<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549


                                   FORM 10-Q

[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 1997

                                      or

[ _ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

            For the transition period from ___________to___________
                      Commission File Number____________

                         SUMMIT MEDICAL SYSTEMS, INC.

            (Exact name of registrant as specified in its charter)


              MINNESOTA                                  41-1545493
        (State or other jurisdiction of            (IRS Employer ID No.)
          incorporation or organization)


                            10900 RED CIRCLE DRIVE
                                   SUITE 100
                             MINNETONKA, MN  55343
                                 612-939-2200
                 (Address including zip code, of Registrant's
                   principal executive offices and telephone
                         number, including area code)


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

The number of shares outstanding of the Registrant's Common Stock on March 31,
1997 was

                          10,347,696 shares $.01 Par
<PAGE>
 
INDEX


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

         Consolidated statements of financial position--March 31, 1997 and
         December 31, 1996

         Consolidated statements of operations -- Three months ended March 31,
         1997 and 1996

         Consolidated statements of cash flows-- Three months ended March 31,
         1997 and 1996

         Notes to consolidated financial statements-- March 31, 1997

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

PART II. OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS
ITEM 2.  CHANGES IN SECURITIES
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5.  OTHER INFORMATION
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         (a)  Exhibits
         10.1 Agreement by and between The American College of Cardiology and
              Summit Medical Systems, Inc., dated March 10, 1997
         10.2 Software Development And License Agreement, dated March 31, 1997,
              between American Academy of Orthopedic Surgeons and Summit Medical
              Systems, Inc.
        *10.3 Registry Development Agreement, dated February 3, 1997, between
              Eli Lilly and Company and Summit Medical Systems, Inc. 
         11.1 Computation of Earnings per Share
         27   Financial Data Schedule
         (b)  Reports on Form 8-K 
              Form 8-K, filed January 14, 1997, and amended on Form 8-K/A, filed
              March 14, 1997 and April 25, 1997, (File No. 0-26390) reporting
              the acquisition of C.L. McIntosh & Associates, Inc.

________________________
* Confidential treatment requested as to certain portions.

SIGNATURES

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties that may cause the Company's actual
results to differ materially from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to: Summit Medical Systems, Inc.'s (the "Company") dependence on
corporate marketing partners, the history of operating losses and uncertainty of
future profitability, fluctuations in quarterly operating results, the
uncertainty of entrance into new markets and acceptance of new products, the
dependence on database sponsors and control of the national databases, the
integration of recent acquisitions, potential changes in government regulation,
the highly competitive nature of the industry, the dependence on proprietary
technology, the potential loss of key personnel, the recent shareholder
litigation and the investigation by the Securities and Exchange Commission. The
forward-looking statements herein are qualified in their entirety by the
cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary
Statement," to the Company's Annual Report on Form 10-K, as amended pursuant to
amendment on April 4, 1997 and April 30, 1997. A copy of the Form 10-K may be
obtained from the Public Reference Branch of the SEC at 450 Fifth Street NW,
Washington, DC at prescribed rates.

                                       1
<PAGE>
 
SUMMIT MEDICAL SYSTEMS, INC.       
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
 
<TABLE> 
<CAPTION> 
     ASSETS                                                               MARCH 31,    DECEMBER 31,              
CURRENT ASSETS                                                              1997           1996              
                                                                      --------------------------------       
<S>                                                                     <C>            <C>                   
     Cash and cash equivalents                                          $  8,580,164   $  9,386,069          
     Short-term investments                                               31,762,314     35,243,624          
     Accounts receivable (net of allowance of 652,925 at                   3,249,083      3,776,351          
      March 31, 1997; $650,000 at December 31, 1996)                                                          
     Other current assets                                                    628,285        678,627          
                                                                      --------------------------------       
                        Total current assets                              44,219,846     49,084,671          
                                                                                                             
