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

                                    FORM 10-K

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended October 31, 1996 [Fee Required]
           or
[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934 [No Fee Required]

For the transition period from _____________ to _____________

                         Commission File Number: 0-14961

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

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

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

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

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

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

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

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

The aggregate market value of the voting Common Stock held by  non-affiliates of
the registrant was  approximately  $2,746,909 based on the closing price of such
stock on December 31, 1996, as reported by the American  Stock  Exchange  ($2.63
per share).

As of December 31, 1996,  2,849,657 shares of Common stock, $.01 par value, were
issued and outstanding.


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


<PAGE>

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

 ITEM 1. BUSINESS

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

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

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

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

<PAGE>



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

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

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

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

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

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


<PAGE>


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

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

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

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

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

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

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

Surgical Telescopes The Corporation  manufactures and markets a proprietary line
of surgical  telescopes.  The custom fit  telescopes  provide  the surgeon  with
increased  magnification  ranging from 2.5X to 6X. During the fourth  quarter of
fiscal  year 1993,  the  Corporation  introduced  illumination  to the  surgical
telescope,  utilizing  fiber optic  delivery of light into the line of sight and
thus providing the first surgical telescope with coaxial illumination.
These products are part of the current product offering of the Corporation.

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

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


<PAGE>


 Patents and Proprietary Information

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

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

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

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

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

 Marketing and Sales
Fiber Optics
The  Corporation's  customers for its fiber optic and illumination  products are
acute care hospitals,  clinics, surgi centers, and surgeons. An estimated 33,000
surgeons use the Corporation's products, on a worldwide basis. The Corporation's
products  provide  illumination  and  magnification  used  during  the  surgical
procedure.

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

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

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

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

           Exercise Stress Testing

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

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

<PAGE>


           Emergency Transport

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

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

           Obstetrics

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

           Post-Operative

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

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

<PAGE>


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

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


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


 Major Customers
For  the  year  ended  October  31,  1996,  one  customer,   Specialty  Surgical
Instruments, accounted for 12% of the Corporation's net revenues.

 Research and Development
The Corporation incurred  approximately $661,000 of product development expenses
in fiscal year 1996,  $615,000 in fiscal 1995,  and $437,000 in fiscal 1994. The
Corporation   expects  that  the  increased   level  of  investment  in  product
development will result in a series of product  introductions during fiscal 1997
and beyond.

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


<PAGE>


 Backlog
At October  31,  1996,  the  Corporation's  backlog  was  $945,000,  compared to
$850,000 at October 31, 1995. The  Corporation  generally  ships products within
three weeks of the receipt of an order from a customer. The Corporation does not
believe that its backlog  accurately  predicts the amount of quarterly or annual
revenues.

 Employees
As of October 31, 1996, the Corporation had 71 full time employees, of whom five
are  executives,  three  are  engaged  in  supervisory  capacities,  31  are  in
manufacturing  and the  remainder  are  involved in  engineering,  research  and
development,  marketing and administration.  None of the Corporation's employees
is covered by a collective  bargaining  agreement.  The Corporation believes its
employee relations are good.

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

 ITEM 2.  PROPERTIES

The Corporation  occupies  approximately 27,000 square feet at 326 Clark Street,
Worcester,  Massachusetts  under a lease  that  has  been  extended  through  in
September 1998. The Corporation believes that this space is adequate to meet its
current requirements and that alternative space would be available at comparable
prices should the lease not be extended after its expiration.

 ITEM 3.  LEGAL PROCEEDINGS

The Corporation was the defendant in a suit brought by Republic Lens Corporation
("Republic")  of New Jersey.  The suit,  filed on September  29, 1995, in United
States  District  Court,  District of New Jersey  alleged  that the  Corporation
breached a contract with Republic in which the  Corporation was obligated to use
Republic as its sole supplier of parts to be used in the development and sale of
a product  that  would  result  from a patent  assigned  to the  Corporation  by
Republic.  The two  companies  agreed to a  settlement  of the suit in which the
Corporation  returned  the  rights to the  patent to  Republic  in return  for a
release from liability from Republic.


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

No  matters  were  submitted  to a vote of  security  holders,  whether  through
solicitation  of  proxies  or  otherwise,  during  the  fourth  quarter  of  the
Corporation's fiscal year ended October 31, 1996.

<PAGE>




                                     PART II

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

The  Corporation's  Common Stock is traded on the American Stock Exchange (AMEX)
under the AMEX symbol "LXU.EC." The  Corporation's  Common Stock has been listed
on the American Stock Exchange since April 20, 1994. From September,  1986 until
April,  1994 the Corporation's  Common Stock was traded in the  over-the-counter
market  on the  National  Association  of  Securities  Dealers,  Inc.  Automated
Quotations  System  (NASDAQ) under the NASDAQ symbol "LUXT." The following table
sets forth the high and low  closing  sale  prices of the  Corporation's  Common
Stock on the AMEX during the periods indicated below.


                                              Common Stock
                                            High           Low

 Fiscal Year Ended 10/31/95
First Quarter                               5.38           3.50`
Second Quarter                              4.00           2.50
Third Quarter                               7.25           2.88
Fourth Quarter                              5.75           4.00

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



On December 31, 1996, the closing sale price of the  Corporation's  Common Stock
on the American Stock Exchange was $2.63.

As of December 31, 1996, there were  approximately  747 holders of record of the
Corporation's   Common  Stock.   The   Corporation   estimates  that  there  are
approximately 2,000 beneficial holders of the Corporation's Common Stock.

