SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the fiscal year ended:                               Commission file number:
    December 31, 1999                                             0-18900


                           EVEREST MEDICAL CORPORATION
                 (Name of small business issuer in its charter)

        Minnesota                                          41-1454928
(State of Incorporation)                    (I.R.S. Employer Identification No.)
                            13755 First Avenue North
                          Minneapolis, Minnesota 55441
                    (Address of principal executive offices)

                    Issuer's telephone number: (612) 473-6262


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

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share


Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X
No___

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]

The Issuer's revenues for fiscal year 1999 were $12,608,863.

As of February 18, 2000, there were 7,669,127 shares of Common Stock of the
Issuer outstanding.

The aggregate market value of the Common Stock of the Issuer (based upon the
closing sale price of the Common Stock on February 18, 2000, as reported by
NASDAQ), excluding shares owned beneficially by executive officers and
directors, was approximately $29,986,287.

Part III of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Issuer's Proxy Statement to be filed by April 29, 2000 (the "2000 Proxy
Statement").

Transitional Small Business Disclosure Format (check one)  Yes         No  X




<PAGE>


                                     PART I

ITEM 1   DESCRIPTION OF BUSINESS

General Development of Business

         Everest Medical Corporation (the "Company" or "Everest") is engaged
primarily in the development, manufacturing and marketing of innovative RF
surgical solutions for use in minimally invasive surgical procedures. Today, the
Company serves the medical specialties of gynecology, gastroenterology,
cardiovascular and general surgery. Sales are worldwide with primary emphasis on
an independent network of over 150 sales professionals. In addition, the Company
supplies propriety RF instruments to leading medical device companies, including
Guidant Corporation, Johnson & Johnson and C.R. Bard.

         The Company commenced commercial sales of laparoscopic surgical
products in October 1991. The first product sold was the BiLAP(R) Bipolar
Cutting/Coagulating Probes. The Company added the BiCOAG(R) Bipolar Forceps in
September 1992, the EVERSHEARS(R) Straight Bipolar Scissors in November 1992 and
the EVERSHEARS Curved Bipolar Scissors in September 1993. The Company introduced
three additional products to the laparoscopic market in 1994, including the
EVERSHEARS II Bipolar Metal-on-Metal Curved Scissors, the BiCOAG Bipolar
Dissecting Forceps and the BiLAP Bipolar Needle Electrode. In 1995, the Company
commenced sales of the innovative, patented, multi-functional BiCOAG Cutting
Forceps, and in 1996 added additional versions, including a 5mm version of the
BiCOAG Cutting Forceps. In December 1996, the Company introduced the BiCOAG
Forceps in a 3mm version. This 3mm version of the bipolar forceps was introduced
to market in March 1998 as MOLly (Minimally Operative Laparoscopy) with FDA
clearance to expand the labeling to include the indication of female tubal
sterilization via contraceptive bipolar coagulation of the fallopian tube. In
late 1998, the Company commenced limited shipments of the EVERSHEARS LP Bipolar
Forceps. In late 1999, the Company introduced the QUADRIPOLAR(TM) Cutting
Forceps, which the Company believes represent the next generation of
electrosurgery for precise laparoscopic surgery. The Company is targeting these
existing and new products to the laparoscopic general surgery and gynecology
markets.

         As minimally invasive surgical techniques have evolved to increasingly
complex surgery in anatomically crowded areas of the human body, the need for
safer instrumentation has become more evident. The Company believes that bipolar
RF electrosurgery is gaining increasing scientific recognition and acceptance in
the growing minimally invasive surgery ("MIS") markets which predominately
utilize monopolar energy. Bipolar RF energy offers the surgeon more control,
less tissue damage, effective hemostasis and performance, eliminating the
dangers associated with monopolar energy. Additionally, the Company's product
line offers the clinician multifunctional instruments that may lower cost and/or
reduce operating time. The Company believes that bipolar RF technology will
become the standard in electrosurgery in advanced MIS procedures and the Company
will be a beneficiary of this trend.

         In late 1996, the Company identified the promising emerging minimally
invasive cardiovascular market as its first major market diversification. In
June 1997, the Company announced its first commercial venture in this market--a
product supply agreement with Guidant Corporation. Guidant, a technology leader

<PAGE>

in minimally invasive surgery, bundles a version of the EVERSHEARS II Bipolar
Metal-on-Metal Scissors and an innovative version of the bipolar cutting
forceps, the BiSECTOR(TM) Bipolar Ligating Forceps, in its minimally invasive
saphenous vein harvesting systems kits. These products were introduced to the
market in the third quarter of 1997. In 1998, the Company developed and
commenced shipments to Guidant of a 56cm flexible shaft version of these devices
for exclusive use by Guidant with its VASOVIEW(TM) and UNIPORT(TM) Endoscopic
Vessel Harvesting System.

         In 1999, the Company also identified the spinal surgical market as an
opportunity for the Company's innovative RF surgical products and commenced
limited shipments to Endius, Inc. These shipments were for a version of the
Company's 3mm bipolar forceps that Enduis will use for a new discectomy
procedure they have pioneered.

         Together, these businesses of cardiovascular Everest laparoscopy and
spinal surgery comprise the Company's Growth Businesses. The balance of the
Company's product offerings including the Company's gastrointestinal, OEM
Forceps and accessories, as well as licensing income, comprise the Mature
Businesses of the Company.

         The Company markets a line of disposable products for use in selected
gastrointestinal endoscopic interventional procedures. These procedures are
performed by gastroenterologists using endoscopes through which Everest's
products are inserted into the body. These products are the BiSNARE(R)
Polypectomy Snare for removing colon polyps and the BiCOAG Probe Coagulator for
treating intestinal bleeding.

         The electrosurgical products currently under development or being
marketed by Everest operate in a bipolar mode providing an improved margin of
patient safety in minimally invasive surgical procedures. Many of these
procedures are typically performed using monopolar electrosurgery which has
inherent characteristics that may pose certain risks for patients. In
electrosurgery, radio frequency (or RF energy) is used both to cut and coagulate
tissue. With monopolar devices, the RF energy must pass from the surgical
instrument through the patient's body to a separate return electrode attached to
a large surface area, generally the buttocks or thigh. With monopolar
electrosurgery, a greater potential exists for injury to body tissues as the
electrical current passes through to the surface or return electrode (grounding
pad) where skin burns may also occur. With bipolar devices, the RF energy is
contained at the surgical site because both the active and return electrodes are
located on the surgical instrument. In minimally invasive surgery, there is even
greater potential for complications when using monopolar instruments due to the
combined effects of the surgeon's limited field of vision, the proximity of
other organs and the inherent tendency of the surgical instruments to conduct
monopolar RF energy.

         The Company has developed extensive expertise in the control and
containment of bipolar radio frequency energy to affect both surgical cutting
and coagulation of blood in a variety of surgical and interventional procedures.
The Company's strategy is to leverage its expertise to design, develop and
manufacture proprietary surgical instruments for use in selected minimally
invasive surgical procedures where the safety and other features of bipolar
electrosurgery have demonstrable advantages.


<PAGE>

         In 1998, the Company was awarded ISO 9001 certification for its quality
systems in design and manufacturing, and received authorization to place the CE
Mark on its products for distribution to members of the European Community. The
Company believes these milestones indicate recognition of Everest's superior
product quality and safety standards.

         The Company was incorporated in Minnesota on April 19, 1983. The
Company's address is 13755 First Avenue North, Minneapolis, Minnesota 55441, and
its telephone number is (612) 473-6262.

Business

         Laparoscopic Surgical Products

         The Company believes laparoscopy is a rapidly growing market in the
United States. Laparoscopic procedures, such as gall bladder removal,
hysterectomies, Nissen Fundiplication and hernia repair can now be routinely
performed through a trocar cannula. The cutting and coagulating instruments most
often utilized are either electrosurgical or lasers. Each of these methods
involves certain patient risks. With monopolar electrosurgical devices, a risk
exists that the passage of electrical current through the body will result in
unintended lateral tissue damage. Tissue damage can occur in laparoscopic
procedures performed with monopolar instruments due to RF current from the
monopolar instrument inducing current on one of the trocar cannulas or other
surgical instruments. This tissue damage, which can include severe burning, may
not be visible to the surgeon during surgery, but may result in post-operative
complications such as bowel perforation. Lasers are sometimes difficult to
control and have limited coagulation effect, particularly in the closed
conditions of a laparoscopic procedure. They are also expensive to acquire and
may be inconvenient for the clinician due to the problems of scheduling the
limited number available in a hospital and the high level of expertise required.
To the Company's knowledge, the EVERSHEARS Bipolar Scissors and the BiLAP Probe
were the first bipolar electrosurgical devices commercially available for the
purpose of providing cutting and coagulation in laparoscopic procedures. In the
past three years, competitors have introduced additional products to the market
that may address the need for cutting and coagulation during laparoscopic
procedures.

         Current Laparoscopic Surgical Products

         EVERSHEARS Bipolar Scissors. The EVERSHEARS II Bipolar Scissors is used
to cut and coagulate tissue during laparoscopic surgery, combining mechanical
cutting with electrosurgical coagulation. The EVERSHEARS II Bipolar Scissors
consists of a handle and a long tube with blades at the distal end. The
EVERSHEARS II also contains a spindle which allows the physician to rotate the
device. The patented EVERSHEARS II design consists of metal cutting blades and
stainless steel support member which serves as the coagulation electrodes. The
conductive metal cutting blade is isolated from the support member by a
non-conductive adhesive. The EVERSHEARS II Bipolar Scissors is designed to
utilize the bipolar coagulating output of most standard electrosurgical
generators on the market. The EVERSHEARS II Bipolar Scissors is available in a
dual action curved design that allows the physician better visualization of the
surgical site.


<PAGE>

         In the fourth quarter of 1998, the Company commenced limited shipments
of the EVERSHEARS LP Bipolar Scissors. This next generation device features a
new lower profile scissors blade designed to improve the precision of cutting
and the surgical feel of the device. The Company continues to be the only
company in the world to market an endoscopic bipolar scissors offering the
clinician the benefits of precision mechanical cutting and simultaneous
coagulation.

         The Company currently distributes the EVERSHEARS Bipolar Scissors to
hospitals and physicians only through its network of independent marketing
representatives. Sales of EVERSHEARS Bipolar Scissors approached $1,500,000 for
1999.

         BiCOAG Bipolar Cutting Forceps. The Company introduced this proprietary
new product in September 1995 in a 10mm version. This innovative product
incorporates a precision bipolar forceps for grasping and coagulation of tissue
with a surgical cutting blade positioned between the forceps jaws to allow
transection of coagulated tissue. The United States Patent Office issued the
Company a patent on August 29, 1995 for this design.

         The BiCOAG Cutting Forceps allows the laparoscopic surgeon the ability
to grasp and coagulate safely with bipolar energy and transect tissue with one
instrument. This product minimizes the number of surgical instruments needed and
the need for instrument exchanges, resulting in a reduction of surgical time.
Additionally, the use of bipolar energy to safely and effectively seal vessels
may result in the elimination of costly stapling devices in many laparoscopic
procedures.

         In the second quarter of 1996, the Company added a ratcheting feature
to the device which enables the device to be used for retraction and increases
surgeon ease and comfort. The Company also commenced shipments of the new 5mm
version of the BiCOAG Cutting Forceps during the last half of 1996. The Company
believes this device is the first commercially available 5mm cutting forceps.
The 5mm version of the BiCOAG Cutting Forceps complements the 10mm device,
offering surgeons the advantage of using smaller trocars, reducing incision
size, cost and potential complications.

