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<TITLE>Fiscal Year 1999 10-K</TITLE>
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<H1 ALIGN=CENTER><FONT SIZE=3>1</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Washington, D.C. 20549</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>FORM 10-K</FONT></H1>

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 1999
     [Fee Required]
<H1 ALIGN=CENTER><FONT SIZE=3>or</FONT></H1>

[  ] 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 _____________

<PRE>
                                                          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
</PRE>
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  ___

<P><FONT SIZE=3>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 ] </FONT></P>

<P><FONT SIZE=3>The aggregate market value of the voting Common Stock held by
non-affiliates of the registrant was approximately $2,149,712 based on the
closing price of such stock on January 14, 2000, as reported by the American
Stock Exchange ($2.00 per share). </FONT></P>

<P><FONT SIZE=3>As of January 14, 2000, 2,880,061 shares of Common stock, $.01
par value, were issued and outstanding. </FONT></P>

   Documents Incorporated by Reference                                          Form 10-K Reference
                None





<H1 ALIGN=CENTER><FONT SIZE=3>PART I</FONT></H1>

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<TD WIDTH=20%> </TD>
<TD WIDTH=80%><FONT SIZE=3>        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 </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%> </TD>
<TD WIDTH=95%><FONT SIZE=3>        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 </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%> </TD>
<TD WIDTH=95%><FONT SIZE=3>        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 </FONT>
</TD>
</TR>
</TABLE>
<BR>

                                        rendered noncompetitive or obsolete by its competitors.

 ITEM 1. BUSINESS

<P ALIGN=LEFT><FONT SIZE=3><I>
   The Corporation</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>Luxtec has decided to reduce its efforts to market a motion
tolerant blood pressure monitor and is presently in discussions to sell the
rights to the blood pressure line of products. The Corporation does not have any
material CardioDyne related assets on its books as of the end of fiscal 1999. </FONT></P>

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>


<H2 ALIGN=LEFT><FONT SIZE=3>Background and TechnologyFiber <BR>Optics</FONT></H2>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Products</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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). </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

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.

<P><FONT SIZE=3>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. </FONT></P>


<PAGE>


<P ALIGN=LEFT><FONT SIZE=3><I>
   Patents and Proprietary
Information</I></FONT></P>

<P><FONT SIZE=3>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): </FONT></P>

<PRE>
        * 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. 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. 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)
        * Patent No. D415285 for Pinhole Headlamp Video Camera for Medical and Surgical Applications (October 12, 1999)
        * Patent No. D398403 for Headband for Surgeons with Removable Headboard Hanger (September 15, 1998)
</PRE>
<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Marketing and Sales</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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 26 countries. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Government Regulation</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Major Customers</I></FONT></P>

For the year ended October 31, 1999, one customer, Specialty Surgical Instruments, accounted for 17% of  the Corporation's net
revenues.

<P ALIGN=LEFT><FONT SIZE=3><I>
   Research and Development</I></FONT></P>

<P><FONT SIZE=3>The Corporation incurred approximately $567,000 of product
development expenses in fiscal year 1999, $523,000 in fiscal 1998, and $495,000
in fiscal 1997. The increase in expenses in this category was directly related
to the planned introduction of a major product line change expected to be
introduced during the first half of fiscal 2000. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Manufacturing and Suppliers</I></FONT></P>

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.

<P ALIGN=LEFT><FONT SIZE=3><I>
   Backlog</I></FONT></P>

<P><FONT SIZE=3>At October 31, 1999, the Corporation’s backlog was $685,000
compared to $485,000, at October 31, 1998. The Corporation generally ships
branded products within three weeks of the receipt of an order from a customer.
OEM products generally have longer lead times specified by the customer. The
Corporation does not believe that its backlog accurately predicts the amount of
quarterly or annual revenues. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Employees</I></FONT></P>

<P><FONT SIZE=3>As of October 31, 1999, the Corporation had 62 full time
employees, of whom seven 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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Executive Officers</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Item 2. Properties</I></FONT></P>

<P><FONT SIZE=3>The Corporation occupies approximately 25,000 square feet at 326
Clark Street, Worcester, Massachusetts under a lease that is currently being
renegotiated. 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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Item 3. Legal Proceedings</I></FONT></P>

None.


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

<P><FONT SIZE=3>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, 1999. </FONT></P>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>PART II</FONT></H1>

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

<P><FONT SIZE=3>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. </FONT></P>

Automated Quotations System (NASDAQ) under the NASDAQ symbol "LUXT."

<P><FONT SIZE=3>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 decided to continue the
Corporation’s listing. A further review of the Corporation’s listing
status was conducted in June, 1998, at which time AMEX further continued the
Corporation’s listing. The Corporation’s fiscal 1999 financial
performance resulted in an increased shortfall from the AMEX listing guidelines.
The Corporation is reviewing its options concerning actions it may take to
comply with the AMEX guidelines. </FONT></P>

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.
<PRE>
                                                                   Common Stock
                                                              High              Low

 Fiscal Year Ended 10/31/98
First Quarter                                                 3.25              2.06
Second Quarter                                                3.88              2.50
Third Quarter                                                 6.38              3.13
Fourth Quarter                                                3.63              2.00

 Fiscal Year Ended 10/31/99
First Quarter                                                 2.88              2.00
Second Quarter                                                2.94              2.13
Third Quarter                                                 2.75              1.88
Fourth Quarter                                                3.00              1.75
</PRE>
<P><FONT SIZE=3>On January 14, 2000, the closing sale price of the
Corporation’s Common Stock on the American Stock Exchange was $2.00 per
share. As of December 31, 1999, there were approximately 545 holders of record
of the Corporation’s Common Stock. The Corporation estimates that there are
approximately 1,200 beneficial holders of the Corporation’s Common Stock. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>


<PAGE>


 ITEM 6.  SELECTED FINANCIAL DATA

<P><FONT SIZE=3>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. </FONT></P>

<PRE>
 Operating Data:                                     (In thousands, except per share data)
                                                                     Year Ended October 31,
                                          1995           1996            1997           1998           1999

Net Revenues . . . . . . . . . .         $7,755         $9,348         $10,977         $12,067        $10,385

Net (Loss) Income  Applicable to to
Common Stockholders                      (6,127)          (571)           (472)            185         (1,087)

Net (Loss) Income  Per Share
Applicable to Common Stockholders          (4.20)         (.22)           (.17)           .06           (.38)



                                                                    (In thousands)
Balance Sheet Data:                                             Year Ended October 31,
                                          1995           1996            1997           1998           1999


Working Capital. . . . . . . .           $ (599)         $ 935      $  1,394           $1,733       $   774

Total Assets. . . . . . . . . . . .        4,122         5,295          5,803           5,959         5,053

Long-term debt, less current portions        -           1,119          1,781           1,808         1,866

Stockholders' equity (deficit). . .          198           813            456             666          (392)


</PRE>

<PAGE>


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

<P><FONT SIZE=3>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. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Results of Operations</I></FONT></P>

The following table sets forth certain consolidated financial data as a percentage of net revenues for the fiscal years ended October
31, 1997, 1998 and 1999.
<PRE>
                                                                     1997         1998        1999
Net revenues                                                         100%         100%        100%
Cost of goods sold                                                    60           58          67
Selling and marketing                                                 22           18          19
Research and development                                               4            4          5
General and administrative                                            15           15          16
Other expense                                                          2            3           2
Net (loss) income                                                     (3)            2        (9)
</PRE>
 Fiscal 1999 Compared with Fiscal 1998

<P><FONT SIZE=3>Net Revenues: Net revenues of $10,384,769 for fiscal 1999 were
$1,682,018 or 13.9% lower than the $12,066,787 reported for fiscal 1998. During
fiscal year 1999, a major distributor of Luxtec products declared bankruptcy,
resulting in a substantial loss of revenues. Additionally, Luxtec changed
another major distributor to improve distribution. The effect of the change in
distributors was a temporary reduction in sales while the new distributor began
its marketing efforts in the territory. Additionally, a major OEM customer
reduced its purchases during fiscal 1999. </FONT></P>