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



<PAGE>


 ITEM 6.  SELECTED FINANCIAL DATA

The selected  consolidated  operating data  presented  below for the years ended
October 31, 1992, 1993,  1994, 1995 and 1996 and the consolidated  balance sheet
data at  October  31,  1992,  1993,  1994,  1995 and 1996 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 financial  statements and notes thereto appearing elsewhere
herein.  This data reflects the Corporation's  one-for-ten  Common Stock reverse
split effected April 10, 1992 for all periods presented.
<TABLE>
<CAPTION>

 Operating Data:                                     (In thousands, except for per share data)
                                                                     Years Ended October 31,
                                         1992           1993           1994            1995           1996

<S>                                     <C>            <C>            <C>             <C>            <C>   
Sales . . . . . . . . . . . . . .       $6,040         $6,734         $8,139          $7,755         $9,348

Net Earnings  (Loss). . . . .              407            153            164          (6,127)          (571)

Net Earnings (Loss) Per Share . .          .29            .11            .11           (4.20)          (.22)




                                                                   (In thousands)
Balance Sheet Data:                                           Years Ended October 31,
                                         1992           1993           1994            1995           1996


Working Capital. . . . . . . .          $1,056         $ 1,210        $ 1,410        $ (599)          $ 935

Total Assets. . . . . . . . . . .        2,763           3,431          4,072          4,122          5,295


Long-term debt and capital lease
obligations, less current
portions  . . . .                           67             -               -               -           119
                                                                        

Stockholders' equity. . . . .            1,804           1,957          2,163            198           813

</TABLE>





<PAGE>


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

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

 Results of Operations

The  following  table  sets  forth  certain  consolidated  financial  data  as a
percentage of revenue for the fiscal years ended October 31, 1994 1995 and 1996.

                                                     1994      1995      1996
Sales                                                100%      100%      100%
Cost of Goods Sold                                    55         61       57
Selling and Marketing                                 22         24       24
Research and development                               5          8        7
General and administrative                            15         18       16
Charge for purchased research and development          -        (67)       -
Other income/(expense)                                 -         (1)      (2)
Income (loss) before provision for income taxes        3        (79)      (6)
Provision for income taxes                             1          -        -
Net income (loss)                                      2        (79)      (6)

 Fiscal 1996 Compared with Fiscal 1995

Sales: Sales increased 20.5% to $9,347,699 in fiscal 1996 compared to $7,755,376
in  fiscal  1995.  Sales  increases  were  recorded  in  virtually  all  of  the
Corporation's  business  lines.  Fiscal year 1996 saw the  introduction of a new
line of  lightweight  Luxtec fiber optic  lighting  products with  significantly
enhanced   performance  that  were  well  received  in  the   marketplace.   The
microlaparascopic  products sold by the Corporation's Fiber Imaging Technologies
subsidiary also increased . The first CardioDyne blood pressure monitoring units
were  shipped  at the end of  fiscal  1996.  The  Corporation  expects  sales to
increase  during  fiscal  1997  primarily  as a result of having the  CardioDyne
product line of blood  pressure  monitors for sale during the full year, as well
as the full year  impact of other new  product  development  introductions  that
occurred during fiscal year 1996.

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



<PAGE>


Gross  Profit:  Gross  Profit  increased to  $4,023,935  or 43% of net sales for
fiscal  1996  compared to  $3,022,876  or 39% of net sales for fiscal  1995.  In
addition to the effect of the above mentioned inventory  adjustments and accrual
increases,  there  continued  to be price  competition  and an  increase  in the
portion of total  sales  attributable  to lower  margin  OEM  sales.  These were
substantially  offset by CardioDyne  licensing  revenue  received  during fiscal
1996.  The  Corporation  does not expect gross profit margins during fiscal year
1997 to change dramatically from their 1996 relationship to sales.

Selling and Marketing  Expenses:  Selling and marketing  expenses increased to $
2,190,881 for fiscal 1996 compared to $1,825,897 for fiscal 1995, an increase of
$364,984 or 20%. Much of the increase in sales and marketing expenses during the
year related to the buildup of a sales and  marketing  organization  for the new
CardioDyne  products.  Higher costs were also associated with the rollout of the
new line of Luxtec fiber optic lighting  products.  Management expects sales and
marketing expenses to increase during fiscal 1997 primarily due to the full year
offering of the CardioDyne  product line and its method of distribution into the
market.

Research  and  Development:  Research  and  development  expenses  increased  to
$660,591 in fiscal 1996  compared  to  $614,937 in fiscal  1995,  an increase of
$45,654 or 7%. The increase in expenses in this  category  resulted from work on
the new line of Luxtec fiber optic lighting and on the CardioDyne line of motion
tolerant blood pressure  monitors  during fiscal 1996.  Management  expects that
research expenditures will continue to increase as a result of the Corporation's
product development plans.

General and  Administrative:  General and  administrative  expenses increased to
$1,523,171  in fiscal 1996 compared to $1,377,974 in fiscal 1995, an increase of
$145,197  or  10.5%.   During  fiscal  1996,   the   Corporation   absorbed  the
administrative  costs of  CardioDyne  Inc. and  increased  costs  related to the
growth of the Fiber Imaging Technologies  subsidiary.  Additionally,  during the
year, the  Corporation  incurred legal fees related to its position as defendant
in a lawsuit that was settled during the fiscal year.

Interest:  Interest  expense  increased to $214,598 for fiscal 1996  compared to
$97,741 for fiscal 1995,  an increase of $116,857 or 120%.  An investment in the
company by GMMI of $1,000,000 of  subordinated  debt during the year,  accounted
for a substantial  portion of the increased interest cost. The subordinated debt
was  converted to Preferred  Stock during  November,  1996.  Higher  credit line
balances were responsible for most of the remainder of the cost increase.

 Fiscal 1995 Compared with Fiscal 1994

Sales: Sales were down 5% to $7,755,377 in fiscal 1995 compared to $8,138,903 in
fiscal 1994. The reasons for the decrease  included  delays in the completion of
two new product lines.  Luxtec was  essentially  out of the Halogen light source
business  during the second half of fiscal year 1995, as regulatory  delays kept
the  Corporation  from  shipping  orders  that were  received  during the fourth
quarter.  The new versions of the illuminated and standard  telescopes also were
not  completed  until the end of the fourth  quarter,  resulting in a buildup of
unshipped orders. Luxtec ended the year with a record backlog of over $850,000.



