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

                                 FORM 10-K

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended October 31, 1997 [Fee Required]
           or
[  ] Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange
      Act of 1934 [No Fee Required]

For the transition period from _____________ to _____________

                     Commission File Number: 0-14961

                             LUXTEC CORPORATION
           (Exact name of registrant as specified in its charter)

      Massachusetts                                     04-2741310
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                     Identification No.)

        326 Clark Street, Worcester, Massachusetts       01606
         (Address of principal executive offices)     (Zip code)

        Registrant's telephone number, including area code:
                            (508) 856-9454

           Securities registered pursuant to Section 12(b) of the Act:
                          American Stock Exchange
                   Common Stock, $.01 par value per share
                              (Title of class)

          Securities registered pursuant to Section 12(g) of the Act:
                                  None

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

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

The aggregate market value of the voting Common Stock held by  non-affiliates of
the registrant was  approximately  $2,508,027 based on the closing price of such
stock on December 31, 1997, as reported by the American  Stock  Exchange  ($2.38
per share).

As of December 31, 1997,  2,858,998 shares of Common stock, $.01 par value, were
issued and outstanding.


   Documents Incorporated by Reference                  Form 10-K Reference
Proxy Statement for the next Annual Meeting                  Part III


<PAGE>

                                    PART I
     This  report  contains  forward-looking  statements  within the  meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act of  1934.  Actual  results  could  differ  materially  from  those
projected in the forward-looking  statements as a result of the risk factors set
forth below.  The  industry in which the Company  competes is  characterized  by
rapid changes in technology and frequent new product introductions.  The Company
believes that its long-term growth depends largely on its ability to continue to
enhance  existing  products and to introduce new products and features that meet
the continually  changing  requirements of its customers.  While the Company has
invested  heavily in new products and processes,  there can be no assurance that
it can continue to introduce new products and features on a timely basis or that
certain of its products and  processes  will not be rendered  noncompetitive  or
obsolete by its competitors.

 ITEM 1. BUSINESS

 The Corporation
Luxtec Corporation, a Massachusetts Corporation (the "Corporation" or "Luxtec"),
was  organized  in November  1981,  and is engaged in the  design,  manufacture,
marketing and  distribution  of fiber optic  headlight and video camera systems,
light sources,  cables,  retractors,  surgical  telescopes and other custom made
surgical  equipment  for  the  medical  and  dental   industries.   Through  its
subsidiaries,  Fiber  Imaging  Technologies,  Inc.  and  CardioDyne,  Inc.,  the
Corporation also  manufactures  small diameter  specialty  endoscopes and motion
tolerant blood pressure monitors, respectively, for the medical market.

The Corporation has developed a proprietary,  totally programmable,  fiber optic
drawing system designed to manufacture optical glass to a predetermined diameter
as well as to  control  the  actual  size of the fiber  bundles.  The fibers are
utilized in fiber optic cables  which are  incorporated  with the  Corporation's
Surgical  Headlight  Systems and the Video Camera Systems as well as in an array
of  fiber  optic  transilluminators  utilized  with the  Corporation's  surgical
instruments.  The Corporation  also markets  replacement  fiber optic cables and
light  sources for use with other  manufacturers'  products,  including  various
endoscopic systems used in minimally invasive surgical procedures.

The  Corporation's  CardioDyne,  Inc.  subsidiary  is  engaged in the design and
development of proprietary,  motion tolerant, non-invasive blood pressure ("BP")
monitors for use on moving and  exercising  patients.  The products are designed
for use in the  categories  of exercise  stress  testing,  emergency  transport,
obstetrics, and other applications where frequent,  accurate blood pressure data
is vital,  yet where  existing blood  pressure  monitors  typically fail to work
because of patient motion.  The Corporation's two existing BP products have been
approved for sale in the United States by the Food and Drug  Administration (the
"FDA").

The Corporation  maintains its principal executive offices and facilities at 326
Clark Street, Worcester,  Massachusetts 01606, and its telephone number is (508)
856-9454.



<PAGE>


 Background and Technology
Fiber Optics
Fiber optics allow for the transmission, element by element, of a light or image
from one place to another  through a flexible  conduit.  Fiber optic  technology
permits the drawing of high quality  optical  glass rods and tubes into flexible
fibers,  each  coated  with a  "jacket"  (a film of an  organic  silicon),  that
protects the fibers from abrasion. This provides for an improved ability to bend
and transmit light and images to and from inaccessible places.

The technology used by Luxtec to provide  illumination  directly to the surgical
site is  facilitated  by fiber  optic  cables  piping  light into an  adjustable
headlight  composed  of a series of lenses and  mirrors  mounted on a  headband.
These lenses then focus the light directly on the surgical site when worn by the
surgeon.  This provides a lightweight,  low temperature  illumination  source to
enhance  visualization for microsurgical and deep cavity illumination.  State of
the art  microsurgery  often involves working on anatomical  structures  smaller
than 1 millimeter  in diameter.  To work on such small  structures,  the surgeon
often needs high quality,  portable magnification devices. Luxtec telescopes are
designed to offer high quality magnification with coincident illumination.

Blood Pressure Monitoring
An important symptom of patients with life threatening conditions such as shock,
internal  bleeding or heart  failure,  is usually a drop in blood pressure (BP).
Thus, blood pressure is measured often on most patients, and is a key vital sign
in medicine.

The most common  method of  measuring  blood  pressure is by placing an inflated
cuff around the arm in order to occlude  arterial blood flow.  Blood pressure is
determined by slowly  deflating the cuff and  listening  with a stethoscope  for
Korotkoff  sounds (arterial blood flow vibrations) that begin at systolic BP and
cease at diastolic BP. These  measurements  can be taken  manually,  or by using
various automated and semi-automated instruments or systems. Small vibrations in
the cuff pressure,  called oscillometric  pulses, are measured by most automatic
blood  pressure  monitors and are used to derive  systolic and  diastolic  blood
pressure measurements.

For  resting  patients  whose  blood  pressure  must  be  sampled  periodically,
automatic  intermittent  non-invasive  blood pressure  monitors are widely used.
Current  measuring  techniques  are very  sensitive to any motion of the patient
during  the time that the  actual  reading is being  taken.  Most  intermittent,
non-invasive  BP monitors  work poorly or do not work at all on patients who are
moving  or  being  transported  when the  measurement  is  being  taken.  Motion
interferes with the ability to detect critical sounds and, therefore, it is very
difficult  to  measure  the  blood  pressure  of  patients  who  are  shivering,
exercising or being transported.

For patients  whose blood pressure must be known more  frequently,  direct blood
pressure  measurement is routinely used. In direct  measurement,  a fluid filled
catheter is introduced  into an artery and  connected to a pressure  transducer.
This form of direct,  invasive BP  monitoring  is  expensive  and painful to the
patient, requires frequent attention by a nurse or physician, and poses risks of
infection  and blood  clots.  Although  several  continuous  non-invasive  blood
pressure  monitors  have been designed and  introduced  to the market,  none has
received wide  clinical use to date.  The  Corporation  believes this stems from
questions  regarding  the  accuracy,  stability,  and motion  tolerance  of such
monitors.


<PAGE>



 Products
Headlight  Systems The Corporation has designed and manufactures a line of fiber
optic headlight  systems that assist  surgeons by  illuminating  the area of the
surgical  procedure.  Designed to provide maximum  performance and comfort,  the
Corporation's  headlight  systems are lightweight and provide the surgeon with a
near coaxial  view.  The  Corporation's  patented  headlight  systems  provide a
virtually unobstructed view of the area of surgical procedure.

Light  Sources A fiber optic light source with solid state  electronics  permits
the  precise  regulation  of electric  current in order to control  illumination
levels of Xenon and  Halogen  lamps and,  thereby,  eliminates  fluctuations  or
"flickering" in the light provided.  The lamps illuminate the end surface of the
fiber optic cable through which the light is  transmitted in a rigid or flexible
mode without heat. The Corporation  manufactures a product line of high quality,
solid state Xenon and Halogen fiber optic light sources. The Corporation's light
sources  offer a wide range of light  intensities  in order to serve the varying
requirements   in   illuminating   surgical  and  diagnostic   procedures.   The
Corporation's  light sources are designed and  manufactured  to comply with U.L.
544 medical safety standards and are listed  domestically with ETL Laboratories.
Internationally,  the  Corporation  works  to  achieve  compliance  with as many
international standards as necessary to compete effectively on a worldwide basis
(including the CE mark that has been attained on the present product line).

The Corporation's  model numbers 9100, 9175 and 9300 Xenon light sources produce
high  intensity  light that is the  equivalent  of daylight in color.  The white
light  produced by these light  sources is used in instances  where more intense
illumination  is required,  e.g., for endoscopic  television  surgery or for use
with the Corporation's Microlux television camera products.

Fiber Optic Cables The Corporation  designs and manufactures a complete range of
fiber optic cables and holds  patents on certain  fiber optic cable  assemblies.
See "Patents and Proprietary  Information." The Corporation has a range of fiber
bundle  diameters from 1.0 mm to 6.5 mm and also allows a surgeon to choose from
various  angles (180  degree,  90 degree and 45 degree) in order to optimize the
use of surgical  instruments.  The Corporation employs a proprietary  technology
that  enables  the fiber  optic  interface  to  withstand  significantly  higher
temperatures and that permits the use of higher output light sources.

All of the Corporation's  fiber optic cables are adaptable to competitors' light
sources.  The Corporation's  Component Cable System allows the end-user to adapt
the end fitting of each cable to their own needs.  The Component Cable System is
designed to provide the  flexibility  of  universal  cables by  incorporating  a
patented  process to  permanently  attach  select end fittings to the cable and,
thereby,  customize the cable according to the user's needs, either at the point
of  manufacturing  or at the customer's site. This allows the customer to reduce
the inventory of replacement  cables and  facilitates a rapid  turnaround when a
cable needs to be replaced in the operating room, clinic, or surgi - center.

Fiber Optic Headlight and Video Camera Systems The Corporation  manufactures and
markets a series of video  products that are currently  being used in the United
States and  approximately  26  countries  around the  world.  The  Corporation's
Microlux  Headlight  Camera  Systems  are  designed to  televise  most  surgical
procedures.  The system is a very small,  lightweight,  solid  state  television
camera mounted at the front of a headband,  manufactured by the Corporation, and
integrated with fiber optic illumination.

The  Corporation's  Microlux  System can transmit the  surgeon's eye view of the
procedure live to a television  monitor for teaching  purposes or to be recorded
for later use.
<PAGE>

Surgical Telescopes The Corporation  manufactures and markets a proprietary line
of surgical  telescopes.  The custom fit  telescopes  provide  the surgeon  with
increased  magnification ranging from 2.5X to 4.5X. During the fourth quarter of
fiscal  year 1993,  the  Corporation  introduced  illumination  to the  surgical
telescope,  utilizing  fiber optic  delivery of light into the line of sight and
thus providing the first surgical telescope with coaxial illumination.
These products are part of the current product offering of the Corporation.