<P><FONT SIZE=3>Cost of Goods Sold: Cost of goods sold increased to $7,026,774
for fiscal 1999 compared to $6,959,620 fiscal 1998. The cost of goods sold for
fiscal 1999 was 67.7% of net revenues compared to 57.7% of net revenues for
fiscal 1998. During fiscal 1999 the Corporation wrote off certain inventory
items relating to product lines that were considered to be unrealizable. These
writeoffs totaled approximately $500,000 and together with the lower volume
described in the previous paragraph were the primary reasons that the percentage
of net revenues was unfavorable in fiscal 1999 as compared to fiscal 1998. </FONT></P>

<P><FONT SIZE=3>Gross Profit: Gross Profit decreased to $3,357,995 or 32.3% of
net revenues for fiscal 1999 as compared to $5,107,167 or 42.3% of net revenues
for fiscal 1998. The margin decrease reflected the combination of lower revenues
and the decision to write off the inventory described in the previous section. </FONT></P>

<P><FONT SIZE=3>Research and Development: Research and development expenses were
$566,555 for fiscal 1999 compared to $522,593 in fiscal 1998, an increase of
$43,962 or 8.4%. The increase in expenses in this category was directly related
to the development of a major new product introduction that is expected to be
introduced to the marketplace during the first half of fiscal 2000. </FONT></P>

<P><FONT SIZE=3>Selling and Marketing Expenses: Selling and marketing expenses
decreased to $1,922,751 for fiscal 1999 compared to $2,205,693 for fiscal 1998,
a decrease of $282,942 or 12.8%. During fiscal 1999, Luxtec essentially
eliminated its investment in the distribution channel for the CardioDyne product
line. Additionally, management allowed certain positions in the marketing
function to remain unfilled during fiscal 1999. </FONT></P>

General and Administrative:  General and administrative expenses were $1,660,616 in fiscal 1999 as compared to $1,824,606 in fiscal
1998, a decrease of $163,990 or 9.0%.  The largest cost decrease, in this area, during fiscal 1999, was the elimination of senior
management bonuses.

<P><FONT SIZE=3>Interest: Interest expense decreased to $248,514 in fiscal 1999,
compared to $269,318 during fiscal year 1998 a decrease of $20,804 or 7.7%. The
Corporation’s interest cost decrease was primarily the result of lower
average balances for the revolving credit line. </FONT></P>

 Fiscal 1998 Compared with Fiscal 1997

<P><FONT SIZE=3>Net Revenues: Net revenues of $12,066,787 for fiscal 1998 were
9.9% higher than the $10,977,435 reported for fiscal 1997. Luxtec domestic
branded and OEM products were responsible for virtually all of the
Corporation’s revenue growth. International Luxtec branded revenues were
below fiscal 1997 levels, primarily in the Pacific Rim area. Management believes
that the introduction of new and improved products over the last two years was
chiefly responsible for the fiscal 1998 revenue growth. The CardioDyne marketing
effort was delayed during fiscal 1998. </FONT></P>

<P><FONT SIZE=3>Cost of Goods Sold: Cost of goods sold increased to $6,959,620
or 57.7% of net revenues for fiscal 1998 compared to $6,544,409 or 59.6% of net
revenues for fiscal 1997. The higher product cost related to the introduction of
a series of new products in fiscal 1997 did not recur in fiscal 1998, resulting
in an improvement in cost of goods sold as a percentage of net revenues. </FONT></P>

Gross Profit:  Gross Profit increased to $5,107,167 or 42.3% of net revenues for fiscal 1998 compared to $4,433,026 or 40.4% of net
revenues for fiscal 1997.  The margin improvement percentage reflected an improvement in margins related to products introduced
during fiscal 1997.

<P><FONT SIZE=3>Selling and Marketing Expenses: Selling and marketing expenses
decreased to $2,205,693 for fiscal 1998 compared to $2,437,746 for fiscal 1997,
a decrease of $232,053 or 9.5%. During fiscal 1998, Luxtec decreased its
investment in the distribution channel for the CardioDyne product line. </FONT></P>

<P><FONT SIZE=3>General and Administrative: General and administrative expenses
were $1,824,606 in fiscal 1998 compared to $1,627,637 in fiscal 1997, an
increase of $196,969 or 12.1%. The largest cost increases during fiscal 1998
were the result of new investment banking and investor relations programs. </FONT></P>

<P><FONT SIZE=3>Research and Development: Research and development expenses were
$522,593 in fiscal 1998 compared to $495,373 in fiscal 1997, an increase of
$27,220 or 5.5%. The increase in expenses in this category was directly related
to the completion of a major new product introduction (the dual port light
source) during fiscal 1998 </FONT></P>

Interest:  Interest expense increased to $269,318 during fiscal year 1998 compared with $234,024 during fiscal year 1997, an increase
of $35,294 or 15.1%.  The Corporation's interest cost increase was primarily the result of higher average balances for the revolving
credit line.



<P ALIGN=LEFT><FONT SIZE=3><I>
   Liquidity and Capital Resources</I></FONT></P>

<P><FONT SIZE=3>At October 31, 1999, the Corporation had working capital of
approximately $773,700 compared to working capital of $1,733,400 at October 31,
1998. The decrease was primarily the result of unprofitable operations for
fiscal year 1999, including the writedown of approximately $500,000 of inventory
and the writeoff of approximately $190,000 of accounts receivable related to the
bankruptcy of a major distributor. </FONT></P>

<P><FONT SIZE=3>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 at $10,000 per month beginning
during May, 1999. The agreement contains covenants, including the maintenance of
certain financial ratios, as defined. The Company was not in compliance with the
covenants for the year ended October 31, 1999. </FONT></P>

<P><FONT SIZE=3>The principal source of short-term borrowings during the year
was a secured $2,500,000 revolving credit agreement. At October 31, 1999, the
credit line borrowings balance was approximately $2,148,500. The interest rate
on the credit line at the end of the fiscal year was 8.75%. At October 31,
1999, unused availability under the revolving credit agreement was approximately
$390,000. The line of credit expires on March 31, 2001. The revolving credit
agreement contains covenants, including the maintenance of certain financial
ratios, as defined. The Company was not in compliance with the covenants for the
year ended October 31, 1999. </FONT></P>

<P><FONT SIZE=3>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 is required to redeem Preferred Stock on January 1, 2001, with a
balance of approximately $1,312,600 at October 31, 1999 (with additional
dividends accruing at 8% per year). The Corporation does not presently have the
funds available to redeem the Preferred Stock, but it is exploring various
options in order to comply with the cash requirement. </FONT></P>

 Year 2000
<P><FONT SIZE=3>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. Many computer systems and other equipment with embedded
chips or microprocessors may not be able to appropriately interpret dates after
December 31, 1999 because such systems use only two digits to indicate a year in
the date field rather than four digits. If not corrected, many computers and
computer applications could fail or create miscalculations, causing disruptions
to the Corporation’s operations. In addition, the failure of customer and
supplier computer systems could result in interruption of sales and deliveries
of key supplies or utilities. Because of the complexity of the issues and the
number of parties involved, the Corporation cannot reasonably predict with
certainty the nature or likelihood of such impacts. </FONT></P>

<P><FONT SIZE=3>The Company’s expenditures for addressing year 2000 issues
were not material, nor does the Company expect to incur any significant costs
addressing Year 2000 issues in the future. </FONT></P>

<P><FONT SIZE=3>The Corporation has upgraded its financial and manufacturing
computer systems with specific year 2000 “fixes”. The Corporation did
not have disruptions caused by this problem during the first part of January
2000. </FONT></P>

<P ALIGN=LEFT><FONT SIZE=3><I>
   Recent Accounting Pronouncement</I></FONT></P>

<P><FONT SIZE=3>In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133,
as amended by SFAS No. 137, will be effective for the Company’s
financial reporting beginning in the first quarter of fiscal 2001. SFAS
No. 133 will require the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for gains and losses from changes in
the fair value of a particular derivative will depend on the intended use of the
derivative. The Company does not expect the adoption of SFAS No. 133 to
have a material impact on the results of its operations or financial position. </FONT></P>


<PAGE>


<P ALIGN=LEFT><FONT SIZE=3><I>
   Risk Factors and Cautionary
Statements</I></FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<P><FONT SIZE=3>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. </FONT></P>

<PRE>
o     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.

o     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.

o     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.

o     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.

o     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.

o     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.

o     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.

o     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.

o     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.

o     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.