<PAGE>


Cost of Goods Sold:  Cost of goods sold  increased to  $4,732,500  or 61% of net
sales for fiscal 1995  compared  with  $4,432,219 or 54% of net sales for fiscal
1994. The  Corporation  charged to operations  the cost of some inventory  items
that had become  redundant as a result of the changes to new product lines.  The
Corporation also increased accruals related to future warranty claims due to the
introduction of new product lines.

Gross  Profit:  Gross  Profit  decreased to  $3,022,876  or 39% of net sales for
fiscal 1995  compared to  $3,706,684  or 46% of net sales for fiscal  1994.  The
effect of the above mentioned  inventory  adjustments and accrual increases were
also accompanied by continued price competition and an increase in the sales mix
of lower margin OEM sales.

Selling and  Marketing  Expenses:  Selling and marketing  expenses  increased to
$1,825,897  for fiscal 1995 compared to $1,793,137  for fiscal 1994, an increase
of $32,760 or 2%. During fiscal 1995, Luxtec essentially  maintained  employment
levels at their previous year levels,  while introducing several new programs in
conjunction with the Corporation's distributors to offset increased competition

Research  and  Development:  Research  and  development  expenses  increased  to
$614,937 in fiscal 1995  compared  to  $437,064 in fiscal  1994,  an increase of
$177,873 or 41%. The increase in expenses in this category were directly related
to the  introduction  of two major product line upgrades during fiscal 1995. The
next  generation  of  standard  and  illuminated  telescopes  as well as a newly
designed line of halogen lightsources were introduced in late fiscal 1995.

General and  Administrative:  General and  administrative  expenses increased to
$1,377,974 in fiscal 1995 compared to $1,261,356 in fiscal 1994, representing an
increase of $116,618 or 9%. During fiscal 1995,  Luxtec continued to upgrade its
investor relations programs,  as well as working with an investment banking firm
in activities that ultimately  resulted in the Corporation's  acquisition of the
new technology represented by CardioDyne's product lines.

Interest:  Interest  expense  increased to $97,741 for fiscal 1994 compared with
$31,860  in fiscal  1994 an  increase  of $65,881 or 207%.  Higher  credit  line
balances and increased interest rates accounted for the increase.

 Liquidity and Capital Resources

At October  31,  1996,  the  Corporation  had working  capital of  approximately
$934,500  compared to negative  working  capital of  approximately  $ 599,000 at
October 31, 1995.  The  improvement  was the result of two  financings  that are
described in subsequent paragraphs.
<PAGE>

On December 18, 1995, the Company issued Senior  Subordinated  Notes (the Notes)
to an investor for $1,000,000 in cash. Interest accrued on the Notes at the rate
of 8% per annum and was payable annually in arrears.  Principal on the Notes was
due January 1, 2001. In connection with the financing,  the Corporation issued a
detachable  stock  warrant to the investor.  The warrant  entitles the holder to
purchase 450,000 shares of common stock at an exercise price of $3.00,  adjusted
for certain  dilutive  events,  as defined.  In accordance with the terms of the
Note  Purchase   Agreement  between  the  Corporation  and  the  investor,   the
Corporation  required the  investor to exchange  the Notes for 10,000  shares of
Series A Preferred Stock of the  Corporation  ("Series A Stock") on November 17,
1996.  Dividends,  which are  cumulative,  accrue  on the  Series A Stock at the
annual rate of $8.00 per share and are payable when and if declared by the Board
of Directors of the  Corporation.  The Series A Stock is  redeemable  January 1,
2001.

During the third quarter of FY96, the Corporation authorized a private placement
of units  comprised  of one share of Luxtec  common  stock  and one  warrant  to
purchase  one  share of  Luxtec  common  stock at an  exercise  price of  $6.00,
exercisable  for five years.  Each unit was priced at $3.00 and during the third
quarter of FY96,  the  Corporation  received  $994,665  for  331,555  units.  An
additional  63,000 units were purchased by investors  during  August,  1996, for
$189,000  bringing the total proceeds of the private  placement to $1,183,665 at
the time that the  investment  was closed.  The  principal  source of short-term
borrowings during the year was a secured $2,500,000  revolving credit agreement.
At October 31,  1996,  the credit  line  borrowings  balance  was  approximately
$2,146,000.  The interest  rate on the credit line at the end of the fiscal year
was 8.50%.

The Corporation anticipates that its current cash requirements will be satisfied
by cash flow from existing operations and the continuation of the current credit
arrangements with BankBoston.

 Risk Factors and Cautionary Statements

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

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

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


<PAGE>

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

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

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

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

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

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

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

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

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



<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       LUXTEC CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX



                                                                          PAGE

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                   19

CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1996                20

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1994, 1995 AND 1996                                            21

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996                        22

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
OCTOBER 31, 1994, 1995 AND 1996                                            23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                 24



<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Luxtec Corporation:

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Luxtec
Corporation  and  subsidiaries  as of October 31, 1995 and 1996, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1996. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Luxtec Corporation
and  subsidiaries  as of October  31,  1995 and 1996,  and the  results of their
operations  and their cash flows for each of the three years in the period ended
October 31, 1996, in conformity with generally accepted accounting principles.