         The Company realized a significant portion of its growth in 1996
through 1999 from the revenues generated from this product line. Revenues grew
from under $200,000 in 1995 to more than $5,000,000 in 1999.

         BiCOAG Bipolar Forceps. The BiCOAG Forceps is used to coagulate tissue
and blood vessels during laparoscopic surgery. The BiCOAG Forceps consists of a
handle and a long tube containing two electrodes and a spindle that allow the
physician to rotate the device to more easily accomplish its function. The
forceps is available in two models, a macro version which has large paddles
attached to the end of the electrodes for coagulating large areas, and the micro
version which has a small electrode surface for more precise coagulation. The
BiCOAG Forceps is designed to operate on the bipolar coagulating output of most
standard electrosurgical generators on the market.

         The Company reintroduced the BiCOAG Forceps to the Company's
independent sales channel in September 1995 after an 18-month hiatus. Sales of
the BiCOAG Forceps were previously restricted from the Company's independent
sales channel due to a now-terminated exclusivity provision in the product

<PAGE>

supply agreement with Ethicon Endo-Surgery, a division of Johnson & Johnson. The
sales impact of the reintroduction of the BiCOAG Forceps for 1995 was nominal,
but since then the Company has continued to experience sales increases with
revenues in 1999 exceeding $500,000.

         In addition to the Company's independent sales channel, Ethicon
Endo-Surgery also markets and distributes the BiCOAG Forceps. Sales to these OEM
customers represented 10% of the Company's revenue in 1998 and 8% in 1999.
Origin MedSystems, a division of Guidant Corporation, notified the Company in
the second quarter of 1999 that it was discontinuing its marketing of this
product due to its new strategic direction. Subsequently, Guidant sold its
laparoscopy business to United States Surgical Corporation.

         BiCOAG Dissecting Forceps. The BiCOAG Dissecting Forceps is similar to
the bipolar forceps described above, but combines the ability to grasp and
dissect tissue in the surgical procedure with the benefits of bipolar
coagulation. This product provides the surgeon with a versatile and high-utility
instrument, and is compatible with most electrosurgical generators. Sales of
this product in 1999 approached $750,000.

         MOLly 3mm Bipolar Forceps. In December 1996, the Company introduced
what it believes to be the world's first 3mm Bipolar laparoscopic forceps
targeted for the emerging microlaparoscopy market. This device allows for secure
grasping, effective coagulation, the use of smaller trocar ports and improved
outcomes. Procedures such as diagnostic laparoscopy are being moved out of
traditional hospital settings to alternate sites, including surgical-centers and
physicians' offices. The Company believes smaller instrumentation will improve
the success rate of these procedures by allowing the use of smaller ports,
reducing complications.

         In March 1998, the Company received 510(k) clearance from the United
States Food & Drug Administration to expand the labeling for its 3mm bipolar
forceps to include the indication of female tubal sterilization via
contraceptive bipolar coagulation of the fallopian tube. See "Regulation." An
estimated 700,000 tubal sterilization procedures are performed annually in the
United States. The Company believes this may represent a significant opportunity
for this product. To date, the Company has not experienced a significant revenue
contribution from this product. The Company intends to introduce a 5mm version
of the MOLly in the second quarter of 2000. The Company believes the 5mm version
will have greater market acceptance than the 3mm version.

         BiLAP Bipolar Probes. The BiLAP Probe consists of a handle and a long
rigid tube. The probe contains cutting electrodes and an area to provide spot
coagulation on the distal end, and features suction and irrigation capabilities
to the operative site. The BiLAP Probe was released for general sale in the
United States in October 1991. Initially the BiLAP Probes were designed to work
only on an Everest-made Bipolar generator; however, due to product modifications
made in 1996, the device is now compatible with most common electrosurgical
generators, eliminating the need for an Everest Generator. Sales of the BiLAP
System to date have been minimal, and the Company does not believe sales will
increase significantly in the future.

         BiLAP Bipolar Needle Electrode. The BiLAP Bipolar Needle Electrode is
similar in design to the BiLAP product line but features an adjustable needle
electrode that advances and retracts for precise cutting that preserves

<PAGE>

surrounding tissues. The device utilizes the safety of bipolar energy and
provides the surgeon with precision cutting performance. This device is
compatible with most common electrosurgical generators. The sales of this
product are not expected to reach significant levels since this product has a
small niche of the market based on current surgical techniques.

         Laparoscopic Surgical Products Under Development. The Company has
ongoing development projects to optimize the performance of its products, and
the reduction of its manufacturing costs through the benefits of value
engineering. In addition to these efforts the Company has the following products
in development.

         Altimate(TM) Monopolar/Bipolar Scissors and Dissectors. These products
are similar in mechanical design to the bipolar products discussed above, but
electrically will be the only laparoscopic products commercially available that
can provide both monoploar and bipolar energy with one device. The Company
believes these products will be more versatile and provide a cost-effective
alternative to other instruments used in laparoscopic surgery. The Company
expects to begin limited shipments of these products in the third quarter of
2000.

         QUADRIPOLAR Cutting Forceps. Again the mechanical design of this
product is similar to the Bipolar Cutting Forceps currently marketed by the
Company but this product introduces a new propriety electrosurgical technology
called QUADRIPOLARITY(TM). With Quadripolar technology, four electrosurgical
paths are created which more effectively controls and contains thermal spread
without compromising hemostatis. The QUADRIPOLAR Cutting Forceps allows five
separate surgical functions - dissect, grasp, coagulate, transect and retract -
which may significantly decrease operative time and reduce costs. Limited
shipments of this product occurred in 1999 and the Company expects a full market
release in the second quarter of 2000.

         Gastrointestinal (GI) Endoscopic Products

         Current GI Endoscopic Products

         BiSNARE Polypectomy Snare. Lower gastrointestinal polyp removal
procedures are performed to reduce the risk of cancerous lesion formation. When
performed with a monopolar snare, this procedure may have the undesirable side
effects of colon wall perforation and delayed hemorrhage. The Company markets a
device designed to make the removal of polyps easier and safer. The BiSNARE
Polypectomy Snare consists of a bipolar wire loop on a long catheter which is
inserted through an endoscope. The wire loop is placed over the polyp by the
endoscopist, RF energy is activated, and, as the polyp is cut from the
intestinal wall, the exposed blood vessels are coagulated. The Company believes
that, compared to competing monopolar devices, the BiSNARE presents less
potential for burns and intestinal perforations because it requires less power
and the energy is localized to the lesion. In addition, it is easier to prepare
the patient for the procedure than with competing devices because the BiSNARE
does not require a grounding pad.

         The BiSNARE is currently offered in several models to address physician
preferences. The Company is currently focusing on increasing its market share in
laparoscopy, therefore, the BiSNARE is sold to hospitals and physicians in the
United States through a limited network of independent marketing representatives
and distributors. Revenues from this product have been inconsistent over the
past three years primarily due to the Company's distribution in Japan of this

<PAGE>

product. This uneven revenue pattern resulted both from increased competitive
products which eroded existing business and from delays in obtaining approval in
Japan of new versions of the bipolar snare. Revenues in 1999 approached
$300,000, up 32% from the prior year.

         BiCOAG Probe Coagulator. In a common endoscopic procedure, a
coagulating tip on the distal end of a catheter is used to treat ulcers and
other intestinal bleeding. The BiCOAG Coagulator is a catheter with a spiral
electrode tip and a flushing port designed to facilitate the endoscopic
visualization and coagulation of gastrointestinal bleeding. The BiCOAG Probe has
a spiral bipolar electrode designed to permit the endoscopist to use any surface
of the tip for therapy while reducing the incidence of tissue adhesion. The
BiCOAG Probe was released for sale in the third quarter of 1990.

         The Company has entered into an agreement with Bard Interventional, a
division of C.R. Bard, Inc., and provides a private label version of the
coagulating probe for sale in the United States and Canada. Bard has no
obligation to purchase a minimum number of units under this agreement. In 1999,
the Company experienced a 32% decline in revenues from Bard as they worked off
large inventory levels purchased in 1998.

         GI Endoscopic Products Under Development

         Biopsy Forceps. The Company has developed a bipolar instrument that it
believes will enable the endoscopist to obtain a tissue sample for pathology and
coagulate the site while maintaining the integrity of the sample. The market
potential for the product is under evaluation.

         Minimally Invasive Cardiovascular Surgery

         The Company has identified the emerging minimally invasive
cardiovascular surgery market as an opportunity to export its bipolar
technology. The Company believes the inherent safety of bipolar technology
offers the cardiovascular surgeon the cost-effective electrosurgical solution to
meet the challenges of these new procedures. The Company also believes strongly
that bipolar electrosurgery has the potential to become the standard of care for
the new minimally invasive cardiovascular surgery marketplace.

         The Company is exploring two applications for bipolar technology in
cardiac surgery--bipolar dissection of the internal mammary artery during
coronary artery bypass surgery, and bipolar "ligation and transection" of side
branches during minimally invasive saphenous vein harvesting. The Company
believes it can leverage its technology to these procedures without significant
obstacles. The applicable products include the EVERSHEARS II Metal-on-Metal
Bipolar Scissors and the new BiSECTOR(TM) Ligating Forceps.

         In mid-1997, the Company entered into a product supply agreement with
Guidant Corporation for the cardiovascular market. Under the terms of this
agreement, Everest supplies Guidant with a version of its bipolar scissors and
bipolar cutting forceps to be packaged in the proprietary Guidant VasoView(TM)
Balloon Dissection System kit, offering clinicians a complete minimally invasive
solution for saphenous vein harvesting during cardiovascular and peripheral

<PAGE>

vascular surgical procedures. Surgeons perform approximately 600,000 coronary
artery bypass procedures and 200,000 peripheral bypass procedures worldwide each
year. Guidant introduced the Everest Medical products to their customers during
the third quarter of 1997.

         In the first quarter of 1998, the Company introduced its BiSECTOR
Bipolar Ligating Forceps as a tool for minimally invasive sapheneous vein
harvesting to be included in kits being introduced on the market. The product
provides a one-step alternative to coagulate and transect vessels, compared to
the single function, more costly, scissors and clip appliers. Guidant purchased
over $1,400,000 of the Company's products in 1998. Guidant continues to be the
market leader in this arena and introduced a second generation VASOVIEW(TM)
UNIPORT(TM) Endoscopic Vessel Harvesting System in 1998. To support this next
generation system, the Company developed and commenced shipments to Guidant of
an innovative 56cm flexible shaft scissors and BiSECTOR ligating forceps for use
with this sytem.

         Revenues from Guidant in 1999 approached $1,800,000. However these
strong revenue increases were dampened by patent issues surrounding a specific
feature of an earlier version of the Guidant system. Guidant introduced a new
version of its system in the third quarter of 1999 and the Company expects the
revenue growth of this product offering to accelerate in 2000.

         In addition, the Company will be exploring proprietary RF technology to
improve the current internal mammary artery (IMA) harvesting technique in
minimally invasive, beating heart, bypass graft procedures. With obvious vital
structures such as the heart and aorta nearby, the Company believes the efficacy
of these relatively new and still evolving heart procedures may be enhanced with
innovative, value added RF surgical instruments.

         General Market Trends

         The MIS market continues to grow. Factors accounting for this growth
include: (a) increasing concern by employers and healthcare providers regarding
the total system costs associated with surgery; (b) higher degree of awareness
of patients regarding the benefits of MIS; and (c) improved technology for use
by clinicians in these procedures.