</PRE>
 ITEM 7A.  QUANTITATIVE OR QUALITATIVE DISCLOSURE ABOUT MARKET RISK

<P><FONT SIZE=3>The Corporation’s market risk exposure relates to
outstanding debt. The balance of outstanding bank debt at 10/31/99 is
approximately $2,833,000, all of which is subject to interest rate fluctuations.
A hypothetical 10% change in interest rates applied to the fair value of debt
would not have a material impact on earnings or cash flows of the Company. </FONT></P>


<PAGE>





<PRE>
                                              Item 8. Luxtec Corporation and Subsidiaries

                                                                 Index



                                                                                                                   Page

Report of Independent Public Accountants                                                                            17

Consolidated Balance Sheets as of October 31, 1998 and 1999                                                         18

Consolidated Statements of Operations for the Years Ended
October 31, 1997, 1998 and 1999                                                                                     19

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended October 31, 1997, 1998 and 1999                                                                 20

Consolidated Statements of Cash Flows for the Years Ended
October 31, 1997, 1998 and 1999                                                                                     21

Notes to Consolidated Financial Statements                                                                          22


</PRE>
                                                                  51
19938.doc
                                               Report of Independent Public Accountants



To Luxtec Corporation:

We have audited the accompanying  consolidated  balance sheets of Luxtec Corporation (a Massachusetts  corporation) and subsidiaries as
of October 31,  1998 and 1999, and the related  consolidated  statements of operations,  stockholders'  equity (deficit) and cash flows
for each of the three years in the period ended October 31,  1999. These financial  statements are the  responsibility of the Company's
management.  Our responsibility is to express an opinion on these 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 financial  statements referred to above present fairly, in all material respects,  the financial position of Luxtec
Corporation  and  subsidiaries  as of October 31,  1998 and 1999, and the results of their  operations and their cash flows for each of
the three years in the period ended October 31, 1999, in conformity with generally accepted accounting principles.

The accompanying  financial  statements have been prepared assuming that the Company will continue as a going concern.  As discussed in
Note 1 to the  financial  statements,  the  Company  has a  stockholders'  deficit of  $359,057,  cash on hand of $18,333 and is out of
compliance  with  certain  covenants  of its bank  borrowing  facilities,  all of which  raise  substantial  doubt about its ability to
continue as a going  concern.  Management's  plans in regard to these matters are also  described in Note 1. The  financial  statements
do not include any adjustments that might result from the outcome of this uncertainty.






Boston, Massachusetts                                                                /s/Arthur Andersen LLP
December 9, 1999


<PAGE>


                                                  Luxtec Corporation and Subsidiaries

                                                      Consolidated Balance Sheets
<PRE>
                                                        Assets
                                                                                                 October 31,
                                                                                           1998              1999
Current Assets:
   Cash                                                                               $        43,698  $        18,333
   Accounts receivable, less reserves of approximately $250,000 and $291,000 in             2,571,230        2,284,648
   Inventories                                                                              2,549,244        2,010,134
   Prepaid expenses and other current assets                                                   55,068           38,915

         Total current assets                                                               5,219,240        4,352,030

Property and Equipment, at cost                                                             2,570,501        2,747,431

Accumulated Depreciation and Amortization                                                  (2,075,345)      (2,225,976)

         Property and equipment, net                                                          495,156          521,455

Other Assets, net of accumulated amortization of approximately $109,000 and                   244,754          179,018

         Total assets                                                                 $     5,959,150  $     5,052,503

                                            Liabilities and Stockholders' Equity (Deficit)

Current Liabilities:
   Line of credit                                                                     $     2,186,052  $     2,148,457
   Current portion of equipment facility loan                                                  88,726          123,762
   Accounts payable                                                                           499,341          816,826
   Accrued expenses                                                                           711,745          489,285

         Total current liabilities                                                          3,485,864        3,578,330

Term Loan                                                                                     469,250          428,250

Equipment Facility Loan, net of current portion                                                88,726          123,762

Minority Interest                                                                              50,025            1,450

Commitments (Note 13)

Redeemable Preferred Stock                                                                  1,199,768        1,312,576

Stockholders' Equity (Deficit):
   Common stock, $.01 par value-
     Authorized--10,000,000 shares
     Issued and outstanding--2,867,592 shares in 1998 and 2,875,906 shares in 1999              28,676           28,759
   Additional paid-in capital                                                               8,263,018        8,179,252
   Accumulated deficit                                                                     (7,626,177)      (8,599,876)

         Total stockholders' equity (deficit)                                                 665,517         (391,865)

         Total liabilities and stockholders' equity                                   $     5,959,150  $     5,052,503

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


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Consolidated Statements of Operations</FONT></H1>

<PRE>
                                                                               For the Years Ended October 31,
                                                                          1997             1998              1999

Net Revenues                                                        $    10,977,435   $    12,066,787  $    10,384,769

Cost of Goods Sold                                                        6,544,409         6,959,620        7,026,774

         Gross profit                                                     4,433,026         5,107,167        3,357,995

Operating Expenses:
   Selling and marketing                                                  2,437,746         2,205,693        1,922,751
   General and administrative                                             1,627,637         1,824,606        1,660,616
   Research and development                                                 495,373           522,593          566,555

         Total operating expenses                                         4,560,756         4,552,892        4,149,922

         (Loss) income from operations                                     (127,730)          554,275         (791,927)

Other Expense:
   Interest expense                                                        (234,024)         (269,318)        (248,514)
   Other income (expense)                                                     9,114           (19,774)          66,742

         Total other expense                                               (224,910)         (289,092)        (181,772)

         Net (loss) income                                                 (352,640)          265,183         (973,699)

Accretion of Preferred Stock Dividends                                      119,768            80,000          112,808

         Net (loss) income applicable to common stockholders        $      (472,408)  $       185,183  $    (1,086,507)

Net (Loss) Income per Share:
   Basic                                                                 $(.17)            $.06             $(.38)
   Diluted                                                               $(.17)            $.06             $(.38)

Weighted Average Shares Outstanding:
   Basic                                                                  2,849,538         2,863,147        2,874,043
   Diluted                                                                2,849,538         2,937,026        2,874,043

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



<PAGE>



<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Consolidated Statements of Stockholders’
Equity (Deficit)</FONT></H1>

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

Balance, October 31, 1996                                                                   2,841,539  $        28,415   $     8,323,216   $    (7,538,720) $       812,911

   Issuance of common stock under employee stock purchase plan                                 11,952              120            27,135                 -           27,255

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

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

   Net loss                                                                                         -                -                 -          (352,640)        (352,640)

Balance, October 31, 1997                                                                   2,853,491           28,535         8,318,685        (7,891,360)         455,860

  Issuance of common stock under employee stock purchase plan                                   9,311               93            12,938                 -           13,031

  Issuance of common stock under stock option plan                                              4,790               48            11,395                 -           11,443

  Dividends on Series A Redeemable Preferred Stock                                                  -                -           (80,000)                -          (80,000)

  Net income                                                                                        -                -                 -           265,183          265,183

Balance, October 31, 1998                                                                   2,867,592           28,676         8,263,018        (7,626,177)         665,517

   Issuance of common stock under employee stock purchase plan                                  8,314               83            15,424                 -           15,507

   Compensation expense related to the issuance of stock options                                    -                -            13,618                 -           13,618

   Dividends on Series A Redeemable Preferred Stock                                                 -                -          (112,808)                -         (112,808)

   Net loss                                                                                         -                -                 -          (973,699)        (973,699)

Balance, October 31, 1999                                                                   2,875,906  $        28,759   $     8,179,252   $    (8,599,876) $      (391,865)

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


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Consolidated Statements of Cash Flows</FONT></H1>

<PRE>
                                                                                For the Years Ended October 31,
                                                                           1997             1998              1999
Cash Flows from Operating Activities:
   Net (loss) income                                                $      (352,640)  $       265,183  $      (973,699)
   Adjustments to reconcile net (loss) income to net cash (used
     Depreciation and amortization                                          301,448           213,802          199,058
     Accretion of debt discount                                               5,250             9,000            9,000
     Provision for uncollectable accounts receivable                        158,748           (70,000)          40,936
     Compensation expense related to the issuance of stock                        -                 -           13,618
     Increase (decrease) in value of minority interest                            -             1,361          (48,575)
     Changes in current assets and liabilities-
       Accounts receivable                                                 (737,024)         (181,285)         245,646
       Inventories                                                         (354,294)          (21,935)         539,110
       Prepaid expenses and other current assets                            139,373            16,123           16,153
       Accounts payable                                                     212,532          (440,753)         317,485
       Accrued expenses                                                      70,965           232,814         (222,460)

