contributed   Accumulated
                                       Capital       Deficit      Total Equity
                                    --------------------------------------------

Balance, January 1, 2002            $  67,868,537 $ (65,439,148) $    2,429,389

Contribution of capital                    70,662             -          70,662

Net loss                                        -      (532,025)       (532,025)
                                    --------------------------------------------

Balance, December 31, 2002             67,939,199   (65,971,173)      1,968,026

Contribution of capital                     8,444             -           8,444

Net loss                                        -      (987,926)       (987,926)
                                    --------------------------------------------

Balance, December 31, 2003          $  67,947,643 $ (66,959,099) $      988,544
                                    ============================================




- --------------------------------------------------------------------------------
See accompany notes to financial statements.                                 F-3




                                        VISTA MEDICAL TECHNOLOGIES VISUALIZATION
                                                                BUSINESS SEGMENT
                                                         Statement of Cash Flows

                                                        Years Ended December 31,
- --------------------------------------------------------------------------------

                                                       2003           2002
                                                  ------------------------------
Cash flows from operating activities:
  Net loss                                        $    (987,926)  $    (532,025)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation and amortization                     138,759         430,107
      Change in operating assets and liabilities:
      Accounts receivable                               333,091         101,467
      Inventories                                       364,737        (384,094)
      Prepaids and other current assets                  (5,925)              -
      Accounts payable                                 (181,735)         58,035
      Accrued compensation                              (38,846)        (29,909)
      Deferred revenue                                   37,500               -
      Other accrued expenses                            (70,572)       (269,578)
                                                  ------------------------------
         Net cash used in
         operating activities                          (325,976)       (625,997)
                                                  ------------------------------
Cash flows from investing activities:
   Maturities of short-term investments                 369,745         147,110
   Purchase of property and equipment                   (58,267)        (96,123)
                                                  ------------------------------
         Net cash provided by
         investing activities                           311,478          50,987
                                                  ------------------------------
Cash flows from financing activities:
   Payments of long-term debt                           (11,788)           (562)
   Contribution of capital                                8,444          70,662
   Payable to affiliate                                  84,941               -
                                                  ------------------------------
         Net cash (used in) provided by
         financing activities                            (3,344)         70,100
                                                  ------------------------------

         Net decrease in cash and cash equivalents      (17,842)       (504,910)

Cash and cash equivalents at beginning of year           17,842         522,752
                                                  ------------------------------
Cash and cash equivalents at end of year                      -          17,842
                                                  ==============================
Supplemental disclosure of cash flow information:

         Cash paid for interest                   $         134   $           -
                                                  ==============================

         Cash paid for income taxes               $           -   $           -
                                                  ==============================

- --------------------------------------------------------------------------------
See accompany notes to financial statements.                                 F-4




          Vista Medical Technologies Visualization Business Segment

                          Notes to Financial Statements
                           December 31, 2003 and 2002

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS ACTIVITY

Vista Medical Technologies  Visualization Business Segment (the Segment),  based
in  Westborough,  MA,  was a segment of Vista  Medical  Technologies,  Inc.  The
Segment develops, manufactures, and markets products that provide information to
physicians performing minimally invasive general surgical,  cardiac surgical and
other  selected   endoscopic  and  interventional   procedures.   The  Segment's
technology products combine a head mounted display with video cameras to provide
surgeons with critical  visual  information  during complex  minimally  invasive
procedures,   and  also   incorporate  the  benefit  of  viewing   complementary
information  in a  voice-controlled,  picture-in-picture  format,  to facilitate
real-time decision making during surgery. The Segment also manufactures compact,
high resolution endoscopic cameras for original equipment manufacturer customers
and strategic partners.

Subject  to  shareholder   approval,   on  December  22,  2003,   Vista  Medical
Technologies, Inc. entered into an Asset Purchase Agreement with Viking Systems,
Inc. (Viking) regarding the sale of all the assets of the Segment, as more fully
discussed in Note 7 to the financial statements.