Blood Pressure  Monitors The Corporation has developed a proprietary  electronic
signal  acquisition  and signal  processing  technology  that separates  "motion
noise" from systolic and diastolic  blood pressure  signals.  In addition to the
Corporation's current product line, the Corporation plans to use this technology
to develop additional  non-invasive blood pressure  monitoring products that are
motion tolerant.

Microlaparascopic   Products  The  Corporation's   Fiber  Imaging   Technologies
subsidiary   manufactures  and  markets  small  diameter  rigid,   flexible  and
semi-flexible  endoscopes  that  provide  fields  of view for  either  very high
magnification  of  objects  or  panoramic  views  of  internal  cavities.  These
instruments  can  offer any  direction  of view that is  required.  The  primary
product  line  consists  of  endoscopes  that are  between  0.5mm  and  2.7mm in
diameter.  Endoscopes  are  produced  that  contain  working  channels  for  the
insertion of tools,  fluid  infusion or  drainage.  Fiber  Imaging  Technologies
specializes in the design, manufacturing and marketing of custom optical systems
that offer outstanding image quality and optimum energy delivery.



<PAGE>


 Patents and Proprietary Information

The medical device industry traditionally has placed considerable  importance on
obtaining and  maintaining  patents and trade secret  protection for significant
new technologies,  products and processes. The Corporation maintains a policy of
seeking patent  protection in connection with certain elements of its technology
when it  believes  that  such  protection  will  benefit  the  Corporation.  The
Corporation  owns  the  following  U.S.  Patents  (date  of  issuance  shown  in
parentheses):

        * Patent No. 4516190 for Surgical Headlight (May 7, 1985)
        * Patent No. 4534617 for Fiber Optic Cable (August 13, 1985)
        * Patent No. 4616257 for Headlight Camera System (October 7, 1986)
        * Patent No. 4653848 for 45 degree and 90 degree Fiber Optic Cables 
          (March 31, 1987)
        * Patent No. 4797736 for Videolux Television Fiber Optic Headlight 
          Camera System (January 10, 1989)
        * Patent No. 5003605 for an electronically augmented stethoscope with 
          timing sound (March 26, 1991)
        * Patent No. 5078469 for Optical System allowing coincident viewing, 
          illuminating and photography (January 7, 1992)
        * Patent No. 5220453 for telescopic spectacles with coaxial illumination
          (June 15, 1993)
        * Patent No. 5295052 for a light source assembly (March 15 1994)
        * Patent No. D345368 for surgical telescopes (March 22, 1994)
        * Patent No. 5307432 for crimped light source termination 
          (April 26, 1994)
        * Patent No. 5331357 for an illumination assembly (July 19, 1994)
        * Patent No. D349123 for spectacles having integral illumination 
          (July 26, 1994)
        * Patent No. D350760 for an eyeglass frame temple (September 20, 1994)
        * Patent No. 5392781 for blood pressure monitoring in noisy environments
          (February 28, 1995)

In addition,  the  Corporation has entered into an exclusive  license  agreement
with  InterMED  Corporation  for the  rights to  Patent  No.  5222949  ("In-Vivo
Hardenable Catheter") and No. 5334171 ("Flexible,  Noncollapsible  Catheter Tube
with Hard and Soft  Regions") for  developing a line of catheters  incorporating
fiber optics to facilitate several potential specialized applications.

The Corporation is the owner of four U.S. federal trademark  registrations:  (i)
LUXTEC,  registration number 1,453,098,  registered August 18, 1987; (ii) LUXTEC
(and design), registration number 1,476,726, registered February 16, 1988; (iii)
LUXTEC (stylized), registration number 1,758,176, registered March 16, 1993; and
(iv) LUXTEC,  registration  number 1,956,027,  registered February 13, 1996. The
Corporation is also the owner of the following foreign  trademark  registrations
for its LUXTEC trademark:  (i) Chile,  registration  number 452.314,  registered
October 31, 1995; and (ii) Peru, registration number 016214, registered June 14,
1995.

In general, the Corporation relies on its development and manufacturing  efforts
and skills of its  personnel  rather than patent  protection  to  establish  and
maintain its industry position.  The Corporation treats its design and technical
data as confidential and relies on nondisclosure agreements,  trade secrets laws
and non-competition agreements to protect its proprietary position. There can be
no assurance  that these  measures  will  adequately  protect the  Corporation's
proprietary technologies.
<PAGE>

 Marketing and Sales
Fiber Optics
The  Corporation's  customers for its fiber optic and illumination  products are
acute care hospitals,  clinics, surgi centers, and surgeons. An estimated 50,000
surgeons use the Corporation's products, on a worldwide basis. The Corporation's
products  provide  illumination  and  magnification  used  during  the  surgical
procedure.

The Corporation  distributes its fiber optic and  illumination  products through
regional specialty surgical distributors,  supported by Luxtec field specialists
as  well  as  a  customer  support  team  located  in  the  Worcester  facility.
Internationally, Luxtec distributes through a network of local distributors. The
Corporation currently has distributors in 27 countries.

The Corporation competes on the basis of price, product quality and reliability.
The  Corporation  believes that its large base of satisfied  users is also a key
marketing  advantage and that the combination of satisfied customers and quality
products  positions  the  corporation  as  one  of the  premium  vendors  in the
marketplace. The Corporation believes that it provides a higher standard of post
sales  support when  compared to the  competition  and that the  combination  of
service   and  a  three   year   warranty   stands  as  a   significant   market
differentiation.

The Corporation's  marketing strategy is to provide training and support for the
distributor  channel,  to enhance end user awareness and demand by participating
as an exhibitor at major medical  meetings,  and to insure that the  Corporation
provides high quality and performance of its products.

Blood Pressure Monitoring
The  Corporation  believes  that the  initial  target  market  segments  for its
products are for use in exercise stress testing, emergency transport, obstetrics
and for  post-operative  patients.  First shipments of production units occurred
during the fourth quarter of fiscal year 1996.

           Exercise Stress Testing

The exercise  stress test is a common  non-invasive  test for  evaluating  heart
function in known or suspected coronary artery disease. There are an estimated 5
million  exercise  stress tests done annually at  approximately  20,000 exercise
stress test labs in the U.S. Most stress test labs now measure blood pressure on
their patients  manually.  Blood pressure must be measured  accurately and often
(recommended  by many experts to be at least once per minute) during the test. A
decline in systolic  BP during  exercise  may  reflect the  presence of advanced
coronary  artery  disease,  and is a criterion for immediate  termination of the
stress test.  This important  indicator  must be detected  immediately to reduce
patient risk. Yet measuring blood pressure, either manually or automatically, is
difficult  since the  patient is moving and the  treadmill  creates  interfering
background noise.

The CardioDyne NBP 2000 incorporates a sensor and companion  processing software
that  significantly  reduces the interference from motion and noise in the blood
pressure  signal.  The  Corporation  believes  this results in a reliable  blood
pressure measurement during an exercise stress test. The CardioDyne NBP 2000 has
undergone  clinical  trials  at Beth  Israel  Hospital,  and has been  tested by
physicians  and  clinicians  at several  other  hospitals,  including  Deaconess
Hospital, and the University of Massachusetts Medical Center.


<PAGE>


           Emergency Transport

The Corporation  estimates that the emergency  transport  (ambulance) market for
the CardioDyne product line is potentially large. There are approximately 42,000
emergency  transport  vehicles in the U.S., of which the  Corporation  estimates
that  30,000 are  potential  candidates  for  products  based on the  CardioDyne
technology.

The Corporation  estimates that emergency  victims of accidents,  heart attacks,
strokes,  and other medical emergencies account for almost 10 million transports
in the U.S.  The  Corporation  further  estimates  that an  additional 2 million
medical  patients  are  transferred  between  hospitals  annually  in  emergency
transport  vehicles.  These  patients  are often  unstable or at risk of medical
hazard, hence their vital signs (blood pressure,  heart rate,  respiration,  and
oxygen  saturation)  are  measured  frequently.  Currently,  blood  pressure  is
measured manually on most transport patients and the measurement is difficult to
do even by a skilled  EMT  because of the noise and  vibration  in the  vehicle.
Preliminary  tests  indicate that the CardioDyne  NBP 2000  accurately  measures
blood pressure during transports,  even with a shivering patient and even in the
presence of vibration and noise.

           Obstetrics

Blood  pressure is an important  parameter to monitor  during labor and delivery
due to the  possibility  of  dangerously  high blood  pressures,  hemorrhage and
shock,  as well as  other  potential  complications.  Frequent,  accurate  blood
pressure  information is important to manage these patients.  However,  women in
labor frequently shiver,  particularly those receiving epidural anesthesia.  The
Corporation  believes that shivering  causes commonly used  oscillometric  blood
pressure  monitors  to become  inaccurate  or to cease  working.  To  accurately
measure blood  pressure on shivering  patients,  the  alternatives  are invasive
blood pressure  measurement,  which is expensive and risky,  or frequent  manual
monitoring.   The  Corporation   believes  that  the  CardioDyne   product  line
potentially provides a better alternative, as it accurately measures and records
blood pressure on moving or shivering labor patients,  without the cost and risk
of invasive monitoring or the constant attention of manual monitoring.

           Post-Operative

Many recovery room patients experience post anesthesia  tremors.  These patients
are monitored for various vital signs, including blood pressure. The Corporation
believes that current commercial models can become inaccurate or fail to work in
this  application  due to  patient  tremor  and that a motion  tolerant  monitor
therefore may be well received in this market.

 Competition
Fiber Optics
The Corporation  competes with national and  international  companies engaged in
the  manufacture  of headlight  systems,  including  B.F.  Wehmer,  Cogent Light
Technologies,   Inc.  and  Designs  for  Vision,  and  in  fiber  optic  medical
instruments  with Pilling Weck Company,  the Stryker  Company and Richard Wolf &
Company as well as other smaller diversified companies. In the replacement cable
market, the Corporation  competes with both original equipment  manufacturers as
well as others  engaged in activities  similar to that of the  Corporation.  The
Corporation  is not  aware  of any  specific  seasonal  variation  factors  that
directly affect net sales levels.

<PAGE>



The  Corporation's  management  believes  that direct  competition  in the light
source  market  comes from several  established  companies  having  considerably
larger  and  greater  financial  and human  resources,  including  Cogent  Light
Technologies,  Inc.,  Designs  for  Vision,  Olympus,  B.F.  Wehmer,  Karl Storz
Company, and Richard Wolf & Company.

Blood Pressure Monitoring
The Corporation has identified two companies, Suntek and Colin Medical, that are
currently  supplying  exercise blood pressure monitors in the U.S. The companies
sell  directly  under their own name,  and Colin  produces an OEM version of its
monitor that is sold by Quinton.  Critical care blood pressure monitors are sold
by numerous companies,  including Critikon,  Datascope,  Colin, Hewlett Packard,
Spacelabs and others. The Corporation  believes that the CardioDyne product line
performance,  features  and  capabilities  will allow it to compete  effectively
against these products.  Nonetheless,  the Corporation  expects that many of its
current and future competitors will have financial, technical, marketing, sales,
manufacturing, distribution and other resources substantially greater than those
of the Corporation.  There can be no assurance that the Corporation will be able
to compete successfully in its intended markets.


