INVISION TECHNOLOGIES INC, POS AM, 1997-03-27

INVISION TECHNOLOGIES INC
POS AM, 1997-03-27
X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997

REGISTRATION NO. 333-05517

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INVISION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

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DELAWARE 3844 94-3123544
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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3420 E. THIRD AVENUE
FOSTER CITY, CALIFORNIA 94404
(415) 578-1930
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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CURTIS P. DISIBIO
CHIEF FINANCIAL OFFICER
INVISION TECHNOLOGIES, INC.
3420 E. THIRD AVENUE
FOSTER CITY, CALIFORNIA 94404
(415) 578-1930
(Name, address and telephone number of agent for service)

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COPIES TO:

ROBERT L. JONES, ESQ.
BRETT D. WHITE, ESQ.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306

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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

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If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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PROSPECTUS

479,318 SHARES

[LOGO]

COMMON STOCK

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All of the shares of Common Stock offered hereby (the "Offering") were
issued upon the exercise of warrants issued by InVision Technologies, Inc. (the
"Company" or "InVision") in a private placement in 1995, and held by Anaconda
Opportunity Fund ("Anaconda" or the "Selling Stockholder"). The foregoing
warrants are referred to herein as the "Warrants." All of the shares are being
offered hereby by the Selling Stockholder. The Company's Common Stock is traded
on The Nasdaq SmallCap Market under the symbol "INVN." The last reported sales
price of the Company's Common Stock on the Nasdaq SmallCap Market on March 21,
1997 was $15.75 per share.

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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 HEREOF.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

No underwriting commissions or discounts will be paid by the Company in
connection with this offering. Estimated expenses payable by the Company in
connection with this offering are $120,000.00. The shares of Common Stock
covered by this Prospectus were first registered on June 7, 1996. The Company
will not receive any proceeds from the sale of shares being offered hereby. See
"Prospectus Summary--The Offering."

THE DATE OF THIS PROSPECTUS IS MARCH , 1997

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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.

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TABLE OF CONTENTS

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PAGE
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Prospectus Summary............................................................................. 3
Forward Looking Statements..................................................................... 6
Risk Factors................................................................................... 6
Use of Proceeds................................................................................ 16
Price Range of Common Stock.................................................................... 16
Dividend Policy................................................................................ 16
Selected Consolidated Financial Data........................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 18
Business....................................................................................... 24
Management..................................................................................... 35
Certain Transactions........................................................................... 40
Principal and Selling Stockholders............................................................. 42
Description of Capital Stock................................................................... 44
Plan of Distribution........................................................................... 47
Legal Matters.................................................................................. 48
Experts........................................................................................ 48
Additional Information......................................................................... 48
Index to Consolidated Financial Statements..................................................... F-1
</TABLE>

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The "InVision" and "CTX 5000" logos are trademarks of the Company. Certain
other trademarks of the Company and other companies are used in this Prospectus.

The Company was founded in September 1990. The Company's headquarters are
located at 3420 E. Third Avenue, Foster City, California, 94404 and its
telephone number is (415) 578-1930.

The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited consolidated financial
information for the first three quarters of each fiscal year.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER "RISK
FACTORS." UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF WARRANTS OR OPTIONS OUTSTANDING ON DECEMBER 31, 1996 TO PURCHASE
AN AGGREGATE OF APPROXIMATELY 1,321,000 SHARES OF COMMON STOCK. ALL REFERENCES
TO THE COMPANY'S FISCAL YEARS REFER TO THE PERIODS ENDING DECEMBER 31.

THE COMPANY

InVision Technologies, Inc. ("InVision" or the "Company") is the worldwide
leader in explosive detection technology. The Company develops, manufactures,
markets and supports an explosive detection system ("EDS") for civil aviation
security based on advanced computed tomography ("CT" or "CAT Scan") technology.
To date, the Company's CTX 5000 is the only EDS to be certified by the Federal
Aviation Administration ("FAA") for use in the inspection of checked luggage on
commercial flights. Historically, the FAA has been the leader in establishing
standards for aviation security worldwide, and the Company believes that
airports around the world will migrate over time towards security policies
consistent with those of the FAA. As a result, the Company believes that the CTX
5000 is well positioned to become the industry standard. In December 1996, the
Company received an order from the FAA for 54 CTX 5000 systems to be installed
at the busiest U.S. airports. For the fiscal year ended December 31, 1996, the
Company had revenues of $15.8 million, and at March 1, 1997 had orders in
backlog in the amount of $55.0 million. As of March 1, 1997, 30 CTX 5000 systems
had been shipped to twelve airports in seven countries around the world.