The Segment has incurred  operating losses in 2002 and 2003, and at December 31,
2003, had an accumulated  deficit of approximately $67 million.  At December 31,
2003, the Segment had cash, cash  equivalents and short-term  investments of $0.
These factors raise substantial doubt about the Segment's ability to continue as
a going concern.  Management is pursuing  several  alternatives  to address this
situation,  including  raising  additional  funding,  increasing  sales  through
expanded sales and marketing  efforts and the release of new products.  However,
there can be no assurance that the requisite fundings will be consummated in the
necessary time frame or on terms  acceptable to the Segment or that the expanded
sales and  marketing  efforts and the release of new  products  will produce the
cashflow necessary to sustain the operations of the Segment.  Should the Segment
be unable to raise sufficient  funds, the Segment may be required to curtail its
operating  plans and  possibly  relinquish  rights to portions of the  Segment's
technology or products. In addition,  increases in expenses or delays in product
development may adversely impact the Segment's cash position and require further
cost  reductions.  No  assurance  can be given that the Segment  will be able to
operate profitably on a consistent basis, or at all, in the future.

The  accompanying  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities  in the normal course of business.  The financial  statements do not
include any adjustments  relating to the  recoverability  and  classification of
assets or the amounts and  classification of liabilities that might be necessary
should the Segment be unable to continue as a going concern.

USE OF ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  disclosures  made in the  accompanying  notes to the  financial
statements. Actual results could differ from those estimates.

                                      F-5




            Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

The Segment recognizes revenue pursuant to Staff Accounting Bulletin ("SAB") No.
104 "Revenue Recognition".  Accordingly,  revenue is recognized when all four of
the  following  criteria  are met:  (i)  persuasive  evidence of an  arrangement
exists;  (ii) delivery of the product  and/or  services has occurred;  (iii) the
selling price is fixed or determinable  and; (iv)  collectibility  is reasonably
assured.  Sales returns are estimated  based on the  historical  experience  and
management's  expectations  and are  recorded  at the time  product  revenue  is
recognized. Shipping and handling costs are included in cost of sales.

The Segment's  revenues are derived from the sale of technology  products to end
users,  distributors and original  equipment  manufactures and extended warranty
sales. Product revenue is recognized upon shipment, provided all the criteria of
SAB 104 are met.  Warranty  revenue is  recognized  ratably over the term of the
warranty.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash  equivalents  and  short-term  investments  consist of money market  funds,
certificates of deposit and commercial  paper. The Segment  considers all highly
liquid  investments with maturities of three months or less when purchased to be
cash equivalents.  The Segment evaluates the financial  strength of institutions
at which  significant  investments are made and believes the related credit risk
is limited to an acceptable level.

The Segment  accounts  for its  investments  in  accordance  with  Statement  of
Financial   Accounting   Standards  (SFAS)  No.  115,  "Accounting  for  Certain
Investments  in Debt and Equity  Securities",  and has classified its short-term
investments   as   available-for-sale   in   accordance   with  that   standard.
Available-for-sale  securities are carried at fair value,  with unrealized gains
and losses,  net of tax, reported in a separate component of equity. At December
31, 2003 and 2002,  the cost of short-term  investments  was  equivalent to fair
value and the Segment had no unrealized gains or losses.

As of December 31, 2003 and 2002, the Segment's cash, cash equivalents and
short-term investments consisted of:

                                                2003          2002
                                             ------------  -----------
         Cash                                $         -   $   17,842

         Money market funds                            -            -

         Certificates of deposit                       -      369,745
                                             ------------  -----------
                                             $         -   $  387,587
                                             ============  ===========

                                      F-6




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)


ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

The Segment  provides  credit,  in the normal course of business,  to commercial
entities  that meet  specified  credit  requirements.  The  Segment's  principal
customers consist of original equipment manufacturers and distribution partners.
The Segment provides for losses from uncollectible accounts and such losses have
historically not exceeded  management's  expectations.  As of December 31, 2003,
three customers comprised  $275,000,  $173,000 and $116,000 or 40%, 25% and 17%,
respectively,  of the outstanding  trade  receivables.  As of December 31, 2002,
three customers comprised  $277,000,  $223,000 and $199,000 or 15%, 12% and 11%,
respectively, of the outstanding trade receivables.

Sales to  individual  customers  exceeding  10% or more of revenues in the years
ended December 31, were as follows: during 2003, Richard Wolf GmbH, Aesculap AG,
and Richard  Wolf  Medical  Instruments  Co.  accounted  for 28%, 23% and 12% of
revenues, respectively; during 2002, Aesculap AG , Jomed, Richard Wolf, GmbH and
Richard  Wolf  Medical  Instruments  Co.  accounted  for 20%, 14% 12% and 11% of
revenues, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Segment's financial instruments,  which include cash
and cash equivalents,  short-term  investments,  accounts  receivable,  accounts
payable,  capital leases and short-term bank borrowings,  approximate their fair
values at December  31,  2003 and 2002,  due to the  short-term  nature of these
financial instruments.