 Government Regulation
The  Corporation's  products are subject to government  regulation in the United
States and other  countries.  In order to test  clinically,  produce  and market
products for human  diagnostic or therapeutic  use, the Corporation  must comply
with mandatory procedures and safety standards  established by the United States
Food and Drug Administration ("FDA") and comparable state and foreign regulatory
agencies.  Typically,  products  must  meet  regulatory  standards  as safe  and
effective for their intended use prior to being marketed for human applications.
The clearance  process is expensive and time consuming,  and no assurance can be
given that any agency  will grant  clearance  for the sale of the  Corporation's
products  or that  the  length  of time the  process  will  require  will not be
extensive.  The Corporation believes that its facility is in compliance with the
Federal  Food  and  Drug  Administration  requirements  for  Good  Manufacturing
Practice.


 Major Customers
For  the  year  ended  October  31,  1997,  one  customer,   Specialty  Surgical
Instruments, accounted for 14% of the Corporation's net revenues.

 Research and Development
The Corporation incurred  approximately $495,000 of product development expenses
in fiscal year 1997,  $543,000 in fiscal 1996,  and $517,000 in fiscal 1995. The
decrease in expenses in this category was directly  related to the completion of
the introduction of two major product line upgrades during fiscal 1996.

 Manufacturing and Suppliers
The Corporation  purchases  components and materials from more than 300 vendors.
The  Corporation  believes  it can  purchase  substantially  all of its  product
requirements  from other competing  vendors under similar terms. The Corporation
has no long-term contract with any supplier.


<PAGE>



 Backlog
At October  31,  1997,  the  Corporation's  backlog  was  $549,200,  compared to
$945,000 at October 31, 1996. The  Corporation  generally  ships products within
three weeks of the receipt of an order from a customer. The Corporation does not
believe that its backlog  accurately  predicts the amount of quarterly or annual
revenues.

 Employees
As of October 31, 1997, the Corporation had 64 full time employees,  of whom six
are  executives,   nine  are  engaged  in  supervisory  capacities,  26  are  in
manufacturing  and the  remainder  are  involved in  engineering,  research  and
development,  marketing and administration.  None of the Corporation's employees
is covered by a collective  bargaining  agreement.  The Corporation believes its
employee relations are good.
 Executive Officers
For information with respect to the Executive  Officers of the Corporation,  see
the section  entitled  "Election of  Directors"  appearing in the  Corporation's
Proxy  Statement in connection  with its next Annual Meeting of  Shareholders or
special  meeting  in lieu  thereof,  which  section  is  incorporated  herein by
reference.

 ITEM 2.  PROPERTIES

The Corporation  occupies  approximately 30,000 square feet at 326 Clark Street,
Worcester,  Massachusetts under a lease that has been extended through September
1998. The  Corporation  believes that this space is adequate to meet its current
requirements and that alternative  space would be available at comparable prices
should the lease not be extended after its expiration.

 ITEM 3.  LEGAL PROCEEDINGS

None.


 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders,  whether  through
solicitation  of  proxies  or  otherwise,  during  the  fourth  quarter  of  the
Corporation's fiscal year ended October 31, 1997.



<PAGE>


                              PART II

 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

The  Corporation's  Common Stock is traded on the American Stock Exchange (AMEX)
under the AMEX symbol "LXU.EC." The  Corporation's  Common Stock has been listed
on the American Stock Exchange since April 20, 1994. From September,  1986 until
April,  1994 the Corporation's  Common Stock was traded in the  over-the-counter
market  on the  National  Association  of  Securities  Dealers,  Inc.  Automated
Quotations System (NASDAQ) under the NASDAQ symbol "LUXT."

AMEX has notified the Corporation that the Corporation has fallen below the AMEX
Emerging Company  Marketplace  guidelines for continued  listing on the exchange
and that AMEX is reviewing the Corporation's listing eligibility. As a result of
a meeting  between  representatives  of the Corporation and AMEX held on January
22, 1998, AMEX has determined to continue the Corporation's  listing.  AMEX will
conduct a further review of the Corporation's  listing status in June, 1998. The
Corporation  is reviewing its options  concerning  actions it may take to comply
with the AMEX guidelines.

The  following  table sets  forth the high and low  closing  sale  prices of the
Corporation's Common Stock on the AMEX during the periods indicated below.

                                                         Common Stock
                                                    High              Low

 Fiscal Year Ended 10/31/96
First Quarter                                       4.00              2.00
Second Quarter                                      4.00              2.50
Third Quarter                                       3.38              2.75
Fourth Quarter                                      4.00              2.38

 Fiscal Year Ended 10/31/97
First Quarter                                       4.00              2.63
Second Quarter                                      3.88              2.38
Third Quarter                                       3.00              2.38
Fourth Quarter                                      2.75              2.13



On December 31, 1997, the closing sale price of the  Corporation's  Common Stock
on the American Stock Exchange was $2.38 per share.

As of December 31, 1997, there were  approximately  642 holders of record of the
Corporation's   Common  Stock.   The   Corporation   estimates  that  there  are
approximately 1,300 beneficial holders of the Corporation's Common Stock.

The  Corporation  has not paid any cash  dividends  since its  inception and the
Board of Directors does not contemplate  doing so in the near future.  The Board
of  Directors  currently  intends to retain any future  earnings  for use in the
Corporation's business.



<PAGE>


 ITEM 6.  SELECTED FINANCIAL DATA

The selected consolidated operating data and the consolidated balance sheet data
presented below are derived from and qualified by reference to the Corporation's
consolidated financial statements that have been audited by Arthur Andersen LLP,
the  Corporation's  independent  public  accountants.  The information set forth
below should be read in conjunction with the consolidated  financial  statements
and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>

 Operating Data:                                     (In thousands, except per share data)
                                                                     Year Ended October 31,
                                         1993           1994           1995            1996           1997

<S>                                     <C>            <C>            <C>             <C>            <C>    
Net Revenues . . . . . . . . . .        $6,734         $8,139         $7,755          $9,348         $10,977

Net Income  (Loss). . . . . .               153            164        (6,127)           (571)          (353)

Net Income (Loss) Per Share . . .
 . . . . . . . . . . . . .                  .11            .11          (4.20)           (.22)          (.15)




                                                                   (In thousands)
Balance Sheet Data:                                            Year Ended October 31,
                                         1993           1994           1995            1996           1997


Working Capital. . . . . . . .          $ 1,210        $ 1,410        $ (599)         $ 935       $  1,394

Total Assets. . . . . . . . . . .         3,431          4,072          4,122          5,295          5,803
 .

Long-term debt and capital lease
obligations, less current
portions  . . . .                                                                       119            661
                                           -              -              -

Stockholders' equity. . . . .             1,957          2,163            198           813            456


</TABLE>




<PAGE>


 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS

This analysis of the Corporation's  financial  condition,  capital resources and
results  of  operations  should  be read in  conjunction  with the  accompanying
consolidated financial statements, including notes thereto.

 Results of Operations

The  following  table  sets  forth  certain  consolidated  financial  data  as a
percentage  of net revenues for the fiscal years ended October 31, 1995 1996 and
1997.

                                               1995         1996           1997
Net revenues                                   100%         100%           100%
Cost of goods sold                              61           57             60
Selling and marketing                           24           23             22
Research and development                         7            6              4
General and administrative                      19           18             15
Charge for purchased research and development  (67)           -              -
Other income/(expense)                          (1)          (2)            (2)
Loss before provision for income taxes         (79)          (6)            (3)
Provision for income taxes                       -            -              -
Net loss                                       (79)          (6)            (3)

 Fiscal 1997 Compared with Fiscal 1996

Net Revenues: Net revenues of $10,977,435 for fiscal 1997 were 17.4% higher than
the  $9,347,699  reported for fiscal 1996.  The Luxtec branded and OEM products,
both  domestic and  international,  were  responsible  for  virtually all of the
Corporation's  revenue growth.  Management believes that the introduction of new
and improved  products over the last two years was chiefly  responsible  for the
fiscal 1997 revenue growth.

Cost of Goods Sold:  Cost of goods sold  increased to $6,544,409 or 59.6% of net
sales for fiscal 1997 compared with  $5,323,764 or 57.0% of net sales for fiscal
1996. The higher product cost related to the recent  introduction of a series of
new products was the main reason for the higher costs in fiscal 1997.

Gross  Profit:  Gross Profit  increased to  $4,433,026 or 40.4% of net sales for
fiscal  1997  compared  to  $4,023,935  or 43.0% of net sales for  fiscal  1996.
Although the  percentage  decreased  between  years,  the higher  sales  volume,
partially  offset by the higher  costs  related to product  introductions  and a
contractual decrease in royalties received for a CardioDyne product, yielded the
increased  gross profit in fiscal 1997.  The  Corporation  does not expect gross
profit margins to change dramatically from their 1997 relationship to sales.

Selling and  Marketing  Expenses:  Selling and marketing  expenses  increased to
$2,437,746  for fiscal 1997 compared to $2,190,881  for fiscal 1996, an increase
of $246,865 or 11.3%.  During fiscal 1997, Luxtec introduced  marketing programs
and continued to build the distribution  channel for the new CardioDyne  product
line of motion tolerant blood pressure monitors.  Management expects selling and
marketing  expenses for fiscal 1998 to remain in approximately the same ratio to
sales as 1997.
<PAGE>

Research and  Development:  Research and  development  expenses were $495,373 in
fiscal 1997  compared to $542,691 in fiscal 1996, a decrease of $47,318 or 8.7%.
The decrease in expenses in this category was directly related to the completion
of the  introduction  of two major  product line  upgrades  during  fiscal 1996.
Management  expects that research  expenditures will increase as a result of the
Corporation's product development plans.

General and Administrative:  General and administrative expenses were $1,627,637
in fiscal 1997 compared to $1,646,081 in fiscal 1996, representing a decrease of
$18,444 or 1.1%. Fiscal year 1997 administrative  activities and staffing levels
remained essentially unchanged from fiscal 1996.

Interest:  Interest  expense  increased  to  $234,024  during  fiscal  year 1997
compared  with  $231,442  in fiscal  1996,  an  increase  of  $2,582 or 1%.  The
Corporation's  cost of debt  remained  at  approximately  the same level  during
fiscal years 1997 and 1996.

 Fiscal 1996 Compared with Fiscal 1995

Net  Revenues:  Sales  increased  20.5% to $9,347,699 in fiscal 1996 compared to
$7,755,376 in fiscal 1995. Sales increases were recorded in virtually all of the
Corporation's  business  lines.  Fiscal year 1996 saw the  introduction of a new
line of  lightweight  Luxtec fiber optic  lighting  products with  significantly
enhanced   performance  that  were  well  received  in  the   marketplace.   The
microlaparascopic  products sold by the Corporation's Fiber Imaging Technologies
subsidiary also increased . The first CardioDyne blood pressure monitoring units
were shipped at the end of fiscal 1996

Cost of Goods Sold:  Cost of goods sold was  $5,323,764  or 57% of net sales for
fiscal year 1996 compared to $4,732,500 or 61% of net sales for fiscal 1995. The
fiscal  1995  results  included  charges  to  operations  for  the  cost of some
inventory  items that had  become  redundant  as a result of the  changes to old
product lines and the  introduction of new product lines and increased  accruals
related to future warranty  claims due to such new product lines.  These charges
were not repeated during fiscal 1996.

