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, 1996                                         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 1996 were $6,001,779.

         As of March 5, 1997, there were 7,005,934 shares of Common Stock of the
Issuer  outstanding,  and the aggregate  market value of the Common Stock of the
Issuer  (based upon the closing sale price of the Common Stock at that date,  as
reported by NASDAQ),  excluding shares owned  beneficially by executive officers
and directors, was approximately $17,385,515.


         Part II 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 Annual Report to Shareholders for the year ended December 31, 1996 (the
"1996  Annual  Report").   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 for its annual meeting to
be held April 21, 1997 (the "1997 Proxy Statement").

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




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                                     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  bipolar
electrosurgical  devices  for use in  minimally  invasive  surgical  procedures.
Minimally invasive  procedures have a growing range of surgical  applications in
such areas as gynecology, gastroenterology, cardiovascular and general surgery.

         The  Company  commenced  commercial  sales  of  laparoscopic   surgical
products in October  1991.  The first  product  sold was the BiLAP  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(R) 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 for
the emerging  microlaparoscopy  market.  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
electrosurgery is gaining  increasing  scientific  recognition and acceptance in
the growing  minimally  invasive  surgery  ("MIS")  markets which  predominately
utilize monopolar energy.  Bipolar energy offers the surgeon more control,  less
tissue damage,  effective  hemostasis and  performance,  eliminating the dangers
associated with monopolar energy.  The Company believes that bipolar  technology
will become the standard in electrosurgery in all MIS procedures and the Company
will be a beneficiary of this trend.

         The Company  continues to market 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(R)
Gastrointestinal 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



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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,  there is a greater  potential for injury to body tissues as the
electrical current passes through to the surface or return electrode  (grounding
pad) where skin burns can 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.

         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, hernia repair and removal 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, there is a risk 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 two years, there
have been additional  products  introduced to the market by competitors that may
address the need for cutting and coagulation during laparoscopic procedures.


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         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
nonconductive  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 which allow the physician better  visualization of the
surgical site.

         The Company currently distributes the EVERSHEARS II Bipolar scissors to
hospitals  and  physicians  only  through  its  network  of   distributors   and
independent  marketing  representatives.  Sales of EVERSHEARS  Bipolar  Scissors
exceeded  $1,300,000  for the year.  It is expected to continue its sales growth
for 1997 due to customer demand,  increased awareness of the benefits of bipolar
electrosurgery and ongoing product performance improvements.

         BiCOAG  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 which allows 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 BiCOAG Forceps were reintroduced 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  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 in 1996 revenues
exceeded $200,000.

         In addition to the  Company's  independent  sales  channel,  the BiCOAG
Forceps are also marketed and  distributed  by Ethicon  Endo-Surgery  and Origin
MedSystems,  a subsidiary of Guidant  Corporation.  Sales to these OEM customers
represented 16% of the Company's revenue in 1995 and 19% in 1996.

         BiLAP BiPolar Probes. Everest markets the BiLAP Bipolar Probes in three
different configurations.  The BiLAP Probe consists of a handle and a long rigid
tube.  The three models  contain  cutting  electrodes to  accommodate  clinician
preference and an area to provide spot coagulation on the distal end. All of the



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models have features that allow  suction and  irrigation 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, in 1996, with product modifications,  the device is
now compatible with most common electrosurgical generators, eliminating the need
for an Everest  Generator.  Although the Company  believes that this device will
continue to  contribute  to the ongoing  growth of  Everest-branded  laparoscopy
products, sales of the BiLAP System to date have been nominal.

         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 1996 exceeded $325,000.

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

         Sales  of the  BiLAP  Needle  Electrode  in  1996  were  in  line  with
expectations.  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.

         BiCOAG Bipolar Cutting  Forceps.  The Company  introduced this patented
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  Company  was issued a patent from the
United States Patent Office 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 locking  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.