INVENTORIES

Inventories  are stated at lower of cost  (determined  on a first-in,  first-out
basis) or market.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. The Segment  provides for depreciation
on property and  equipment  using the  straight-line  method over the  estimated
useful lives of the assets, generally two to five years. Marketing demonstration
equipment is amortized over its estimated useful life of one year.  Depreciation
expense  for the  years  ended  2003  and 2002 was  approximately  $136,000  and
$396,000, respectively.

                                      F-7




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)

PATENTS

Patents are carried at cost and amortized over five years commencing on the date
the patent is issued.  The Segment  reviews its  patents  for  impairment  on an
annual basis or whenever  events or changes in  circumstances  indicate that the
carrying value of the asset would not be recoverable.  Amortization  expense for
the  years  ended  2003  and  2002  was   approximately   $3,000  and   $34,000,
respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

The Segment  evaluates its long-lived  assets for impairment in accordance  with
SFAS No. 144,  Accounting  for the Disposal or Impairment of Long-Lived  Assets.
The Segment records  impairment  losses on long-lived  assets used in operations
when  indicators  of  impairment  are  present and the  undiscounted  cash flows
estimated to be  generated  by those assets are less than the carrying  value of
the assets. There have not been any impairments of long-lived assets to date.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed in the period incurred.

INCOME TAXES

The Segment uses the asset and liability  accounting method whereby deferred tax
assets and liabilities are recognized based on temporary differences between the
financial  statements  and tax bases of assets  and  liabilities  using  current
statutory tax rates.  A valuation  allowance  against net deferred tax assets is
recorded if, based on the  available  evidence,  it is more likely than not that
some  or all  of the  deferred  tax  assets  will  not be  realized.  Management
evaluates  on a quarterly  basis the ability to recover the  deferred tax assets
and the level of the valuation allowance.

COMPREHENSIVE INCOME / (LOSS)

Comprehensive  income / (loss) is comprised of net loss and other  comprehensive
income/ (loss).  Other comprehensive  income/(loss)  includes certain changes in
equity that are excluded  from net loss.  For the years ended  December 31, 2003
and 2002, the Segment had no items of comprehensive income (loss) other than its
net loss.

STOCK-BASED COMPENSATION

The Segment  accounts for  stock-based  compensation  under the  recognition and
measurement  principles  of APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  and related  interpretations.  The Segment has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation".  In accordance with the provisions of
SFAS 123,  the Segment has  elected to continue to apply  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees"  ("APB Opinion
No. 25"), and related  interpretations in accounting for its stock option plans.
As of December 31, 2003, the Segment did not have any stock options outstanding.

                                      F-8




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)

NEW ACCOUNTING STANDARDS

In January 2003 FASB Interpretation No. 46,  "Consolidation of Variable Interest
Entities"  was issued.  This  interpretation  requires a company to  consolidate
variable  interest  entities ("VIE") if the enterprise is a primary  beneficiary
(holds  a  majority  of the  variable  interest)  of the VIE and the VIE  passes
specific  characteristics.  It also requires additional  disclosures for parties
involved  with  VIEs.  In  December,   2003,  the  FASB  issued  a  revision  of
Interpretation No. 46 (the Revised Interpretation 46). Revised Interpretation 46
codifies both the proposed  modifications and other decisions  previously issued
through  certain  FASB  Staff  Positions  (FSPs)  and  supersedes  the  original
Interpretation  No. 46 to  include:  (1)  deferring  the  effective  date of the
Interpretation's  provisions  for  certain  variable  interests,  (2)  providing
additional scope exceptions for certain other variable interests, (3) clarifying
the impact of troubled debt  restructurings on the requirement to reconsider (a)
whether an entity is a VIE or (b) which  party is the primary  beneficiary  of a
VIE, and (4) revising  Appendix B of the  Interpretation  to provide  additional
guidance on what constitutes a variable interest.  Accordingly, the Segment will
adopt  Revised  Interpretation  No. 46 effective the first quarter 2004 and does
not  expect  the  adoption  of this  interpretation  will  have an impact on its
financial position or results of operations.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of Both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. Many
of these  instruments  were  previously  classified  as equity.  SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  was  effective  at the  beginning  of the first  interim  period
beginning  after June 15, 2003.  The adoption of this  Statement did not have an
effect on the Segment's financial statements.