Boston, Massachusetts
December 12, 1996


<PAGE>


                       LUXTEC CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                October 31,
                                                                                          1995              1996
CURRENT ASSETS:
<S>                                                                                  <C>              <C>            
   Cash                                                                              $        11,721  $       172,356
   Accounts receivable, less reserves of $66,000 in 1995 and $69,000 in 1996               1,534,267        1,741,669
   Inventories                                                                             1,696,001        2,173,015
   Prepaid expenses and other current assets                                                  82,738          210,564
                                                                                     ---------------  ---------------

         Total current assets                                                              3,324,727        4,297,604
                                                                                     ---------------  ---------------

PROPERTY AND EQUIPMENT, AT COST                                                            1,910,189        2,365,740

ACCUMULATED DEPRECIATION AND AMORTIZATION                                                 (1,409,960)      (1,617,861)
                                                                                     ---------------  ---------------

         Property and equipment, net                                                         500,229          747,879
                                                                                     ---------------  ---------------

OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF $47,000 AND $104,000 AT
OCTOBER 31, 1995 AND 1996, RESPECTIVELY                                                      297,087          249,375
                                                                                     ---------------  ---------------

         Total assets                                                                $     4,122,043  $     5,294,858
                                                                                     ===============  ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Revolving line of credit                                                          $     1,730,308  $     2,146,223
   Current portion of equipment facility loan                                                      -           39,612
   Accounts payable                                                                        1,553,869          726,201
   Accrued expenses                                                                          639,969          451,068
                                                                                     ---------------  ---------------

         Total current liabilities                                                         3,924,146        3,363,104
                                                                                     ---------------  ---------------

NOTE PAYABLE TO STOCKHOLDER                                                                        -        1,000,000
                                                                                     ---------------  ---------------

EQUIPMENT FACILITY LOAN, NET OF CURRENT MATURITIES                                                 -          118,843
                                                                                     ---------------  ---------------

COMMITMENTS (Note 9)

STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value-
     Authorized--10,000,000 shares
     Issued and outstanding--2,436,541 shares in 1995 and 2,841,539 in 1996                   24,365           28,415
   Additional paid-in capital                                                              7,141,576        8,323,216
   Accumulated deficit                                                                    (6,968,044)      (7,538,720)
                                                                                     ---------------  ---------------

         Total stockholders' equity                                                          197,897          812,911
                                                                                     ---------------  ---------------

         Total liabilities and stockholders' equity                                  $     4,122,043  $     5,294,858
                                                                                     ===============  ===============


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


<PAGE>


                       LUXTEC CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>



                                                                             For the Years Ended October 31,
                                                                         1994             1995              1996

<S>                                                                <C>               <C>              <C>            
NET REVENUES                                                       $     8,138,903   $     7,755,376  $     9,347,699

COST OF GOODS SOLD                                                       4,432,219         4,732,500        5,323,764
                                                                   ---------------   ---------------  ---------------

         Gross profit                                                    3,706,684         3,022,876        4,023,935
                                                                   ---------------   ---------------  ---------------

OPERATING EXPENSES:
   Selling and marketing                                                 1,793,137         1,825,897        2,190,881
   Research and development                                                437,064           614,937          660,591
   General and administrative                                            1,261,356         1,377,974        1,528,181
   Charge for purchased research and development (Note 3)                        -         5,230,950                -
                                                                   ---------------   ---------------  ---------------

         Total operating expenses                                        3,491,557         9,049,758        4,379,653
                                                                   ---------------   ---------------  ---------------

         Income (loss) from operations                                     215,127        (6,026,882)        (355,718)
                                                                   ---------------   ---------------  ---------------

OTHER INCOME (EXPENSE):
   Interest expense                                                        (31,860)          (97,741)        (231,442)
   Other income (expense)                                                   (2,679)           (2,317)          16,484
                                                                   ---------------   ---------------  ---------------

         Total other income (expense)                                      (34,539)         (100,058)        (214,958)
                                                                   ---------------   ---------------  ---------------

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES                            180,588        (6,126,940)        (570,676)

PROVISION FOR INCOME TAXES                                                  16,266                 -                -
                                                                   ---------------   ---------------  ---------------

         Net income (loss)                                         $       164,322   $    (6,126,940) $      (570,676)
                                                                   ===============   ===============  ===============

NET INCOME (LOSS) PER SHARE                                            $   0.11          $  (4.20)        $   (.22)
                                                                       ========          ========         ========

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING                                                            1,487,823         1,457,897        2,574,705
                                                                   =============     =============    =============


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

</TABLE>


<PAGE>


                       LUXTEC CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


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

<S>              <C> <C>                     <C>        <C>           <C>            <C>               <C>           
BALANCE, OCTOBER 31, 1993                    1,401,200  $   14,012    $   2,948,016  $    (1,005,426)  $    1,956,602

   Net income                                        -           -                -          164,322          164,322

   Issuance of common stock for patent
   rights                                       20,000         200           42,300                -           42,500
                                           -----------  ----------    -------------  ---------------   --------------

BALANCE, OCTOBER 31, 1994                    1,421,200      14,212        2,990,316         (841,104)       2,163,424

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

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

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

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

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

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

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

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

BALANCE, OCTOBER 31, 1996                    2,841,539  $   28,415    $   8,323,216  $    (7,538,720)  $      812,911
                                           ===========  ==========    =============  ===============   ==============
</TABLE>


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



<PAGE>


                       LUXTEC CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                             For the Years Ended October 31,
                                                                          1994            1995               1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                  <C>             <C>                <C>           
   Net income (loss)                                                 $     164,322   $    (6,126,940)   $    (570,676)
   Adjustments to reconcile net income (loss) to net cash used
   for operating activities-
     Charge for purchased research and development                               -         5,230,950                -
     Depreciation and amortization                                         173,284           176,916          265,258
     Provision for uncollectible accounts receivable                        27,500            12,500            3,651
     Changes in current assets and liabilities-
       Accounts receivable                                                (465,406)          121,242         (211,053)
       Inventories                                                        (144,704)         (176,353)        (477,014)
       Prepaid expenses and other current assets                           (55,209)           37,833         (127,826)
       Accounts payable                                                      3,200           624,218         (827,668)
       Accrued expenses                                                     93,524          (255,437)        (188,901)
                                                                   ---------------   ---------------  ---------------