              Net cash (used in) provided by operating activities          (555,642)           24,310          136,272

Cash Flows from Investing Activities:
   Purchases of property and equipment                                     (110,951)          (93,810)        (176,930)
   (Increase) decrease in other assets                                      (35,660)          (17,485)          17,309

              Net cash used in investing activities                        (146,611)         (111,295)        (159,621)

Cash Flows from Financing Activities:
   Net proceeds from (payments on) line of credit                           (63,369)          103,198          (37,595)
   Net proceeds from (payments on) equipment facility loan                  107,723           (88,726)          70,072
   Proceeds from (payments on) term note                                    500,000                 -          (50,000)
   Proceeds from sale of subsidiary stock                                         -            50,025                -
   Issuance of common stock under stock option plan                               -            11,443                -
   Issuance of common stock under employee stock purchase plan               27,255            13,031           15,507

              Net cash provided by (used in) financing activities           571,609            88,971           (2,016)

Net (Decrease) Increase in Cash                                            (130,644)            1,986          (25,365)

Cash, beginning of period                                                   172,356            41,712           43,698

Cash, end of period                                                 $        41,712   $        43,698  $        18,333

Supplemental Disclosure of Cash Flow Information:
   Cash paid for interest                                           $       239,133   $       257,661  $       220,914

Supplemental Disclosure of Noncash Investing and Financing

  Purchases of property and equipment under equipment facility      $             -   $             -  $       114,434
  Conversion of note payable to stockholder to Series A             $     1,043,102   $             -  $             -
  Accretion of Series A Preferred Stock                             $       119,768   $        80,000  $       112,808
</PRE>
                        The accompanying notes are an integral part of these consolidated financial statements.


<PAGE>



<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<H2 ALIGN=LEFT><FONT SIZE=3>(1) Operations</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company is subject to certain risks common to technology-based companies,
including dependence on key personnel, the need to raise capital, rapid
technological change, competition from substitute products of larger companies
and the need for successful development and marketing of commercial products and
services. As of October 31, 1999, the Company has a stockholders’ deficit
of $359,057 and cash on hand of $18,333. The Company also is in default of
certain covenants on its bank loan agreements (Note 8) at October 31, 1999.
Based on these factors, there is substantial doubt concerning the entity’s
ability to continue as a going concern. Management anticipates the
Company’s current cash requirements will be satisfied by cash flow from
existing operations and the continuation of its revolving credit agreement with
a bank, although the Company is considering raising additional debt or equity in
the near future. However there is no assurance that additional funding will be
received. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The Company is also required to
redeem Preferred Stock on January 1, 2001, with a balnce of approximately
$1,312,600 at October 31, 1999 (with additional dividends accruing at 8% per
year). The Company does not presently have the funds available to redeem the
Preferred Stock, but it is exploring various options in order to comply with the
cash requirement.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company has received a proposal from its bank to continue the existing credit
facilities with a waiver of the prior covenant violations and less restrictive
covenants for future periods. The Company intends to execute the proposal and
therefore expects that cash flow from existing operations and the continuation
of its revolving credit agreement with a bank will satisfy the Company’s
cash requirements.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(2) Summary of Significant Accounting Policies</FONT></H2>

       (a)    Principles of Consolidation

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

       (b)    Inventories

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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.</FONT></TD>
</TR>
</TABLE>
<BR>

       (c)    Property and Equipment

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Property
and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful life of the assets.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or estimated useful life of the assets.</FONT></TD>
</TR>
</TABLE>
<BR>

<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

                                        Notes to Consolidated Financial Statements (Continued)
                                                               October 31, 1999

       (d)    Other Assets

              Other assets consist principally of patent costs, which are amortized using the straight-line method over 17 years.

       (e)    Revenue Recognition

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Revenue
is recognized when goods are shipped, at which time the Company accrues for any
related warranty costs. Warranty costs for the years ended October 31,
1997, 1998 and 1999 were $123,000, $101,000 and $63,000, respectively, and are
included in cost of goods sold in the accompanying consolidated statements of
operations.</FONT></TD>
</TR>
</TABLE>
<BR>

        (f)   Research and Development Costs

              Research and development costs are charged to operations as incurred.

       (g)    Net Income (Loss) per Share Attributable to Common Stockholders

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Basic
net income (loss) per share attributable to common stockholders is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share attributable
to common stockholders is computed by dividing net income (loss) by the weighted
average number of dilutive common shares, options and warrants outstanding
during the period. Diluted weighted average shares reflects the dilutive effect,
if any, of common stock options and warrants based on the treasury stock method.
No common stock equivalents are considered dilutive in periods in which a loss
is reported because all such common equivalent shares are antidilutive. The
number of common stock equivalents excluded from the calculation, as their
effect would have been antidilutive, was 1,190,721, 646,331 and 1,397,821 in
1997, 1998 and 1999, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

              The calculations of basic and diluted weighted average shares outstanding are as follows:
<PRE>
                                                    1997             1998              1999

                Basic weighted average              2,849,538         2,863,147        2,874,043

                Dilutive options and                        -            73,879                -

                Diluted weighted average
                shares outstanding                  2,849,538         2,937,026        2,874,043

</PRE>
<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

       (h)    Long-Lived Assets

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of, the Company reviews its long-lived assets for impairment as events
and circumstances indicate the carrying amount of an asset may not be
recoverable. The Company evaluates the realizability of its long-lived assets
based on profitability and cash flow expectations for the related asset.
Management believes that, as of each of the consolidated balance sheet dates
presented, none of the Company’s long-lived assets were impaired.</FONT></TD>
</TR>
</TABLE>
<BR>

       (i)    Use of Estimates

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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.</FONT></TD>
</TR>
</TABLE>
<BR>

       (j)    Comprehensive Income (Loss)

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
During
fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires disclosure of all components of comprehensive
income (loss) on an annual and interim basis. Comprehensive income (loss) is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. The
Company’s comprehensive income (loss) is equal to its net income (loss) for
all periods presented.</FONT></TD>
</TR>
</TABLE>
<BR>

       (k)    Recently Issued Accounting Pronouncements

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
In
June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133, as amended by SFAS
No. 137, will be effective for the Company’s financial reporting
beginning in the first quarter of fiscal 2001. SFAS No. 133 will require
the Company to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for gains and losses from changes in the fair value of a particular
derivative will depend on the intended use of the derivative. The Company does
not expect the adoption of SFAS No. 133 to have a material impact on the
results of its operations or financial position.</FONT></TD>
</TR>
</TABLE>
<BR>

       (l)    Disclosure of Fair Value of Financial Instruments and Concentration of Credit Risk

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Financial
instruments that potentially expose the Company to concentrations of credit risk
consist mainly of cash and accounts receivable. The Company maintains its cash
in domestic financial institutions of high credit standing. The Company’s
accounts receivable are derived primarily from the sale of medical and dental
surgical specialty instruments. The Company believes that no significant credit
risk exists at October 31, 1998 or 1999. The carrying amounts of the
Company’s financial instruments approximate fair market value.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

        (m)   Reclassifications

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Certain
amounts from the prior year’s presentation have been reclassified to
conform with the current year’s presentation in the accompanying
consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
<BR>

(3)    Merger with CardioDyne, Inc.