         At present, many physicians, hospitals and third party payers do not
fully appreciate the favorable economics of MIS. There is a growing body of data
to support the conclusion that MIS procedures will significantly reduce the
total system healthcare-related costs of surgery. These potential cost savings
include reduced hospital stays and patient recovery time. From an employer's
perspective, savings are evident in lower costs of short-term disability and
workers' compensation. In addition, employers may realize savings in costs
associated with the hiring of replacement workers--training expense, reduced
productivity and additional compensation. The Company believes that large
employers will become more aggressive in managing their total system
healthcare-related costs and indicate a preference for MIS procedures. This may
include employers limiting reimbursement to laparoscopic procedures only, unless
clearly contraindicated.

         Today, patients are better informed with respect to the benefits of
MIS--returning to an active lifestyle sooner, potentially reduced risks due to
anesthesia and infection, and obvious cosmetic advantages--and are requesting
less invasive procedures.


<PAGE>

         The Company continues to believe that MIS will grow and expand into
other medical markets. Today, the Company serves the medical specialties of
gynecology, general surgery, gastrointestinal endoscopy and cardiovascular.

         As seen in its successful entrance to the cardiovascular market, the
Company believes it can be successful in leveraging its technological expertise
and operational capabilities into new and emerging MIS markets including
otolaryngology, orthopedics and urology as well as the expanding procedural
opportunity in gynecology, general surgery and cardiovascular markets.

         The current health care debate by the federal government has the
potential to tremendously impact the system of delivery of health care in this
country. While the ultimate outcome is uncertain at this time, the Company feels
it will be well-positioned to take advantage of any change that may occur. In
order to reduce the overall rate of growth of spending on health care, any new
or revised system will need to encourage the ongoing trend to MIS due to the
overall efficiency of these procedures. The Company also expects that the trend
towards managed health care will bring into the procedural equation important
factors such as safety, efficacy, cost effectiveness and ease of use resulting
in a greater demand for bipolar energy.

Competition

         The medical device industry is intensely competitive in almost all
segments and tends to be dominated in large, more mature markets by a relatively
small group of large and well-financed companies. The Company also competes with
smaller, entrepreneurial companies, some of which are better financed than
Everest and may have established positions in certain markets.

         Minimally Invasive Surgical Markets

         A number of major medical products suppliers, including United States
Surgical Corporation (a subsidiary of Tyco Corporation), Ethicon, Inc. (a
subsidiary of Johnson & Johnson, Inc.), CONMED Corporation, Karl Storz
Endoscopy-America Inc. and Circon Corporation are currently selling devices for
minimally invasive surgical procedures. For the most part, the electrosurgical
products sold by these companies are monopolar devices. The Company also
believes that a number of companies are developing bipolar devices for
laparoscopic applications. Competitors are selling a bipolar coagulating
forceps. The Company believes, however, that it is the only manufacturer
currently marketing a full line of bipolar devices specifically designed for
laparoscopy.

         Due to the expected rapid growth in the market for minimally invasive
surgical products, the Company anticipates that additional competitors will
enter the market. It also expects that there will be a consolidation of existing
competitors, including acquisitions of small companies by large medical products
companies. This trend will mean increased competition for the Company.

         Minimally Invasive Cardiovascular Markets

         The principal competitors of the Company's products offered through
Guidant Corporation in the emerging minimally invasive cardiovascular market

<PAGE>

include Ethicon EndoSurgery (a subsidiary of Johnson & Johnson), Heartport and
United States Surgical Corporation (a subsidiary of Tyco Corporation).

         Endoscopic Markets

         The principal competitors of the BiSNARE polypectomy device are
Microvasive, Inc. (subsidiary of Boston Scientific Corp.), Wilson Cook Medical
Inc., Bard Interventional (a division of C.R. Bard, Inc.) and Olympus
Corporation. All of these companies market monopolar systems. BEI, Inc. makes a
bipolar snare that is currently sold to customers at a significantly higher
price than the BiSNARE.

         The principal competitors to the BiCOAG Probe are Microvasive, Circon
Corporation and Olympus. All of these companies market bipolar devices, with the
exception of Olympus, which offers a device using heat for coagulation.

         The Company believes that the principal competitive factors in the MIS
market are product features, physician familiarity with the products and their
functions, the ability of products to address cost containment issues, product
quality, distribution strength and price. Competitors to each of the Company's
products market both disposable and reusable products. All of the Company's
current surgical instruments are intended for single use, a feature which the
Company believes provides the benefits of less risk of infection to patients and
reduced labor costs to hospitals.

Marketing and Distribution

         The Company markets and promotes its products through advertising in
medical journals, publication of scientific papers, direct mail, attendance at
trade shows and participation by Everest's personnel in training sessions for
physicians. The Company also provides promotional information for its
independent sales representatives and international distributors. In addition,
the Company, its independent representatives and its distributors provide
physicians with assistance in learning the proper use of the Company's
laparoscopic products.

         Over the past 5 years, the Company has focused on developing its
independent sales channel whereby the Company works with independent sales
organizations which have expertise in the Company's primary markets of general
surgery and gynecologic laparoscopy. The Company, in many cases, retains direct
billing to the hospital and pays a commission based on orders shipped. The
Company has seen this distribution channel grow to represent 65% of its sales
volume in 1999. The Company believes that continued management focus, ongoing
product development and increased sales and marketing efforts will continue to
grow this independent sales channel in 2000.

         The Company approaches the minimally invasive cardiovascular market
with a strategic partnership with Guidant Corporation, who became a shareholder
in the Company in 1998. Guidant is the strategic marketer and distributor of
versions of the Company's bipolar products to be packaged with the VASOVIEW
UNIPORT Endoscopic Vessel Harvesting System for less invasive saphenous vein
harvesting.


<PAGE>

         The Company continues to maintain its non-exclusive product supply
agreement with Ethicon Endo-Surgery, a division of Johnson & Johnson, Inc.,
whereby Ethicon was granted a license to market the Company's laparoscopic
forceps. See "Business--Laparoscopic Surgical Products."

         Everest currently markets its GI endoscopic products in the United
States through a limited number of independent distributors. These distributors
do not have written agreements with the Company and serve on a non-exclusive
basis. The Company also services a growing number of accounts directly. The
Company continues to provide Bard Interventional (a division of C.R. Bard, Inc.)
with its gastrointestinal coagulating probe.

         The Company's sales and marketing department consists of the Vice
President of Sales, Director of Marketing, five regional sales managers, one
clinical support director and two sales and marketing support individuals.

         The Company intends to continue to utilize independent distributors for
foreign sales. During 1998 and 1999, the Company concentrated its sales and
marketing efforts primarily in the United States market and experienced an
increase in sales internationally. The Company expects sales in 1999 to increase
domestically, as well as internationally.

Manufacturing

         The manufacturing process for the Company's current products consists
primarily of the assembly of parts and components purchased from outside
vendors, final testing and packaging. The Company currently produces the
majority of its injection molded plastic parts. It is probable that the Company
primarily will assemble its future products from parts bought from outside
suppliers. However, management may determine that certain parts should be
produced by the Company due, for instance, to a desire to control quality or to
reduce cost. The Company is currently subcontracting sterilization functions
with third parties. During 1993, the Company installed a class 10,000 clean room
in its facility which gives the Company the capability to package its products
in house at considerable savings compared to subcontracting that function.

         Most of the parts and components used in the Company's current products
are purchased from multiple vendors or are available from additional vendors the
Company has qualified. However, in some instances the Company purchases, and may
in the future purchase, only from a single vendor. Although the Company believes
it would be able to obtain such parts from alternative vendors if required,
there could be some interruption in the Company's ability to supply products to
customers. If, as in the past, the Company finds itself with a single source of
supply for a critical component, it will, to the extent possible, take steps to
protect itself from a shortage of supply. Such steps include increased safety
stock, working to qualify additional vendors, and alternative designs which
utilize currently available components.


<PAGE>

Research and Development

         The Company's research and development activities are conducted at its
headquarters facility and at laboratory and clinical facilities at various
universities and hospitals. The Company attempts to coordinate its research and
development activities with those of its scientific advisors and other physician
contacts. The Company's objective is to direct those coordinated efforts to use
its base of technology and expertise to develop products which meet identified
market needs. For the years ended December 31, 1999 and 1998, the Company's
research and development expenditures were $915,000 and $859,000, respectively.
The Company expects spending in the research and development area to increase as
the Company attempts to expand its laparoscopic product offering and to
capitalize on certain opportunities in the minimally invasive cardiovascular
arena and other surgical specialties.

Regulation

         The medical devices manufactured and marketed by the Company are
subject to regulation by the U.S. Food and Drug Administration (the "FDA") and,
in some instances, by state and foreign authorities. Pursuant to the Medical
Device Amendments of 1976 (the "1976 Amendments") to the Federal Food, Drug and
Cosmetic Act, and regulations promulgated thereunder, medical devices intended
for human use are classified into three categories (Classes I, II, and III),
depending upon the degree of regulatory control to which they would be subject.
The Company's current GI surgical products have been classified as Class II
devices, and the Company believes that its planned electrosurgical devices will
also be in that class.

         If a new device, irrespective of whether it is a Class II or III
device, is substantially equivalent to an existing device that has been
continuously marketed since the effective date of the 1976 Amendments (May 28,
1976) (a "Substantially Equivalent Device"), FDA requirements may be satisfied
through a Premarket Notification Submission (a "510(k) Submission"), under which
the applicant provides product information supporting its claim of substantial
equivalence. In a 510(k) Submission, the FDA may also require that it be
provided with clinical test results demonstrating the safety and efficacy of the
device. Under certain circumstances, that clinical data can be obtained only
after submitting to the FDA an application for an Investigational Device
Exemption ("IDE"). Marketing may commence when the FDA issues a letter finding
substantial equivalence. The Company has received 510(k) marketing clearances
finding substantial equivalence from the FDA, without submission of clinical
testing data, for all of its current products.

         If a medical device does not qualify for the 510(k) Submission
procedure, the manufacturer must file a premarket approval application ("PMA").
This requires more extensive prefiling testing than the 510(k) Submission and
involves a significantly longer FDA review process. FDA approval of a PMA occurs
after the applicant has established the safety and efficacy of the device to the
satisfaction of the FDA under an IDE Procedure requiring preclinical laboratory
and animal tests and human clinical studies. The Company does not believe that
any of its products currently under development will be subject to this more
time-consuming FDA review process.

         The United States Congress has enacted legislation which substantially
changes certain aspects of the regulation of the sale of medical devices and
which, depending on how it is interpreted and enforced, could make it

<PAGE>

substantially more difficult and time-consuming to comply with premarketing
clearance and approval processes.

         As a manufacturer of medical devices, the Company is also subject to
certain other FDA regulations, and its manufacturing processes and facilities
are subject to continuing review by the FDA to ensure compliance with Good
Manufacturing Practices regulations. The Company believes that its manufacturing
and quality control procedures substantially conform to the requirements of FDA
regulation.

         The financial arrangements through which the Company markets, sells and
distributes its products may be subject to certain federal and state laws and
regulations with respect to the provision of services or products. These
so-called "fraud and abuse" laws and regulations prohibit certain direct or
indirect payment arrangements that are designed to induce or encourage the
purchase or recommendation of products reimbursable under Medicare or Medicaid.
Violations of these laws and regulations may result in civil and criminal
penalties, including substantial fines and imprisonment. The Company believes
that its operations and its marketing, sales and distribution practices
currently comply in all respects with the fraud and abuse laws and regulations,
to the extent they are applicable.