              Net cash used for operating activities                      (203,489)         (355,071)      (2,134,229)
                                                                   ---------------   ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                    (100,455)         (125,261)        (294,116)
   Increase in other assets                                                (36,968)          (95,685)          (9,645)
   Cash paid in connection with CardioDyne, Inc. acquisition,
     net of cash acquired                                                        -          (582,154)               -
                                                                   ---------------   ---------------  ---------------

              Net cash used for investing activities                      (137,423)         (803,100)        (303,761)
                                                                   ---------------   ---------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of common stock in a private                       -                 -        1,156,628
   placement
   Proceeds from note payable                                                    -                 -        1,000,000
   Payments under equipment facility loan                                        -                 -           (2,980)
   Issuance of common stock under stock option plan                              -                 -            2,445
   Net borrowings on revolving line of credit                              401,287         1,123,150          415,915
   Payments on long-term debt                                              (52,500)                -                -
   Payments under capital lease obligations                                (11,213)                -                -
   Issuance of common stock under employee stock purchase plan                   -            36,413           26,617
                                                                   ---------------   ---------------  ---------------

              Net cash provided by financing activities                    337,574         1,159,563        2,598,625
                                                                   ---------------   ---------------  ---------------

NET (DECREASE) INCREASE IN CASH                                             (3,338)            1,392          160,635

CASH, BEGINNING OF PERIOD                                                   13,667            10,329           11,721
                                                                   ---------------   ---------------  ---------------

CASH, END OF PERIOD                                                  $      10,329   $        11,721    $     172,356
                                                                     =============   ===============    =============

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

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

     Purchases of property and equipment under equipment
     facility loan                                                   $           -   $             -    $     161,435
                                                                     =============   ===============    =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for-Interest                                           $      31,868   $        95,205    $     157,144
                                                                     =============   ===============    =============

     Income taxes                                                    $      14,536   $             -    $           -
                                                                     =============   ===============    =============

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


                       LUXTEC CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 1996




(1)    NATURE OF THE BUSINESS

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

       During 1995,  as  disclosed in Note 3, the Company  acquired the stock of
       CardioDyne, Inc., a development-stage enterprise.

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)    Principles of Consolidation and Foreign Currency Remeasurement

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

               The  accounts and  transactions  of Luxtec Fiber Optics B.V.
               are remeasured into U.S. dollars using the applicable historical,
               current and  weighted-average  exchange rates. All exchange gains
               and  losses  from  remeasurement  of assets and  liabilities  are
               currently  recognized in income.  The gains and losses recognized
               due to foreign  currency  exchange were  insignificant  in fiscal
               1994 and 1995.  Luxtec  Fiber Optics B.V.  was  dissolved  during
               fiscal 1995.

        (b)   Inventories

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

       (c)    Property and Equipment

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

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



<PAGE>



                       LUXTEC CORPORATION AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                OCTOBER 31, 1996

                                   (Continued)


(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        (d)   Other Assets

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

       (e)    Revenue Recognition

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

       (f)    Research and Development Costs

              Research  and  development  costs are  charged  to  operations  as
              incurred.

       (g)    Net Income (Loss)  per Share

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

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

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

 (3)   MERGER WITH CARDIODYNE, INC.

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


<PAGE>


(3)    MERGER WITH CARDIODYNE, INC. (Continued)

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

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

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

                                                        $     5,235,073

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

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

<TABLE>
<CAPTION>
                                                         For the Years Ended October 31,
                                                               1994              1995

<S>                                                     <C>               <C>            
        Revenue                                         $     8,138,903   $     7,755,376

        Net loss                                               (142,033)       (6,424,783)

        Net loss per common share and common
        equivalent share                                     $ (0.06)          $ (2.64)

</TABLE>


<PAGE>


(4)    INVENTORIES

       Inventories consist of the following at October 31, 1995 and 1996:

<TABLE>
<CAPTION>
                                                         1995              1996

<S>                                                 <C>              <C>            
        Raw material                                $       978,477  $     1,237,123
        Work-in-process                                     203,833          220,255
        Finished goods                                      513,691          715,637
                                                    ---------------  ---------------

                                                    $     1,696,001  $     2,173,015
                                                    ===============  ===============

(5)    PROPERTY AND EQUIPMENT

       Property and equipment and their  respective  useful lives are as follows
at October 31, 1995 and 1996:

                                Estimated Useful
                                                          Lives              1995             1996

        Machinery and equipment                          5-10 Years    $     1,251,305   $     1,614,778
        Molds and tooling                                   5 Years            159,893           183,423
        Furniture and fixtures                             10 Years            306,409           339,308
        Leasehold improvements                         Life of lease           192,582           228,231
                                                                       ---------------   ---------------

                                                                       $     1,910,189   $     2,365,740
                                                                       ===============   ===============

(6)    ACCRUED EXPENSES

       Accrued expenses consist of the following at October 31, 1995 and 1996:

                                                          1995              1996

        Accrued payroll and related expenses          $      80,246    $     174,968
        Other accrued expenses                              559,723          276,100
                                                    ---------------  ---------------

                                                      $     639,969    $     451,068
                                                      =============    =============

</TABLE>


<PAGE>


(7)    REVOLVING CREDIT LINE AND EQUIPMENT FACILITY AGREEMENT

       The Company has a $2,500,000  revolving  line-of-credit  agreement with a
       bank. Borrowings bear interest at the bank's prime rate (8.25% at October
       31,  1996) plus .25%.  Unused  portions of the  revolving  line of credit
       accrue  a fee at an  annual  rate of  .25%.  Borrowings  are  secured  by
       substantially  all  assets  of  the  Company.   The  agreement   contains
       covenants,  including the  maintenance of certain  financial  ratios,  as
       defined. The Company was in compliance with all covenants or had obtained
       a waiver from the bank for the year ended  October 31,  1996.  At October
       31,  1996,  availability  under  the  line of  credit  was  approximately
       $227,000. The line of credit expires on March 31, 1997.