The Company believes that the CTX 5000 is the only EDS capable of reliably
detecting all types of explosives designated by the FAA to be a threat to
commercial aviation, and that the CTX 5000 is superior to competing systems by
virtue of its advanced detection technology. The CTX 5000 is capable of
capturing and processing substantially more data than other explosive detection
systems, and of rendering three-dimensional images of suspicious objects. By
combining heightened levels of data capture and diagnosis capabilities with
simple user interfaces, the Company's CTX 5000 is capable of providing high
detection and low false alarm rates, as well as advanced threat resolution
capability and increased operator efficiency.

There are over 600 airports worldwide providing scheduled service for an
aggregate of over 2.5 billion passengers per year. Of these airports, over 400
are located in the United States, 150 are in Europe, and 50 are in the
Asia/Pacific region. According to a 1996 report issued by the Aviation Security
Advisory Committee, it would cost approximately $2.2 billion to equip the 76
largest airports in the United States with certified explosive detection
systems.

In recent years, increased incidents of bombings and airline terrorism have
contributed to an enhanced perception of the threat of terrorism among the
general public. According to a report of the President's Commission on Aviation
Security and Terrorism dated August 4, 1989, there were over 42 bombings against
civilian aviation targets worldwide between 1975 and 1989. According to Time
Magazine, there were 10,222 bombings in the United States between 1983 and 1993.
According to a CBS poll conducted in July 1996, the public perception of the
threat of commercial aircraft bombings has increased dramatically, and airline
passengers have expressed a willingness to pay more for airline travel and
endure delays if such actions will decrease the threat of successful airline
bombings. Following the December 1988 bombing of Pan American Flight 103, the
United States enacted the Aviation Security Improvement Act of 1990, in response
to which the FAA sponsored the development of advanced explosive detection
technology, established protocols for the certification of such technology, and
began to set forth the guidelines for its worldwide implementation. To date, the
FAA has spent approximately $150 million on development related to high
detection technology and, subsequent to a report of the White House Commission
on Aviation Safety and Security, the Congress has recently appropriated $144.2
million for the purchase of EDS to be deployed at major airports in the United
States.

The Company's objective is to become the leading provider of explosive
detection systems worldwide and to extend its technology expertise to address
broader applications for detection. Specific elements of the

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Company's growth strategy are to enhance its technological leadership, expand
its sales and marketing organization, leverage its detection technology
expertise to enter new markets for detection, and selectively pursue strategic
relationships and acquisitions.

THE OFFERING

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Common Stock Outstanding before
Offering............................ 9,171,926 shares
Common Stock Offered by the Selling
Stockholder......................... 479,318 shares
Common Stock to be Outstanding after
the Offering........................ 9,171,926 shares(1)
Use of Proceeds....................... The Company will not receive any
proceeds from the sale of the shares
being offered hereby. See "Use of
Proceeds."
Nasdaq SmallCap Market Symbol......... INVN
</TABLE>

In August 1996, Anaconda, the successor to Anaconda Partners, L.P.,
exercised Warrants to purchase 420,454 shares of Common Stock at an exercise
price of $4.40 per share and 58,864 shares of Common Stock at an exercise price
of $5.50 per share. The original Warrants were issued to Anaconda in connection
with a certain Bridge Loan and Security Agreement, dated as of December 28,
1995, entered into between the Company and Anaconda Partners, L.P. (the "Bridge
Loan"). Also in August 1996, LEO Holdings, Inc. ("LEO") exercised a warrant to
purchase 34,090 shares of Common Stock at an exercise price of $4.40 per share
and 4,772 shares of Common Stock at an exercise price of $5.50 per share. Such
Warrant was originally issued to Anaconda Partners, L.P. in connection with the
Bridge Loan and subsequently transferred to LEO. In June 1996 the Company
registered for resale all of the shares of Common Stock issuable upon exercise
of these Warrants.