         The Company's devices are also subject to regulation in foreign
countries.

Third Party Reimbursement

         In 1983, Congress amended the Social Security Act to establish a
prospective reimbursement system for Medicare which limits the reimbursement
that hospitals receive for treating certain medical conditions by setting
maximum fees that can be charged for Medicare patients. Under this system,
hospitals are paid a fixed amount for treating each patient with a particular
diagnosis. This differs from the previous system under which Medicare providers
were reimbursed for actual costs of providing services up to a stated maximum on
each procedure performed. In addition, certain private insurers have initiated
prospective reimbursement systems designed to slow the escalation of health care
costs. The Company does not believe that these reimbursement limitations will
have a material adverse effect on future sales of its existing or currently
proposed product lines, although the Company has become aware of pressure to
limit reimbursement for single-use devices.

Intellectual Property

         Due to the rapid technology change that characterizes the medical
device industry, the Company believes that the improvement of existing products,
reliance upon trade secrets and unpatented proprietary know-how and the
development of new products are generally as important as patent protection in
establishing and maintaining a competitive advantage. Nevertheless, the Company
has made, and continues to make, efforts to obtain patents, when available, in
connection with its product development program. There can be no assurance,
however, that any patents obtained will provide substantial protection or be of
commercial benefit to the Company, or that their validity will not be
successfully challenged.


<PAGE>

         In 1994, the Company was awarded a patent for its second generation
bipolar scissors design, EVERSHEARS II. Although there were two opposing patents
issued to another company in 1994 involving ceramic bipolar scissors, the
Company believes that the patented EVERSHEARS II is a strong marketing
alternative in the bipolar scissors market. After review of the allowed claims
of the two opposing patents and the related files, the Company, based on the
advice of its patent counsel, believes that its metal-on-metal design
incorporated in the EVERSHEARS II does not infringe on either of the opposing
patents issued. The Company commenced shipment of the EVERSHEARS II on a limited
basis in the third quarter of 1994 and full market introduction in January 1995.

         In 1995, the Company was awarded patents for its dissecting forceps
design and its bipolar cutting forceps design. The Company was awarded three
additional patents in 1996, two of which relate to the bipolar scissors
technology. The third patent, a methods patent, was granted to the Company which
allows for the interchangeability of monopolar and bipolar currents to an
instrument.

         In November 1997, the Company received official notice from the United
States Patent and Trademark Office ("PTO") that it intended to issue a
reexamination certificate for the Company's bipolar cutting forceps patent. The
Company had requested this reexamination in an effort to ensure the long-term
viability of the bipolar cutting forceps patent. A reexamination certificate
states that the essential claims of the bipolar cutting forceps patent have been
upheld by the PTO. The bipolar cutting forceps design incorporates a precision
bipolar forceps for grasping and coagulation of tissue with a passive,
reciprocally-moveable surgical cutting blade positioned between the forceps jaws
to allow transection of the coagulated tissue. The Company was issued a U.S.
patent for this device on August 29, 1995. A reexamination is a PTO action to
review an issued patent in the context of newly discovered prior art. As a
result of the successful outcome of the reexamination in favor of the Company,
it executed a cross-licensing agreement with an undisclosed party in the fourth
quarter of 1997. The Company received licensing revenue of $183,000 covering the
two-plus years since the patent issued in August 1995. Licensing revenues in
1998 approached $85,000 and exceeded $95,000 in 1999. The Company does not
believe future licensing revenues will be material to the Company.

         In October 1998, the Company reached a settlement with Boston
Scientific Corporation with respect to separate patent interference actions
declared by the United States Patent and Trademark Office. A patent interference
action is a PTO action to determine who is entitled to the patent on the same
invention. The interference action involved two of the Company's bipolar
electrosurgical scissors designs. The resolution of the settlement resulted in
the Company maintaining ownership of the key "metal-on-metal" bipolar scissors
patent, which the Company is currently marketing, on terms favorable to the
Company, eliminating further legal costs and uncertainty.

         The Company generally requires its consultants and each of its
employees to agree in writing to keep its proprietary information confidential
and, within certain limitations, to assign all inventions relating to the
Company's business to the Company.

         The Company has registered its trademark logo, Everest Medical, and the
trademarks BiSNARE, BiTOME, BiCOAG, EVERSHEARS, MOLly, BiLAP and BiBx on the

<PAGE>

principal register in the PTO. In addition, the Company has filed trademark
applications on some of its other products.

Employees

         As of February 18, 2000, the Company had 106 employees, of which 104
are full-time. The employees include 4 in research and development, 63 in
production, 16 in manufacturing support, 6 in quality assurance, 10 in sales and
marketing and 7 in general and administrative functions. The Company's employees
are not represented by a union, and the Company considers its relationship with
its employees to be good.


ITEM 2.  DESCRIPTION OF PROPERTY

         The Company currently rents facilities consisting of approximately
23,485 square feet located at Carlson Technical Center, Suite 500, 13755 First
Avenue North, Minneapolis, Minnesota 55441. The Company pays monthly rent of
approximately $13,650, plus operating expenses and taxes, under the lease which
extends through December 2004. The Company uses approximately 65% of the space
for production, 15% for research and development and 10% for each of sales and
marketing and administration. The Company believes this space will adequately
meet its needs for the foreseeable future, and, in management's opinion, the
property is adequately covered by insurance.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to, nor is its property the subject of, any
material pending legal proceeding.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.



<PAGE>


Executive Officers of the Company

         The Company's executive officers, along with their ages and positions
as of February 18, 2000, are as follows:

   Name                    Age              Position
John L. Shannon, Jr.        46      President, Chief Executive Officer and
                                    Chairman of the Board
Michael E. Geraghty         52      Vice President, Sales and Marketing
Steven M. Blakemore         45      Vice President, Operations and Engineering
David J. Parins             48      Vice President, Technology
Thomas F. Murphy            40      Vice President, Finance and Administration
                                    and Assistant Secretary

         John L. Shannon, Jr. Mr. Shannon has served as Chairman of the Board
since May 1997 and as President and Chief Executive Officer since August 1993.
From May 1989 to June 1993, Mr. Shannon was President and Chief Executive
Officer of EdenTec Corporation, a medical device manufacturer. From November
1985 to May 1989, Mr. Shannon was employed by Threshold Ventures, Inc., a
venture capital firm, most recently as President. From September 1984 to
November 1985, Mr. Shannon was Marketing Manager for SciMed Life Systems, Inc.,
a medical device manufacturer. From June 1979 to September 1984, Mr. Shannon was
employed by The Toro Company, a lawn and garden manufacturer, in a variety of
financial, planning and marketing positions, most recently as Marketing Manager.
Mr. Shannon received an MBA degree with a concentration in Finance from the
University of Minnesota in 1979.

         Michael E. Geraghty. Mr. Geraghty joined the Company as Vice President
of Sales and Marketing in January 1997. From August 1995 to January 1997, Mr.
Geraghty was Director of Marketing - Advance Products at ArthroCare Corporation,
a start-up bipolar electrosurgical medical device manufacturer. From March 1994
to August 1995, Mr. Geraghty was the National Sales Manager of Laser
Peripherals, and from December 1990 to October 1993, he was the Sales Manager
for Intramed Labs, Inc., both of which are medical device manufacturers.

         Steven M. Blakemore. Mr. Blakemore has been employed by the Company
since November 1992, most recently as Vice President of Operations and
Engineering. From October 1989 to February 1992, Mr. Blakemore was employed by
Clarus Medical Systems, a medical device manufacturer, as Vice President of
Operations and Research and Development. From March 1986 to October 1989, Mr.
Blakemore was employed by Medical Graphics Corporation, a medical device
manufacturer, most recently as Vice President of Operations.

         David J. Parins. Mr. Parins rejoined the Company in April 1998 as Vice
President of Technology. Prior to rejoining the Company, Mr. Parins was employed
by Cardiac Instruments, a startup medical device company, as Vice President of
Research and Development from October 1997 to April 1998. Prior to this short
hiatus, Mr. Parins was employed by the Company as Vice President of Engineering,

<PAGE>

Quality Assurance and Regulatory Affairs from November 1988 to October 1997. Mr.
Parins is the holder of many of the Company's patents and has over twenty years
of experience in the medical device industry.

         Thomas F. Murphy. Mr. Murphy has served as Vice President of Finance
and Administration of the Company since January 1997, prior to which he served
as Chief Financial Officer since joining the Company in July 1994. Mr. Murphy
has also served as Assistant Secretary of the Company since February 1995. From
December 1992 to July 1994, he was Vice President of Finance for DaVinci
Medical, Inc., a manufacturer of laparoscopic surgical instruments. From October
1990 to May 1992, Mr. Murphy was employed by Tsumura International, a consumer
goods manufacturer of home fragrance and bath products, as Vice President of
Finance. From 1986 to October 1990, Mr. Murphy held various positions in sales
operations, administration and finance for Minnetonka Corporation, a consumer
goods manufacturer. Mr. Murphy received an MBA with a management concentration
from the University of St. Thomas (MN).


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is traded in the over-the-counter market, as
quoted on the National Association of Securities Dealers Automated Quotation
System under the symbol EVMD. The following table sets forth, for the periods
indicated, the high and low closing bid prices for the Common Stock as reported
by NASDAQ. Such quotations represent interdealer prices, without retail markup,
markdown or commission, and may not represent actual transactions.

         As of December 31, 1999, there were approximately 283 holders of record
of the Company's Common Stock, with approximately 2600 beneficial holders, 3
holders of record of Series A Preferred Stock, 27 holders of record of Series B
Preferred Stock, 14 holders of Series C Preferred Stock and 31 holders of record
of Series D Preferred Stock.

         The Company has not declared or paid any cash dividends on its Common
stock or its Series A Preferred Stock since inception. The Company has paid its
Series B Preferred Stock holders its current dividend of $0.22 per share per
annum (8% of the purchase price per share) plus its dividends in arrears
commencing in September 1994. Cash dividend paid on this Series B Preferred
Stock was $140,208 in 1999. The Company has paid its Series C Preferred Stock
holders its current dividend of $0.165 per share per annum (6% of the purchase
price per share) plus its dividends in arrears commencing August 1995. Cash
Dividends paid on this Series C Preferred Stock was $67,800 in 1999. The Series
D Preferred Stock is entitled to dividends of $0.2875 per share per annum (10%
of the purchase price per share) plus its dividend in arrears commencing
September 1995. Cash dividends paid on this Series D Preferred Stock was
$135,556 in 1999.


<PAGE>

         The Board of Directors presently intends to retain all other earnings
for use in the business for the foreseeable future. The Company is prohibited
from paying dividends on its common stock without consent of the holders of (a)
a majority of shares of Preferred Stock and (b) the Company's convertible
promissory notes and the warrants issued in connection therewith.

                                  HIGH             LOW
         1999
         First Quarter          1 13/16           1 7/16
         Second Quarter         2 3/16            1 15/32
         Third Quarter          1 15/16           1 9/16
         Fourth Quarter         2 1/4             1 17/32

         1998
         First Quarter          2 7/8             1 5/16
         Second Quarter         2 7/16            1 9/16
         Third Quarter          2 3/8             1 1/4
         Fourth Quarter         2 1/4             1 3/16


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

Net Revenues

         Net revenues in 1999 were $12,608,863, an increase of $1,889,108, or
18%, from net revenues in 1998. The increase in revenues primarily reflects the
Company's emphasis on Everest laparoscopy product sales and the shipments of
cardiovascular bipolar products to Guidant Corporation. A decrease in shipments
to C.R. Bard of a version of the Company's bipolar coagulating probe offset the
Company's overall revenue increases.