2. BALANCE SHEET COMPONENTS

Accounts receivable consist of the following:
                                                 December 31,
                                             2003             2002
                                         ------------------------------
           Gross accounts receivable     $    693,725     $  1,143,592
           Less: Allowance for
                     doubtful accounts              -         (116,776)
                                         -------------    -------------
                                         $    693,725     $  1,026,816
                                         =============    =============

Inventories consist of the following:
                                                 December 31,
                                             2003             2002
                                         ------------------------------
           Raw materials                 $  1,279,958     $  1,243,304
           Work in process                    340,502          375,414
           Finished goods                     796,041          904,734
                                              -------          -------
                                            2,416,501        2,523,452
           Less: Reserve for excess and
           obsolete inventory              (1,302,570)      (1,044,784)
                                         ------------------------------
                                         $  1,113,931     $  1,478,668
                                         ------------------------------

                                      F-9




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)

2. BALANCE SHEET COMPONENTS (CONTINUED)

Property and equipment consists of the following:
                                                  December 31,
                                             2003              2002
                                        ---------------   ---------------
        Machinery and equipment           $  1,007,497      $  1,009,702
        Office computers, furniture and        451,611           428,314
        equipment                              163,444           111,340
        Marketing demonstration equipment       27,885            27,885
                                          ------------      ------------
        Leasehold improvements               1,650,437         1,577,241
                                          ------------      ------------
        Less: Accumulated depreciation      (1,650,437)       (1,499,810)
                                          ------------      ------------
                                          $          -      $     77,431
                                        ===============   ===============
3. COMMITMENTS

At  December  31,  2003,  the Segment is  obligated  under an  operating  lease,
principally related to real estate. Additionally, the Segment is obligated under
capital  leases  related to computer  hardware.  The  following is a schedule of
future  minimum  payments,  excluding  taxes and other  operating  costs,  as of
December 31, 2003:

              YEAR ENDING DECEMBER 31,               Operating     Capital
                                                      Leases        Leases

                        2004                        $   133,878     $8,234
                                                    -----------
              Less - Amounts representing interest                    (767)
                                                                  -----------
              Principal capital lease obligation                  $  7,467
                                                                  -----------

At December 31, 2003 and 2002,  the Company had equipment  under capital  leases
with costs of $19,817 for both years and accumulated depreciation of $19,817 and
$9,502, respectively.

Rent expense was $268,000 for the years ended December 31, 2003 and 2002.

4. INCOME TAXES

Significant  components of the Company's  deferred tax assets as of December 31,
2003 and 2002 are shown below.  A valuation  allowance has been  established  to
offset the deferred tax assets, as realization of such assets is uncertain.

                                                      December 31,
                                                 2003              2002
                                             --------------   ---------------
Deferred tax assets:

     Inventory reserve                       $     486,000    $      390,000
     Other                                          25,000           109,000
                                             --------------   ---------------

Total deferred tax assets                          511,000           499,000
Valuation allowance for deferred tax assets       (511,000)         (499,000)
                                             --------------   ---------------
Net deferred taxes                                       -                 -
                                             ==============   ===============

                                      F-10




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)



4. INCOME TAXES (CONTINUED)

All federal and state tax net operating  loss carry  forwards  incurred prior to
the sale described in Note 7 are retained by Vista Medical Technologies, Inc.

The  difference  between  the income tax at  statutory  rates and the income tax
benefit is as follows:

                                                      Years Ended
                                                      December 31,
                                                -----------------------
                                                   2003          2002
                                                -----------------------

Federal income tax benefit at statutory rate    $ 336,000    $ 181,000
State income tax benefit                           33,000       18,000
Loss carryforward retained by parent             (357,000)    (226,000)
Change in valuation allowance                     (12,000)      27,000
                                                -----------------------
                                                $       -    $       -
                                                =======================


5. GEOGRAPHIC INFORMATION

Geographic information: Net sales by major geographical area, determined on the
basis of destination of the goods, are as follows:


                                        2003              2002
                                    ------------      -----------
United States                       $  2,755,721      $ 3,885,214
Europe                                 3,464,370        3,592,326
                                    ------------      -----------
Total                               $  6,220,091      $ 7,477,540
                                    ------------      -----------

6. RELATED PARTY TRANSACTION

The Segment was a segment of Vista Medical Technologies, Inc. As of December 31,
2003 the Segment had advances  payable to Vista  Medical  Technologies,  Inc. of
$84,941.