     Equipment and fixtures, net                                           3,121,788      3,203,931          
     Computer software costs, net                                          1,104,653      1,198,573          
                                                                      --------------------------------       
                                                                                                             
                        Total assets                                    $ 48,446,287   $ 53,487,175          
                                                                      ================================       
                                                                                                             
     LIABILITIES AND SHAREHOLDERS' EQUITY                                                                    
                                                                                                             
CURRENT LIABILITIES                                                                                          
     Accounts payable and accrued expenses                              $  3,699,682   $  3,617,718          
     Accrued compensation                                                    843,362      1,236,118          
     Accrued royalties                                                        18,692        375,332          
     Deferred revenue                                                      2,218,076      1,867,006          
     Income taxes payable                                                     26,248          7,648          
     Notes payable and convertible debentures                                      -        100,000          
     Line of credit                                                                -        150,000          
     Current portion of long-term debt                                        17,023         23,628          
                                                                      --------------------------------       
                        Total current liabilities                          6,823,083      7,377,450          
                                                                                                             
LONG-TERM DEBT                                                                23,553         26,525          
                                                                                                             
SHAREHOLDERS' EQUITY                                                                                         
     Common stock, $.01 par value:                                                                           
      Authorized shares - 38,933,333                                                                          
      Issued and outstanding shares - 10,347,696                                                              
      at March 31, 1997;  10,343,830  at                                                                      
      December 31, 1996                                                      103,477        103,438          
     Additional paid-in capital                                           69,714,835     69,700,376          
     Accumulated deficit                                                 (28,218,661)   (23,720,614)         
                                                                      --------------------------------       
                        Total shareholders' equity                        41,599,651     46,083,200          
                                                                      --------------------------------       
                        Total liabilities and shareholders' equity      $ 48,446,287   $ 53,487,175          
                                                                      ================================       
</TABLE> 
 
                                          Page 1
<PAGE>
 
SUMMIT MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
<TABLE> 
<CAPTION>  
                                                       THREE MONTHS ENDED
                                                            MARCH 31
                                             --------------------------------------
                                                  1997                 1996
                                                                     (RESTATED)
                                             --------------------------------------
<S>                                          <C>                      <C> 
REVENUE
         Software licenses                    $   1,188,187           $1,709,828
         Support and service                        830,622            1,431,837
         Consulting fees                          1,994,995            1,546,667
                                             -------------------------------------- 
               TOTAL REVENUE                      4,013,804            4,688,332
                                
COST OF SALES
          Software licenses                         564,258              349,264
          Support and service                       857,212              580,633
          Consulting fees                         1,358,005              810,405
                                             ------------------------------------- 
                TOTAL COST OF SALES               2,779,475            1,740,302 
                                
                GROSS PROFIT                      1,234,329            2,948,030                                       
                                
OPERATING EXPENSES
          Selling and marketing                   1,783,762            1,937,787
          Research and development                1,112,268              361,304
          General and administrative              3,412,756            1,183,064
                                             -------------------------------------
               TOTAL OPERATING EXPENSES           6,308,786            3,482,155
                                             -------------------------------------
 
LOSS FROM OPERATIONS                             (5,074,457)            (534,125)
 
Interest income, net                                579,346              300,012
                                             -------------------------------------
LOSS BEFORE INCOME TAXES                         (4,495,111)            (234,113)
 
Income tax expense                                    2,936               17,291
                                             -------------------------------------
NET LOSS                                      $  (4,498,047)          $ (251,404)
                                             =====================================
 
NET LOSS PER SHARE:
          Primary and fully diluted           $       (0.43)          $    (0.03)
                                             =====================================
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
          Primary and fully diluted              10,347,575            8,503,767
                                             ====================================
 </TABLE> 
  