         Revenues of the Company's laparoscopy product line, a growth business
for the Company, increased 27% to $8,236,725 from 1998. This increase in
revenues primarily resulted from ongoing sales and marketing initiatives
directed at increasing this segment and from increased revenues related
primarily to the BiCOAG(R) Bipolar Cutting Forceps. Revenues from this product
increased 36% as compared to 1998. The Company also experienced revenue
increases of 34% and 28% in 1999 from the BiCOAG Dissecting Forceps and the
BiCOAG Classic Tip Forceps, respectively. The Company expects revenues from the
Everest-branded laparoscopic product line to continue to grow as a result of
improved sales management, the growing acceptance of the Company's RF surgical
product offering and the addition of four new products. The Company believes its
innovative electrosurgical instruments allow surgeons greater versatility and
cost savings compared to alternative technologies.

         The Company's cardiovascular business represents its second growth
business. This segment achieved revenues approaching $1,800,000 from the
propriety bipolar products supplied to Guidant Corporation. Guidant bundles the
Company's products with their VASOVIEW(TM) UNIPORT(TM) Endoscopic Vessel

<PAGE>

Harvesting System for minimally invasive saphenous vein harvesting. While
revenues increased 27% in 1999, the revenue growth was negatively impacted due
to the patent issues surrounding a specific feature of an earlier version of the
Guidant system. The Company expects revenues from this product supply agreement
to increase in 2000 due to Guidant's redesigned endoscopic vessel harvesting
system and Guidant's acquisition of CardioThoraic Systems, a leader in minimally
invasive cardiac surgery.

         In addition, the Company commenced limited shipments of a version of
its 3mm bipolar forceps to Endius, Inc, a privately held emerging surgical spine
company for use in a discectomy procedure it is pioneering. The Company also
classifies this business as a growth business. The Company does not expect
shipments to Endius to be material in the near term.

         Revenues in 1999 from the Company's bipolar forceps sold to its OEM
customers increased 2% as these customers continue to meet end-user demand. The
Company expects shipments of these bipolar forceps to remain unchanged in 2000
as these product lines are maturing. Net revenues from gastrointestinal products
decreased 21% for the year due primarily to decreased shipments to C.R. Bard of
a version of the Company's bipolar coagulating probe. Revenues from Bard in the
prior year reflected Bard responding to a short-term market opportunity to gain
share while a significant competitor was off the market. Additionally, the
Company experienced a 32% increase in shipments of the Company's bipolar
polypectomy snare. This increase was related to increased purchases by the
Company's Japanese distributor. The Company expects revenues to increase from
its gastrointestinal products in 2000 as C.R. Bard's purchases increase so its
inventory levels reflect the current market share gains it has acheived.

         Net revenues in 1998 were $10,719,755, an increase of $3,354,375, or
46%, over net revenues in 1997. The increase in revenues primarily reflected the
Company's emphasis on Everest laparoscopy sales, the increase in shipments of
cardiovascular bipolar products to Guidant Corporation and shipments to C.R.
Bard of a version of the Company's bipolar coagulating probe.

Gross Margin

         Gross margin for 1999 was 50.4% of revenues, compared to 48.7% for
1998. This improvement resulted from increased revenues from the Everest
laparoscopy product offerings and the increasing unit volume the Company
experienced that allowed for greater leverage of its overhead capacity. In
addition, the Company benefited from the cost savings of certain value
engineering projects completed in 1999. Lower gross margins from the
cardiovascular products sold to Guidant Corporation, compared to the Everest
laparoscopy products, offset this increase. The Company expects gross margin as
a percent of revenues to increase in 2000 as the Company strives to leverage its
manufacturing overhead over a greater number of units produced and the reduced
costs it expects due to additional value engineering projects.

         Gross margin for 1998 was 48.7% of sales, compared to 44.3% for 1997.
This improvement resulted both from increased sales from the Everest laparoscopy
product offerings and a significant increase in unit volume that allowed the
Company to leverage its manufacturer overhead against the increasing production
output.


<PAGE>

Sales and Marketing

         Sales and marketing expenses for 1999 were $2,986,171, an increase of
$305,762, or 11%, from 1998. This increase resulted primarily from payment of
increased commissions related to the revenue increase and upgrading the sales
and marketing staff in 1999 to meet current and future needs. The Company
expects that sales and marketing expenses will increase in 2000 in conjunction
with the Company's anticipated increase in sales. The Company continues to
invest in its sales and marketing staff and other initiatives aimed at
continuing the growth of the Everest laparoscopy product revenues.

         Sales and marketing expenses for 1998 were $2,680,409, an increase of
$487,580, or 22%, from 1997. This increase resulted primarily from increased
commissions related to the revenue increase, marketing initiatives to
commercialize products for the emerging minimally invasive cardiovascular
surgery market and the expansion of the sales and marketing staff to meet the
Company's sales objectives.

Research and Development

         Research and development expenses for 1999 were $915,047, an increase
of $56,231, or 6%, from 1998. This expense increase resulted primarily from the
Company's efforts to increase its product offering for the laparoscopy market,
the exploration of the Company's technology to benefit other medical market
opportunities and on-going intellectual property initiatives including
patent-related costs. The Company expects research and development costs to
increase in 2000 as the Company completes the introduction of four new products
for the laparoscopy market and increases its development efforts to evaluate
certain opportunities in the minimally invasive cardiovascular market,
laparoscopy and other surgical specialties. Additionally, the Company expects to
continue to incur expenses related to its patent portfolio and related issues.

         Research and development expenses for 1998 were $858,816, an increase
of $224,918, or 35%, from 1997. This expense increase resulted primarily from
the Company's successful efforts to obtain ISO 9000 and CE Mark approval for its
products, development costs associated with the minimally invasive
cardiovascular products, increased staffing costs necessary for the Company to
broaden its product offering and patent-related costs.

General and Administrative

         General and administrative expenses for 1999 were $1,071,081, an
increase of $133,587, or 14%, over 1998. This increase is in part due to the
Company finalizing a sales tax audit with California dating back to 1991, the
cost of the 1999 employee incentive program and increased staffing associated
with the increasing volumes. The Company expects that its general and
administrative expenses will increase in 2000 due to the overall activity
increases from the growth in the business.

         General and administrative expenses for 1998 were $937,494, an increase
of $153,291, or 20%, over 1997. This increase was attributable to expenses
related to increases in executive compensation, higher insurance costs

<PAGE>

associated with coverage enhancements and increased investor communication
initiatives.

Income Tax Expense

         The Company has approximately $16 million of tax loss carryforwards
available to offset future taxable income. The Company can only utilize these
tax attributes to the extent of 90% of pre-tax income since the alternative
minimum tax system will result in tax liabilities at this point. The Company
could also be limited in the utilization of tax loss carryforwards by section
382 of the Internal Revenue Code of 1986 as more fully discussed in the notes to
the financial statements. The Company recognized $25,000 of income tax expense
for 1999. Additionally, the Company recorded an income tax benefit of $3,280,000
related to a reduction in the valuation allowance resulting from net operating
losses from prior years that had been recorded as an offset to the Company's
deferred tax assets.

Net Income (Loss)

         The net income in 1999 was $4,628,482, compared to a net income of
$660,316 in 1998 and a net loss of $384,841 in 1997. The net income for 1999
resulted primarily from sales increases, the increase in gross margin, effective
control of expenses and the reduction in the valuation allowance of the
Company's deferred tax assets. The net income for 1998 was a result of sales
increases, the increase in gross margin and effective control of expenses. The
net losses of 1997 were primarily a result of continuing efforts to shift the
Company's revenue mix to the more profitable Everest laparoscopy business, the
strategic initiatives by the Company related to the minimally invasive
cardiovascular opportunity, and expenses related to the ISO 9000 and CE Mark
certifications. Although there can be no assurance, the Company believes that it
will maintain profitability in 2000 as it increases market share in its core
business of laparoscopy and as Guidant continues to improve its market share in
the cardiovascular surgery market.

Liquidity and Capital Resources

         Cash and cash equivalents were $482,531 on December 31, 1999, compared
to $217,488 on December 31, 1998. The Company generated $859,293 of cash flow
from operating activities in 1999 compared to generating $404,543 on operating
activities in 1998. Operating activities in 1999 included income of $4,628,482,
a growth in accounts receivable due primarily to the increased sales volume, and
the growth in inventory as the Company expanded its product line. Additionally,
the Company recorded a deferred tax asset of $3,280,000 in 1999. The Company
expended $172,136 on capital equipment in 1999. The Company received $46,986
from the sale of its common stock in 1999 through its Employee Stock Purchase
Plan. The Company also reduced its entire outstanding borrowings throughout
1999. The Company met its obligations on its preferred stock dividends of
$343,564.

         The Company's obligation to pay quarterly dividend payments to holders
of three outstanding series of preferred stock, necessary capital expenditures,
growth in inventory as the Company expands its product offering and increased
operating expenses will challenge the Company to meet its capital needs for
2000. Based on its existing operating plan, however, the Company believes its

<PAGE>

current bank credit facility of $1,000,000 obtained in 1999, combined with
operating revenues, will be sufficient to meet its working capital needs in
2000, provided there are no significant deviations from such plan in 2000.

Year 2000

         The Company has completed its detailed assessment, remediation and
testing of the Year 2000 issues related to the Company's enterprise business
applications. The Company has concluded that it is materially compliant with its
accounting, resource planning and network systems based on input from the third
party software vendors and actual testing completed.

         The Company believes that, given its reliance on outside software
vendors and its relatively non-sophisticated information systems, it has
achieved substantial compliance with respect to Year 2000 issues.

         To date, the Company has experienced no material problems related to
the Year 2000.

Forward-Looking Statements and Risks

         Certain statements made in this Form 10-KSB, which are summarized here,
are forward looking statements that involve risk and uncertainties, and actual
results may be materially different than those projected. Factors that could
cause actual results to differ include, but are not limited to those identified:

o        The expectation that revenues from the Everest laparoscopic product
         line will continue to grow in 2000 and that sales and marketing
         expenses related to such revenue increase depends on market acceptance
         and demand of the current and new products, effectiveness of sales and
         marketing personnel, as well as other general market conditions and
         competitive conditions within this market, including the introduction
         of products by competitors.
o        The expectation of increased revenues from the Company's
         gastrointestinal products in 2000 depends on C.R. Bard's actual market
         share and resulting product need.
o        The expectation of revenue growth in the cardiovascular market during
         2000 depends on the success of and demand for Guidant's new version of
         its system, as well as general market and competition conditions.
o        The expectation that the Company's gross margin as a percent of
         revenues will increase in 2000 depends on the actual production of a
         greater number of units, the efficiency of the manufacturing process,
         allowing the Company to leverage its manufacturing overhead, and the
         actual effectiveness of value engineered projects.
o        The Company's ability to maintain profitability in 2000 depends on
         effective expense management and general market conditions and
         competitive conditions that may be encountered, including the Company's
         ability to increase its market share in its core business of

<PAGE>

         laparoscopy given that the Company competes with larger, well
         capitalized companies who have the ability to enter into contract
         purchasing agreements with large institutions.
o        The accuracy of the Company's belief that its current capital resources
         will be sufficient to fund current and anticipated business operations
         throughout 2000 depends, in part, on meeting anticipated revenue goals,
         operating efficiencies and effective expense management, in addition to
         general and competitive conditions.
o        The Company's planned introduction of a 5mm version of the MOLly and
         its full market release of the QUADRIPOLAR Cutting Forceps in the
         second quarter of 2000 depend on the Company meeting its current
         development schedule, as well as general market conditions.
o        Growth in the Company's independent sales channel depends on market
         demand as well as general market and competitive conditions.