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
October 23, 1995, the Company consummated a merger agreement (the Merger)
with CardioDyne, a development-stage company engaged in the development of
products that monitor blood pressure. In addition to receiving shares of Luxtec
common stock, shareholders of CardioDyne are entitled to certain earnout
payments based on the performance of products and agreements incorporating
technology previously developed by CardioDyne, as defined. For a period of 17
years following the effective date of the Merger, former CardioDyne shareholders
are entitled to receive, in proportion to their former ownership percentages, 5%
and 25% of revenues from related product and license agreements, respectively.
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, 1998 or 1999.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(4) Inventories</FONT></H2>

       Inventories consisted of the following:
<PRE>
                                                           1998             1999

         Raw material                                $     1,818,822   $     1,417,670
         Work-in-process                                     352,464            47,813
         Finished goods                                      377,958           544,651

                                                     $     2,549,244   $     2,010,134

</PRE>

<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<P ALIGN=LEFT><FONT SIZE=3><I>
   (5) Property and Equipment</I></FONT></P>

       Property and equipment and their respective useful lives are as follows:

<PRE>
                                                           Lives              1998             1999

         Machinery and equipment                          5-10 years    $     1,737,103   $     1,818,994
         Molds and tooling                                   5 years            248,893           305,405
         Furniture and fixtures                             10 years            348,262           385,466
         Leasehold improvements                         Life of lease           236,243           237,566

                                                                        $     2,570,501   $     2,747,431
</PRE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company recorded depreciation and amortization expense of $169,000, $180,000 and
$145,000 in 1997, 1998 and 1999, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(6) Accrued Expenses</FONT></H2>

       Accrued expenses consisted of the following:
<PRE>
                                                           1998             1999

         Accrued payroll and related expenses        $       282,879   $       156,621
         Other accrued expenses                              428,866           332,664

                                                     $       711,745   $       489,285
</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>(7) Income Taxes</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 asset or liability is measured by the tax effect of any
differences between the financial statement and tax bases of assets and
liabilities.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
As
of October 31, 1999, the Company had available net operating loss carryforwards
of approximately $2,426,000, research and development credit carryforwards of
approximately $207,000, and general business credit carryforwards of
approximately $25,000 available to reduce future federal income taxes, if any.
These carryforwards expire through 2019 and are subject to review and possible
adjustment by the Internal Revenue Service.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

       The components of the deferred tax asset are set forth below:
<PRE>
                                                           1998             1999
         Net operating losses                        $       814,000   $       970,000
         Inventory reserve                                    95,000           212,000
         Bad debt reserve                                     34,000            70,000
         Other temporary differences                         141,000            73,000
         Research and development credits                    175,000           207,000
         General business credits                             25,000            25,000

                                                           1,284,000         1,557,000
         Valuation allowance                              (1,284,000)       (1,557,000)

                  Net deferred tax asset             $             -   $             -
</PRE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
Other
temporary differences consist of accrued vacation time, bonus and warranty
reserves and reserves against inventory evaluation units not currently
deductible, as well as any book-to-tax depreciation differences.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company has provided a full valuation allowance due to its limited history of
profitability. The Company has historically incurred significant operating
losses. Although the Company was profitable in fiscal 1998, it cannot predict
future profitability with adequate assurance that its tax assets will more
likely then not be realized at this time. The Company will periodically reassess
its forecast and valuation allowance levels and revise the level of reserve when
appropriate.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(8) Debt</FONT></H2>

       (a)    Line of Credit

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company has a $2,500,000 line of credit with a bank. The maximum amount
available to borrow under the line of credit is limited to the lesser of
$2,500,000, the total line committed or certain percentages of accounts
receivable and inventory, as defined. Borrowings bear interest at the
bank’s prime rate (8.25% at October 31, 1999) plus .5%. Unused
portions of the line of credit accrue a fee at an annual rate of .25%.
Borrowings are secured by substantially all assets of the Company. The line of
credit contains certain financial covenants, with which the Company was not in
compliance at October 31, 1999. At October 31, 1999, unused
availability under the line of credit was approximately $390,000. The line of
credit expires on March 31, 2001.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

       (b)    Equipment Facility Loan

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company has a $450,000 equipment facility loan with a bank. Borrowings bear
interest at the bank’s prime rate (8.25% at October 31, 1999) plus .5% and
are secured by substantially all assets of the Company. The equipment facility
loan contains certain financial covenants, with which the Company was not in
compliance at October 31, 1999. The equipment facility loan expires on
March 31, 2001. At October 31, 1999, the Company had outstanding borrowings
of $247,524 under this agreement, repayable as follows:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                2000                               $       123,762
                2001                                       123,762

                                                   $       247,524
</PRE>
       (c)    Term Loan

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
March 31, 1997, the Company entered into a $500,000 term loan with a bank. The
term loan bears interest at prime (8.25% at October 31, 1999) plus 1.0%.
Beginning in May 1999, principal payments were payable at $10,000 per month. If
not paid sooner, the term note is due on the earlier of (a) March 31,
2002, (b) the date of an equity infusion or (c) the date of a
management change, as defined.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
In
connection with the term loan, the Company issued warrants to the bank for the
purchase of 44,000 shares of common stock at an exercise price of $3.00 per
share, expiring on March 31, 2002. The Company has valued these warrants using
the Black-Scholes option pricing model at approximately $45,000, which has been
recorded as a debt discount and is being accreted to interest expense over the
payment term of 60 months. At October 31, 1999, there was $428,250 outstanding
under this agreement, net of the remaining unamortized debt discount of $21,750.
The term loan contains certain financial covenants, with which the Company was
not in compliance at October 31, 1999. The Company has obtained a waiver
for its noncompliance.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(9) Senior Subordinated Notes and Redeemable
Preferred Stock</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
December 18, 1995, the Company issued senior subordinated notes (the Notes)
to a stockholder for $1,000,000 in cash. Interest accrued on the Notes at the
rate of 8% and principal 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.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
November 14, 1996, the Company exchanged the Senior Subordinated Notes for
10,000 shares of the Company’s nonvoting Series A redeemable preferred
stock, $1.00 par value per share (the Series A Preferred Stock). The
Series A Preferred Stock has the following rights and preferences:</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

         Dividends

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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. The Company
accrued $119,768, $80,000 and $112,808 of dividends for each of the years ended
October 31, 1997, 1998 and 1999.</FONT></TD>
</TR>
</TABLE>
<BR>

         Liquidation Preference

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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.</FONT></TD>
</TR>
</TABLE>
<BR>

         Redemption

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 accrued and unpaid
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.</FONT></TD>
</TR>
</TABLE>
<BR>

(10)   Minority Interest in Fiber Imaging Technologies, Inc.

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
June 30, 1998, the Company sold 8,108 shares of FIT common stock to a
Germany-based company, representing a 7.5% ownership interest for $50,025. This
minority interest amount is included as a separate line on the accompanying
consolidated balance sheet.</FONT></TD>
</TR>
</TABLE>
<BR>

<H2 ALIGN=LEFT><FONT SIZE=3>(11) Private Placement of Common Stock</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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.</FONT></TD>
</TR>
</TABLE>
<BR>

<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<H2 ALIGN=LEFT><FONT SIZE=3>(12) Stock Plans</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 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. On April 22, 1999, the Company’s
board of directors voted to increase the total shares authorized for issuance
under the plan from 400,000 to 500,000 and 64,000 shares are available for
future grant at October 31, 1999.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company maintains an 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 9,311 and
8,314 in 1998 and 1999, respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 that they have terms not to exceed 10 years.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

       The following schedule summarizes the stock option and warrant activity for the three years ended October 31, 1999:
<PRE>
                                                                                                Weighted
                                                                             Option Price    Average Option
                                                         Number of Shares     Per Share           Price

         Outstanding at October 31, 1996                       1,222,071   $   1.25-  6.00         $ 4.08
            Granted                                              178,200       2.63-  6.00           4.05
            Canceled                                             (40,050)      1.25-  4.63           3.25

         Outstanding at October 31, 1997                       1,360,221       1.25-  6.00           4.10
            Granted                                               31,400         2.44                2.44
            Canceled                                              (7,300)      2.44-  3.56           3.03
            Exercised                                             (4,790)      1.63-  3.56           2.39

         Outstanding at October 31, 1998                       1,379,531       1.25-  6.00           4.08
            Granted                                               93,500       2.38-  3.00           2.51
            Canceled                                              (2,200)      2.44-  3.00           2.52

         Outstanding at October 31, 1999                       1,470,831   $   1.25-  6.00         $ 3.98

         Exercisable at October 31, 1999                       1,191,175   $   1.25-  6.00         $ 3.92

         Exercisable at October 31, 1998                       1,140,645   $   1.25-  6.00         $ 3.98