                                    Page 2
<PAGE>
 
SUMMIT MEDICAL SYSTEM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
 
<TABLE> 
<CAPTION>  
                                                                                      THREE MONTHS ENDED
                                                                                          MARCH  31
                                                                             ------------------------------------
                                                                                   1997                  1996
                                                                                                      (RESTATED)
                                                                             ------------------------------------
<S>                                                                          <C>                     <C>
OPERATING ACTIVITIES:
  Net loss                                                                      $(4,498,047)         $  (251,405)
  Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities
     Depreciation                                                                   343,368              140,159
     Amortization                                                                    96,000               22,923
     Accounts receivable (net of allowance of $652,925 and $110,343                 527,268            1,231,984
        in 1997 and 1996, respectively)
     Advances to Officers                                                                                 40,200
     Other current assets                                                            50,342             (416,173)
     Accounts payable and accrued expenses                                           81,964             (462,919)
     Accrued compensation                                                          (392,756)             282,302
     Accrued royalties                                                             (356,640)             (18,342)
     Income tax payable                                                              18,600
     Deferred revenue                                                               351,070             (152,955)
                                                                             -----------------------------------
                    Net cash provided by ( used in) operating activities         (3,778,831)             415,774
 
INVESTING ACTIVITIES:
  Purchase of short-term investments                                             (9,938,505)          (9,203,645)
  Sales and maturities of short-term investments                                 13,419,815            9,782,039
  Purchases of equipment and fixtures                                              (261,225)            (317,113)
  Disposal of equipment and fixtures                                                                      25,534
  Capitalized software cost                                                          (2,080)
                                                                             -----------------------------------
                    Net cash provided by investing activities                     3,218,005              286,815
 
FINANCING ACTIVITIES:
  Proceeds from long-term debt                                                                            12,431
  Prinicipal payments on long-term debt                                              (9,577)             (36,462)
  Principal payments on notes payable & convertible debentures                     (100,000)
  Payments on line of credit                                                       (150,000)             (20,000)
  Payments on note payable - officer                                                                     (17,991)
  Net proceeds from exercise of common stock options                                 14,498               19,966
                                                                             -----------------------------------
                    Net cash used in financing activities                          (245,079)             (42,056)
 
Increase (decrease) in cash and cash equivalents                                  (805,905)             660,533
Cash and cash equivalents at beginning of period                                  9,386,069            2,202,004
                                                                             -----------------------------------
Cash and cash equivalents at end of period                                      $ 8,580,164          $ 2,862,537
                                                                             -----------------------------------
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for interest                                        $     5,352          $     8,622
</TABLE> 

                                    Page 3
<PAGE>
 
SUMMIT MEDICAL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)


NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-Q and Article 10 of
Regulation S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.  Operating results for the three month period ended March 31,
1997, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997.  For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1996 included in the Annual Report of the Company.

NOTE B - CASH, CASH EQUIVALENTS AND INVESTMENTS

Cash in excess of current operating needs is invested in highly liquid money
market and/or marketable debt securities in accordance with the Company's
investment policy.  Cash equivalents are highly liquid investments with
remaining maturities of 90 days or less at the time of purchase.  Other highly
liquid investments with remaining maturities of one year or less at the time of
purchase are considered short-term investments.

                                     Page 4
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW
--------

     Summit Medical Systems, Inc. (the "Company") is a leading provider of
clinical information systems and consulting services to the healthcare industry.
The Company's database software enables healthcare providers to monitor, manage
and report detailed clinical information on medical procedures, diseases and
patient outcomes. The Company currently offers database products primarily on
two technology platforms, Crescendo! and Vista. The Crescendo! platform is
designed for use in hospital cardiac and cardiovascular surgery programs. In the
second half of 1996, the Company introduced Crescendo! Forte, a client/server,
relational database product for use in high volume cardiac and cardiovascular
surgery centers. The Company is also developing Crescendo! for medium and low
volume centers. The Vista platform is a Windows based, flat file application,
covering a product line of over 40 database software modules that is primarily
used in five medical specialties including: cardiac and thoracic surgery,
cardiology, ophthalmology, urology and orthopedics. The Company also provides a
range of consulting services through its subsidiaries, The BSM Consulting Group
("BSM") and C. L. Mc Intosh & Associates, Inc. ("CLMA"). In late 1996, the
Company introduced registry services designed to evaluate the efficacy of
specific medical devices or drug therapies utilizing Crescendo technology and
on-line data collection through the Internet.