ITEM 7.  FINANCIAL STATEMENTS

The financial statements immediately follow the signature page of this Form
10-KSB at the pages set forth below:

                                                                           Page
Report of Independent Auditors dated January 7, 2000........................F-1

Balance Sheets as of December 31, 1999 and 1998.............................F-2

Statements of Operations for Years Ended December 31, 1999, 1998 and 1997...F-3

Statements of Cash Flows for Years Ended December 31, 1999, 1998 and 1997...F-4

Statements of Changes in Shareholders' Equity for Years Ended
December 31, 1999, 1998 and 1997............................................F-5

Notes to Financial Statements...............................................F-6


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.



<PAGE>


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

         The information required by Item 9 regarding the Company's executive
officers is set forth in Part I of this report.

         The information required by Item 9 regarding the Company's directors is
incorporated by reference from the Company's 2000 Proxy Statement under the
caption "Information About Nominees." The Company intends to file its proxy
statement pursuant to Rule 14a within 120 days after the close of the fiscal
year for which this report is filed.

         The information relating to compliance with Section 16(a) of the
Exchange Act is incorporated by reference from the Company's 2000 Proxy
Statement under the caption "Compliance with Section 16(a) of the Exchange Act."
The Company intends to file its proxy statement will be filed pursuant to Rule
14a within 120 days after the close of the fiscal year for which this report is
filed.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by Item 10 is incorporated by reference from
the Company's 2000 Proxy Statement under the caption "Executive Compensation."
The Company intends to file its proxy statement pursuant to Rule 14a within 120
days after the close of the fiscal year for which this report is filed.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 11 is incorporated by reference from
the Company's 2000 Proxy Statement under the caption "Security Ownership of
Management and Certain Beneficial Owners." The Company intends to file its proxy
statement pursuant to Rule 14a within 120 days after the close of the fiscal
year for which this report is filed.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 12 is incorporated by reference from
the Company's 2000 Proxy Statement under the caption "Certain Transactions." The
Company intends to file its proxy statement pursuant to Rule 14a within 120 days
after the close of the fiscal year for which this report is filed.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits: The exhibits to this Report are listed in the Exhibit Index
         immediately following the financial statements following the signature
         pages to this Report.


<PAGE>

         A copy of any of the exhibits listed or referred to above will be
         furnished at a reasonable cost to any person who was a shareholder of
         the Company as of February 18, 2000, upon receipt from any such person
         of a written request for any such exhibit. Such request should be sent
         to Everest Medical Corporation, 13755 First Avenue North, Minneapolis,
         Minnesota 55441, Attention: Shareholder Information.

(b) Reports on Form 8-K: None filed during the fourth quarter of the fiscal year
ended December 31, 1999.



<PAGE>


                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:   February 22, 2000               EVEREST MEDICAL CORPORATION


                                          By       /s/ John L. Shannon, Jr.
                                              John L. Shannon, Jr.
                                              President, Chief Executive Officer
                                              and Chairman of the Board


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Issuer and in the capacities indicated.

                               (Power of Attorney)

         Each person whose signature appears below constitutes and appoints John
L. Shannon, Jr. and Thomas F. Murphy as his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-KSB
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

         Signature                   Title                            Date


  /s/ John L. Shannon, Jr.   Chief Executive Officer,         February 22, 2000
John L. Shannon, Jr.         President (Principal Executive
                             Officer) and Chairman of the
                             Board

  /s/ David D. Koentopf      Director                         February 22, 2000
David D. Koentopf

(Signatures continued on following page)


<PAGE>


         Signature                   Title                            Date


  /s/ Thomas F. Murphy       Vice President of Finance        February 22, 2000
Thomas F. Murphy             and Administration
                             (Principal Financial and
                             Accounting Officer)


  /s/ Donald R. Brattain     Director                         February 22, 2000
Donald R. Brattain


  /s/ Richard J. Migliori    Director                         February 22, 2000
Richard J. Migliori, M.D.


  /s/ Anthony Badolato       Director                         February 22, 2000
Anthony Badolato

<PAGE>
                         Report of Independent Auditors


To the Board of Directors
Everest Medical Corporation


We have audited the accompanying balance sheets of Everest Medical Corporation
as of December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Everest Medical Corporation at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.



                                                     /s/ Ernst & Young LLP

Minneapolis, Minnesota
January 7, 2000, except for Note 11 as
   to which date is February 22, 2000

<PAGE>

                           EVEREST MEDICAL CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                     1999                 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>                  <C>
ASSETS
Current assets
     Cash and cash equivalents                                                                       $ 482,531            $ 217,488
     Accounts receivable, less allowances (1999 - $91,750; 1998 - $61,750)                           2,034,342            1,745,512
     Inventories                                                                                     1,892,034            1,751,946
     Prepaid insurance and deposits                                                                    125,098               76,689
------------------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                 4,534,005            3,791,636

Equipment
     Office and display equipment                                                                      513,925              414,315
     Research and development equipment                                                                188,224              188,224
     Production equipment                                                                            1,292,454            1,219,929
     Equipment under capital lease                                                                     115,235              115,235
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     2,109,839            1,937,703
     Less allowance for depreciation                                                                (1,787,170)          (1,632,198)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       322,669              305,505
Patents, net of amortization (1999 - $172,337; 1998 - $172,087)                                              -                  250
------------------------------------------------------------------------------------------------------------------------------------

Deferred tax asset                                                                                   3,280,000                    -

Total assets                                                                                       $ 8,136,674          $ 4,097,391
====================================================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
     Customer advances                                                                                $ 12,280             $ 36,788
     Accounts payable                                                                                  278,920              582,110
     Accrued compensation and related taxes                                                            473,151              314,174
     Other accrued liabilities                                                                         190,081              189,875
     Bank borrowings, short term                                                                             -              125,000

------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                              954,432            1,247,947


Shareholders' equity
     Convertible preferred stock series A, ($.01 par value,
      $2.50 liquidation value) 1,400,000 authorized; outstanding:
       1999 - 462,937 shares; 1998 - 632,937 shares                                                  1,126,717            1,551,717
     Convertible preferred stock series B, ($.01 par value,
      $2.75 liquidation value) authorized and outstanding:
      1999 - 637,273 shares; 1998 - 637,273 shares                                                   1,545,313            1,545,313
     Convertible preferred stock series C, ($.01 par value,
      $2.75 liquidation value) authorized and outstanding:
      1999 - 410,906 shares; 1998 - 410,906 shares                                                   1,002,832            1,002,832
     Convertible preferred stock series D, ($.01 par value,
      $2.875 liquidation value) authorized and outstanding:
      1999 - 471,500 shares; 1998 - 471,500 shares                                                   1,205,808            1,205,808
     Common stock, ($.01 par value) 12,461,821 authorized; outstanding:
      1999 - 7,669,127; 1998 - 7,465,875                                                                76,691               74,659
      Additional paid-in capital                                                                    16,548,112           16,420,828
      Accumulated deficit                                                                          (14,323,231)         (18,951,713)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     7,182,242            2,849,444
------------------------------------------------------------------------------------------------------------------------------------
     Total liabilities and shareholders' equity                                                    $ 8,136,674          $ 4,097,391
====================================================================================================================================
</TABLE>

See accompanying notes to financial statements.

<PAGE>
                           EVEREST MEDICAL CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                            1999               1998               1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>               <C>                <C>
Net revenues                                                              $12,608,863       $ 10,719,755       $ 7,365,380
Cost of goods sold                                                          6,253,533          5,501,001         4,103,920
---------------------------------------------------------------------------------------------------------------------------
Gross margin                                                                6,355,330          5,218,754         3,261,460


Cost and expenses:
      Sales and marketing                                                   2,986,171          2,680,409         2,192,829
      Research and development                                                915,047            858,816           633,898
      General and administrative                                            1,071,081            937,494           784,203
---------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                    4,972,299          4,476,719         3,610,930

Interest income                                                               (10,878)            (8,018)          (16,775)
Interest expense                                                               20,427             79,737            52,146
---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefit)                                 1,373,482            670,316          (384,841)

Income tax (benefit) expense                                               (3,255,000)            10,000                 -
---------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                           4,628,482            660,316          (384,841)

Less preferred stock dividends                                                343,564            343,564           344,390
---------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock                               $4,284,918          $ 316,752        $ (729,231)
===========================================================================================================================

Basic and diluted net income (loss) per common share                           $ 0.56             $ 0.04           $ (0.10)
===========================================================================================================================

Weighted average number of common shares outstanding during the year        7,604,607          7,364,982         7,017,635
===========================================================================================================================

</TABLE>

See accompanying notes to financial statements.

<PAGE>
                           EVEREST MEDICAL CORPORATION
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Year ended December 31
                                                                                 1999             1998             1997
----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES

<S>                                                                            <C>               <C>              <C>
Net income (loss)                                                              $4,628,482        $ 660,316        $(384,841)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities
     Depreciation and amortization                                                155,223          148,516          168,086
     Provision for losses on accounts receivable                                   30,000           15,000              750
     Recognition of deferred tax asset                                         (3,280,000)               -                -
     Changes in operating assets and liabilities
          Accounts receivable                                                    (318,830)        (197,446)        (428,272)
          Inventories                                                            (140,088)        (696,135)        (275,682)
          Prepaid expenses                                                        (48,409)          22,839           68,210
          Customer advances                                                       (24,508)          (1,212)          20,000
          Accounts payable and accrued expenses                                  (143,471)         449,089           41,647
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                               859,293          404,543         (787,716)

INVESTING ACTIVITIES

Purchases of equipment                                                           (172,136)        (169,980)        (187,629)

----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                            (172,136)        (169,980)        (187,629)

FINANCING ACTIVITIES
Dividends paid                                                                   (343,564)        (343,564)        (344,390)
Principal payments on debt and capital leases                                    (625,536)        (477,496)          (5,409)
Proceeds from issuance of debt                                                    500,000                -          600,000
Net proceeds from sale of common stock                                             46,986          723,625           92,696
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                              (422,114)         (97,435)         342,897
----------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                                  265,043          137,128         (632,448)
Cash and cash equivalents at beginning of year                                    217,488           80,362          712,810
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $ 482,531        $ 217,488         $ 80,362
============================================================================================================================


Supplemental cash flow information:
     Conversion of Series A and B preferred stock into common stock             $ 425,000              $ -         $ 51,250

</TABLE>


See accompanying notes to financial statements.