                                      F-11




          Vista Medical Technologies Visualization Business Segment

                    Notes to Financial Statements (continued)

7. SUBSEQUENT EVENT

On April 15, 2004,  Vista  Medical  Technologies,  Inc.  (Vista) sold all of the
assets of the Segment to Viking Systems, Inc. (Viking). Pursuant to the terms of
the Asset Purchase Agreement, Viking purchased all assets related to the Segment
in exchange for a  combination  of cash,  common stock and assumed  liabilities.
Specifically,  at closing,  Viking paid Vista cash of approximately $159,000 and
issued   shares  of  its  common  stock  equal  to  ten  percent  (10%)  of  the
fully-diluted  common shares of Viking stock.  Additionally,  at closing,  Vista
entered  into a License  Agreement  with  Viking  pursuant  to which  Vista will
exclusively license to Viking all intellectual  property and product rights used
in the operation of the Segment. In exchange for this license grant, Viking will
pay Vista  royalties over the next five (5) years based on sales of the products
of the Segment by Viking.  The License  Agreement will contain minimum royalties
of $150,000  in year one,  $300,000  in each of years two,  three and four,  and
$375,000  in year  five.  The  royalties  payable  by Viking  under the  License
Agreement are capped at $4,500,000, in the aggregate, over the five year period.
Vista will retain  ownership of all  intellectual  property  and product  rights
under the License Agreement until these royalty obligations have been satisfied,
at which time Vista will transfer  ownership of such  intellectual  property and
product  rights to Viking.  Lastly,  Vista will consign to Viking at closing its
current  inventory of products and parts.  Viking will reimburse Vista the value
of that inventory, if and when sold, over the course of the next year.





                                      F-12



                              VIKING SYSTEMS, INC.
             AND VISTA MEDICAL VISUALIZATION TECHNOLOGY BUSINESS
               PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS

                                   [Unaudited]

The following unaudited proforma condensed combined balance sheet aggregates the
balance sheet of Viking  Systems,  Inc.  ("Viking") and the balance sheet of the
Vista Medical  Visualization  Technology  Business Segment ("the Segment") as of
March 31, 2004,  accounting for the  transaction as a purchase of the Segment by
Viking,  and using the  assumptions  described in the  following  notes,  giving
effect to the  transaction,  as if the transaction had occurred as of the end of
the period. The transaction was not completed as of March 31, 2004.

The following  unaudited proforma  condensed  combined  statements of operations
combine the results of operations of Viking and the results of operations of the
Segment for the three  months  ended March 31, 2004 and the year ended  December
31, 2003 as if the transaction had occurred January 1, 2003.

The  proforma  condensed  combined  financial   statements  should  be  read  in
conjunction with the separate financial  statements and related notes thereto of
Viking and the Segment.  These proforma financial statements are not necessarily
indicative of the combined financial position,  had the acquisition  occurred on
the date indicated above, or the combined results of operations which might have
existed for the period  indicated or the results of operations as they may be in
the future.

                                       1





                                     VIKING SYSTEMS, INC.
                     PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET
                                        March 31, 2004


                                                   Vista Medical
                                         Viking     Visualization
                                        Systems,    Technology
                                           Inc.       Business     Adjustments       PRO FORMA
                                      ----------------------------------------------------------
ASSETS
    CURRENT ASSETS
                                                                         
      CASH & CASH EQUIVALENTS         $  361,975   $          -   $  (166,278) (1)   $ 195,697
      ACCOUNTS RECEIVABLE                      -        357,605                        357,605
      INVENTORIES                              -        878,578      (612,235) (2)     266,343
                                      ----------------------------------------------------------
      TOTAL CURRENT ASSETS               361,975      1,236,183      (778,513)         819,645

    PROPERTY & EQUIPMENT                   6,263              -       153,817  (4)     160,080

    OTHER ASSETS
      INTANGIBLE ASSETS ACQUIRED               -              -             -                -
                                      ----------------------------------------------------------