     The Company incurred operating losses of $5.1 million in the first quarter
1997, including charges of approximately $2.0 million. These charges included
(i) accounting fees incurred in connectin with the company's restatement of
revenues and (ii) reserves for legal fees expected to be incurred in connection
with various shareholder lawsuits and the investigation by the SEC (iii)
reserves for the expected cost of renegotiating various development contracts
involving certain medical specialties which the Company has concluded are not
central to its near term strategic focus and (iv) severance costs associated
with a downsizing that occurred in March 1997.

     The reserve for expected costs for renegotiated contracts relates to the
Company's decision in April 1997 to focus more directly on the cardiology and
cardiovascular medical specialty markets and to reduce significantly its
involvement in a number of other medical specialty markets. The Company
determined that the near-term revenue potential associated with these other
medical specialties, including vascular, electrophysiology (EP), urology and
critical care, did not warrant the related development and marketing expenses.
The Company is currently in negotiations with Boston Scientific Corporation to
revise or terminate commitments made in 1995 and 1996 under development and
support agreements with various subsidiaries of Boston Scientific related to
these specialty markets. The Company expects to partially refund amounts
received under these agreements, including amounts received for contract
development work performed in prior years. These amounts have been reserved at
March 31, 1997.
 
                                     Page 5
<PAGE>
 
     Certain parties, who received common stock or other equity-based securities
of the Company in connection with acquisitions made during 1995 and 1996, have
expressed concerns to, and are seeking compensation from, the Company. The
Company is currently in discussions regarding these matters with these parties.
No reserves have been established.

     Revenues continued to be adversely impacted by (i) a shift in market demand
away from a flat file, PC based solutions such as Vista and towards
client/server, relational database solutions, (ii) the Company's decision in
first quarter 1997 to de-emphasize sales of Vista and to discontinue efforts to
introduce an enhanced version of Vista ("Vista Elite"), in order to focus on
development and introduction of it's client/sever, relational database product
line ("Crescendo!), and (iii) the unavailability of a Crescendo! product
suitable for the medium and low volume cardiac catheterization and
cardiovascular centers.

     While the Company introduced Crescendo! Forte in the second half of 1996
for use in a limited number of high volume, hospital cardiac catheterization and
cardiovascular centers, a more broad based, Crescendo! product is not scheduled
to be completed until June 1997. Once introduced to the market, Crescendo! must
achieve market acceptance before it will generate significant revenues.
Accordingly, the Company anticipates that revenues from its Crescendo! product
line will be modest through the first three quarters of 1997 as the sales and
implementation cycle associated with a more complex and higher priced
client/server product is expected to increase, and a lack of referenceable
accounts is expected to further impede sales.

    As of May 12, 1997, the Company had received three additional orders for
its new Crescendo! product in 1997, with a total contract value of $317,000 over
three years. This brings the total Cresendo! backlog excluding Crescendo! Forte
to approximately $650,000.
 
     As of March 31, 1997, the Company had not recorded any revenue associated
with four Crescendo! Forte installations that commenced in 1996 and which
represent a total contract value of approximately $900,000 over three years.
While substantial progress on these installations had been made, obligations to
provide additional software modules and interfaces remained as of March 31 1997.
In accordance with its revenue recognition policy, the Company will not record
any revenue on these contracts until all such obligations are substantially
fulfilled. The Company has not received any new orders for its Crescendo! Forte
product beyond these four charter sites.
 