       The  Company has a $750,000  equipment  facility  agreement  with a bank.
       Borrowings  are  based  on  the  purchase  price  of  new  equipment  and
       conditions determined by the bank. Borrowings bear interest at the bank's
       base rate (8.25% at October  31,  1996) plus .5%.  Borrowings  under this
       facility  are secured by  substantially  all assets of the  Company.  The
       equipment facility agreement expires on March 31, 1997.

(8)    NOTE PAYABLE

       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% per annum and was  payable  annually  in arrears.
       Principal on the Notes was due January 1, 2001.  In  connection  with the
       financing,  the Company issued a detachable stock warrant to an investor.
       The  warrant  entitles  the holder to purchase  450,000  shares of common
       stock at an exercise  price of $3.00 per share (fair market value at date
       of grant), adjusted for certain dilutive events, as defined.

       On November 14, 1996, the Company exchanged the Senior Subordinated Notes
       for ten thousand  (10,000)  shares of the  Company's  nonvoting  Series A
       preferred  stock,  $1.00  par value per  share  (the  Series A  Preferred
       Stock).
       The Series A Preferred Stock has the following rights and preferences:

         Dividends

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



<PAGE>


(8)    NOTE PAYABLE (Continued)

         Liquidation Preference

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

         Redemption

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

         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.

(9)    COMMITMENTS

       The Company has  noncancelable  operating lease commitments which consist
       principally  of rentals of facilities,  machinery and an automobile.  Its
       manufacturing and office facilities are leased as tenants-at-will until a
       formal agreement is signed.

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

        Fiscal Year                                           Amount

        1997                                              $     199,775
        1998                                                    188,225
        1999                                                     35,470
        2000                                                     15,441
        2001                                                     15,441
                                                        ---------------

                 Total minimum lease payments             $     454,352
                                                          =============

               Rent expense charged to operations for operating  leases was
               approximately  $138,000 in 1994, $162,000 in 1995 and $142,000 in
               1996.



<PAGE>


(10)   PRIVATE PLACEMENT OF COMMON STOCK

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

(11)   STOCK PLANS

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

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

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



<PAGE>


(11)   STOCK PLANS (Continued)

       The following schedule summarizes the stock option activity for the three
       years ended October 31, 1996:

<TABLE>
<CAPTION>
                                                         Number of        Option Price
                                                          Shares            Per Share
<S>                    <C> <C>                                <C>      <C>        
Outstanding at October 31, 1993                               65,000   $      1.25
  Granted                                                     55,000          1.63
                                                      --------------   -----------

Outstanding at October 31, 1994                              120,000        1.25-   1.63
  Granted                                                    196,000        4.13-   4.75
  Canceled                                                     6,000          1.25
                                                      --------------   -----------

Outstanding at October 31, 1995                              310,000        1.25-   4.75
  Granted                                                    901,571        2.75-   6.00
                                                      --------------   -----------------

Outstanding at October 31, 1996                            1,211,571   $    1.25-$  6.00
                                                      ==============   =================

Exercisable at October 31, 1996                            1,006,251   $    1.25-$  6.00
                                                      ==============   =================
</TABLE>

       As of October 31, 1995 and 1996, 500,000 shares of common stock have been
       reserved for issuance under the Company's stock option plans.

       On April 21,  1994,  the Board of Directors  approved  the 1993  Employee
       Stock  Purchase Plan (the 1993 Plan) whereby the Company has reserved and
       may  issue  up to an  aggregate  of  25,000  shares  of  common  stock in
       semiannual  offerings.  Stock  is sold at 85% of fair  market  value,  as
       defined.  Shares subscribed to and issued under the 1993 Plan were 15,341
       and 9,327 in 1995 and 1996, respectively.

       In October  1995,  the  Financial  Accounting  Standards  Board (FASB)
       issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
       123 requires  the  measurement  of the fair value of stock  options or
       warrants to be included in the statement of income or disclosed in the
       notes to financial statements. The Company has determined that it will
       continue to account for stock-based  compensation  for employees under
       Accounting   Principles   Board   Opinion   No.   25  and   elect  the
       disclosure-only  alternative  under  SFAS No.  123.  The  Company  has
       computed the pro forma



<PAGE>


(11)   STOCK PLANS (Continued)

       disclosures  required  under SFAS No. 123 for options  granted in 1996
       using the Black-Scholes  option  pricing model prescribed by SFAS No.123.
       The weighted average assumptions used for 1996 are:

Risk free interest rate                                            6.18%

Expected dividend yield                                              -

Expected lives                                                   10 years

Expected volatility                                                 18%

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

                             Year Ended October 31,
                                    1995 1996

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

Pro forma net loss per share                     $ (4.20)          $  (.26)
                                                 =======           =======

(12)   INCOME TAXES

       As of October 31, 1996,  the Company had  available  net  operating  loss
       carryforwards  of  approximately  $2,300,000,  research  and  development
       credit  carryforwards  of  approximately  $91,000,  and general  business
       credit carryforwards of approximately  $25,000 available to reduce future
       federal income taxes, if any. These carryforwards expire through 2011 and
       are subject to review and possible  adjustment  by the  Internal  Revenue
       Service.  The Tax Reform Act of 1986  limits a  corporation's  ability to
       utilize  certain  net  operating  loss  carryforwards  in the  event of a
       cumulative change in ownership in excess of 50%, as defined.