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         The Company  realized a significant  portion of its growth in 1996 from
the revenues generated from this product line. Revenues grew from under $200,000
in 1995 to in excess of  $1,000,000  in 1996.  The Company  expects this product
line to continue to be a source of revenue growth in 1997.

         BiCOAG 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.  Revenues  from this product line in 1996 were limited.
The Company also plans to introduce a 3mm Bipolar scissors in 1997 to complement
the 3mm forceps,  thereby providing additional functionality to the clinician in
the area of microlaparoscopy.

         Laparoscopic  Surgical  Products  Under  Development.  The  Company has
ongoing development  projects to optimize the ergonomics of the current scissors
and forceps handle and to offer a thinner,  higher-quality  blade design for its
bipolar scissors.

         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 is
marketing 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  polypectomy  device was  released  for general sale in the
United  States market in August 1990 after  limited  marketing  during the first
half of the  year in the  United  States  and in  Japan.  In 1996,  the  BiSNARE
experienced a decline in sales as the Company  transitioned to a new distributor
in Japan,  KK  Adachi,  in January  1996 and  experienced  a delay in  obtaining
regulatory  approval.  Sales of this product line approached $500,000 in 1996 as
compared to almost  $600,000 in 1995.  The Company  expects  this sales level to
remain  unchanged in 1997 as the  Japanese  business  competes to regain  market
share  lost as a result of the  regulatory  delays.  The  BiSNARE  is  currently



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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.

         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 general sale to the United States market in August
1990 and to the Japanese market in September 1990.

         The Company has entered into an agreement with Bard  Interventional,  a
division of C.R.  Bard,  Inc.,  and is providing 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.  Sales
under this agreement in 1996 decreased 9% over 1995 levels.

         GI Endoscopic Products Under Development

         Biopsy  Forceps.  The Company has developed a bipolar  instrument  that
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.  The Company has entered into a
development  agreement  with a leading  international  distributor  of  surgical
instruments to refine the product design and explore the market potential.

         Minimally Invasive Cardiac Surgery

         The Company has  identified  the emerging  minimally  invasive  cardiac
surgery  market as an  opportunity  to export  its  bipolar  technology  to many
companies  which are investing in new procedures to reduce the  invasiveness  of
the current  cardiac  procedures.  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  cardiac  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  "clipping" of side branches during
minimally  invasive  saphenous  vein  harvesting.  The  Company  believes it can
leverage  its  existing  products  to  these  procedures   without   significant
obstacles.  The applicable  products may include the BiCOAG Cutting  Forceps and
the EVERSHEARS II Metal-on-Metal Bipolar Scissors.



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         General Market Trends

         The MIS market  continues to grow.  According to MedPro Month  (October
1995),  the  worldwide  laparoscopy  market  experienced a 12% growth in 1995 to
nearly $1 billion. The U.S. sales of laparoscopy related equipment was projected
to  increase  11% in 1996.  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.

         Because of these market trends, the Company believes that the minimally
invasive  surgical  market  should  experience a high rate of growth in the next
several years.  Some industry analysts are predicting that well over one-half of
all general surgical procedures will be performed in this manner within the next
two to five years.  Laparoscopic removal of the gall bladder has experienced the
most dramatic increase in the number of procedures performed. The new method can
reduce the  average  hospital  stay from three or more days to one day,  or even
eliminate an overnight  stay,  and results in as little as one week of lost work
time, compared to up to one month for the open surgical method.

         The Company believes  endoscopy also has significant  growth potential.
Gastrointestinal endoscopists are typically internal medicine sub-specialists or
colo-rectal  surgeons.  As the trend toward  minimally  invasive  procedures has
strengthened,  the gastrointestinal  endoscopists have added endoscopic surgical
procedures to their endoscopic  diagnostic  practices.  This therapeutic use has
reduced the need for more invasive surgical procedures.  The Company anticipates
that, as additional  devices  offering  features of safety and  ease-of-use  are
introduced, more procedures will be performed by endoscopists.