     On the costs side, the dual development of the Crescendo! products and
Vista Elite resulted in greater research and development and marketing expense.
As discussed above, efforts to develop Vista Elite were discontinued in first
quarter 1997. Expenses also increased as the Company added support and
implementation personnel to support the more complex Crescendo! product line. In
March 1997, the Company implemented a cost reduction program to reduce the
workforce throughout the Company, except at BSM and CLMA. Twenty-nine positions
were eliminated as a result, reducing the number of employees from 208 at
December 31, 1996 to 179 following the reduction. Related severance costs were
accrued at March 31, 1997.
 
     The Company anticipates that it will continue to experience operating
losses during 1997.

                                     Page 6
<PAGE>
 
RESULT OF OPERATIONS
--------------------

     TOTAL REVENUE. Summit's revenue for the first quarter of 1997 was derived
primarily from software licence sales and support and service fees related to
its Vista products and consulting services provided by its BSM and CLMA
subsidiaries. Revenue was $4.0 million for the first quarter of 1997, a
decrease of $674,000, or 14%, as compared with first quarter of 1996 reflecting
a decline in software and service revenue for various reasons as discussed in
the "Overview" section.

     SOFTWARE LICENSE REVENUE. The Company's software license revenue primarily
consists of sales of database software licenses, software upgrades and
networking fees. Sales of software licenses were $1.2 million for the first
quarter of 1997, $522,000, or 31%, below the first quarter of 1996 as a result
of the various factors discussed in the "Overview" section including (i) a shift
in market demand away from a flat file, PC based solution and towards client /
server, relational database solutions, (ii) the Company's decision in first
quarter 1997 to de-emphasize sales of Vista and to discontinue efforts to
introduce an enhanced version of Vista ("Vista Elite"), in order to focus on
development and introduction of Crescendo! and (iii) the unavailability of a
Crescendo! product suitable for the medium and low volume cardiac
catheterization and cardiovascular centers.

     The Company has recorded no revenues to date related to its Crescendo!
product line. As discussed more fully in the "Overview" section, the Crescendo!
product aimed at the medium and low volume cardiac catheterization and
cardiovascular centers is not scheduled to be completed until June 1997. While
substantial progress has been made on the four Crescendo! Forte installations
under way since 1996, obligations to provide additional software modules and
interfaces remain. The Company will not record any revenues on these contracts
until all such obligations are substantially fulfilled.
 
     In February 1997, the Company entered into an agreement with Eli Lilly and
Company ("Eli Lilly") to participate in a pilot program for a registry to
collect, analyze and report on the use of a platelet aggregation inhibitor
during coronary interventions. This agreement has a contract value of $400,000,
and involves installation of an on-line data capture system at ten pilot
catheterization labs, utilizing Crescendo! technology. As of this time, the
Company has identify and contacted selected labs that are candidates for these
pilot sites. The Company will record revenue under this contract when
installation of the pilot sites is completed, on a pro rata basis. These sites
are expected to be installed in the third quarter 1997.

     Software license revenue from sales to marketing partners comprised 17%
total software revenue in first quarter 1997.

     SUPPORT AND SERVICE REVENUE. Support and service revenue primarily includes
an annual service fee, training fees, consulting, hardware and module
development fees. Support and service revenue was $0.8 million for the first
quarter of 1997, a 42% decline from 1996 as fewer new Vista sales led to lower
consulting, technical service and training fees.

     CONSULTING REVENUE.  Consulting revenue consists of fees received by BSM
for providing strategic development, financial analysis and systems planning
services to health care providers

                                     Page 7
<PAGE>
 
and vendors and fees received by CLMA for regulatory affairs services provided
primarily to manufacturers of new medical device and biologic products in order
to secure FDA approval. CLMA services include regulatory strategy for FDA
submissions, clinical trails and statistical analysis. Consulting revenue was
$2.0 million for the first quarter of 1997, an increase of $448,000 or 29% over
the first quarter of 1996. This increase is partially due to revenue generated
from a newly established biologics division.