Gross  Profit:  Gross  Profit  increased to  $4,023,935  or 43% of net sales for
fiscal  1996  compared to  $3,022,876  or 39% of net sales for fiscal  1995.  In
addition to the effect of the above mentioned inventory  adjustments and accrual
increases,  there  continued  to be price  competition  and an  increase  in the
portion of total  sales  attributable  to lower  margin  OEM  sales.  These were
substantially  offset by CardioDyne  licensing  revenue  received  during fiscal
1996.

Selling and Marketing  Expenses:  Selling and marketing  expenses increased to $
2,190,881 for fiscal 1996 compared to $1,825,897 for fiscal 1995, an increase of
$364,984 or 20%. Much of the increase in sales and marketing expenses during the
year related to the buildup of a sales and  marketing  organization  for the new
CardioDyne  products.  Higher costs were also associated with the rollout of the
new line of Luxtec fiber optic lighting products.

Research  and  Development:  Research  and  development  expenses  increased  to
$542,691 in fiscal 1996  compared  to  $516,601 in fiscal  1995,  an increase of
$26,090 or 5%. The increase in expenses in this  category  resulted from work on
the new line of Luxtec fiber optic lighting and on the CardioDyne line of motion
tolerant blood pressure monitors during fiscal 1996.

<PAGE>

General and  Administrative:  General and  administrative  expenses increased to
$1,646,081  in fiscal 1996 compared to $1,476,310 in fiscal 1995, an increase of
$169,771 or 11%. During fiscal 1996, the Corporation absorbed the administrative
costs of CardioDyne  Inc. and increased costs related to the growth of the Fiber
Imaging Technologies subsidiary.  Additionally, during the year, the Corporation
incurred  legal fees  related to its position as defendant in a lawsuit that was
settled during the fiscal year.

Interest:  Interest  expense  increased to $231,442 for fiscal 1996  compared to
$97,741 for fiscal 1995,  an increase of $133,701 or 137%.  An investment in the
company by GMMI of $1,000,000 of  subordinated  debt during the year,  accounted
for a substantial  portion of the increased interest cost. The subordinated debt
was  converted to Preferred  Stock during  November,  1996.  Higher  credit line
balances were responsible for most of the remainder of the cost increase.


 Liquidity and Capital Resources

At October  31,  1997,  the  Corporation  had working  capital of  approximately
$1,394,500  compared to working  capital of $934,500  at October 31,  1996.  The
increase  was  primarily  the  result  of the  financing  described  in the next
paragraph.

On April 3, 1997, the Company  received  $500,000 from a new term loan agreement
with a bank.  Borrowings  bear  interest  at the bank's  prime rate plus  1.00%.
Borrowings  are secured by  substantially  all assets of the Company.  Principal
repayment is to be repaid from "Excess Cash Flow," as defined, but no later than
April 3, 2002. The agreement  contains  covenants,  including the maintenance of
certain  financial  ratios,  as defined.  The Company was in compliance with all
covenants or had obtained a waiver from the bank for the year ended  October 31,
1997. As an  inducement  to grant the loan under the stated  terms,  the Company
issued a warrant that  entitles the holder to purchase  44,000  shares of common
stock at an exercise price of $3.00 per share  (approximate fair market value at
the date of grant), adjusted for certain dilutive events, as defined.

The  principal  source of  short-term  borrowings  during the year was a secured
$2,250,000  revolving  credit  agreement.  At October 31, 1997,  the credit line
borrowings balance was approximately $2,082,900. The interest rate on the credit
line at the end of the fiscal year was 9.00%.

The Corporation anticipates that its current cash requirements will be satisfied
by cash flow from  existing  operations  and the  continuation  of its revolving
credit  arrangement  with a bank,  although the Company is  considering  raising
additional debt or equity in the near future.

The Corporation had no significant capital expenditures during fiscal year 1997.


<PAGE>



 Risk Factors and Cautionary Statements

When used in this Form 10-K and in future  filings by the  Corporation  with the
Securities and Exchange  Commission,  in the Corporation's press releases and in
oral statements made with the approval of an authorized  executive officer,  the
words or phrases "will likely result",  "are expected to", "will continue",  "is
anticipated",  "estimate",  "project",  or similar  expressions  are intended to
identify  "forward-looking   statements"  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and  uncertainties,  including  those  discussed  below,  that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Corporation wishes to caution readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made. The Corporation  wishes to advise readers that the factors listed
below could cause the Corporation's  actual results for future periods to differ
materially  from any  opinions or  statements  expressed  with respect to future
periods in any current statements.

The Corporation will NOT undertake and  specifically  declines any obligation to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

           The Corporation's  revenues and income are derived primarily from the
          sale of  medical  devices.  The  medical  device  industry  is  highly
          competitive.    Such   competition   could   negatively   impact   the
          Corporation's  market  share and  therefore  reduce the  Corporation's
          revenues and income.

           Another result of competition  could be the reduction of average unit
          prices paid for the Corporation's products. This could have the impact
          of  reducing  the  percentage  of  profit  margin   available  to  the
          Corporation for its product sales.

           The  Corporation's  future  operating  results are  dependent  on its
          ability to develop, produce and market new and innovative products and
          services.  There are numerous risks inherent in this complex  process,
          including  rapid  technological  change and the  requirement  that the
          Corporation  bring to  market in a timely  fashion  new  products  and
          services that meet customers' needs.

           Historically,  the  Corporation's  operating results have varied from
          fiscal  period  to  fiscal  period;  accordingly,   the  Corporation's
          financial  results in any particular fiscal period are not necessarily
          indicative of results for future periods.

           The  Corporation  offers a broad  variety of products and services to
          customers  around  the  world.  Changes  in the  mix of  products  and
          services  comprising  revenues could cause actual operating results to
          vary from those expected.

           The  Corporation's  success  is partly  dependent  on its  ability to
          successfully  predict and adjust  production  capacity to meet demand,
          which is partly  dependent  upon the ability of external  suppliers to
          deliver  components  at  reasonable  prices  and in a  timely  manner;
          capacity or supply constraints, as well as purchase commitments, could
          adversely affect future operating results.
<PAGE>



            The  Corporation  operates  in a highly  competitive  environment  
          and in a highly competitive  industry,  which includes significant 
          competitive pricing pressures and intense competition for skilled 
          employees.

            The  Corporation  offers its  products  and  services  directly  and
           through  indirect  distribution  channels.  Changes in the  financial
           condition of, or the Corporation's  relationship  with,  distributors
           and other indirect  channel  partners,  could cause actual  operating
           results to vary from those expected.

            The Corporation does business worldwide in over 50 countries. Global
           and/or regional  economic  factors and potential  changes in laws and
           regulations affecting the Corporation's  business,  including without
           limitation, currency exchange rate fluctuations,  changes in monetary
           policy  and  tariffs,  and  federal,  state  and  international  laws
           regulating the environment,  could impact the Corporation's financial
           condition or future results of operations.

            The market price of the Corporation's securities could be subject to
           fluctuations  in  response  to  quarter  to  quarter   variations  in
           operating results,  market conditions in the medical device industry,
           as well as general economic  conditions and other factors external to
           the Corporation.



<PAGE>


                     LUXTEC CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED FINANCIAL STATEMENTS

                                INDEX



                                                                      PAGE

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                               19

CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1996 AND 1997            20

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1995, 1996 AND 1997                                        21

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997                    22

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
OCTOBER 31, 1995, 1996 AND 1997                                        23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                             24



<PAGE>



                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Luxtec Corporation:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Luxtec
Corporation  and  subsidiaries  as of October 31, 1996 and 1997, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1997. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Luxtec Corporation
and  subsidiaries  as of October  31,  1996 and 1997,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
October 31, 1997, in conformity with generally accepted accounting principles.








Boston, Massachusetts
December 16, 1997


<PAGE>



               LUXTEC CORPORATION AND SUBSIDIARIES


                   CONSOLIDATED BALANCE SHEETS


                              ASSETS
<TABLE>
<CAPTION>
                                                                                                October 31,
                                                                                          1996              1997
CURRENT ASSETS:
<S>                                                                                  <C>              <C>            
   Cash                                                                              $       172,356  $        41,712
   Accounts receivable, less reserves of approximately $161,000 and $320,000 in            1,741,669        2,319,945
     1996 and 1997, respectively
   Inventories                                                                             2,173,015        2,527,309
   Prepaid expenses and other current assets                                                 210,564           71,191
                                                                                     ---------------  ---------------

         Total current assets                                                              4,297,604        4,960,157
                                                                                     ---------------  ---------------

PROPERTY AND EQUIPMENT, AT COST                                                            2,365,740        2,476,691

ACCUMULATED DEPRECIATION AND AMORTIZATION                                                 (1,617,861)      (1,890,093)
                                                                                     ---------------  ---------------

         Property and equipment, net                                                         747,879          586,598

OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF APPROXIMATELY $104,000 AND                  249,375          255,819
                                                                                     ---------------  ---------------
$143,000 IN 1996 AND 1997, RESPECTIVELY

         Total assets                                                                $     5,294,858  $     5,802,574
                                                                                     ===============  ===============

                                         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Revolving line of credit                                                          $     2,146,223  $     2,082,854
   Current portion of equipment facility loan                                                 39,612           65,186
   Accounts payable                                                                          726,201          938,733
   Accrued expenses                                                                          451,068          478,931
                                                                                     ---------------  ---------------

         Total current liabilities                                                         3,363,104        3,565,704
                                                                                     ---------------  ---------------

NOTE PAYABLE TO STOCKHOLDER                                                                1,000,000                -

TERM NOTE                                                                                          -          460,250

EQUIPMENT FACILITY LOAN, NET OF CURRENT PORTION                                              118,843          200,992

COMMITMENTS (Note 12)

REDEEMABLE PREFERRED STOCK, $1.00 PAR VALUE:
  Series A Preferred Stock-
  Authorized--500,000 shares
  Issued and outstanding--10,000 shares (preference in liquidation of $1,119,768)                   -        1,119,768

STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value-
     Authorized--10,000,000 shares
     Issued and outstanding--2,841,539 shares in 1996 and 2,853,491 in 1997                    28,415           28,535
   Additional paid-in capital                                                              8,323,216        8,318,685
   Accumulated deficit                                                                    (7,538,720)      (7,891,360)
                                                                                     ---------------  ---------------

         Total stockholders' equity                                                          812,911          455,860
                                                                                     ---------------  ---------------

         Total liabilities and stockholders' equity                                  $     5,294,858  $     5,802,574
                                                                                     ===============  ===============
</TABLE>


                The   accompanying   notes  are  an   integral   part  of  these
consolidated financial statements.