         The  current  health  care  debate by the  federal  government  has the
potential to  tremendously  impact the system of delivery of health care in this



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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 already have established positions in certain markets.

         Minimally Invasive Surgical Markets

     A number of major  medical  products  suppliers,  including  United  States
Surgical  Corporation,  Ethicon  Endo-Surgery  (a division of Johnson & Johnson,
Inc.),  Valleylab,  Inc. (a subsidiary  of Pfizer,  Inc.),  CONMED  Corporation,
Origin   MedSystems   (a   subsidiary   of  Guidant   Corporation)   Karl  Storz
Endoscopy-America  Inc.,  Urohealth 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 increasing competition for the Company.

         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 Corp. 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.



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         The Company believes that the principal competitive factors in both the
MIS and endoscopic markets are product features,  physician familiarity with the
products and their function, 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 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.

         The Company has pursued  two  distribution  strategies  over the recent
years.  They include OEM  relationships  on certain  products  and  distribution
through a network of independent commissioned representatives and distributors.

         Over the past 2 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  58% of its sales
volume in 1996 as  compared to 54% of its volume in 1995.  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
1997.

         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.  In addition,  the Company  sells the product  through its  independent
sales  channel.  The  Company  also has a  non-exclusive  agreement  with Origin
MedSystems,  a subsidiary of Guidant Corporation,  established in 1993 to market
the Company's  laparoscopic  forceps.  Sales to Ethicon and Origin  increased in
1996 due to lower than desired  inventory  levels.  The Company expects sales to
these customers to decline in 1997 as such companies manage the inventory levels
to meet current demand.

         Everest  currently  markets  its GI  endoscopic  products in the United
States through a minimum 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.



                                     - 10 -


<PAGE>



         The  Company's  sales and  marketing  department  consists  of the Vice
President of Sales and Marketing,  three regional sales  managers,  one clinical
specialist for the laparoscopic  product line, one marketing manager focusing on
the  minimally  invasive  cardiac  market  and two sales and  marketing  support
individuals.   The  Company  expects  to  continue  to  invest  in  the  growing
distribution strategy in 1997.

         The Company intends to continue to utilize independent distributors for
foreign  sales.  During 1996, the Company  concentrated  its sales and marketing
efforts primarily in the United States market. The Company expects sales in 1997
to increase  domestically,  as well as  internationally  as the Company  expands
efforts to find and retain independent distributors in order to provide a market
presence in new territories, including Japan and South America.

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.

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 objective of the Company is to direct those coordinated efforts to
use its  base of  technology  and  expertise  to  develop  products  which  meet
identified  market needs.  The  principal  research  activities  are concept and
prototype  development  and human  clinical  studies.  The  Company  funds human
studies  that are  carried  out in various  institutions  having  the  necessary



                                     - 11 -


<PAGE>



facilities  and  personnel.  For the years ended December 31, 1996 and 1995, the
Company's  research and  development  expenditures  were  $606,970 and $555,804,
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, microlaparoscopy 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 endoscopic and laparoscopic 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
substantially  more  difficult and  time-consuming  to comply with  premarketing
clearance and approval processes.



                                     - 12 -


<PAGE>



         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 an 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.

         In 1994,  the Company  was  awarded a patent for its second  generation
bipolar scissors design, EVERSHEARS II. Although there were two opposing patents



                                     - 13 -


<PAGE>



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 two 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.

         The Company currently has two patent issues outstanding.  First, the US
Patent  and  Trademark  Office  (PTO) has  granted  the  Company's  request  for
re-examination--a  review of an issued patent in the context of newly discovered
prior art--of its issued bipolar cutting  forceps patent.  The Company took this
action in an effort to ensure the  long-term  viability  of the bipolar  cutting
forceps  patent.  Secondly,  the  Company  was  notified  of a  declared  patent
interference action--an action to determine who is entitled to the patent on the
same invention-that has been filed with the PTO on the Company's  metal-on-metal
bipolar  scissors  patent by an unknown  party.  The  Company  believes  it will
ultimately  prevail  in both  actions;  however,  an  unfavorable  result  could
adversely  affect to the Company's  ability to use certain of its  technology in
the manner expected.