LEO subsequently sold all of their shares and this Prospectus includes only
those shares held by Anaconda. On February 7, 1997 the Company effected a
2-for-1 stock split, and all of the share amounts in this Prospectus, including
the amounts in this paragraph, are stated in post-split shares.

SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

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YEAR ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. $ -- $ -- $ -- $ 9,066 $ 15,841
Gross profits............................................. -- -- -- 2,289 6,105
Loss from operations...................................... (2,044) (3,025) (3,324) (2,988)(2) (2,233)(2)
Net loss.................................................. (2,196) (3,307) (3,727) (3,292) (3,572)(3)
Net loss per share(4)..................................... $ (0.50) $ (0.44)
Weighted average shares outstanding(4).................... 6,642 8,142
</TABLE>

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<CAPTION>
DECEMBER 31, 1996
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CONSOLIDATED BALANCE SHEET DATA:
Cash......................................................................................... $ 2,363
Working capital.............................................................................. 7,380
Total assets................................................................................. 15,256
Long-term liabilities........................................................................ 110
Total stockholders' equity................................................................... 9,074
</TABLE>

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(1) Based on the number of shares outstanding on December 31, 1996 which
includes all of the shares being offered by the Selling Stockholder which
were issued in August 1996. Excludes, as of such date, (i) approximately
1,141,000 shares of Common Stock issuable upon exercise of options
outstanding, of which options to purchase approximately 643,000 shares were
exercisable at a weighted average exercise price of $0.80 per share, (ii)
180,000 shares of Common Stock issuable upon exercise of warrants issued to
Donald & Co. Securities Inc. outstanding at an exercise price of $6.60 per
share, (iii) approximately 835,000 shares reserved for future grants under
the Company's Equity Incentive Plan, and (iv) 300,000 shares reserved for
issuance pursuant to the Company's 1996 Employee Stock Purchase Plan. See
"Management--Equity Incentive Plans," "Principal and Selling Stockholders,"
"Description of Capital Stock" and Note 8 of Notes to Consolidated
Financial Statements.

(2) The Company recorded non-cash charges related to grants of stock options
having exercise prices below the fair market value on the date of grant to
employees and directors in the amounts of $369,000 and $489,000,
respectively, in 1995 and 1996. See Note 8 of Notes to Consolidated
Financial Statements.

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(3) The Company recorded a non-cash charge resulting from amortization of a
discount related to the Warrants in the amount of $1.3 million in 1996. See
Note 6 of Notes to Consolidated Financial Statements.

(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.

RECENT DEVELOPMENT

On March 14, 1997 InVision filed a registration statement with the
Securities and Exchange Commission in connection with a proposed underwritten
public offering of 3,125,000 shares of Common Stock (the "Proposed Underwritten
Offering"). Of such shares, 1,875,000 shares are being offered by the Company
and 1,250,000 shares are being offered by certain selling stockholders not
including Anaconda. Offers and sales of the shares in the Proposed Underwritten
Offering will be made by a separate Prospectus, and this Prospectus does not
constitute an offer to sell, nor a solicitation of an offer to buy, any of the
shares to be offered or sold in the Proposed Underwritten Offering.

In connection with the Proposed Underwritten Offering, certain underwriters
and selling group members (if any) who are qualified market makers on The Nasdaq
Stock Market may engage in passive market making transactions in the Common
Stock on The Nasdaq Stock Market in accordance with Rule 103 of Regulation M
under the Securities Exchange Act of 1934, as amended, during the business day
prior to the pricing of the offering before the commencement of offers of sales
of the Common Stock. Passive market makers must comply with applicable volume
and price limitations and must be identified as such. In general, a passive
market maker must display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded.

Certain persons participating in the Proposed Underwritten Offering may
overallot or effect transactions which stabilize, maintain or otherwise affect
the market price of the Common Stock at levels above those which might otherwise
prevail in the open market, including by entering stabilizing bids or effecting
syndicate covering transactions. A stabilizing bid means the placing of any bid
or effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of common stock. A syndicate covering transaction means the placing of
any bid on behalf of the underwriting syndicate or the effecting of any purchase
to reduce a short position created in connection with the offering. Such
transactions may be effected on The Nasdaq Stock Market, in the over-the-counter
market, or otherwise. Such stabilizing, if commenced, may be discontinued.