         Exercisable at October 31, 1997                       1,103,509   $   1.25-  6.00         $ 4.02
</PRE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
As
of October 31, 1999, 700,000 shares of common stock have been reserved for
issuance under the Company’s stock option plans. The weighted average fair
value of option grants and the weighted average remaining contractual life of
options outstanding at October 31, 1999 was $1.98 and 3.2 years,
respectively.</FONT></TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Company issued options to purchase 15,000 shares of common stock to nonemployees
during fiscal 1999. The Company valued these options using the Black-Scholes
option pricing model and recorded the related compensation expense of $13,618 in
general and administrative expenses in the accompanying consolidated statements
of operations.</FONT></TD>
</TR>
</TABLE>
<BR>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
On
June 18, 1998, the Board of Directors of FIT approved the 1998 Stock Option Plan
(the 1998 Plan) whereby FIT has reserved and may issue up to an aggregate of
50,000 shares of common stock. The 1998 Plan provides for the grant of incentive
stock options, nonqualified stock options, stock awards and direct sales of
stock. Under the 1998 Plan, incentive stock options may be granted at an
exercise price not less than the fair market value of FIT’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 1998 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.</FONT></TD>
</TR>
</TABLE>
<BR>

       The following schedule summarizes the stock option activity under the 1998 Plan for the year ended October 31, 1999:
<PRE>
                                                                            Option Price Per    Weighted Average
                                                         Number of Shares        Share            Option Price

         Outstanding at October 31, 1997                               -   $             -     $             -
           Granted                                                20,000              6.17                6.17

         Outstanding at October 31, 1998                          20,000              6.17                6.17

         Outstanding at October 31, 1999                          20,000   $          6.17     $          6.17

         Exercisable at October 31, 1999                          10,000   $          6.17     $          6.17

         Exercisable at October 31, 1998                          10,000   $          6.17     $          6.17
</PRE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 operations 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 1997, 1998 and 1999 using the Black-Scholes
option pricing model prescribed by SFAS No. 123 using the following:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                            1997             1998               1999

         Risk-free interest rate           7.00%             4.35%          4.65%-5.28%
         Expected dividend yield             -                 -                 -
         Expected lives                   7 years           7 years           7 years
         Expected volatility                41%               85%               88%

</PRE>

<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
total value of options granted during the fiscal years ended October 31, 1997,
1998 and 1999 was computed as approximately $158,000, $108,000 and $83,000,
respectively. Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company’s net (loss) income and (loss) income per
share would have been the following pro forma amounts:</FONT></TD>
</TR>
</TABLE>
<BR>

<PRE>
                                                           1997             1998              1999

         Pro forma net (loss) income attributable     $     (630,408)   $       77,183

         Pro forma net (loss) income per share
            Basic                                        $  (.22)          $    .03         $  (.41)
            Diluted                                      $  (.22)          $    .03         $  (.41)


</PRE>
<H2 ALIGN=LEFT><FONT SIZE=3>(13) Commitments</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
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 Company is
currently in the process of renegotiating this lease agreement and is occupying
the facilities under a tenancy at will.</FONT></TD>
</TR>
</TABLE>
<BR>

       The future minimum operating lease payments over their remaining terms are as follows:
<PRE>
         Fiscal Year                                           Amount

         2000                                            $       197,000
         2001                                                     40,000
         2002                                                     19,000
         2003                                                     15,000
         2004                                                      5,000

                  Total minimum lease payments           $       276,000

</PRE>
       1998 and 1999, respectively.




<PAGE>





<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation and Subsidiaries</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Notes to Consolidated Financial Statements
(Continued)</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<H2 ALIGN=LEFT><FONT SIZE=3>(14) Business Segment and Export Sales</FONT></H2>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
To
date, the Company has viewed its operations and manages its business as
principally one operating segment with two product offerings: headlight systems
and light sources. The Company evaluates these product offerings based upon
their respective gross margins. As a result, the financial information disclosed
herein, represents all of the material financial information related to the
Company’s principal operating segment.</FONT></TD>
</TR>
</TABLE>
<BR>

       The Company also operates from one location in the United States.  Sales for this operation totaled the following:
<PRE>
                                                                For the Years Ended October 31,
         Geographic Destination                            1997             1998              1999

         Domestic                                              84%               81%              83%
         Europe                                                 8                14               10
         All others                                             8                 5                7

                                                              100%              100%             100%

</PRE>
       One  customer,  the president of which is a member of the  Company's  Board of Directors,  accounted for 14%, 13% and 17% of net
       revenues in fiscal 1997, 1998 and 1999, respectively,  and 20% and 18% of the Company's accounts receivable at October 31,  1998
       and 1999,  respectively.  One additional  customer accounted for 14% of the Company's accounts  receivable at October 31,  1998.
       Two additional customers accounted for 11% and 12% of the Company's accounts receivable at October 31, 1999.

(16)   401(k) Retirement Plan

       The Company  maintains 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 a Company  contribution  for any
       plan year at the Company's  discretion.  The Company contributed and charged to operations $18,397,  $17,576 and $20,015 for the
       years ended October 31, 1997, 1998 and 1999, respectively.


<PAGE>


                                                           LUXTEC CORPORATION
                                                           October 31, 1999

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

                                                               PART III

 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF LUXTEC CORPORATION

The following table and narrative sets forth information regarding the principal occupation, other affiliations, committee
memberships and age, for the three nominees and each director continuing in office.
<PRE>
                                                    Director                      Position
                    Name                    Age       Since                     With Company
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------

   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   James Berardo (2)(3)                      40       1995      Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   Paul Epstein (2)                          69       1995      Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   James J. Goodman (3)                      41       1996      Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   James W. Hobbs (1)                        51       1993      President, Chief Executive Officer, Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   Patrick G. Phillipps (1)                  54       1995      Vice President of Engineering, Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   Thomas J. Vander Salm (1)(2)              59       1984      Director
   --------------------------------------- ------- ------------ ----------------------------------------------
   --------------------------------------- ------- ------------ ----------------------------------------------
   Louis C. Wallace (1)(3)                   59       1989      Director
   --------------------------------------- ------- ------------ ----------------------------------------------
</PRE>
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.

James  Berardo has been a Director of the Company  since 1995.  Mr.  Berardo  currently  serves as  President  of Darlco,  Inc., a real
estate  development and investment  management  company.  Mr. Berardo joined Darlco in 1986,  serving in various  financial  capacities
prior to assuming his current position in March, 1995.

Paul Epstein  joined the Company in 1995 as Vice  President  of Business  Development  and  Strategic  Planning and as a Director.  Mr.
Epstein  retired  from active  management  during 1999 but remains as a Director of the  Corporation.  Mr.  Epstein,  a  co-founder  of
CardioDyne,  Inc., served as Chairman,  Vice President and Chief Financial Officer from the time of CardioDyne's  founding in February,
1989 until the merger with Luxtec in October,  1995. Previously,  Mr. Epstein co-founded Electronic Image Systems Corporation,  Brattle
Instrument  Corporation and, most recently,  Omni-Flow,  Inc., which introduced the first multiple  medication,  programmable  infusion
pump and was acquired by Abbott  Laboratories  in 1989.  Mr.  Epstein holds B.S. and M.S.  degrees in Chemical  Engineering  and a B.S.
degree in Business  Management  from MIT. Mr.  Epstein has been  jointly  awarded  eleven  patents in the medical  instrumentation  and
communication fields.



James J.  Goodman has been a Director of the Company  since 1996.  Mr.  Goodman is President  of Gemini  Investors  LLC, a private firm
based in Wellesley,  MA that invests in emerging  growth  companies  across a wide range of  industries.  Gemini (and its  predecessor)
have invested in more than a dozen  companies  over the last four years.  Prior to founding  Gemini,  Mr. Goodman was Vice President at
Berkshire  Partners,  a leading  private  equity  firm,  from 1989 to 1993.  Mr.  Goodman was educated at Harvard  University  where he
received his undergraduate degree in Economics in 1979 and M.B.A. and J.D. degrees in 1984.