     TOTAL COST OF SALES.  Cost of sales as a percentage of total revenue was
69% in  first quarter 1997, compared to 37% in first quarter 1996, reflecting
the impact of fixed personnel costs on a lower revenue base and the addition of
support and implementation personnel to support the more complex Crescendo!
product line.  A portion of this increase reflected personnel costs in the
implementation area that were classified as operating expense in first quarter
1996 rather than cost of sales.

     COST OF SOFTWARE LICENSE REVENUE.  Cost of software license revenue
consists of expenses directly related to sales of software licenses, including
royalties, freight, user guides, diskettes, amortization of capitalized software
and an allocation of costs incurred by the client relations department for
various software related activities.  Amortization of capitalized software
amounted to 96,000 in the first quarter of 1997, compared to 22,923 in the first
quarter of 1996. This increase reflects three year amortization of $1.2 million
in capitalized software acquired in connection with the acquisition of 100%
interest in Cordillera L.L.C. ("Cordillera") at December 31, 1996.

     The following table sets forth, for the periods indicated, the relationship
of cost of software license fees and software license fees and software license
fee revenues:

<TABLE>
<CAPTION>
 
                                                                      THREE MONTHS ENDED MARCH 31,
                                                                      ----------------------------
                                                                              1997       1996
                                                                              ----       ----
<S>                                                                   <C>               <C>
Software license fee revenue                                                 $1,188     $1,710
Cost of software license fees                                                   564        349
Cost of software license fees as a percentage of software 
 license fee revenues                                                            47%        20%
</TABLE>

     The increase in cost of software license fees as a percent of license fee
revenue during first quarter of 1997 primarily reflects a reduction in software
license fee revenue in that quarter as compared to the same period in 1996.
 
     COST OF SUPPORT AND SERVICE REVENUE. Cost of support and service revenue
consists of expenses directly related to sales of support and service, including
royalties, customer service personnel costs, and expenses for training and
clinical data services. The following table sets forth, for the periods
indicated, the relationship of cost of support and services and support and
service revenues:

                                     Page 8
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED MARCH 31,      
                                                                            ----------------------------      
                                                                                  1997         1996                    
                                                                                  ----         ----                   
<S>                                                                         <C>                <C>
Support and service revenue.................................                 $ 830             1,432
Cost of support and service.................................                   857               581
Cost of support and service as a percentage of support and                                                    
     service revenues.......................................                   103%               41%
</TABLE>

     The increase in cost of support and service as a percent of support and
service revenue during first quarter of 1997 reflects a reduction in support and
service revenue in that quarter as compared to the same period in 1996 and to
increased staffing in the implementation and technical services departments as
discussed in "Overview" above. A portion of this increase reflected personnel
costs for eight employees in the implementation and technical services areas
that were classified as operating expense in first quarter 1996 rather than cost
of sales.

     COST OF CONSULTING REVENUE.  Cost of consulting revenue consists of
personnel costs and related expenses associated with the BSM and CLMA
subsidiaries.  The following table sets forth, for the periods indicated, the
relationship of the cost of consulting and consulting revenue:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED MARCH 31,
                                                  ----------------------------
                                                      1997          1996
                                                      ----          ----
<S>                                               <C>              <C>
Consulting revenue................................   $1,995        $1,547
Cost of consulting................................    1,358           810
Cost of consulting as a percentage of support and
     consulting revenues..........................       68%           52%
</TABLE>

     Cost of consulting increased to 68% of consulting revenue in first quarter
1997 from 52% in first quarter 1996 due to increased staffing at the Company's
consulting subsidiaries, CLMA and BSM.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $1.8
million during the first quarter of 1997, a decrease of $154,000 or 8% compared
to the same quarter of 1996 due primarily to personnel costs in the
implementation area that were classified as marketing expense in first quarter
1996 and cost of sales in first quarter 1997.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expense was
$1.1 million in the first quarter of 1997, an increase of $751,000 or 208%
compared to the first quarter of 1996 as the Company increased its development
staff and its use of outside consultants to develop its Crescendo! product line.
The dual development of the Crescendo! products and Vista Elite also resulted in
greater research and development expense. As discussed in the "Overview"
section, efforts to develop Vista Elite were discontinued in first quarter 1997.
In March 1997, the Company eliminated eight positions in the research and
development department as part of a Company-wide cost reduction program.