<PAGE>





                  LUXTEC CORPORATION AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                                             For the Years Ended October 31,
                                                                         1995             1996              1997

<S>                                                                <C>               <C>              <C>            
NET REVENUES                                                       $     7,755,376   $     9,347,699  $    10,977,435

COST OF GOODS SOLD                                                       4,732,500         5,323,764        6,544,409
                                                                   ---------------   ---------------  ---------------

         Gross profit                                                    3,022,876         4,023,935        4,433,026
                                                                   ---------------   ---------------  ---------------

OPERATING EXPENSES:
   Selling and marketing                                                 1,825,897         2,190,881        2,437,746
   Research and development                                                516,601           542,691          495,373
   General and administrative                                            1,476,310         1,646,081        1,627,637
   Charge for purchased research and development (Note 3)                5,230,950                 -                -
                                                                   ---------------   ---------------  ---------------

         Total operating expenses                                        9,049,758         4,379,653        4,560,756
                                                                   ---------------   ---------------  ---------------

         Loss from operations                                           (6,026,882)         (355,718)        (127,730)
                                                                   ---------------   ---------------  ---------------

OTHER EXPENSE:
   Interest expense                                                        (97,741)         (231,442)        (234,024)
   Other income (expense)                                                   (2,317)           16,484            9,114
                                                                   ---------------   ---------------  ---------------

         Total other expense                                              (100,058)         (214,958)        (224,910)
                                                                   ---------------   ---------------  ---------------

LOSS BEFORE PROVISION FOR INCOME TAXES                                  (6,126,940)         (570,676)        (352,640)

PROVISION FOR INCOME TAXES                                                       -                 -                -
                                                                   ---------------   ---------------  ---------------

         Net loss                                                       (6,126,940)         (570,676)        (352,640)
                                                                   ---------------   ---------------  ---------------

PREFERRED STOCK DIVIDENDS                                                        -                 -           76,666
                                                                   ---------------   ---------------  ---------------

         Net loss applicable to common stockholders                $    (6,126,940)  $      (570,676) $      (429,306)
                                                                   ===============   ===============  ===============

NET LOSS PER SHARE                                                     $(4.20)           $(.22)            $(.15)
                                                                       ======            =====             =====

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                  1,457,897         2,574,705        2,849,538
                                                                      =========         =========        =========

</TABLE>

                The   accompanying   notes  are  an   integral   part  of  these
consolidated financial statements.








<PAGE>



                    LUXTEC CORPORATION AND SUBSIDIARIES


             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                           Common Stock,             Additional       Accumulated           Total
                                                          $.01 Par Value          Paid-in Capital      Deficit
                                                       Shares         Amount

<S>                                                      <C>              <C>                       <C>              <C>            
                BALANCE, OCTOBER 31, 1994           1,421,200        $  14,212   $   2,990,316    $    (841,104)   $     2,163,424

                   Net loss                                                                          (6,126,940)        (6,126,940)
                                                             -               -               -

                   Issuance of common stock in       1,000,000           10,000       4,115,000               -          4,125,000
                   connection with merger with
                   CardioDyne, Inc.

                   Issuance of common stock under       15,341             153           36,260                -            36,413
                   employee stock purchase plan         ------          ------    --------------   --------------    ---------------
                                                          
                                                                                      

                BALANCE, OCTOBER 31, 1995            2,436,541           24,365    7,141,576       (6,968,044)           197,897

                   Net loss                                  -                                       (570,676)          (570,676)
                                                                              -          -

                   Issuance of common stock under        9,327               93       26,524                -             26,617
                   employee stock purchase plan                                        

                   Issuance of common stock under                                               
                   stock option plan                     1,500               15        2,430                -             2,445

                   Issuance of common stock in a 
                   private placement, net of issuance
                   costs of $25,885                     394,171           3,942    1,152,686                -          1,156,628
                                                      ----------       -------- --------------   --------------    ---------------
                 

                BALANCE, OCTOBER 31, 1996             2,841,539          28,415    8,323,216       (7,538,720)           812,911

                   Net loss                                   -               -            -         (352,640)          (352,640)
             
                   Issuance of common stock under                                         
                   employee stock purchase plan           11,952            120       27,135                -             27,255

                   Dividends on Series A Preferred                                            
                   Stock                                       -              -      (76,666)               -            (76,666)

                   Issuance of warrants in connection
                   with tem note                               -                       45,000                -             45,000
                                                  ---------------   ------------ -------------   --------------    ---------------
                                                         
                                                                          

                BALANCE, OCTOBER 31, 1997               2,853,491    $   28,535  $   8,318,685   $  (7,891,360)   $       455,860
                                                   ===============  ============ =============    =============    ===============



      The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

<PAGE>
                         LUXTEC CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                             For the Years Ended October 31,
                                                                         1995              1996              1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                <C>                 <C>              <C>           
   Net loss                                                        $    (6,126,940)    $    (570,676)   $    (352,640)
   Adjustments to reconcile net loss to net cash used in
   operating activities-
     Charge for purchased research and development                       5,230,950                 -                -
     Depreciation and amortization                                         176,916           265,258          301,448
     Amortization of debt discount                                               -                 -            5,250
     Provision for uncollectible accounts receivable                        12,500             3,651          158,748
     Changes in current assets and liabilities-
       Accounts receivable                                                 121,242          (211,053)        (737,024)
       Inventories                                                        (176,353)         (477,014)        (354,294)
       Prepaid expenses and other current assets                            37,833          (127,826)         139,373
       Accounts payable                                                    624,218          (827,668)         212,532
       Accrued expenses                                                   (255,437)         (188,901)          70,965
                                                                   ---------------   ---------------  ---------------

              Net cash used in operating activities                       (355,071)       (2,134,229)        (555,642)
                                                                   ---------------   ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                    (125,261)         (294,116)        (110,951)
   Increase in other assets                                                (95,685)           (9,645)         (35,660)
   Cash paid in connection with CardioDyne, Inc. acquisition,             (582,154)                -                -
   net of cash acquired                                             ---------------   ---------------  ---------------

              Net cash used in investing activities                       (803,100)         (303,761)        (146,611)
                                                                   ---------------   ---------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from (payments on) revolving line of credit              1,123,150           415,915          (63,369)
   Net proceeds from (payments on) equipment facility loan                       -            (2,980)         107,723
   Proceeds from note payable to stockholder                                     -         1,000,000                -
   Proceeds from term note                                                       -                 -          500,000
   Net proceeds from issuance of common stock in a private                       -         1,156,628                -
   placement
   Issuance of common stock under stock option plan                              -             2,445                -
   Issuance of common stock under employee stock purchase plan              36,413            26,617           27,255
                                                                   ---------------   ---------------  ---------------

              Net cash provided by financing activities                  1,159,563         2,598,625          571,609
                                                                   ---------------   ---------------  ---------------

NET INCREASE (DECREASE) IN CASH                                              1,392           160,635         (130,644)

CASH, BEGINNING OF PERIOD                                                   10,329            11,721          172,356
                                                                   ---------------   ---------------  ---------------

CASH, END OF PERIOD                                                $        11,721     $     172,356    $      41,712
                                                                   ===============     =============    =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
    Cash paid for - Interest                                       $        95,205     $     157,144    $     239,133
                                                                   ===============     =============    =============

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
   In connection with the merger with CardioDyne, Inc. (Note 3),
   the following noncash transactions occurred-
     Fair value of assets acquired                                 $     5,235,073     $           -    $           -
     Issuance of common stock                                           (4,125,000)                -                -
     Liabilities assumed                                                  (523,796)                -                -
     Cash acquired                                                          (4,123)                -                -
                                                                   ---------------   ---------------  ---------------

              Cash paid for acquisition, net of cash acquired      $       582,154     $           -    $           -
                                                                   ===============     =============    =============

  Purchases of property and equipment under equipment facility     $             -     $     161,435    $           -
                                                                   ===============     =============    =============
  loan
  Conversion of note payable to stockholder to Series A            $             -     $           -    $   1,043,102
                                                                   ===============     =============    =============
  Preferred Stock
  Unpaid dividends on Series A Preferred Stock                     $             -     $           -    $      76,666
                                                                   ===============     =============    =============
</TABLE>

                  The   accompanying   notes  are  an  integral  part  of  these
consolidated financial statements.


<PAGE>





                          LUXTEC CORPORATION AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  OCTOBER 31, 1997

(1)    NATURE OF THE BUSINESS

       Luxtec Corporation (the Company) designs,  manufactures and markets fiber
       optic headlights and headlight television camera systems (for audio-video
       recordings of surgical procedures),  light sources,  cables,  retractors,
       loupes,   surgical   telescopes,   blood  pressure   monitors  and  other
       custom-made   surgical  specialty   instruments   utilizing  fiber  optic
       technology for the medical and dental industries.


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)    Principles of Consolidation

              The accompanying  consolidated  financial statements include the 
              accounts of the Company and its majority-owned subsidiaries:  
              Fiber Imaging Technologies,  Inc., CardioDyne,  Inc. and Cathtec,
              Inc. All intercompany  accounts and transactions  have been
              eliminated in consolidation.

       (b)    Inventories

              Inventories  are  stated at the lower of cost or  market.  Cost is
              determined  using  the  first-in,   first-out  (FIFO)  method  and
              includes materials, labor and manufacturing overhead.

       (c)    Property and Equipment

              Property  and  equipment  are  stated  at cost.  Depreciation  and
              amortization  are calculated using the  straight-line  method over
              the estimated useful life of the assets.

              Leasehold  improvements  are  amortized  using  the  straight-line
              method over the shorter of the lease term or estimated useful life
              of the assets.

       (d)    Other Assets

              Other  assets  consist  principally  of  patent  costs,  which are
              amortized using the straight-line method over five years.

       (e)    Revenue Recognition

              Revenue is  recognized  when goods are shipped,  at which time all
              conditions of sale have been met.

       (f)    Research and Development Costs

              Research  and  development  costs are  charged  to  operations  as
              incurred.

<PAGE>


         (g)      Net Income (Loss) per Share

              Net income per common  share is computed  by dividing  net income,
              after deducting preferred stock dividends, by the weighted average
              number of common  shares  outstanding  during the period using the
              treasury stock method.  Net loss per share is computed by dividing
              the net loss by the  weighted  average  number  of  common  shares
              outstanding  during the period.  No common  equivalent  shares are
              included in periods in which a loss is  reported  because all such
              common equivalent shares are antidilutive.

       (h)    Realization of Long-Lived Assets

              In March 1995,  the Financial  Accounting  Standards  Board (FASB)
              issued Statement of Financial Accounting Standards (SFAS) No. 121,
              Accounting for the Impairment of Long-Lived  Assets and Long-Lived
              Assets to be  Disposed  Of. SFAS No. 121  requires  the Company to
              periodically assess the future recovery of the carrying amounts of
              long-lived assets.  Management believes that the recorded value of
              its  long-lived  assets  are  realizable  and  that no  impairment
              allowance is necessary pursuant to the provisions of SFAS No. 121.

       (i)    Use of Estimates in the Preparation of Financial Statements

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

       (j)    New Accounting Standards

              In March 1997,  the FASB issued SFAS No. 128,  Earnings Per Share,
              which  established  new standards for  calculating  and presenting
              earnings  per share.  The Company  will adopt this new standard in
              its fiscal  1998  financial  statements,  which will  require  the
              reporting  of diluted  earnings  per share and basic  earnings per
              share,  as defined.  SFAS No. 128 is effective for periods  ending
              after December 15, 1997, and early adoption is not permitted. When
              adopted,  the statement  will require  restatement of prior years'
              earnings  per share.  The Company  does not expect the adoption of
              this standard to have a material effect on its financial  position
              or results of operations.