<P><FONT SIZE=3>James W. Hobbs was elected to the positions of President, Chief
Executive Officer and Director in 1993. Mr. Hobbs was Chief Executive Officer of
Graylyn Associates from 1992 to 1993. Graylyn was an investment firm founded by
Mr. Hobbs to invest in early stage medical technology. Prior to Graylyn, Mr.
Hobbs served as the President and Chief Executive Officer of Genica
Pharmaceuticals from 1990 to 1992. Genica Pharmaceuticals was a corporation
engaged in providing new diagnostic assays and conducting therapeutic research
for neurological disorders. Mr. Hobbs was with Johnson and Johnson Professional
Diagnostics as Vice President and General Manager from 1985 to 1989. </FONT></P>

Patrick  Phillipps  joined the Company in 1995 as Vice  President  of  Engineering  and a Director.  Mr.  Phillipps,  a  co-founder  of
CardioDyne,  Inc., served as President and Chief Executive Officer from the time of CardioDyne's  founding in February,  1989 until the
merger with Luxtec in October,  1995.  Previously,  Mr. Phillipps founded the Engineering  Department of Lifeline Systems,  Inc., where
he served as Vice President of Engineering  and oversaw the development  and  introduction  of a new generation of Lifeline's  hospital
based emergency call system for home use by the elderly.  Mr.  Phillipps holds an S.B.  degree in Electrical  Engineering  from MIT and
has been jointly awarded over a dozen patents in the medical monitoring and related fields.

Dr.  Thomas  Vander Salm has been a Director of the Company since 1984.  Dr.  Vander Salm is Chief of Cardio  Thoracic  Surgery and has
been a Professor of Surgery at the University of Massachusetts Medical School in Worcester, MA since 1970.

Louis C.  Wallace has been a Director of the Company  since 1989.  Mr.  Wallace is the  founder and  President  of  Specialty  Surgical
Instrumentation,  Inc. (S.S.I.),  a manufacturer and distributor of surgical  instruments.  S.S.I. was established in Nashville,  TN in
1976.

<P ALIGN=LEFT><FONT SIZE=3><I>
   Director Compensation</I></FONT></P>

<P><FONT SIZE=3>The Company pays non-employee directors $500 for attendance at
each meeting of the Luxtec Board, $250 per each meeting of a committee thereof
($150 per meeting of a committee if such meeting is concurrent with a regular
meeting of the Luxtec Board), and $100 per meeting held by telephone conference.
The Company also pays expenses for attendance at meetings of the Luxtec Board
and committees thereof. Additionally, non-employee Directors are compensated
with options to purchase shares of Common Stock of the Company, in accordance
with the 1995 Stock Option Plan For Non-Employee Directors. </FONT></P>


<PAGE>


 ITEM 11.  EXECUTIVE OFFICERS

The following table sets forth certain information concerning the executive officers of the Company who are not also directors.  The
executive officers are elected annually by the Board of Directors following the Annual Meeting of Stockholders and serve at the
discretion of the Board.
<PRE>
--------------------------- ----------- ----------------------------------------------------------------------------
           Name                Age                                 Position With Company
--------------------------- ----------- ----------------------------------------------------------------------------
--------------------------- ----------- ----------------------------------------------------------------------------
David C. Mutch                  56      Vice President of Sales and Marketing
--------------------------- ----------- ----------------------------------------------------------------------------
--------------------------- ----------- ----------------------------------------------------------------------------
Samuel M. Stein                 60      Vice President of Finance, Chief Financial Officer, Treasurer and
                                        Assistant Clerk
--------------------------- ----------- ----------------------------------------------------------------------------
</PRE>
David Mutch is Vice  President of Sales and Marketing of the Company.  Mr. Mutch joined the Company in  September,  1992 as Director of
Sales and Marketing and assumed his present position in December,  1994.  Previously,  Mr. Mutch held various management positions with
Hewlett  Packard  Company over a twenty-one  year career.  During his last five years at Hewlett  Packard,  Mr. Mutch was the Marketing
Manager for the Health Care Information Systems Division.

Samuel Stein is Vice President,  Chief Financial  Officer,  Treasurer and Assistant Clerk of the Company.  Mr. Stein joined the Company
in October,  1993 as Vice  President of Finance and Chief  Financial  Officer and was elected to the further  offices of Treasurer  and
Assistant Clerk during 1994. From 1990 to 1993, Mr. Stein was employed as the Corporate  Controller of Great American  Software,  Inc.,
an accounting software manufacturer.



<PAGE>


 ITEM 12.  EXECUTIVE COMPENSATION

<P><FONT SIZE=3>The table below sets forth certain compensation information for
the fiscal years ended October 31, 1999, 1998 and 1997 of those persons who were
at October 31, 1999: (i) the Chief Executive Officer, and (ii) the most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 (collectively, the “Named Officers”). </FONT></P>

<PRE>
                                                      Summary Compensation Table
                                                                                                           Long-Term
                                                                    Annual                            Compensation Awards
                                                                 Compensation
                                          ----------------------------------------------------------- --------------------
                                                                                                      Securities
          Name and              Fiscal                                           Other Annual         Underlying
     Principal Position           Year      Salary($)       Bonus($)         Compensation ($)(1)          Options (#)

James Hobbs                     1999        $183,374          $ -0-                 $7,800                     0

Samuel M. Stein                  1999     $106,110            $ -0-                 $7,800                     0

David C. Mutch                   1999       $105,365          $ -0-                 $7,800                     0

Patrick G. Phillipps             1999       $105,366          $ -0-                 $7,800                     0

</PRE>
      (1) Automobile allowance.


 OPTION GRANTS IN LAST FISCAL YEAR

No options were granted in the last fiscal year to any of the Named Officers.




<PAGE>


 OPTION EXERCISES AND FISCAL YEAR-END VALUES

<P><FONT SIZE=3>The following table sets forth information with respect to
options to purchase the Company’s Common Stock granted under the 1992 Stock
Option Plan, as amended, including (i) the number of shares purchased upon
exercise of options in the most recent fiscal year, (ii) the net value realized
upon such exercise, (iii) the number of unexercised options outstanding at
October 31, 1999, and (iv) the value of such unexercised options at October 31,
1999: </FONT></P>

<PRE>
                     AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES

-------------------- ---------------- ------------- ---------------------------------- ------------------------------
                                                     Number of Securities Underlying       Value of Unexercised
-------------------- ---------------- ------------- ---------------------------------- ------------------------------

James Hobbs                 -              -           56,050            67,950           $40,500           $0
Samuel Stein                -              -           14,750            47,250           $ 4,300           $0
David Mutch                 -              -           14,750            47,250           $ 4,300           $0
Patrick Phillipps           -              -             8,484           11,850                 $0          $0

(1)   Value is based on the closing sale price of the Common Stock  ($2.06) as of October 31, 1999 minus the exercise  price under such
      option.
</PRE>
      Executive Employment Agreements

<P><FONT SIZE=3>The Company has entered into an employment agreement with James
W. Hobbs, pursuant to which the Company has agreed to employ Mr. Hobbs as
President and Chief Executive Officer. The agreement with Mr. Hobbs was entered
into on June 10, 1993 with an initial term of one year with automatic renewals
for successive terms of one year each unless either party gives notice of
intention not to renew. The Compensation Committee of the Luxtec Board set Mr.
Hobbs’ base salary at $184,300 for 1999 and at $188,900 for 2000. Mr. Hobbs
is entitled to receive an annual bonus in cash and/or equity of the Company from
an annual bonus pool for all employees based, in Fiscal Year 1999, on 1.5% of
the net sales of the Company and 10% of cash flow generated, with such bonus to
be determined by the Compensation Committee. Factors taken into account by the
Compensation Committee in determining bonuses include return on investment, net
sales, and net income compared to the business plan. Although there is no
maximum percentage bonus, 30% of base salary is the expected guideline. Mr.
Hobbs is entitled to severance pay in an amount equal to six months of his then
current annual salary if his employment is terminated by (i) the Company without
cause or (ii) Mr. Hobbs for Good Reason (as defined in the agreement). </FONT></P>


<PAGE>


ITEM 12.  SECURITIES OWNERSHIP

<P><FONT SIZE=3>The following table sets forth certain information as of
February 18, 1999, with respect to the Common Stock owned by (a) each director
of the Company, (b) the Named Officers, (c) all directors and executive officers
of the Company as a group, and (d) each person who is known by the Company to
own beneficially more than 5% of the Common Stock. Unless otherwise indicated in
the footnotes to the table, all stock is owned of record and beneficially by the
persons listed in the table. </FONT></P>