                                     Page 9
<PAGE>
 
     GENERAL AND ADMINISTRATIVE EXPENSES. General and Administrative expense was
$3.4 million for first quarter 1997, an increase of $2.2 million over first
quarter 1996. The increase is due primarily to charges of approximately $2.0
million. These charges included (i) accounting fees incurred in connection with
the Company's restatement of revenues, (ii) reserves for legal fees expected to
be incurred in connection with various shareholder lawsuits and the
investigation by the SEC, (iii) reserves for the expected cost of renegotiating
various development contracts involving certain medical specialities which the
Company has concluded are not central to its near term strategic focus and (iv)
severance costs associated with a downsizing that occurred in March 1997 as
discussed in the "Overview" section.

     INTEREST INCOME. Interest income, net, increased to $579,000 in first
quarter 1997 from $300,000 in first quarter 1996 as proceeds in the Company's
July 1996 secondary stock offering were invested in short term securities.

     INCOME TAX EXPENSE. To date, the Company has not incurred any substantial
income tax liability because of its historical operating losses. The deferred
tax asset related to operating loss carry forwards generated in the first
quarter of 1997 and 1996 were fully offset by an increase in the valuation
allowance because of the Company's history of operating losses.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     During the three months ended March 31, 1997, the Company's cash and cash
equivalents decreased by $806,000 reflecting net cash used in operating
activities of $3.8 million, offset by net reduction in investments of $3.2
million.

     Cash provided by investing activities was $3.2 million which consists
primarily of the sale or maturity of short-term investments of $13.4 million
partially offset by the purchase of short-term investments in the amount of $9.9
million. Cash used in financing activities of $245,000 represented repayment of
long term debt.

     As of March 1, 1997, the Company had net working capital of $37.4 million,
compared to $41.7 million at December 31, 1996. The decrease in working capital
resulted primarily from operating losses of $4.5 million during the first
quarter of 1997, including one time charges amounting to approximately $2.0
million as discussed in the "Overview" section.

     The Company is a named defendant in ten civil actions involving alleged
violations of federal securities and other laws. If these actions were to be
decided adversely to the Company, the financial condition of the Company could
be adversely affected. See Part II, Item 1, Legal Proceedings. Certain parties,
who received common stock or other equity based securities of the Company in
connection with acquisitions during 1995 and 1996, have expressed concerns to,
and are seeking compensation from, the Company. The Company is currently in
discussions regarding these matters with these parties.

                                   Page 10 
<PAGE>
 
     The Company believes that the continued expenditure of funds will be
necessary to support its future growth, and that cash and short-term investments
of $40.3 million on hand at March 31, 1997 will be sufficient to fund its
operations, capital requirements, potential settlement payments as discussed
above and expansion needs for the foreseeable future.