              In June  1997,  the FASB  issued  SFAS No.  130,  Reporting  
              Comprehensive  Income.  SFAS  No.  130  requires disclosure of all
              components of  comprehensive  income on an annual and interim 
              basis.  Comprehensive  income is defined  as the change in equity
              of a business  enterprise  during a period  from  transactions  
              and other events and  circumstances  from nonowner  sources. 
              SFAS No. 130 is effective for the fiscal years  beginning after
              December 15, 1997.

              In July 1997,  the FASB  issued  SFAS No.  131,  Disclosure  About
              Segments of an Enterprise  and Related  Information.  SFAS No. 131
              requires  certain  financial and  supplementary  information to be
              disclosed  on an annual  and  interim  basis  for each  reportable
              segment of an  enterprise.  SFAS No. 131 is  effective  for fiscal
              years  beginning  after December 15, 1997.  Unless  impracticable,
              companies  would be required to restate  prior period  information
              upon adoption.
<PAGE>


(3)    MERGER WITH CARDIODYNE, INC.

       On October 23, 1995,  the Company  consummated  a merger  agreement  (the
       Merger) with CardioDyne, Inc., a development-stage company engaged in the
       development of products that monitor blood  pressure.  In connection with
       the Merger,  the Company issued  1,000,000  shares of Luxtec common stock
       with a fair value of $4.125 per share. This transaction was accounted for
       as a purchase, and accordingly,  the operations of CardioDyne, Inc. since
       October 23, 1995 are included in the accompanying  consolidated financial
       statements.

       In addition to receiving  shares of Luxtec common stock,  shareholders of
       CardioDyne,  Inc. are entitled to certain  earnout  payments based on the
       performance   of  products  and   agreements   incorporating   technology
       previously developed by CardioDyne,  Inc., as defined. For a period of 17
       years following the effective date of the Merger, former CardioDyne, Inc.
       shareholders  are  entitled to receive,  in  proportion  to their  former
       ownership  percentages,  5% and 25% of revenues  from product and license
       agreements,   respectively,   which  incorporate   technology  previously
       developed by CardioDyne,  Inc. Such earnout payments shall become payable
       90 days after the end of the  Company's  fiscal  year.  Earnout  payments
       shall be paid  50% in cash and 50% in  Luxtec  common  stock  and will be
       accounted  for as an  additional  purchase  price when  paid.  No earnout
       payments were required during fiscal 1997 and 1996.

       The aggregate purchase price of $5,235,073 (which consisted of $4,125,000
       of  stock,  $523,796  of  assumed  liabilities,  and  $582,154  of direct
       acquisition  costs) was allocated based on the fair value of the tangible
       and intangible assets acquired as follows:

        Current assets                                  $         4,123
        Purchased research and development                    5,230,950
                                                        ---------------

                                                        $     5,235,073

       The portion of the  purchase  price,  totaling  $5,230,950,  allocated to
       research  and  development  projects  that  were not yet  technologically
       feasible  and  did  not  have  future  alternative  use  was  charged  to
       operations  as of the  acquisition  date.  To  bring  these  projects  to
       technological  feasibility,  high-risk  developmental  and testing issues
       needed to be resolved that required  substantial  additional  development
       effort, the success of which was uncertain at the date of acquisition.

       The results of operations related to CardioDyne,  Inc. have been included
       with those of the Company  since  October 23, 1995.  Unaudited  pro forma
       operating results for the Company, assuming the acquisition had been made
       as of November 1, 1994, are as follows:

                                                          For the Year
                                                         Ended October
                                                            31, 1995

        Revenue                                         $     7,755,376

        Net loss                                             (6,424,783)

        Net loss per common share                              (2.64)
<PAGE>

(4)    INVENTORIES

       Inventories consisted of the following at October 31, 1996 and 1997:

                                                 1996                1997

        Raw material                      $     1,237,123    $     1,357,761
        Work-in-process                           220,255            318,312
        Finished goods                            715,637            851,236
                                             ---------------  ---------------

                                           $     2,173,015    $     2,527,309
                                              ===============  ==============
(5)    PROPERTY AND EQUIPMENT

       Property and equipment and their  respective  useful lives are as follows
at October 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                    Estimated Useful         1996             1997
                                                          Lives

<S>                                                      <C>           <C>               <C>            
        Machinery and equipment                          5-10 years    $     1,614,778   $     1,675,878
        Molds and tooling                                   5 years            183,423           221,818
        Furniture and fixtures                             10 years            339,308           342,753
        Leasehold improvements                         Life of lease           228,231           236,242
                                                                       ---------------   ---------------

                                                                       $     2,365,740   $     2,476,691

                                                                        ===============   ===============
</TABLE>

(6)    ACCRUED EXPENSES

       Accrued expenses consisted of the following at October 31, 1996 and 1997:
<TABLE>
<CAPTION>

                                                          1996              1997

<S>                                                   <C>              <C>          
        Accrued payroll and related expenses          $     174,968    $     220,713
        Other accrued expenses                              276,100          258,218
                                                    ---------------  ---------------

                                                      $     451,068    $     478,931

                                                      =============    =============
</TABLE>

(7)    INCOME TAXES

       As of October 31, 1997,  the Company had  available  net  operating  loss
       carryforwards  of  approximately  $2,223,000,  research  and  development
       credit  carryforwards  of  approximately  $147,000,  and general business
       credit carryforwards of approximately  $25,000 available to reduce future
       federal income taxes, if any. These carryforwards expire through 2012 and
       are subject to review and possible  adjustment  by the  Internal  Revenue
       Service.  The Tax Reform Act of 1986  limits a  corporation's  ability to
       utilize  certain  net  operating  loss  carryforwards  in the  event of a
       cumulative change in ownership in excess of 50%, as defined.

<PAGE>

       The Company  follows the liability  method of accounting for income taxes
       in accordance with the provisions of SFAS No. 109,  Accounting for Income
       Taxes,  whereby a deferred  tax  liability is measured by the enacted tax
       rates that will be in effect when any  differences  between the financial
       statement and tax bases of assets and liabilities reverse.

       The  components  of  the  net  deferred  tax  amount  recognized  in  the
       accompanying consolidated balance sheets are set forth below:

                                                  1996               1997

        Deferred tax assets                 $       983,000  $     1,353,000
        Deferred tax liabilities                    (53,000)               -
        Valuation allowance                        (930,000)      (1,353,000)
                                             ---------------  ---------------

                                            $             -  $             -
                                             ===============  ===============

       The  appropriate  tax  effect of each type of  temporary  difference  and
       carryforward  before allocation of the valuation  allowance is summarized
       as follows:

                                                  1996               1997

        Net operating losses                $       920,000  $       889,000
        Inventory reserve                           (25,000)          89,000
        Bad debt reserve                              1,000           74,000
        Other temporary differences                 (29,000)         129,000
        Research and development credits             91,000          147,000
        General business credits                     25,000           25,000
                                              ---------------  ---------------

                                            $       983,000  $     1,353,000
                                              ===============  ===============

       Due to the  uncertainty  surrounding the timing of realizing the benefits
       of its favorable tax attributes in future income tax returns, the Company
       has placed a valuation  allowance against its otherwise  recognizable net
       deferred tax assets.

(8)    LOANS FROM BANKS

       The Company has a $2,250,000  revolving  line-of-credit  agreement with a
       bank.  Borrowings bear interest at the bank's prime rate (8.5% at October
       31,  1997) plus .50%.  Unused  portions of the  revolving  line of credit
       accrue  a fee at an  annual  rate of  .25%.  Borrowings  are  secured  by
       substantially  all  assets  of  the  Company.   The  agreement   contains
       covenants,  including the  maintenance of certain  financial  ratios,  as
       defined. The Company was in compliance with all covenants or had obtained
       a waiver from the bank for the year ended  October 31,  1997.  At October
       31,  1997,  availability  under  the  line of  credit  was  approximately
       $167,000. The line of credit expires on March 31, 1999.

       The  Company has a $500,000  equipment  facility  agreement  with a bank.
       Borrowings  are  based  on  the  purchase  price  of  new  equipment  and
       conditions determined by the bank. Borrowings bear interest at the bank's
       base rate (8.5% at October  31,  1997)  plus .5%.  Borrowings  under this
       facility  are secured by  substantially  all assets of the  Company.  The
       equipment  facility agreement expired on October 21, 1997. At October 31,
       1997,  the  Company had  outstanding  borrowings  of $266,178  under this
       agreement.

<PAGE>

       The future minimum payments are as follows:

                 1998                               $        65,186
                 1999                                        65,186
                 2000                                        65,186
                 2001                                        65,186
                 2002                                         5,434
                                                     ---------------
                                                     $       266,178

(9)    TERM NOTE AND NOTE PAYABLE TO STOCKHOLDER

       On April 3, 1997, the Company entered into a $500,000 term note agreement
       with a bank.  The term note bears  interest at prime (8.5% at October 31,
       1997) plus 1.0%.  Principal  payments are payable in  consecutive  annual
       installments  beginning on October 31, 1998 and continuing  thereafter on
       October 31 of each  succeeding  year in an amount  equal to the lesser of
       (a)  $200,000 or (b) the greater of (i) zero and (ii) excess cash flow as
       defined.  At October 31, 1997, the Company had outstanding  borrowings of
       $500,000  under this  agreement.  The Company was in compliance  with all
       covenants  or had  obtained  a waiver  from  the bank for the year  ended
       October 31, 1997.

       In connection with the term note  agreement,  the Company issued warrants
       to purchase  44,000 shares of common stock at an exercise  price of $3.00
       per share, expiring on March 31, 2002. Management has estimated the value
       of these warrants to be approximately $45,000, which has been recorded as
       a debt discount  (amortized to interest  expense over the payment term of
       sixty months).

       On December 18, 1995, the Company issued Senior  Subordinated  Notes (the
       Notes) to a stockholder for $1,000,000 in cash.  Interest  accrues on the
       Notes at the rate of 8% per annum and is  payable  annually  in  arrears.
       Principal  on the Notes is due January 1, 2001.  In  connection  with the
       financing,  the Company issued a detachable stock warrant to an investor.
       The  warrant  entitles  the holder to purchase  450,000  shares of common
       stock at an exercise  price of $3.00 per share (fair market value at date
       of grant),  adjusted for certain dilutive events, as defined. On November
       14, 1996,  the Company  exchanged the Senior  Subordinated  Notes for ten
       thousand  (10,000) shares of the Company's  nonvoting  Series A preferred
       stock,  $1.00 par value per share (the  Series A  Preferred  Stock).  The
       Series A Preferred Stock has the following rights and preferences:

       Dividends

       The holders of the Series A Preferred  Stock shall be entitled to receive
       cash  dividends  of $8.00 per share per annum,  payable  when,  as and if
       declared by the Board of Directors of the Company.  Such dividends on the
       Series A Preferred  Stock shall accrue and be cumulative from the date of
       issuance.  During the year ended  October 31, 1997,  the Company  accrued
       $119,768 of dividends.