The sections of this Prospectus which refer to shares of Common Stock
outstanding after the Offering or shares eligible for sale in the future assume
no issuance of shares of Common Stock under the Proposed Underwritten Offering.

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FORWARD LOOKING STATEMENTS

THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO
THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD
DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF THE COMPANY'S SINGLE
PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND ANNUAL OPERATING RESULTS,
THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, INCLUDING THE LOSS OF THE COMPANY'S
MOST RECENT ORDER FROM THE FAA, LOSS OF ANY OF THE COMPANY'S SOLE SOURCE
SUPPLIERS, INTENSE COMPETITION, RELIANCE ON LARGE ORDERS, CONCENTRATION OF THE
COMPANY'S CUSTOMERS, RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE CTX 5000,
BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE CUSTOMERS, AND
THE RISKS RELATED TO THE COMPANY'S LIMITED MANUFACTURING EXPERIENCE, AS WELL AS
THOSE DISCUSSED IN "RISK FACTORS," IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND ELSEWHERE IN THIS
PROSPECTUS.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. In addition
to the other information in this Prospectus, the following risk factors should
be considered carefully in evaluating the Company and its business before
purchasing the Common Stock offered hereby.

HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY

The Company commenced operations in September 1990, remained in the
development stage through 1994 and received its first revenues from product
sales in the first quarter of 1995. The Company has experienced net losses for
each quarter and year since inception and, as of December 31, 1996, had an
accumulated deficit of approximately $19.5 million. There can be no assurance
that the Company will achieve profitability on a quarterly or annual basis or,
if it is achieved, that profitability can be maintained. The Company expects to
expand its manufacturing, research and development, sales and marketing, and
administrative capabilities. The anticipated increase in the Company's operating
expenses caused by this expansion could have a material adverse effect on the
Company's business, financial condition and results of operations if revenues do
not increase at an equal or greater rate. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE

The CTX 5000 currently is the only product offered by the Company and the
Company derives substantially all of its revenues from the sale of CTX 5000
units. The Company's orders to date have been received from a limited number of
customers and the substantial majority of these have been from a single
customer, the FAA. The commercial success of the CTX 5000 will depend upon its
acceptance by domestic and international airports, government agencies and
airlines as a useful and cost-effective alternative to less expensive, higher
throughput (i.e. bags per hour) competing products employing different
technologies. The large capital commitment (approximately $1.0 million) required
to purchase the CTX 5000 may limit the marketability of the CTX 5000. In
addition, the Company's failure to compete successfully with respect to
throughput, the ability to scan all sizes of baggage, the ease of integration of
the CTX 5000 into existing baggage handling systems and other factors could
delay, limit or prevent market acceptance of the CTX 5000. Moreover, the market
for EDS technology is largely undeveloped, and the Company believes that the
overall demand for EDS technology will depend significantly upon public
perception of the risk of terrorist attacks. There can be no assurance that the
public will perceive the threat of terrorist bombings to be substantial or that
the airline industry and governmental agencies will actively pursue EDS
technology. As a result, there can be no assurance the Company will be able to
achieve market penetration, revenue growth or profitability. See
"Business--Competition" and "--Industry Background."

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FLUCTUATIONS IN OPERATING RESULTS

The Company's past operating results have been, and its future operating
results will be, subject to fluctuations resulting from a number of factors,
including: the timing and size of orders from, and shipments to, major
customers; budgeting and purchasing cycles of its customers; delays in product
shipments caused by custom requirements of customers or ability of the customer
to accept shipment; the timing of enhancements to the CTX 5000 by the Company or
new products by its competitors; changes in pricing policies by the Company, its
competitors or suppliers, including possible decreases in average selling prices
of the CTX 5000 in response to competitive pressures; the proportion of revenues
derived from competitive bid processes; the mix between sales to domestic and
international customers; market acceptance of enhanced versions of the CTX 5000;
the availability and cost of key components; the availability of manufacturing
capacity; and fluctuations in general economic conditions. The Company also may
choose to reduce prices or to increase spending in response to competition or to
pursue new market opportunities, all of which may have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's systems revenues in any period are derived from sales of multiple CTX
5000 systems to a limited number of customers and are recognized upon shipment
which, in addition to the high cost of one CTX 5000 causes minor variations in
the number of orders, or the timing of shipments, to substantially affect the
Company's quarterly revenues. Because a significant portion of the Company's
quarterly operating expenses are, and will continue to be, relatively fixed in
nature, such revenue fluctuations will cause the Company's quarterly and annual
operating results to vary substantially. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not meaningful and
cannot be relied upon as indications of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations." Because of all of the foregoing
factors, the Company's operating results may be below the expectations of public
market analysts and investors in some future quarters, which would likely result
in a decline in the trading price of the Common Stock.