                                    Page 11
<PAGE>
 
PART II. OTHER INFORMATION


Item 1.  Legal Proceedings

     The Company has been named as a defendant in ten federal court securities
actions venued in the United States District Court, District of Minnesota. Nine 
of the ten actions are putative class actions, including: Jong E. Lee v. Summit
                                                          ----------------------
Medical Systems, Inc., filed on March 10, 1997; Mathias Faue, George E. and 
--------------------                           ----------------------------
Patricia E. Faue, Janice McQuiston v. Summit Medical Systems, Inc. et. al., 
--------------------------------------------------------------------------
filed on March 26, 1997; Judith Anne Jacobson v. Summit Medical Systems, Inc.,
                         ---------------------------------------------------
filed on March 31, 1997; Gordon E. Bennett, Desiree Swan, Randolph G. Sunder,
                         ----------------------------------------------------
Darcie Molitor, and C. William Brown, M.D., trustee on behalf of C. William
---------------------------------------------------------------------------
Brown, M.D., v. Summit Medical Systems, Inc. et. al., filed May 7, 1997; Brian
-----------------------------------------------------                    -----
Poffenberger v. Summit Medical Systems, Inc., et al., filed May 8, 1997; Joseph
-----------------------------------------------------                    ------
Cooper, Charles Fisher and Contractor's East, Inc. v. Summit Medical Systems,
-----------------------------------------------------------------------------
Inc., et al., filed May 9, 1997; Todd M. Adams v. Summit Medical Systems, Inc.
-------------                    --------------------------------------------- 
et. al., filed May 9, 1997; Ranjit C. Desai et al. v. Summit Medical Systems,
--------                    -------------------------------------------------
filed May 12, 1997 and Phillip Thomas et al. v. Summit Medical Systems, Inc. et.
                       ---------------------------------------------------------
al., filed May 12, 1997. The remaining action captioned, Teachers' Retirement
----                                                     --------------------
System of Louisiana v. Summit Medical Systems, Inc. et. al., was filed on April
------------------------------------------------------------
16, 1997 and is not a class action. Each action alleges, in essence, that the
Company made misleading public disclosures relating to its financial statements
and seeks compensatory damages for losses incurred as a result of each alleged
misleading public disclosure. In each of the putative class actions, the
plaintiffs seek declaration that the action be certified as a class. As to
federal securities law claims, each of the actions is subject to the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Certain plaintiffs
have moved to consolidate the putative class actions, to appoint a lead
plaintiff, and to appoint lead counsel. Under the Reform Act, the District Court
may consolidate all the putative class actions into one action and choose a lead
plaintiff, and the Company believes that the District Court is likely to do so.
While the Teachers' Retirement System case may also be consolidated for
          ---------------------------
discovery purposes, it will likely remain as a separate action because the
plaintiff has stated in the Complaint that it does not wish to participate in
any class action. The Company believes it has meritorious defenses to these
actions and intends to defend against these actions vigorously.

     The Company has been informed by the Division of Enforcement of the
Securities and Exchange Commission (the "Commission"), through service of a
subpoena on March 25, 1997, that the Commission is conducting an investigation
of the Company, relating to the Company's restatement of certain financial
statements.  The Company is cooperating fully with the Commission and its
investigation.

 
Item 2.  Changes in Securities
          None
Item 3.  Defaults upon Senior Securities
          None
Item 4.  Submission of Matters to a Vote of Security Holders
          None
Item 5.  Other Information
          None
Item 6.  Exhibits and Reports on Form 8-K

         (a) The following exhibits are included herein:

         10.1  Agreement by and between The American College of Cardiology and
               Summit Medical Systems, Inc., dated March 10, 1997
         10.2  Software Development And License Agreement, dated March 31, 1997,
               between American Academy of Orthopedic Surgeons and Summit
               Medical Systems, Inc.
        *10.3  Registry Development Agreement, dated February 3, 1997, between
               Eli Lilly and Company and Summit Medical Systems, Inc.
         11.1  Computation of Earnings per Share
         27    Financial Data Schedule
         (b)   Reports on Form 8-K
               Form 8-K, filed January 14, 1997, and amended on form 8-K/A,
               filed of March 14, 1997 and April 25, 1997 (File No. 0-26390)
               reporting the acquisition of C. L. McIntosh & Associates, Inc.

________________________
*    Confidential treatment requested as to certain portions.

                                    Page 12
<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly



                                   Summit Medical Systems, Inc.
                                   ----------------------------


Date May 15, 1997                  /s/ Richard J. Willemin
     ------------                  -------------------------------------
                                   Richard J. Willemin
                                   Interim Chief Financial Officer

                                    Page 13