<PAGE>
                           EVEREST MEDICAL CORPORATION
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                          Common      Additional
                               Preferred      Common       Preferred      Stock -       Paid-in        Accumulated
                                Shares        Shares         Stock          Par         Capital          Deficit          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>          <C>             <C>        <C>              <C>              <C>
Balance January 1, 1997          2,171,616     6,970,912    $ 5,356,920     $69,709    $ 16,240,199     $ (19,227,188)   $2,439,640

Common stock issued under stock
 purchase plan and stock options
 less related costs                               40,818                        408          72,290                          72,698

Common stock issued upon
 exercise of  stock warrants                       7,272                         73          19,925                 -        19,998

Conversion of Series A preferred
 stock                              (4,000)        4,000        (10,000)         40           9,960                               -

Conversion of Series B preferred
 stock                             (15,000)       15,000        (41,250)        150          41,100                               -

Issuance of warrants in
 connection with guarantee
 of bank line of credit                                                                       2,386                           2,386

Dividends on preferred stock                                                               (344,390)                       (344,390)

Net loss for the year                                                                                        (384,841)     (384,841)
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997        2,152,616     7,038,002      5,305,670      70,380      16,041,470       (19,612,029)    1,805,491
------------------------------------------------------------------------------------------------------------------------------------

Common stock issued under
 stock purchase plan                              16,108                        162          23,463                          23,625

Common stock issued upon
 sale of common shares                           411,765                      4,118         695,882                 -       700,000

Issuance of warrants in
 connection with guarantee
 of bank line of credit                                                                       3,576                           3,576

Dividends on preferred stock                                                               (343,564)                       (343,564)

Net income for the year                                                                                       660,316       660,316
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998         2,152,616    7,465,875      5,305,670      74,660      16,420,827       (18,951,713)    2,849,444
------------------------------------------------------------------------------------------------------------------------------------

Common stock issued under
 stock purchase plan                              33,252                        332          46,654                          46,986

Conversion of Series A
 preferred stock                  (170,000)      170,000       (425,000)      1,700         423,300                 -             -

Issuance of warrants in
 connection with guarantee
 of bank line of credit                                                                         894                             894

Dividends on preferred stock                                                               (343,564)                       (343,564)

Net income for the year                                                                                     4,628,482     4,628,482
------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999        1,982,616     7,669,127    $ 4,880,670     $76,691    $ 16,548,112     $ (14,323,231)   $7,182,242
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.
<PAGE>
                           Everest Medical Corporation

                          Notes to Financial Statements

                                December 31, 1999


1. Summary of Significant Accounting Policies

Business Activity

Everest Medical Corporation (the Company) is engaged in the development,
manufacturing and marketing of bipolar electrosurgical instrumentation for the
minimally invasive surgery market. The Company operates as one segment.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash equivalents. The Company's cash
equivalents consist of money market accounts and Treasury Bills and are carried
at cost which approximates market value. The cost of Treasury Bills was $170,633
and $132,548 at December 31, 1999 and 1998, respectively.

Inventories

Inventories are valued at the lower of cost or market determined by the
first-in, first-out (FIFO) method.

Equipment and Fixtures

Equipment and fixtures are stated at cost. The Company provides for depreciation
on a straight-line basis over estimated useful lives from three to five years.
Maintenance, repairs and minor renewals are expensed as incurred.

Patents

Patents employed in current products are carried at cost (primarily patent legal
fees) and are amortized over 60 months. The Company reviews its patents
periodically to determine whether the patents have continuing value. The expense
of writing off patents is charged to research and development.

Revenue Recognition

The Company recognizes revenue when the inventory has been shipped to the
customers.


<PAGE>

1. Summary of Significant Accounting Policies (continued)

Income Taxes

The Company accounts for income taxes under the liability method

Per Share Data

Basic earnings per share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share is computed using the combination
of dilutive common share equivalents and the weighted average number of common
shares outstanding. The dilutive effect of options and warrants was not material
in 1999 and 1998.

Impairment of Long-Lived Assets

The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

Use of Estimates

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

2. Inventories

Inventories consisted of:                          December 31
                                              1999              1998
                                    ------------------------------------

   Raw materials                          $  718,567      $   740,100
   Work in process                           914,573          807,580
   Finished goods                            258,894          204,266
                                    ====================================
                                          $1,892,034       $1,751,946
                                    ====================================

3. Debt

Under a line of credit arrangement, due in December 2000, the Company had a
balance payable of $125,000 at December 31, 1998 with interest payable monthlyat
the banks reference rate which was 8.5%. The borrowings were paid in full in
1999.

In February 1999, the Company entered into a line of credit arrangement with
Norwest Bank, N.A. Under this agreement, the Company is able to borrow up to
$1,000,000. The line of credit bears interest at the bank's reference rate. This
line of credit arrangement was renewed by the bank in December 1999 and expires
in December 2000.


<PAGE>

This line of credit arrangement replaces a previous arrangement with another
bank with similar terms and conditions. The previous line of credit entered into
in June 1997 was secured by a standby letter of credit from a shareholder of the
Company. As consideration for securing the letter of credit, the Company paid
the shareholder $50,000 per year and issued a warrant to purchase 25,000 shares
of common stock at an exercise price of $2.50 per share. The warrant expires in
May 2000. The warrant was deemed to have a value of approximately $6,900 which
was expensed over the life of the line of credit. This arrangement ended in
March 1999.

Interest paid by the Company in 1999, 1998 and 1997 was $20,427, $76,161 and
$49,760, respectively.

4. Operating Lease
The Company leases its office and manufacturing facility under an operating
lease that expires in 2004. Maintenance, utilities and real estate taxes are
paid by the Company. Total rent expense under this lease was $258,404, $261,964
and $165,368 for the years ended December 31, 1999, 1998 and 1997, respectively.

Minimum future obligations on the facility lease are as follows:

   2000                                                   $164,255
   2001                                                    169,654
   2002                                                    170,144
   2003                                                    175,536
   2004                                                    160,908
                                                        =============
                                                          $840,497
                                                        =============

5. Income Taxes

At December 31, 1999, the Company had net operating losses for federal income
tax purposes of approximately $16,441,000, plus credits for research and
development costs of approximately $298,000 that are available to offset future
taxable income through the year 2013. These carryforwards are subject to the
limitations of Internal Revenue Code Section 382. This Section provides that
limitations on the availability of net operating losses to offset current
taxable income when an ownership change has occurred for federal tax purposes.
The annual limitation on net operating losses is calculated by multiplying the
value of the corporation immediately prior to the ownership change by the
long-term federal tax exempt rate.

As a result of the sale of Series A preferred stock in 1990, the Company had a
change of ownership under Section 382. The use of losses, incurred through the
change in ownership date, to offset future taxable income will be limited to
approximately $300,000 per year during the carryforward period. The losses
occurring after the change in ownership date are unaffected and can be used to
offset future taxable income without limit. The credits will also be subject to
limitations under these same rules.


<PAGE>

Until 1999 the Company had provided a full valuation allowance for the net
deferred tax assets. In the fourth quarter of 1999, based on the Company's
continued strong financial performance over the past two years and the
expectation that this performance will continue, the Company reduced its
valuation allowance for its deferred tax assets by $3,280,000.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts used for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company's
deferred tax assets are as follows:

                                                           December 31
                                                     1999              1998
                                                   ---------------------------

   Net operating losses                             $ 6,248,000    $ 6,842,000
   Depreciation                                          75,000         95,000
   Amortization                                          35,000         36,000
   Reserve for bad debt                                  35,000         23,000
   Reserve for obsolete inventory                        39,000         27,000
   Research and development credit amount               298,000        298,000
   Vacation accrual                                      45,000         33,000
   Other                                                 59,000         56,000
                                                   ---------------------------
   Total deferred tax asset                           6,834,000      7,377,000
   Less valuation allowance                           3,554,000      7,377,000
                                                   ---------------------------
   Net deferred tax asset                           $ 3,280,000    $         -
                                                   ===========================

Income tax expense (benefit) consists of the following:

                                           1999            1998          1997
                                      -----------       ---------      --------
Current:
  Federal                             $      --         $    --        $   --
  State                                      --              --            --
  Alternative minimum tax                  25,000          10,000          --

Deferred:
  Federal                                 461,500            --            --
  State                                    81,500            --            --
  Change in valuation  allowance
                                       (3,823,000)           --            --
                                      -----------       ---------      --------
                                      $(3,255,000)      $  10,000      $   --
                                      ===========       =========      ========




<PAGE>


5. Income Taxes (continued)

Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:

                                         1999          1998          1997
                                        ------        ------        ------
Tax at statutory rate                     34.0%         34.0%         34.0%
State income taxes                         6.0           6.0           6.0
  Alternative minimum tax                  1.8           1.5        --
Impact of net operating loss             (40.0)        (40.0)
carryforwards                            (40.0)
  Change in valuation  allowance
                                        (135.2)       --            --
                                        ------        ------        ------
                                        (137.0)%         1.5%     -%
                                        ======        ======        ======

6. Convertible Preferred Stock

During 1995, the Company sold 471,500 shares of Series D Convertible Preferred
Stock for $1,205,808. The Series D Preferred Stock carries a coupon rate of 10%
with dividends payable quarterly. The conversion price is $2.875 per share.

During 1994, the Company sold 410,906 units, each consisting of one share of
Series C Convertible Preferred Stock and a warrant to purchase one-half share of
Common Stock, for $1,002,832. The Series C Preferred Stock carries a coupon rate
of 6% with dividends payable quarterly. The conversion price is $2.75 per share.

The Company's Series B Convertible Preferred Stock carries a coupon rate of 8%
with dividends payable quarterly. The conversion price is $2.75 per share. Each
share of this Series was sold with a warrant attached to purchase one share of
Common Stock at $2.75. The warrants expired in 1998.

The Series A Convertible Preferred Stock is convertible at $2.50 per share. This
Series is subject to automatic conversion concurrently with the closing of a
public offering of the Company's Common Stock with aggregate minimum proceeds of
$7,500,000 at a minimum price per share of $5.00.

The Series A, B, C and D Preferred Stock are convertible into Common Stock on a
one-for-one basis at the option of the holders, and each holder has voting
rights on all matters submitted to shareholders on an as-if-converted basis. The
Series A Preferred Stock has anti-dilution rights for any sales of Common Stock
by the Company at less than its current conversion price, and the conversion
price for each Series of Preferred Stock is subject to adjustment for stock
dividends, stock splits and capital reorganizations.


<PAGE>

7. Stock Purchase and Option Plans and Warrants

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, but
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its plans.

The Company has a stock purchase plan, nonstatutory and incentive stock option
plans and compensatory stock options. Total shares reserved at December 31, 1999
for convertible notes and convertible preferred stock, future employee stock
purchase plan purchases and options and warrants were 4,278,639.

Stock Purchase Plan

The Company has an employee stock purchase plan under which the sale of 200,000
shares of its Common Stock has been authorized. The purchase price of the shares
under the plan is the lesser of 85% of the fair market value on the first or
last day of the offering period. Offering periods are six months each. Employees
may designate up to 10% of the compensation for the purchase of stock.

Stock Option Plans

In 1997, the Company adopted the 1997 Stock Option Plan under which 500,000
shares were reserved. Shares under this plan are generally exercisable beginning
one year from the date of grant in cumulative amounts of one-fourth to one-third
of the shares under option and expire seven years from the date of grant.
Incentive and non-statutory options are granted at prices not less than market
on the date of grant.

In 1992, the Company adopted the 1992 Stock Option Plan under which 500,000
shares were reserved. Shares under this plan are generally exercisable beginning
one year from the date of grant in cumulative amounts of one-fourth to one-third
of the shares under option and expire ten years from the date of grant.
Incentive and nonstatutory options are granted at prices not less than market on
the date of grant.

In 1986, the Company adopted an Incentive Stock Option Plan under which 600,000
shares were reserved. Incentive options are generally exercisable beginning one
year from the date of grant in cumulative yearly amounts of one-fourth and
one-half of the shares under option and expire five to ten years from the date
of grant.