        TOTAL ASSETS                  $  368,238   $  1,236,183      (624,696)         979,725
                                      ==========================================================
LIABILITIES & EQUITY
    CURRENT LIABILITIES
      ACCOUNTS PAYABLE                    65,607        323,327                        388,934
      PAYABLE TO AFFILIATE                     -         63,387                         63,387
      PAYROLL LIABILITIES                      -        140,915                        140,915
      DEFERRED REVENUE                         -          9,250                          9,250
      OTHER ACCRUED LIABILITIES                -         13,528                         13,528
                                      ----------------------------------------------------------

      TOTAL CURRENT LIABILITIES           65,607        550,407                        616,014

      ROYALTIES PAYABLE                                                                      0
                                      ----------------------------------------------------------

        TOTAL LIABILITIES                 65,607        550,407                        616,014

STOCKHOLDERS EQUITY
      COMMON STOCK                         6,295              -         3,054  (3)       9,349
      PREFERRED STOCK                      5,000              -                          5,000
      ADDITIONAL PAID-IN CAPITAL         733,705     67,947,643        58,026  (3)     791,731
      ADDITIONAL PAID-IN CAPITAL                                  (67,947,643) (5)
      ACCUMULATED DEFICIT               (442,369)   (67,261,867)   67,261,867  (5)    (442,369)
                                      ----------------------------------------------------------

        TOTAL STOCKHOLDERS EQUITY        302,631        685,776      (624,696)         363,711
                                      ----------------------------------------------------------

        TOTAL LIABILITIES & EQUITY    $  368,238   $  1,236,183   $  (624,696)       $ 979,725
                                      ==========================================================


                                       2





                                     VIKING SYSTEMS, INC.
                PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
                                    YEAR ENDED 03/31/2004


                                                          Vista Medical
                                                          Visualization
                                              Viking       Technology
                                           Systems, Inc.    Business      Adjustments      PRO FORMA
                                           ----------------------------------------------------------
                                                                              
Sales                                      $          -   $   1,111,627                   $1,111,627
   Cost of sales                                      -         914,464                      914,464
   Research and development                           -         204,312                      204,312
   Sales and marketing                                -          63,818                       63,818
   Royalty expense                                    -               -      75,000 (6)       75,000
   General and administrative                   111,676         231,501                      343,177
                                           ----------------------------------------------------------
Total cost and expenses                         111,676       1,414,095                    1,600,771

                                           ----------------------------------------------------------
Loss from continuing operations                (111,676)       (302,468)                    (489,144)

Loss from discontinued operations                     -               -                            -
                                           ----------------------------------------------------------

Interest expense                                      -            (300)                        (300)
Other income                                          -                                            -
                                           ----------------------------------------------------------

Total other income (expense)                          -            (300)                        (300)
                                           ----------------------------------------------------------

Net loss applicable to common stockholders $   (111,676)  $    (302,768)                  $ (489,444)
                                           ==========================================================

Basic and diluted loss per share           $      (0.04)                                  $    (0.08)

Share used in computing basic and
   diluted loss per share                     3,061,000                   3,054,000 (7)    6,115,000


                                       3




                                     VIKING SYSTEMS, INC.
                PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
                                     YEAR ENDED 12/31/03


                                                         Vista Medical
                                                         Visualization
                                              Viking      Technology
                                           Systems, Inc.   Business      Adjustments      PRO FORMA
                                           ----------------------------------------------------------
                                                                                
Sales                                      $          -  $  6,220,091                    $ 6,220,091

     Cost of Sales                                    -     5,048,878                      5,048,878
     Research and development                         -       739,017                        739,017
     Sales and marketing                              -       330,612                        330,612
     Royalty expense                                  -             -       420,000 (6)      420,000
     General and administrative                       -     1,091,005                      1,091,005
                                           ----------------------------------------------------------
Total cost and expenses                               -     7,209,512                      7,629,512
                                           ----------------------------------------------------------
Loss from continuing operations                       -      (989,421)                    (1,409,421)

Loss from discontinued operations               (41,646)            -                        (41,646)
                                           ----------------------------------------------------------

Interest Expense                                                 (134)                          (134)
Other Income                                                    1,629                          1,629
                                           ----------------------------------------------------------

Total Other Income                                              1,495                          1,495
                                           ----------------------------------------------------------

Net loss applicable to common stockholders $    (41,646) $   (987,926)                   $(1,449,572)
                                           ==========================================================

Basic and diluted loss per share           $      (0.01)                                 $     (0.24)

Share used in computing basic and
   diluted loss per share                     3,061,000                   3,054,000 (7)    6,115,000


                                       4





                              VIKING SYSTEMS, INC.
             AND VISTA MEDICAL VISUALIZATION TECHNOLOGY BUSINESS
     NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS


NOTE 1 - VIKING SYSTEMS, INC.