         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,  BiLAP and BiBx on the principal
register in the United  States  Patent and Trademark  Office.  In addition,  the
Company has filed trademark applications on some of its other products.

Employees

         As of March 14,  1997,  the Company had 56  employees,  of which 55 are
full-time  and one is  part-time.  The  employees  include three in research and
development,  24 in production,  17 in manufacturing  support,  six in sales and
marketing  and  six 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.



                                     - 14 -


<PAGE>



Outlook and Risks

         As provided for under the Private  Securities  Litigation Reform Act of
1995,  the Company  wishes to caution  investors  that the  following  important
factors,  among  others,  in some cases have  affected  and in the future  could
affect the  Company's  actual  results of  operations  and cause such results to
differ materially from those anticipated in  forward-looking  statements made in
this document and its 1996 Annual Report by or on behalf of the Company.

         The  Company  expects  that as it  continues  to  invest  in sales  and
marketing   support   programs   increased   revenues   will   result  from  the
Everest-branded  laparoscopy as it gains market share.  The Company also expects
that surgeons will increase their use of bipolar technology as an alternative to
existing  monopolar  and  ultrasonic  technologies  because  bipolar  technology
provides a safe and effective way of cutting and  coagulating  tissue in minimal
invasive laparoscopy and gynecology procedures. There are no assurances that the
Company will be successful  in  increasing  its market share as it competes with
large,  well-capitalized  companies  who have the ability to enter into  contact
purchasing  agreements  with  large  institutions  due to  their  broad  product
offerings which may exclude the Company's products.

         The Company also faces issues  regarding  the status of two key patents
that are currently undergoing patent office actions.  Based on advice of counsel
and published statistics,  the Company believes that it will prevail in both the
patent  re-examination  of its  Bipolar  Cutting  Forceps  patent and the patent
interference action involving its metal-on-metal  bipolar scissors patent. There
can be no  assurances,  however,  that the Company's  patents may not be limited
based on these  actions or other  unknown  actions  that may arise.  Unfavorable
outcomes may limit gain in market share that the Company expects in the future.

         The  Company  also plans to expand its efforts  relating  to  minimally
invasive  cardiac  surgery,  an emerging  market  segment.  Although the Company
intends to  investigate  and commence  market  activities in 1997,  there are no
assurances that it will be successful in  demonstrating  its bipolar products as
superior in this market.  In addition,  the Company  cannot  guarantee that this
market segment will evolve to a significant market size.

         The Company also faces ongoing  issues  related to its working  capital
needs. The capital structure under which the Company operates requires quarterly
dividend payments to three outstanding  series of preferred  convertible  stock.
These requirements,  necessary capital expenditures,  growth in inventory as the
Company expands its product offering and increased operating expenses due to its
exploration of the minimally  invasive cardiac market opportunity will challenge
the  Company to meet its  capital  needs for 1997.  The  Company  has a $300,000
revolving line of credit that matures on March 31, 1997. There are no assurances
that this credit  facility will be renewed on terms favorable to the Company nor
that the Company  would be able to receive  other sources of capital it may need
should there be any significant deviations from the plan in 1997.