       Liquidation Preference

       Upon any  liquidation,  dissolution  or winding up of the Company,  after
       payment or provision for payment of all debts and other  obligations  and
       liabilities of the Company,  the holders of the shares of preferred stock
       shall be entitled,  before any  distribution  or payment is made upon any
       common stock,  to be paid an amount equal to the  redemption  price ($100
       per share) plus an amount equal to all accrued dividends, and the holders
       of the preferred stock shall not be entitled to any further payment.

<PAGE>

       Redemption

       The  Company  may,  at the option of the  Company's  Board of  Directors,
       redeem  part or all of the  outstanding  shares of the Series A Preferred
       Stock at any time or times at a  redemption  price of $100 per share plus
       dividends.  However,  on January 1, 2001,  the Company  shall  redeem all
       outstanding  shares of the Series A Preferred Stock at a redemption price
       of $100 per share plus dividends.

(10)   PRIVATE PLACEMENT OF COMMON STOCK

       On June 3, 1996, the Company raised  approximately  $1,182,000  through a
       private placement of common stock. In conjunction with the offering,  the
       Company issued  "units" at a price of $3 each.  Each unit consists of one
       share of common  stock,  $0.01 par value per share,  and one warrant that
       can be  exchanged  into one  share of common  stock for $6.00 per  share,
       which  exceeded the fair market value at the date of grant.  The warrants
       (394,171 in total) are exercisable immediately and expire on December 31,
       2001.

(11)   STOCK PLANS

       The  Company  maintains  a stock  option  plan (the 1992 Stock Plan) that
       provides for the grant of incentive  stock  options,  nonqualified  stock
       options,  stock  awards and direct  sales of stock.  Under the 1992 Stock
       Plan,  incentive  stock  options may be granted at an exercise  price not
       less than the fair market value of the Company's common stock on the date
       of grant.  Nonqualified  options may be granted by the Board of Directors
       at its discretion. The difference, if any, between the exercise price and
       the fair value of the underlying  common stock at the measurement date is
       charged  to  expense  over the  vesting  period  of such  options  with a
       corresponding  credit to additional paid-in capital.  The 1992 Stock Plan
       also  provides  that the options are  exercisable  at varying  dates,  as
       determined by the  Compensation  Committee of the Board of Directors (the
       Compensation Committee), and have terms not to exceed 10 years.

       The  Company's  Board of Directors  adopted an amendment to the Company's
       1992 Stock Plan.  The amendment to the 1992 Stock Plan (i) increased from
       300,000 to 400,000 the number of shares authorized for issuance under the
       plan and (ii) limits to 100,000  the  maximum  number of shares of common
       stock with respect to which options may be granted to any employee in any
       calendar year.

       On April 21,  1994,  the Board of Directors  approved  the 1993  Employee
       Stock  Purchase Plan (the 1993 Plan) whereby the Company has reserved and
       may  issue  up to an  aggregate  of  25,000  shares  of  common  stock in
       semiannual  offerings.  Stock  is sold at 85% of fair  market  value,  as
       defined.  Shares  subscribed to and issued under the 1993 Plan were 9,327
       and 11,952 in 1996 and 1997, respectively.

       On  December  8,  1994,  the  Company  adopted  a stock  option  plan for
       nonemployee  directors (the 1995 Director  Plan).  The 1995 Director Plan
       provides that an aggregate of up to 200,000  nonqualified  options may be
       granted to  nonemployee  directors,  as  determined  by the  Compensation
       Committee. Under the terms of the 1995 Director Plan, options are granted
       at not less than the fair market value of the  Company's  common stock on
       the date of grant.  The 1995 Director Plan also provides that the options
       are  exercisable  at varying  dates,  as determined  by the  Compensation
       Committee, and have terms not to exceed 10 years.


<PAGE>


       The following schedule summarizes the stock option activity for the three
years ended October 31, 1997:
<TABLE>
<CAPTION>

                                                 Number of Shares   Option Price Per    Weighted Average
                                                                         Share            Option Price

<S>                    <C> <C>                          <C>        <C>          <C>          <C>   
Outstanding at October 31, 1994                         120,000    $    1.25-   2.50         $ 1.65
  Granted                                               196,000         4.13-   4.63           4.52
  Canceled                                                6,000           1.25                 1.25
                                                 --------------    -----------------   ------------

Outstanding at October 31, 1995                         310,000         1.25-   4.63           3.46
  Granted                                               913,571         2.75-   6.00           4.30
  Exercised                                               1,500            1.63                1.63
                                                 --------------    -----------------   ------------

Outstanding at October 31, 1996                       1,222,071          1.25-  6.00           4.08
   Granted                                              134,200          2.63-  6.00           4.05
   Exercised                                             40,050          1.25-  4.63           3.25
                                                 --------------    -----------------   ------------

Outstanding at October 31, 1997                       1,316,221    $    1.25-$  6.00         $ 4.10
                                                 ==============    =================         ======

Exercisable at October 31, 1997                       1,103,509    $    1.25-$  6.00         $ 4.02
                                                 ==============    =================         ======
</TABLE>

     As of October 31, 1996 and 1997, 500,000 and 600,000 shares,  respectively,
of common stock have been reserved for issuance under the Company's stock option
plans.

     In October 1995, the FASB issued SFAS No. 123,  Accounting for  Stock-Based
Compensation.  SFAS No. 123 requires the  measurement of the fair value of stock
options or warrants to be included in the  statement  of income or  disclosed in
the notes to  financial  statements.  The  Company has  determined  that it will
continue to account for stock-based  compensation for employees under Accounting
Principles Board Opinion No. 25 and elect the disclosure-only  alternative under
SFAS No. 123. The Company has computed the pro forma disclosures  required under
SFAS No. 123 for options granted in 1996 and 1997 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The weighted  average  assumptions are
as follows:

                                                        1996              1997

Risk free interest rate                                 6.18%             7.00%
Expected dividend yield                                    -                 -
Expected lives                                        10 years         10 years
Expected volatility                                      18%              41%
Weighted average value of grants                        1.60              1.86
Weighted average remaining contractual life of           5.2              4.7
options outstanding





<PAGE>




       The total value of options  granted during the fiscal years ended October
       31, 1995, 1996 and 1997 was computed as  approximately  $24,000,  $87,000
       and $158,000,  respectively.  Had compensation  cost for these plans been
       determined  consistent with SFAS No. 123, the Company's net loss and loss
       per share would have been the following pro forma amounts:

                                              For the Years Ended October 31,
                                   1995               1996             1997

Pro forma net loss          $   (6,151,180)   $     (657,686)  $     (587,306)
                             ==============    ==============   ==============

Pro forma net loss per share     $ (4.22)          $  (.26)         $  (.21)
                                  =======           =======          =======

(12)   COMMITMENTS

       The Company has  noncancelable  operating lease  commitments that consist
       principally of rentals of facilities and machinery. Its manufacturing and
       office  facilities  are leased with a  termination  date of September 30,
       1998.

       The future minimum  operating  lease payments over their  remaining terms
       are as follows:

        Fiscal Year                                           Amount

        1998                                              $     220,833
        1999                                                     38,473
        2000                                                     18,803
        2001                                                     18,097
        2002                                                          -
                                                        ---------------

                 Total minimum lease payments             $     296,206
                                                          =============

       Rent expense charged to operations for operating leases was approximately
       $162,000,  $142,000 and $169,000 in fiscal year 1995, 1996 and 1997, 
       respectively.

(13)   BUSINESS SEGMENT AND EXPORT SALES

       The Company operates in one business segment:  the manufacture,  sale and
       distribution of a wide range of medical products using fiber optics.

       The Company  operates from one location in the United  States.  Sales for
this operation totaled the following:

        Geographic Area                   For the Years Ended October 31,
                                           1995          1996          1997

        Domestic                           84  %         84  %         84  %
        Europe                             10             9             8
        All others                          6             7             8
                                        -------       -------       -------

                                          100  %        100  %        100  %
                                        =======       =======       =======
<PAGE>

(14)   SIGNIFICANT CUSTOMERS/RELATED PARTY

       One customer,  the president of which is a member of the Company's  Board
       of  Directors,  accounted  for 15%, 12% and 14% of net revenues in fiscal
       1995, 1996 and 1997, respectively.

(15)   401(k) RETIREMENT PLAN

       On January 1, 1989,  the Company  adopted a qualified  401(k)  retirement
       plan.  The plan covers  substantially  all employees who have satisfied a
       six-month service requirement and have attained the age of 18. The 401(k)
       plan provides for an optional  company  contribution for any plan year at
       the  Company's  discretion.   The  Company  contributed  and  charged  to
       operations  $10,835,  $13,536 and $18,397 for the years ended October 31,
       1995, 1996 and 1997, respectively.

?16?    YEAR 2000

       The Company  expects to incur costs during the next two to three years to
       address the impact of the so-called Year 2000 problem on its  information
       systems.  The Year 2000  problem,  which is common to most  corporations,
       concerns  the  inability  of  information  systems,   primarily  computer
       software  programs,  to properly  recognize  and process  date  sensitive
       information  as the year 2000  approaches.  The Company has  completed an
       assessment  of the  majority  of its  systems  and is in the  process  of
       developing  a  specific  workplan  to address  this  issue.  The  Company
       currently  believes  it will be able to modify or  replace  its  affected
       systems in time to minimize any detrimental effects on operations.  While
       it is not possible,  at present, to give an accurate estimate of the cost
       of this  work,  the  Company  does not  expect  that such  costs  will be
       material to the  Company's  results of  operations  in one or more fiscal
       quarters  or years,  and will not have a material  adverse  impact on the
       long-term  results of  operations,  liquidity or  consolidated  financial
       position of the Company.







<PAGE>


                              LUXTEC CORPORATION
                               October 31, 1997

 ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
               DISCLOSURE
                                     None.

 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For  information  with respect to the Directors  and  Executive  Officers of the
Corporation,  see the section entitled "Election of Directors"  appearing in the
Corporation's  Proxy  Statement in  connection  with its next Annual  Meeting of
Shareholders or special  meeting in lieu thereof,  which section is incorporated
herein by reference.

 ITEM 11.  EXECUTIVE COMPENSATION

See the section entitled "Executive Compensation" appearing in the Corporation's
Proxy  Statement in connection  with its next Annual Meeting of  Shareholders or
special  meeting  in lieu  thereof,  which  section  is  incorporated  herein by
reference.


 ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

See the section entitled "Election of Directors"  appearing in the Corporation's
Proxy  Statement in connection  with its next Annual Meeting of  Shareholders or
special  meeting  in lieu  thereof,  which  section  is  incorporated  herein by
reference.

 ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr.  Louis C.  Wallace is  currently,  and has been since 1989,  a member of the
Board of Directors of the Corporation.  Mr. Wallace is the founder and President
of Specialty Surgical Instrumentation, Inc. (SSI), a surgical distributor in ten
(10) southeastern states. SSI is the largest single customer of the Corporation,
representing  approximately  14% of net revenues  during  fiscal  1997.  SSI and
Luxtec  operate at arms'  length with a contract  substantially  the same as the
other domestic  distributors  of the  Corporation's  products.  The  Corporation
expects  that SSI  will  represent  approximately  the  same  percentage  of net
revenues during fiscal 1998 as occurred during fiscal 1997.