Viking Systems,  Inc.  ("Viking") is incorporated under the laws of the state of
Nevada and was previously involved in the development of software  applications,
hardware sales and leasing,  and training and support.  As of December 31, 2002,
Viking discontinued its current operations.

NOTE 2 - VISTA MEDICAL VISUALIZATION TECHNOLOGY BUSINESS

Vista Medical Technologies Visualization Business Segment ("the Segment"), based
in Westborough, MA, was a segment of Vista Medical Technologies, Inc. ("Vista").
The  Segment   develops,   manufactures,   and  markets  products  that  provide
information  to  physicians  performing  minimally  invasive  general  surgical,
cardiac surgical and other selected  endoscopic and  interventional  procedures.
The  Segment's  technology  products  combine a head mounted  display with video
cameras to provide  surgeons with critical  visual  information  during  complex
minimally  invasive  procedures,  and also  incorporate  the  benefit of viewing
complementary information in a voice-controlled,  picture-in-picture  format, to
facilitate   real-time   decision  making  during  surgery.   The  Segment  also
manufactures  compact, high resolution endoscopic cameras for original equipment
manufacturer customers and strategic partners.

NOTE 3 - PROFORMA ADJUSTMENTS

On April 15, 2004, Vista Medical  Technologies,  Inc.  ("Vista") sold all of the
assets of the Segment to Viking Systems, Inc. ("Viking").  Pursuant to the terms
of the Asset  Purchase  Agreement,  Viking  purchased all assets  related to the
Segment  in  exchange  for a  combination  of cash,  common  stock  and  assumed
liabilities.  Specifically,  at closing, Viking is required to pay Vista cash of
the sum of $132,000 and the difference between accounts  receivable and accounts
payable of the Segment at closing, and issue shares of its common stock equal to
ten percent (10%) of the fully-diluted  common shares of Viking stock (3,054,000
shares).  Additionally,  at closing, Vista entered into a License Agreement with
Viking  pursuant  to  which  Vista  will  exclusively   license  to  Viking  all
intellectual  property and product  rights used in the operation of the Segment.
In exchange for this license  grant,  Viking will pay Vista  royalties  over the
next five (5) years based on sales of the products of the Segment by Viking. The
License  Agreement  will  contain  minimum  royalties  of  $150,000 in year one,
$300,000 in each of years two,  three and four,  and $375,000 in year five.  The
royalties   payable  by  Viking  under  the  License  Agreement  are  capped  at
$4,500,000,  in the  aggregate,  over the five year  period.  Vista will  retain
ownership  of all  intellectual  property  and product  rights under the License
Agreement until these royalty  obligations  have been  satisfied,  at which time
Vista will transfer  ownership of such intellectual  property and product rights
to Viking. Lastly, Vista will consign to Viking at closing its current inventory
of products and parts.  Viking will reimburse Vista the value of that inventory,
if and when sold, over the course of the next year.

                                       5



Pro  forma  adjustments  on  the  attached  financial   statements  include  the
following:

(1)  Assumed  cash paid in  acquisition;  equals  $132,000  plus the  difference
between accounts receivable acquired and accounts payable assumed.

(2) $612,235 of inventory was not acquired but assumed on a  consignment  basis;
any inventory sold will be paid to the seller at its book value.

(3) Adjustments to show Viking's  issuance of 3,054,000  shares,  valued at $.02
per share, to Vista.

(4) To  allocate  the excess of the  purchase  over the net book value of assets
acquired  to  property  and  equipment  based  on  fair  values  at the  date of
acquisition

(5) To eliminate the equity of the business acquired.

(6) To record the actual  royalty  expense,  that would have been in  accordance
with the License  Agreement  described  above for 2003 and to record the minimum
for Q1 2004.

(7) The  pro-forma  (loss) per share is  computed  based on the number of shares
outstanding,  after adjustment for shares issued in the  acquisition,  as though
such shares had been  outstanding  from the beginning of the periods  presented.
Dilutive earnings per share were not presented,  as the effect was anti-dilutive
for the periods presented.

                                       6