         There are only a  limited  number of  competitive  bipolar  instruments
currently on the market. However, the Company's current and future products will



                                     - 15 -


<PAGE>



in most cases compete not only with competitive  bipolar devices,  but also with
devices  based on  monopolar,  laser and  other  technologies.  Companies  which
currently  manufacture  electrosurgical  and other  competitive  products can be
expected to engage in continuing  research and development  which will result in
new products,  some of which will be bipolar,  that will be competitive with the
Company's products.  The Company is aware of several U.S. and European companies
which have  developed or are developing  bipolar  laparoscopic  devices,  one of
which is designed for cutting and several of which are designed for coagulation.
Circon Corporation,  for example, has a cutting and coagulation forceps,  though
such product is not yet patented.  At the present time, the Company is unable to
predict the impact that these  products may have on foreign or domestic sales of
the Company's  products.  The  Company's  known and  potential  competitors  are
well-established  and have substantially more experience and financial resources
than the Company.  The Company's ability to compete will depend upon a number of
factors, including its ability to manufacture, market and distribute its bipolar
electrosurgical  devices at commercially  acceptable  prices,  to supply product
under its remaining OEM contracts,  its success in generating  market acceptance
for the products and the establishment of an effective marketing organization.

         Many of the  Company's  products are  reimbursed  by Medicare,  private
insurers and other third parties.  Changes in reimbursement  policies or payment
levels would likely adversely affect the Company.

ITEM 2.           DESCRIPTION OF PROPERTY

         The Company  currently  rents  facilities  consisting of  approximately
17,985 square feet located at Carlson Technical  Center,  Suite 500, 13755 First
Avenue North,  Minneapolis,  Minnesota  55441.  The Company pays monthly rent of
approximately  $9,000,  plus operating expenses and taxes, under the lease which
extends through December 1998. 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.



                                     - 16 -


<PAGE>



Executive Officers of the Company

         The Company's executive  officers,  along with their ages and positions
as of March 14, 1997, are as follows:


       Name               Age           Position

John L. Shannon, Jr.      43      President and Chief Executive Officer

David J. Parins           45      Vice President, Engineering, Quality Assurance
                                       and Regulatory Affairs

Michael Geraghty          49      Vice President, Sales and Marketing

Steven M. Blakemore       42      Vice President, Operations

Thomas F. Murphy          37      Vice President, Finance and Administration
                                       and Assistant Secretary


         John L.  Shannon,  Jr. Mr.  Shannon  was  elected  President  and Chief
Executive  Officer in 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.

         David J.  Parins.  Mr.  Parins has been  employed by the Company  since
November 1988, most recently as Vice President of Engineering, Quality Assurance
and  Regulatory  Affairs.  From  September 1983 to November 1988, Mr. Parins was
employed by Angiomedics Incorporated (now Schneider (USA), Inc.) in a variety of
product and business development positions,  including Product Marketing Manager
and Director of Research. Mr. Parins has a degree in mechanical engineering from
Marquette   University  and  is  the  inventor  on  several   patents   covering
cardiovascular and RF device technology.

         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. From October



                                     - 17 -


<PAGE>



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.  Mr.  Blakemore is the inventor on one patent in
medical technology.

         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.


                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

         The  information  required by Item 5 is  incorporated by reference from
the  Company's  1996  Annual  Report,  portions  of which are filed  herewith in
Exhibit 13.1.

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

         The  information  required by Item 6 is  incorporated by reference from
the  Company's  1996  Annual  Report,  portions  of which are filed  herewith in
Exhibit 13.1.

ITEM 7.           FINANCIAL STATEMENTS

         An index to and the  Financial  Statements  of the Company for the year
ended  December 31, 1996 are  incorporated  by reference from the Company's 1996
Annual Report, portions of which are filed herewith in Exhibit 13.1.

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

         None.




                                     - 18 -


<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  1997 Proxy  Statement  under the
caption  "Information  About  Nominees." The Company's  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.

         The  information  relating  to  compliance  with  Section  16(a) of the
Exchange  Act is  incorporated  by  reference  from  the  Company's  1997  Proxy
Statement under the caption "Compliance with Section 16(a) of the Exchange Act."
The Company's 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 1997 Proxy Statement under the caption  "Executive  Compensation."
The Company's 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 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The  information  required by Item 11 is incorporated by reference from
the Company's  1997 Proxy  Statement  under the caption  "Security  Ownership of
Management and Certain Beneficial Owners." The Company's 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 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by Item 12 is incorporated by reference from
the Company's 1997 Proxy Statement under the caption "Certain Transactions." The
Company's  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.