<PAGE>


                           LUXTEC CORPORATION
                            October 31, 1997


                                PART IV

 ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
           REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

     1. Consolidated Financial Statements

     Report of Independent Public Accountants

     Consolidated Balance Sheets as of October 31, 1996 and October 31, 1997.

     Consolidated Statements of Operations for the years ended October 31, 1995,
     October 31, 1996 and October 31, 1997.

     Consolidated Statements of Stockholders' Equity for the years ended October
     31, 1995, October 31, 1996 and October 31, 1997.

     Consolidated Statements of Cash Flows for the years ended October 31, 1995,
     October 31, 1996 and October 31, 1997.

     Notes to Consolidated Financial Statements

  2. Financial Statement Schedules

         No  schedules  are  submitted  because  they  are not  applicable,  not
         required or because the information is included elsewhere herein.




<PAGE>


                             LUXTEC CORPORATION
<TABLE>
<CAPTION>
                              October 31, 1997
3. Exhibits

<S>        <C>                                                                                 <C>      
Exhibit    Description                                                                         Designation
-------    -----------                                                                         -----------
                                                                                                    
2A         Merger Agreement                                                                    2A****
3A         Articles of Organization                                                            3A*
3B         Amendment dated March 30, 1982 to Articles of Organization                          3B*
3C         Amendment dated August 9, 1984 to Articles of Organization                          3C*
3D         Amendment dated April 10, 1992 to Articles of Organization                          3D**
3E         Amendment dated October 20, 1995 to Articles of Organization                        3E****
3F         Amendment dated October 20, 1995 to Articles of Organization                        3F****
3G         Amendment dated September 16, 1996 to Articles of Organization                      3G*******
3H         Certificate of Vote of Directors Establishing a Series of a Class of Stock,         3H*******
           dated September 16, 1996
3I         Certificate of Correction dated October 4, 1996                                     3I*********
3J         Certificate of Correction dated October 4, 1996                                     3J*********
3K         By-Laws                                                                             3K*
4A         Specimen of Stock Certificate                                                       4A*
4B         Note Purchase Agreement dated as of December 18, 1995, by and between               4B*******
           the Company and Geneva Middle Market Investors, L.P. (`GMMI')
4C         8% Senior Subordinated Note due June 1, 2001, dated December 18, 1995               4C*******
           4C******* in the principal amount of $1,000,000,  made by the Company
           in favor of GMMI
4D         Rights Agreement made as of December 18, 1995, between the Company and              4D*******
           GMMI
4E         Registration Rights Agreement made as of June 3, 1996, between the                  4E********
           Company and the Purchasers (as defined therein)
10L        Lease for the premises in Worcester, MA                                             10L*****
10N        Employment Agreement with James Hobbs                                               10N**
10O        Luxtec Corporation 1992 Stock Plan                                                  10O**
10P        Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors                10P****
10Q        Bank Agreement                                                                      10Q******
10R        Warrant Agreement made as of December 18, 1995, between the Company                 10R*******
           and GMMI
10S        Warrant for 450,000 shares of Common Stock of the Company dated as of               10S*******
           December 18, 1995, in the name of GMMI
10T        Form of Subscription Agreement and Letter of Investment Intent between the          10T********
           Purchaser named therein and the Company

<PAGE>

                              LUXTEC CORPORATION
                                October 31, 1997

3. Exhibits (Continued)
Exhibit    Description                                                                         Designation
10U        Warrant Agreement made as of June 3, 1996, between the Company and the               10U********
           Purchasers (as defined therein)
10V        Form of Warrant                                                                      10V********
21         Luxtec Subsidiaries                                                                  21
23         Consent of Independent Public Accountants                                            23
27         Financial Data Schedule                                                              27
</TABLE>

*Previously filed as exhibits to the Corporation's Registration Statement on 
 Form S-18 SEC File No. 33-5514B declared effective on July 7, 1986.

**Previously  filed as  exhibit  to the  Corporation's  Report  on Form 10-K for
  fiscal year ended October 31, 1993.

***Previously  filed as  exhibits to the  Corporation's  Report on Form 10-Q for
   quarter ended July 31, 1994.

****Previously  filed as exhibits to the  Corporation's  Proxy  Statement  dated
    October 20, 1995.

*****Previously  filed as exhibit to the  Corporation's  Report on Form 10-K for
     fiscal year ended October 31, 1994.

******Previously filed as exhibit to the  Corporation's  Report on Form 10-K for
      fiscal year ended October 31, 1995.

*******Previously  filed as exhibit to the  Corporation's  Proxy Statement dated
       June 21, 1996.

********Previously filed as exhibits to the Corporation's Report on Form 10-Q 
        for quarter ended July 31, 1996.

*********Previously filed as  exhibit to the  Corporation's Report on Form 10-K
         for fiscal year ended October 31, 1996.







<PAGE>


                              LUXTEC CORPORATION
                              October 31, 1997

     3. Exhibits (Continued)

         (b)  Reports on Form 8-K:

              None.

         (c)  Exhibits.

              The  Corporation  hereby files as exhibits to this Form 10-K those
              exhibits listed in Item 14 (a)(3), above, as being filed herewith.

         (d)  Financial Statement Schedules.

              None.







<PAGE>


                               LUXTEC CORPORATION
                                 October 31, 1997

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(D) of the  Securities
Exchange Act of 1934, the  Corporation  has duly caused this report to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the Town of
Worcester, Commonwealth of Massachusetts, on the 29th day of January 1998.

                                               LUXTEC CORPORATION


                                               by  S/ JAMES W. HOBBS
                                               James W. Hobbs, President



<PAGE>


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

Signature                       Title                          Date


S/ JAMES W. HOBBS               President, Chief               January 29, 1998
James W. Hobbs                  Executive Officer, Director


S/ SAMUEL M. STEIN              Chief Financial Officer,       January 29, 1998
Samuel M. Stein                 Treasurer, Assistant Clerk


S/ JAMES BERARDO                Director                       January 29, 1998
James Berardo


S/ PAUL EPSTEIN                 Director                       January 29, 1998
Paul Epstein


S/ JAMES J. GOODMAN             Director                       January 29, 1998
James J. Goodman


S/ PARTICK G. PHILLIPPS         Director                       January 29, 1998
Patrick G. Phillipps


S/ THOMAS J. VANDER SALM        Director                        January 29, 1998
Thomas J. Vander Salm


S/ LOUIS C. WALLACE             Director                       January 29, 1998
Louis C. Wallace




<PAGE>


                Exhibits furnished pursuant to requirements
<TABLE>
<CAPTION>
                                of FORM 10K
3. Exhibits
<S>        <C>                                                                                 <C>
Exhibit    Description                                                                         Designation
-------    -----------                                                                         -----------
2A         Merger Agreement                                                                    2A****
3A         Articles of Organization                                                            3A*
3B         Amendment dated March 30, 1982 to Articles of Organization                          3B*
3C         Amendment dated August 9, 1984 to Articles of Organization                          3C*
3D         Amendment dated April 10, 1992 to Articles of Organization                          3D**
3E         Amendment dated October 20, 1995 to Articles of Organization                        3E****
3F         Amendment dated October 20, 1995 to Articles of Organization                        3F****
3G         Amendment dated September 16, 1996 to Articles of Organization                      3G*******
3H         Certificate of Vote of Directors Establishing a Series of a Class of Stock,         3H*******
           dated September 16, 1996
3I         Certificate of Correction dated October 4, 1996                                     3I*********
3J         Certificate of Correction dated October 4, 1996                                     3J*********
3K         By-Laws                                                                             3K*
4A         Specimen of Stock Certificate                                                       4A*
4B         Note Purchase Agreement dated as of December 18, 1995, by and between               4B*******
           the Company and Geneva Middle Market Investors, L.P. (`GMMI')
4C         8% Senior Subordinated Note due June 1, 2001, dated December 18, 1995               4C*******
           4C******* in the principal amount of $1,000,000,  made by the Company
           in favor of GMMI
4D         Rights Agreement made as of December 18, 1995, between the Company and              4D*******
           GMMI
4E         Registration Rights Agreement made as of June 3, 1996, between the                  4E********
           Company and the Purchasers (as defined therein)
10L        Lease for the premises in Worcester, MA                                             10L*****
10N        Employment Agreement with James Hobbs                                               10N**
10O        Luxtec Corporation 1992 Stock Plan                                                  10O**
10P        Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors                10P****
10Q        Bank Agreement                                                                      10Q******
10R        Warrant Agreement made as of December 18, 1995, between the Company                 10R*******
           and GMMI
10S        Warrant for 450,000 shares of Common Stock of the Company dated as of               10S*******
           December 18, 1995, in the name of GMMI
10T        Form of Subscription Agreement and Letter of Investment Intent between the          10T********
           Purchaser named therein and the Company



<PAGE>

                                        Exhibits furnished pursuant to requirements
                                                        of FORM 10K

3. Exhibits  (Continued)
Exhibit    Description                                                                       Designation
10U        Warrant Agreement made as of June 3, 1996, between the Company and the              10U********
           Purchasers (as defined therein)
10V        Form of Warrant                                                                     10V********
21         Luxtec Subsidiaries                                                                 21
23         Consent of Independent Public Accountants                                           23
27         Financial Data Schedule                                                             27
</TABLE>

*Previously filed as exhibits to the Corporation's Registration Statement on
 Form S-18 SEC File No.33-5514B declared effective on July 7, 1986.

**Previously  filed as  exhibit  to the  Corporation's  Report  on Form 10-K for
  fiscal year ended October 31, 1993.

***Previously  filed as  exhibits to the  Corporation's  Report on Form 10-Q for
   quarter ended July 31, 1994.

****Previously  filed as exhibits to the  Corporation's  Proxy  Statement  dated
    October 20, 1995.

*****Previously  filed as exhibit to the  Corporation's  Report on Form 10-K for
     fiscal year ended October 31, 1994.

******Previously filed as exhibit to the  Corporation's  Report on Form 10-K for
      fiscal year ended October 31, 1995.

*******Previously  filed as exhibit to the  Corporation's  Proxy Statement dated
       June 21, 1996.

********Previously filed as exhibits to the Corporation's Report on Form 10-Q 
        for quarter ended July 31, 1996.

*********Previously filed as  exhibit to the  Corporation's  Report on Form 10-K
         for fiscal year ended October 31, 1996.






<PAGE>


                              LUXTEC CORPORATION
                               October 31, 1997

                                   EXHIBIT 21

                        Luxtec Corporation Subsidiaries


1.    Cathtec, Inc., a Massachusetts Corporation.

2.    Fiber Imaging Technologies, Inc., a Massachusetts Corporation.

3.    CardioDyne, Incorporated, a Massachusetts Corporation.



                                  EXHIBIT 23


                 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports  included  in this  Form  10-K,  into  the  Company's  previously  filed
Registration  Statements  on  Form  S-8  (File  Nos.  33-83510,   333-19087  and
333-19107).


                                                   S/Arthur Andersen LLP
                                                   ARTHUR ANDERSEN LLP



Boston, Massachusetts
January 29, 1998


<PAGE>