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Cupertino, CA - (August 4, 1998) - General Surgical Innovations, Inc. (GSI) (Nasdaq NM: GSII) today announced financial results for its fourth quarter and fiscal year ended June 30, 1998.

For the fourth quarter, the company reported revenues of approximately $1.3 million compared with revenues of $2.5 million for the fourth quarter of fiscal 1997. Fourth quarter revenues consisted entirely of product sales which more than doubled from $566,000 for the same period last year. As anticipated and in connection with the conversion of Ethicon Endo-Surgery, Inc. to a non-exclusive distributor, no guaranteed payments were received in the fourth quarter. The company reported a net loss for the quarter of approximately $3.0 million, or $0.22 per share on 13.4 million shares outstanding, compared to a net loss of $971,000, or $0.07 per share on 13.2 million shares outstanding, for the same quarter of fiscal 1997.

“We believe that GSI's products are being well received in the market, as evidenced by the growth in our product sales for the fourth quarter and fiscal year,” stated President and Chief Executive Officer Gregory D. Casciaro. “Product sales more than doubled for the fourth quarter and grew 27 percent for the year, with sales of cardiovascular products showing the most gains followed by those in the plastic surgery market. Sell-through at the distributor level is also growing, particularly for the ENDOSAPH™ vein harvesting system, which we introduced in the second quarter of fiscal 1998. Sales of the SPACEMAKER II, which serves our core hernia repair market, remained steady for the year.”

The company's balance sheet remains strong with virtually no long-term debt and approximately $37.5 million in cash, cash equivalents and available-for-sale securities.

For fiscal 1998, total revenues were $6.8 million compared with total revenues of $9.0 million for fiscal 1997. The company reported a net loss of $9.1 million, or $0.68 per share, for the twelve month period, versus a net loss of $1.9 million, or $0.14 per share for the comparable period last year. The loss primarily relates to loss of guaranteed payments from Ethicon Endo-surgery in the third quarter of fiscal 1998, as anticipated and agreed, and expenses associated with the legal defense of the company's intellectual property.

“GSI has developed outstanding tissue dissection products that are advancing the adoption of minimally invasive surgical techniques worldwide,” Mr. Casciaro added. “We continue to be encouraged by the steady progress we are making in building momentum and expanding our distribution network worldwide and expect our market penetration to increase.”

“GSI’s hernia repair products still represent the majority of sales, but we have made significant inroads into the cardiovascular and plastic surgery markets, in-line with our strategic growth plan. Our ENDOSAPH ™ Vein Harvesting System and SPACEMAKER® balloon dissection products represent the fastest-growing products in our portfolio.”

“Consistent with our growth strategy, we will continue to invest in our sales and marketing organization,” continued Mr. Casciaro. “We plan to double the size of our sales team by adding approximately ten more seasoned sales professionals, who are expected to help build sales volume and further advance our position in the markets we serve. Additionally, we continue to invest in developing new products and product enhancements.”

“During the year, we also significantly expanded our distribution network to include Baxter International and Genzyme Surgical Products Corporation, both of which have the resources to broaden our market presence domestically and internationally. We expect to add more distributors to our network throughout the next fiscal year.”

Concluded Mr. Casciaro, “Surgeons in the markets we serve are increasingly using minimally invasive surgical techniques to deliver high-quality patient care. GSI’s portfolio of tissue dissection products enable surgeons to perform procedures that reduce patient trauma, scarring, other complications such as infection, and pain, resulting in more cost effective procedures. We expect these benefits, combined with our proprietary technology, will help advance the minimally invasive surgical procedures market.“

GSI’s SPACEMAKER® tissue dissection systems, based on the company’s patented balloon technology, rapidly and gently create surgical working spaces by separating natural tissue planes without resorting to blunt dissection used in conventional open surgery or minimally invasive surgery conducted outside of a natural body cavity. In procedures using SPACEMAKER® dissectors, a surgeon creates a small incision through which the balloon is inserted and placed between naturally occurring tissue layers such as muscle, fat, and skin. Subsequently, the balloon is filled to a specific volume with air or saline, causing the desired dissection of the tissue planes. The system is then removed and the dissected space can be insufflated with gas to facilitate the performance of surgery.

Headquartered in Cupertino, California, General Surgical Innovations, Inc. develops, manufactures, and sells tissue dissection systems based on the company’s patented balloon technology for minimally invasive surgical procedures. The company’s products are specifically designed for endoscopic and laparoscopic techniques for use in general, cardiovascular, orthopedic, cosmetic and reconstructive surgeries to create an operating space at the surgical site, lessen tissue damage and improve patient recovery time. The company has developed a broad range of balloon shapes and sizes to be used for various surgical techniques, procedures, and market segments. GSI distributes its products worldwide through a network of distribution partners and a direct sales force. For additional information, please visit the company’s World Wide Web site at www.gsii.com.

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements, the accuracy of which is necessarily subject to risks and uncertainties. Future market development and demand for the company’s products, among other matters discussed in this release, may differ significantly from the discussion of such matters in the forward-looking statements. Such differences may be based upon factors within General Surgical Innovations’ control, such as strategic planning decisions by management and reallocation of internal resources, or on factors outside of General Surgical Innovations’ control, such as scientific advances by third parties, introduction of competitive products and delays by regulatory authorities, as well as those factors set forth under the heading ‘Factors Affecting Future Results’ in General Surgical Innovations’ Annual Report on Form 10-K for the year ended June 30, 1997, Form 10-Q for the quarters ended September 30, 1997, December 31, 1997, March 31, 1998 and other company filings with the Securities and Exchange Commission.