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



<PAGE>


(12)   INCOME TAXES (Continued)

       The  provision  for income  taxes  differs  from the amount  computed  by
       applying the statutory federal income tax rate to income before provision
       for income taxes due to the following:

<TABLE>
<CAPTION>
                                                             For the Years Ended October 31,
                                                         1994              1995             1996

<S>                                                      <C>              <C>               <C>    
        Computed at statutory rate                       34.0  %          34.0  %           34.0  %
        State income tax, net of federal benefit
                                                          6.0              6.0               6.0
        Tax benefit from net operating loss
           carryforwards                                (31.0)           (40.0)            (40.0)
                                                    ---------        ---------         ---------

        Effective tax rate                                9.0  %             -  %              -  %
                                                    =========        =========         =========

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

                                                          1994             1995              1996

        Deferred tax assets                           $     346,000  $     1,141,000     $     983,000
        Deferred tax liabilities                            (62,000)               -           (53,000)
        Valuation allowance                                (284,000)      (1,141,000)         (930,000)
                                                    ---------------  ---------------   ---------------

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

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

                                                          1994             1995              1996

        Net operating losses                          $    230,000   $     1,006,000     $    920,000
        Other temporary differences                        (62,000)           19,000          (53,000)
        Research and development credits                    91,000            91,000           91,000
        General business credits                            25,000            25,000           25,000
                                                    --------------   ---------------   --------------

                                                      $    284,000   $     1,141,000     $    983,000
                                                      ============   ===============     ============
</TABLE>

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



<PAGE>


(13)   BUSINESS SEGMENT AND EXPORT SALES

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

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

                                          For the Years Ended October 31,
        Geographic Area                    1994          1995          1996

        Domestic                            84 %          84 %         84 %
        Europe                              11            10            9
        All others                           5             6            7
                                        -------       -------       -------

                                           100 %          100 %        100 %
                                         =======       =======       =======

 (14)  SIGNIFICANT CUSTOMERS

       One customer,  the president of which is a member of the Company's  Board
       of Directors,  accounted for 15%, 15% and 12% of total revenues in fiscal
       1994, 1995 and 1996, respectively.

(15)   401(K) RETIREMENT PLAN

       On January 1, 1989,  the Company  adopted a qualified  401(k)  retirement
       plan.  The plan covers  substantially  all employees who have satisfied a
       six-month service requirement and have attained the age of 18. The 401(k)
       plan provides for an optional  company  contribution for any plan year at
       the  Company's  discretion.   The  Company  contributed  and  charged  to
       operations  $0, $10,835 and $13,536 for the years ended October 31, 1994,
       1995 and 1996, respectively.


<PAGE>





                               LUXTEC CORPORATION
                                October 31, 1996

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

 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

 ITEM 11.  EXECUTIVE COMPENSATION

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


 ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

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

 ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr.  Louis C.  Wallace is  currently,  and has been since 1989,  a member of the
Board of Directors of the Corporation.  Mr. Wallace is the founder and President
of Specialty Surgical Instrumentation, Inc. (SSI), a surgical distributor in ten
(10) southeastern states. SSI is the largest single customer of the Corporation,
representing  approximately  12% of net sales during fiscal 1996. SSI and Luxtec
operate  at arms  length  with a  contract  substantially  the same as the other
domestic  distributors of the Corporation's  products.  The Corporation  expects
that SSI will represent  approximately  the same  percentage of net sales during
fiscal 1996 as occurred during fiscal 1995.




<PAGE>


                               LUXTEC CORPORATION
                                October 31, 1996


                                     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, 1995 and October 31, 1996.

     Consolidated  Statements  of Earnings for the years ended October 31, 1994,
     October 31, 1995 and October 31, 1996.

     Consolidated Statements of Stockholders' Equity for the years ended October
     31, 1994, October 31, 1995 and October 31, 1996.

     Consolidated Statements of Cash Flows for the years ended October 31, 1994,
     October 31, 1995 and October 31, 1996.

     Notes to Consolidated Financial Statements

  2. Financial Statement Schedules

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




<PAGE>


                               LUXTEC CORPORATION
<TABLE>
<CAPTION>
                                October 31, 1996
3. Exhibits
Exhibit    Description                                                                       Designation
-------    -----------                                                                       -----------
<C>        <C>                                                                                       
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 Company and              4D*******
           GMMI
4E         Registration Rights Agreement made as of June 3, 1996, between the                  4E********
           Company and the Purchasers (as defined therein)
10L        Lease for the premises in Worcester, MA                                             10L*****
10N        Employment Agreement with James Hobbs                                               10N**
10O        Luxtec Corporation 1992 Stock Plan                                                  10O**
10P        Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors                10P****
10Q        Bank Agreement                                                                      10Q******
10R        Warrant Agreement made as of December 18, 1995, between the Company                 10R*******
           and GMMI
10S        Warrant for 450,000 shares of Common Stock of the Company dated as of               10S*******
           December 18, 1995, in the name of GMMI
10T        Form of Subscription Agreement and Letter of Investment Intent between the          10T********
           Purchaser named therein and the Company 3. Exhibits  (Continued)

</TABLE>
<PAGE>

                               LUXTEC CORPORATION
<TABLE>
<CAPTION>
                                October 31, 1996

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

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

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

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

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

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

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

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

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



<PAGE>


                               LUXTEC CORPORATION
                                October 31, 1996

     3. Exhibits (Continued)

         (b)  Reports on Form 8-K:

              None.

         (c)  Exhibits.

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

         (d)  Financial Statement Schedules.

              None.







<PAGE>


                               LUXTEC CORPORATION
                                October 31, 1996

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(D) of the  Securities
Exchange Act of 1934, the  Corporation  has duly caused this report to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the Town of
Worcester, Commonwealth of Massachusetts, on the 29th day of January 1997.