<PRE>
                                                                                   Number of Shares        Percentage of Common
                            Name and Addresses (1)                              Beneficially Owned (2)       Stock Outstanding
----------------------------------------------------------------------------- ---------------------------- ----------------------
  Directors and Officers
  James Berardo   Director                                                            172,520 (3)                     5.96%
  Paul Epstein   Director                                                             168,988 (4)                     5.87%
  James J. Goodman   Director                                                         462,000 (5)                    13.82%
  James W. Hobbs  President, Chief Executive                                          136,539 (6)                     4.60%
  David C. Mutch  Vice President of Sales and                                         35,773 (7)                      1.24%
  Patrick G. Phillipps  Vice President of                                             241,882 (8)                     8.37%
  Samuel M. Stein  Vice President of Finance, Chief Financial                         16,548 (9)                        *
  Thomas J. Vander Salm    Director                                                   72,700 (10)                     2.50%
  Louis C. Wallace    Director                                                        57,250 (11)                     1.97%

  All directors and executive officers as a group (9 persons)                          1,364,200                     39.66%

  Principal Stockholders
  Denton A. Cooley, MD                                                                  419,046                      14.55%

  G and G Diagnostics Fund, L.P. I and L.P. III                                               209,484                       7.27%

  Rita Kloots                                                                           155,100                       5.39%
  Box 1077
  Sturbridge, MA  01566
</PRE>
*    Less than 1%

(1)    The mailing  address of each of the Company's  directors and executive  officers is c/o Luxtec  Corporation,  326 Clark  Street,
       Worcester, Massachusetts, 01606-1214

(2)    Unless otherwise indicated in these footnotes,  each stockholder has sole voting and investment power with respect to the shares
       beneficially  owned.  Shares of Common Stock subject to options or warrants  exercisable as of October 31, 1999 (or  exercisable
       within 60 days after such date),  are deemed  outstanding  for  purposes of  computing  the  percentage  ownership of the person
       holding such option or warrant but are not outstanding for purposes of computing the percentage of any other person.

(3)    Includes  154,520 shares held by various  trusts of which Mr. Berardo is a trustee and over which Mr. Berardo shares  investment
       and voting  control.  Mr. Berardo  disclaims  beneficial  ownership of such shares.  Also includes  16,000 shares  issuable upon
       exercise of stock options.

(4)    Includes 82,218 shares held by Mr. Epstein's wife, Mary Epstein.  Mr. Epstein disclaims beneficial ownership of such shares.

(5)    Consists of shares issuable to Gemini  Investors LLC  ("Gemini"),  upon exercise of a warrant to acquire shares of Common Stock.
       Mr. Goodman is president of Gemini.  Mr. Goodman  disclaims  beneficial  ownership of such shares.  Also includes  12,000 shares
       issuable upon exercise of stock options.

(6)    Includes 89,384 shares issuable upon exercise of stock options.

(7)    Includes 14,750 shares issuable upon exercise of stock options.

(8)    Includes 106,905 shares  beneficially owned Mr. Phillipps's wife, Janice B. Phillipps.  Also includes 8,484 shares issuable upon
       exercise of stock options.

(9)    Includes 14,750 shares issuable upon exercise of stock options.

(10)   Includes 32,000 shares  beneficially owned by the Vander Salm Family Trust, of which Mr. Vander Salm is a trustee and over which
       Mr. Vander Salm shares investment and voting control.  Also includes 24,000 shares issuable upon exercise of stock options.

(11)   Includes 20,000 shares issuable upon exercise of stock options.


ITEM 13.  CERTAIN TRANSACTIONS

Mr. Louis C. Wallace is currently, and has been since 1989, a member of the Board of Directors of the Company.  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 Company, representing approximately thirteen percent (17%) of net sales during fiscal
1999.  SSI and the Company operate at arms length with a contract with terms and conditions substantially the same as the other
domestic distributors of the Company's products.  The Company expects that SSI will represent approximately the same percentage of
net sales during fiscal 2000 as occurred during fiscal 1999.




<PAGE>


                                                          LUXTEC CORPORATION
                                                           October 31, 1999


                                                                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, 1998 and October 31, 1999.

     Consolidated Statements of Operations
     for the years ended October 31, 1997,
     October 31, 1998 and October 31, 1999.

     Consolidated Statements of Stockholders'
     Equity for the years ended October 31, 1997,
     October 31, 1998 and October 31, 1999.

     Consolidated Statements of Cash Flows
     for the years ended October 31, 1997,
     October 31, 1998 and October 31, 1999.

     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>


<PRE>
                                                           October 31, 1999
3. Exhibits
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*******
           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                4D*******
           Company and 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            10T********
           between the Purchaser named therein and the Company

</PRE>
                                                          LUXTEC CORPORATION
                                                           October 31, 1999

<PRE>
Exhibit    Description                                                                               Designation
10U        Warrant Agreement made as of June 3, 1996, between the                    10U********
           Company and the 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

*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.

**********Previously filed as exhibit to the Corporation's Report on Form 10-K for fiscal year ended October 31, 1998.

</PRE>

<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>LUXTEC CORPORATION</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

     3. Exhibits (Continued)

         (b)  Reports on Form 8-K:

              None.

         (c)  Exhibits.

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=25%> </TD>
<TD WIDTH=75%><FONT SIZE=3>
The
Corporation hereby files as exhibits to this Form 10-K those exhibits listed in
Item 14 (a)(3), above, as being filed herewith.</FONT></TD>
</TR>
</TABLE>
<BR>

         (d)  Financial Statement Schedules.

                Financial Data Schedule Exhibit 27







<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>LUXTEC CORPORATION</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>SIGNATURES</FONT></H1>

     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 2000.

                                                                     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:
<PRE>
Signature                            Title                                Date


s/James W. Hobbs                     President, Chief                     January 28, 2000
James W. Hobbs                       Executive Officer, Director


s/Samuel M. Stein                    Chief Financial Officer,        January 28, 2000
Samuel M. Stein                      Treasurer, Assistant Clerk


s/James Berardo                      Director                             January 28, 2000
James Berardo


s/Paul Epstein                       Director                             January 28, 2000
Paul Epstein


s/James J. Goodman                   Director                             January 28, 2000
James J. Goodman


s/Patrick G. Phillipps                     Director                             January 28, 2000
Patrick G. Phillipps


s/Thomas J. Vander Salm              Director                             January 28, 2000
Thomas J. Vander Salm


s/Louis C. Wallace                   Director                             January 28, 2000
Louis C. Wallace


</PRE>

<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Exhibits furnished pursuant to requirements</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>of FORM 10K</FONT></H1>

<PRE>
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*******
           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                    4D*******
           the Company and 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

</PRE>

<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>Exhibits furnished pursuant to requirements</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>of FORM 10K</FONT></H1>

<PRE>
3. Exhibits  (Continued)
Exhibit    Description                                                                                    Designation
10T        Form of Subscription Agreement and Letter of Investment Intent            10T********
           between the Purchaser named therein and the Company
10U        Warrant Agreement made as of June 3, 1996, between the Company       10U********
           and the 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
</PRE>
*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.

<P><FONT SIZE=3>**Previously filed as exhibit to the Corporation’s Report
on Form 10-K for fiscal year ended October 31, 1993. </FONT></P>

<P><FONT SIZE=3>***Previously filed as exhibits to the Corporation’s Report
on Form 10-Q for quarter ended July 31, 1994. </FONT></P>

****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.

<P><FONT SIZE=3>********Previously filed as exhibits to the Corporation’s
Report on Form 10-Q for quarter ended July 31, 1996. </FONT></P>

<P><FONT SIZE=3>*********Previously filed as exhibit to the Corporation’s Report
on Form 10-K for fiscal year ended October 31, 1996. </FONT></P>

<P><FONT SIZE=3>**********Previously filed as exhibit to the Corporation’s
Report on Form 10-K for fiscal year ended October 31, 1998. </FONT></P>


<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>LUXTEC CORPORATION</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>October 31, 1999</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>EXHIBIT 21</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>Luxtec Corporation Subsidiaries</FONT></H1>

1.    Cathtec, Inc., a Massachusetts Corporation.

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

3.    CardioDyne, Incorporated, a Massachusetts Corporation.





<PAGE>


<H1 ALIGN=CENTER><FONT SIZE=3>EXHIBIT 23</FONT></H1>

<H1 ALIGN=CENTER><FONT SIZE=3>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS</FONT></H1>

As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a
part of 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



<H2 ALIGN=LEFT><FONT SIZE=3>Boston, MassachusettsJanuary <BR>28, 2000</FONT></H2>
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