Also, in 1986, the Company adopted a Nonstatutory Stock Option Plan under which
300,000 shares were reserved. Shares under this plan are exercisable beginning
18 months from the date of grant. Additionally, 55,000 shares were reserved
during the period from 1986 through 1989 for directors of the Company through
granting of individual non-qualified option agreements. Non-qualified director
options are exercisable beginning six months from the date of grant. All
non-qualified options expire after five years.

<PAGE>


7. Stock Purchase and Option Plans and Warrants (continued)

Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of the Statement. The fair
value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively; risk free interest rates of
6%, 5% and 5%; dividend yields of 0%, 0% and 0%; volatility factors of the
expected market price of the Company's stock of .533, .582 and .593; and a
weighted-average expected life of the option of seven, seven and four years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different than those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

                                               1999       1998         1997
                                           ------------------------------------
   Pro forma income (loss) applicable
     to common stock                       $4,132,147    $187,847   $(996,570)
   Pro forma income (loss) per common
     share                                    $.54       $.03        $(.14)

The pro forma results may not be representative of the future impact of applying
Statement 123 due to the phase-in provisions of the Statement and actual vesting
experience.



<PAGE>


7. Stock Purchase and Option Plans and Warrants (continued)

A summary of the Company's stock option activity and related information for the
years ended December 31 follows:

<TABLE>
<CAPTION>
                                       1999                      1998                      1997
                             ------------------------- ----------------------------------------------------
                                          Weighted-Average          Weighted-Average          Weighted-Average
                                           Exercise                   Exercise                  Exercise
                                             Price                     Price                     Price
                                Options                   Options                   Options
                             ------------------------- ----------------------------------------------------

   Outstanding at beginning
<S>                             <C>           <C>         <C>           <C>           <C>         <C>
     of year                    1,294,154     $1.99       1,170,154     $2.31         989,600     $2.31
   Granted                        142,000      1.69         146,500      1.99         346,554      2.23
   Exercised                            -        -                -        -          (33,750)     1.70
   Canceled                       (60,000)     1.87         (22,500)     2.30        (132,250)     2.28
                             ==============            ==============            ==============
   Outstanding end of year      1,376,154     $1.96       1,294,154     $1.99       1,170,154     $2.31
                             ==============            ==============            ==============
   Exercisable at end of        1,166,204     $2.29       1,048,579     $2.32         944,064
     year
                             ==============            ==============            ==============

   Weighted average fair
     value of options
     granted during the year     $1.01                                  $1.11                    $  .93

</TABLE>

At December 31, 1999, the Company had exercise prices for options outstanding as
follows: 1,174,200 shares from $1.53 to $2.90 and 201,954 shares from $3.00 to
$5.00. The weighted average remaining contractual life of those options are six
and four years, respectively.

Shares reserved and available for grant at December 31, 1999 for the option
plans were 49,733.

Warrants

At December 31, 1999, the Company had total exercisable warrants outstanding to
purchase shares of its Common Stock as follows: 25,000 shares at $2.50 per
share; 305,747 shares at $2.75 per share; 247,150 shares at $2.875 per share.
The warrants expire at various dates from 2000 through 2005.

8. Employee Benefit Plan

The Company has a defined contribution plan for substantially all employees.
Each employee may elect to contribute from 1% to 20% of their compensation to
the plan. Employees become 100% vested in Company contributions after four years
of service. In April 1999, the Company authorized a matching contribution for
those participants who elect to make salary deferral contributions under the
Plan. The matching contribution equals 20% of each participant's salary deferral
contributions which do not exceed 5% of the participant's contributions. The
expense for this plan for the year ended December 31, 1999, was $16,578, with no
expense in 1998 or 1997.


<PAGE>

9. Export Sales and Major Customers

Total sales to foreign customers were $1,496,031, $1,267,653 and $1,418,234 in
1999, 1998 and 1997, respectively.

The Company had total sales to OEM customers of $3,698,014, $3,791,058 and
$1,913,985 in 1999, 1998 and 1997, respectively. Sales to one OEM customer
amounted to $1,889,653 in 1999. Sales to another OEM customer amounted to
$1,594,493 in 1998. Accounts receivable at December 31, 1999 and 1998 included
$170,920 and $296,820, respectively, from these customers.

10. Credit Risk

The Company is subject to credit risk on its accounts receivable which are
primarily with health care facilities, original equipment manufacturers and
medical products distributors. The Company performs credit investigations to
minimize credit risk. Certain distributors have the right to return unsold
product in the event the distributor's agreement is terminated for any cause.

11. Subsequent Events

On February 22, 2000, the Company entered into a definitive merger agreement
with Gyrus Group PLC through which the Company will be acquired for $51.6
million.
<PAGE>


                           EVEREST MEDICAL CORPORATION

                         EXHIBIT INDEX TO ANNUAL REPORT
                                 ON FORM 10-KSB
                   For the Fiscal Year Ended December 31, 1999

Item No.             Item

3.1      Restated Articles of Incorporation of the Company, as amended
         (Incorporated by reference to Exhibit 3.1 to the Company's Form 10-KSB
         for the fiscal year ended December 31, 1995)

3.2      Restated Bylaws of the Company, as amended (Incorporated by reference
         to Exhibit 3.2 to the Company's Registration Statement on Form S-18
         (File No. 33-37352-C))

4.1      Specimen form of the Company's Common Stock Certificate (Incorporated
         by reference to Exhibit 4.1 to the Company's Registration Statement on
         Form S-18 (File No. 33-37352-C))

4.2      Restated Articles of Incorporation of the Company, as amended (See
         Exhibit 3.1)

4.3      Restated Bylaws of the Company, as amended (See Exhibit 3.2)

10.1     1986 Incentive Stock Option Plan, as amended (Incorporated by reference
         to Exhibit 10.6 to the Company's Registration Statement on Form S-18
         (File No. 33-37352-C))**

10.2     1986 Non-Statutory Stock Option Plan, as amended (Incorporated by
         reference to Exhibit 10.7 to the Company's Registration Statement on
         Form S-18 (File No. 33-37352-C))**

10.3     Form of Incentive Stock Option Agreement (Incorporated by reference to
         Exhibit 10.8 to the Company's Registration Statement on Form S-18 (File
         No. 33-37352-C))**

10.4     Form of Non-Statutory Option Agreement (Incorporated by reference to
         Exhibit 10.9 to the Company's Registration Statement on Form S-18 (File
         No. 33-37352-C))**

10.5     1999 Employee Stock Purchase Plan**

10.6     Employee Incentive Savings and Profit Sharing Plan (Incorporated by
         reference to Exhibit 10.11 to the Company's Registration Statement on
         Form S-18 (File No. 33-37352-C))**

10.7     Employee Incentive Savings and Profit Sharing Trust (Incorporated by
         reference to Exhibit 10.12 to the Company's Registration Statement on
         Form S-18 (File No. 33-37352-C))**

10.8     1992 Stock Option Plan (Incorporated by reference to Exhibit 10.37 to
         the Company's Registration Statement on Form S-1 (File No. 33-45872))**

10.9     Lease Agreement dated September 20, 1989 between the Company and
         Carlson Center Industrial II Limited Partnership (Incorporated by
         reference to Exhibit 10.36 to the Company's Registration Statement on
         Form S-18 (File No. 33-37352-C))

10.10    Amendment #1 dated December 7, 1992 to Lease Agreement dated September
         20, 1989 between the Company and Carlson Center Industrial II Limited
         Partnership (Incorporated by reference to Exhibit 10.13 to the
         Company's Form 10-KSB for the fiscal year ended December 31, 1994)

10.11    Amendment #2 dated December 9, 1993 to Lease by and between the Company
         and the Estate of James Campbell (Incorporated by reference to Exhibit
         10.14 to the Company's Form 10-KSB for the fiscal year ended December
         31, 1994)

10.12    Supply Agreement dated April 2, 1991 between the Company and C.R. Bard,
         Inc. (Incorporated by reference to Exhibit 10.36 to the Company's
         Registration Statement on Form S-1 (File No. 33-45872))

10.13    First Amendment to Supply Agreement dated April 2, 1991 between the
         Company and C.R. Bard, Inc. (Incorporated by reference to Exhibit 10.36
         to the Company's Registration Statement on Form S-1 (File No.
         33-45872))

10.14    Stock Purchase Agreement dated July 15, 1993 between the Company and
         Johnson & Johnson Development Corporation, including Distribution and
         License Agreement between the Company and Ethicon Endo-Surgery
         (Incorporated by reference to Exhibit 10.29 to the Company's Form
         10-KSB for the fiscal year ended December 31, 1993)

10.15    Employment Agreement with John L. Shannon, Jr. dated January 1, 1999
         (Incorporated by reference to Exhibit 10.15 to the Company's Form
         10-KSB for the fiscal year ended December 31, 1998)**

10.16    Form of Warrant dated February 18, 1994 issued pursuant to agreement to
         certain purchasers (Incorporated by reference to Exhibit 10.38 to the
         Company's Form 10-KSB for the fiscal year ended December 31, 1993)

10.17    Exclusive Distribution Agreement dated January 1, 1996 with KK Adachi
         (Incorporated by reference to Exhibit 10.21 to the Company's Form
         10-KSB for the fiscal year ended December 31, 1995)

10.18    Warrant to purchase 290,909 shares of Common Stock dated February 16,
         1996 issued to Okabena Partnership K (Incorporated by reference to
         Exhibit 10.25 to the Company's Form 10-KSB for the fiscal year ended
         December 31, 1995)

10.19    Separation Agreement dated October 12, 1996 between the Company and R.
         Keith Poppe (Incorporated by reference to Exhibit 10.25 to the
         Company's Form 10-KSB for the fiscal year ended December 31, 1996)**

10.20    Terms of Employment for Michael Geraghty. (Incorporated by reference to
         Exhibit 10.26 to the Company's Form 10-KSB for the fiscal year ended
         December 31, 1996)**

10.21    Amendment #3 dated September 11, 1997 to Lease by and between the
         Company and the Estate of James Campbell, as Landlord (Incorporated by
         reference to Exhibit 10.24 to the Company's Form 10-KSB for the fiscal
         year ended December 31, 1997)

10.22    Management Incentive Program for Fiscal Year 1999 (Incorporated by
         reference to Exhibit 10.22 to the Company's Form 10-KSB for the fiscal
         year ended December 31, 1998)**

10.23    Credit Agreement between Norwest Bank Minnesota, N.A. and the Company
         dated February 26, 1999. (Incorporated by reference to Exhibit 10.23 to
         the Company's Form 10-KSB for the fiscal year ended December 31, 1998)

10.24    Revolving Note dated February 26, 1999 from the Company to Norwest Bank
         Minnesota, N.A. (Incorporated by reference to Exhibit 10.24 to the
         Company's Form 10-KSB for the fiscal year ended December 31, 1998)

10.25*   Restated Credit Agreement between Norwest Bank Minnesota N.A. and the
         Company dated December 30, 1999.

10.26*   Revolving Note dated December 30, 1999 from the Company to Norwest Bank
         Minnesota, N.A.

10.27*   Supply Agreement dated January 25, 2000 between the Company and Guidant
         Corporation

23.1*    Consent of Independent Auditors

24.1*    Power of Attorney of John L. Shannon, Jr., David D. Koentopf, Thomas F.
         Murphy, Donald R. Brattain, Richard J. Migliori and Anthony Badolato
         (included on the signature pages of this Form 10-KSB)

27.1     Financial Data Schedule (in electronic format only)

-------------------

 * Filed herewith.
** Management contract or compensatory plan or arrangement.