                                     - 19 -


<PAGE>



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 signature pages to this Report.

         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 March 5, 1997, 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, 1996.




                                     - 20 -


<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:   March 27, 1997                   EVEREST MEDICAL CORPORATION


                                          By       /s/ John L. Shannon, Jr.
                                          John L. Shannon, Jr.
                                          President and Chief Executive Officer


         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,        March 27, 1997
John L. Shannon, Jr.              President (Principal Executive
                                  Officer) and Director


  /s/ David D. Koentopf           Chairman of the Board           March 27, 1997
David D. Koentopf

(Signatures continued on following page)


                                     - 21 -


<PAGE>



         Signature                       Title                          Date


  /s/ Thomas F. Murphy            Chief Financial Officer         March 27, 1997
Thomas F. Murphy                  (Principal Financial and
                                  Accounting Officer)


  /s/ Donald R. Brattain          Director                        March 27, 1997
Donald R. Brattain


  /s/ Richard J. Migliori, M.D.   Director                        March 27, 1997
Richard J. Migliori, M.D.


                                     - 22 -


<PAGE>



                           EVEREST MEDICAL CORPORATION

                         EXHIBIT INDEX TO ANNUAL REPORT
                                 ON FORM 10-KSB
                   For the Fiscal Year Ended December 31, 1996


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     Employee  Stock  Purchase  Plan  (Incorporated  by reference to Exhibit
         10.10 to the  Company's  Registration  Statement on Form S-18 (File No.
         33-37352- C))**

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))**


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<PAGE>





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 August 9, 1993
         (Incorporated  by  reference  to Exhibit  10.31 to the  Company's  Form
         10-KSB for the fiscal year ended December 31, 1993)**

10.16    Amendment  to  Employment   Agreement   with  John  L.   Shannon,   Jr.
         (Incorporated  by  reference  to Exhibit  10.25 to the  Company's  Form
         10-KSB for the fiscal year ended December 31, 1994)**

10.17    Amendment  to  Employment  Agreement  with John L.  Shannon,  Jr. dated
         August 25, 1995  (Incorporated  by  reference  to Exhibit  10.19 to the
         Company's Form 10-KSB for the fiscal year ended December 31, 1995)**

10.18*   Amendment  to  Employment  Agreement  with John L.  Shannon,  Jr. dated
         December 11, 1996**

10.19    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)


                                       E-2

<PAGE>





10.20    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)

10.21    Note Purchase Agreement dated February 16, 1996 between the Company and
         Okabena  Partnership K  (Incorporated  by reference to Exhibit 10.22 to
         the Company's Form 10-KSB for the fiscal year ended December 31, 1995)

10.22    13% Secured  Convertible Note in the principal amount of $500,000 dated
         February 16, 1996 in favor of Okabena  Partnership K  (Incorporated  by
         reference to Exhibit 10.23 to the Company's  Form 10-KSB for the fiscal
         year ended December 31, 1995)

10.23    Security  Agreement  dated  February  16, 1996  between the Company and
         Okabena  Partnership K  (Incorporated  by reference to Exhibit 10.24 to
         the Company's Form 10-KSB for the fiscal year ended December 31, 1995)

10.24    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)

10.25*   Separation  Agreement dated October 12, 1996 between the Company and R.
         Keith Poppe**

10.26*   Letter  dated  November  29,  1996 from  Company  to  Michael  Geraghty
         regarding terms of employment.**

11.1*    Statement Re Computation of Per Share Loss

13.1*    Portions of 1996 Annual Report

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 and Richard J.  Migliori  (included on the
         signature pages of this Form 10-KSB)

27       Financial Data Schedule (filed with electronic version only)
-------------------

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




                                       E-3