                                           LUXTEC CORPORATION


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



<PAGE>


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

Signature                    Title                                Date

S/ JAMES W. HOBBS            President, Chief                  January 29, 1997
James W. Hobbs               Executive Officer, Director


S/ SAMUEL M. STEIN           Chief Financial Officer,          January 29, 1997
Samuel M. Stein              Treasurer, Assistant Clerk


S/ JAMES BERARDO            Director                           January 29, 1997
James Berardo


S/ PAUL EPSTEIN              Director                          January 29, 1997
Paul Epstein


S/ LYNN K. FRIEDEL           Director                          January 29, 1997
Lynn K. Friedel


S/ JAMES J. GOODMAN          Director                          January 29, 1997
James J. Goodman


S/ PATRICK G. PHILLIPPS      Director                          January 29, 1997
Patrick G. Phillipps


S/ THOMAS J. VANDER SALM     Director                          January 29, 1997
Thomas J. Vander Salm


S/ LOUIS C. WALLACE          Director                          January 29, 1997
Louis C. Wallace




<PAGE>


                   Exhibits furnished pursuant to requirements
<TABLE>
<CAPTION>
                                   of FORM 10K
3. Exhibits
Exhibit    Description                                                                         Designation
-------    -----------                                                                         -----------
<C>                                                                                             <C>   
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 Company and               4D*******
           GMMI
4E         Registration Rights Agreement made as of June 3, 1996, between the                   4E********
           Company and the Purchasers (as defined therein)
10L        Lease for the premises in Worcester, MA                                              10L*****
10N        Employment Agreement with James Hobbs                                                10N**
10O        Luxtec Corporation 1992 Stock Plan                                                   10O**
10P        Luxtec Corporation 1995 Stock Option Plan for Non-Employee Directors                 10P****
10Q        Bank Agreement                                                                       10Q******
10R        Warrant Agreement made as of December 18, 1995, between the Company                  10R*******
           and GMMI
10S        Warrant for 450,000 shares of Common Stock of the Company dated as of                10S*******
           December 18, 1995, in the name of GMMI
10T        Form of Subscription Agreement and Letter of Investment Intent between the           10T********
           Purchaser named therein and the Company

  

<PAGE>

                 Exhibits furnished pursuant to requirements
                                   of FORM 10K

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

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

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

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

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

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

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

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

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





<PAGE>
                               LUXTEC CORPORATION
                                October 31, 1996
                                                           EXHIBIT 3I

                                                     FEDERAL IDENTIFICATION
                                                     NO.   04-2741310

                       THE COMMONWEALTH OF MASSACHUSETTS
                              Willian Francis Galvin
                           Secretary of the Commonwealth
                 One Ashburton Place, Boston Masachusetts 02108-1512


                            CERTIFICATION OF CORRECTION
                      (General Laws, Chapter 156B, Section 6A)

1. Exact name of corporation :     Luxtec Corporation

2. Document to be corrected:       Articles of Amendment

3. The above mentioned document was filed with the Secretary of the Commonwealth
   on:    September 19, 1996.

4. Please state the inaccuracy or defect in said document:

   Justin P. Morreale, one of the officers of Luxtec Corporation who signed the
   Articles of Amendment on behalf of Luxtec, was referred to as the Clerk of
   the corporation.

5. Please state corrected version of the document:

   Justin P. Morreale is actually the Assistant Clerk of Luxtec Corporation.


Note: This correction should be signed by the person(s) required by law to sign
      the original document.

SIGNED UNDER PENALTIES OF PERJURY, this 4th day of October, 1996.

S/ SAMUEL M. STEIN       
   Samuel M. Stein        Vice President

S/ VICTOR J. PACI
   Victor J. Paci            Clerk

Note: If the inaccuracy or defect to be corrected is not apparent on the face of
      the document, minutes of the meeting substantiating the error must be 
      filed with the certificate. Additional information may be provided on 
      separate 8 1/2 x 11 sheets of white paper with the left margin of at 
      least 1 inch. 

<PAGE>

                               LUXTEC CORPORATION
                                October 31, 1996
                                                        EXHIBIT 3J

                                                        FEDERAL IDENTIFICATION
                                                        NO. 04-2741310


                        THE COMMONWEALTH OF MASSACHUSETTS
                            William Francis Galvin
                           Secretary of the Commonwealth
                One Ashburton Place, Boston, Massachusetts 02108-1512


                             CERTIFICATE OF CORRECTION
                       (General Laws, Chapter 156B, Section 6A)


1. Exact name of corporation:     Luxtec Corporation

2. Document to be corrected:      Certificate of Vote of Directors Establishing
                                  A Series of A Class Stock

3. The above mentioned document was filed with the Secretary of the Commonwealth
   on:     September 19, 1996.

4. Please state the inaccuracy or defect in said document:

   Justin P. Morreale, one of the officers of Luxtec Corporation who signed
   the Certificate of Vote of Directors Establishing A Series of A Class of
   Stock on behalf of Luxtec, was incorrectly referred to as the Clerk of the
   corporation.

5. Please state corrected version of the document:

   Justin P. Morreale is actually the Assistant Clerk of Luxtec Corporation.


Note:  This correction should be signed by the person(s) required by law to sign
       the original document.

SIGNED UNDER THE PENALTIES OF PERJURY, this 4th day of October, 1996.


S/ SAMUEL M. STEIN
   Samuel M. Stein         Vice President

S/ VICTOR J. PACI
   Victor J. Paci             Clerk

Note: If necessary the inaccuracy or defect to be corrected is not apparent on
      the face of the document, minutes of the meetinf substantiating the error
      must be filed with the certificate. Additional information may be provided
      on seperate 8 1/2 x 11 sheets of white paper with the left margin at least
      1 inch.
    
<PAGE>

                               LUXTEC CORPORATION
                                October 31, 1996

                                                         EXHIBIT 21

                         Luxtec Corporation Subsidiaries


1.    Cathtec, Inc., a Massachusetts Corporation.

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

3.    CardioDyne, Incorporated, a Massachusetts Corporation.

<PAGE>

                               LUXTEC CORPORATION
                                October 31, 1996
                                                             EXHIBIT 23


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

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


                                                      S/Arthur Andersen LLP
                                                        ARTHUR ANDERSEN LLP



Boston, Massachusetts
January 29, 1997
<PAGE>