DEPENDENCE ON SUPPLIERS

Certain key components used in the Company's products have been designed by
the Company to its specifications and are currently available only from one or a
limited number of suppliers. The Company currently does not have long-term
agreements with these suppliers. Moreover, in view of the high cost of many of
these components, the Company does not maintain significant inventories of some
necessary components. If the Company's suppliers were to experience financial,
operational, production or quality assurance difficulties, the supply of
components to the Company would be reduced or interrupted. In the event that a
supplier were to cease operations, discontinue a product or withhold supply for
any reason, the Company may be unable to acquire such product from alternative
sources within a reasonable period of time. The Company also uses a variety of
independent third party manufacturers and subassemblers. The inability of the
Company to develop alternative sources for single or sole source components, to
find alternative third party manufacturers or subassemblers, or to obtain
sufficient quantities of these components could result in delays or
interruptions in product shipments, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

COMPETITION

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throughput requirement, has been certified by the FAA. The Company is aware of
certain major corporations competing in other markets that intend to enter the
EDS market. In particular, in January 1996 Lockheed Martin Corporation received
a grant in the amount of approximately $8.7 million from the FAA for the design
and development of a CT-based EDS over a two-year period. Announcements of
currently planned or other new products may cause customers to delay their
purchasing decisions for EDS products, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Each of the Company's competitors may have substantially greater financial
resources than the Company. There can be no assurance that the Company will be
able to compete successfully with its competitors or with new entrants to the
EDS market.

The Company believes that its ability to compete in the EDS market is based
upon such factors as: product performance, functionality, quality and features;
quality of customer support services, documentation and training; and the
capability of the technology to appeal to broader applications beyond the
inspection of checked baggage. Although the Company believes that the CTX 5000
is superior to its competitors' products in its explosive detection capability
and accuracy, the CTX 5000 must also compete on the basis of price, throughput,
the ability to handle all sizes of baggage, and the ease of integration into
existing baggage handling systems. Certain of the Company's competitors may have
an advantage over the Company's existing technology with respect to these
factors. Currently, the CTX 5000 has an average selling price of approximately
$1.0 million, compared to substantially lower prices for systems offered by the
Company's competitors; has a throughput rate of approximately 300 bags per hour
("bph"), compared to rates claimed to exceed 1,000 bph by certain of the
Company's competitors; has a gantry size which limits the ability of the unit to
accept all sizes of baggage; and requires that the baggage remain still while
being scanned, making it difficult to integrate into the continuously moving
baggage handling systems found in most airports. There can be no assurance that
the Company will be successful in convincing potential customers that the CTX
5000 is superior to other systems given all of the necessary performance
criteria, that new systems with comparable or greater performance, lower price
and faster or equivalent throughput will not be introduced, or that, if such
products are introduced, customers will not delay or cancel existing or future
orders for the Company's system. Further, there can be no assurance that the
Company will be able to enhance the CTX 5000 to better compete on the basis of
cost, throughput, accommodation of baggage size and ease of integration, or that
the Company will otherwise be able to compete successfully with existing or new
competitors. The failure of the Company to develop such enhancements or
otherwise successfully compete in the EDS market for any of the above reasons
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition."

DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATIONS; LENGTHY SALES CYCLE

In any given fiscal year, the Company's revenues have principally consisted,
and the Company believes will continue to consist, of orders of multiple units
from a limited number of customers. While the number of individual customers may
vary from period to period, the Company is nevertheless dependent upon these
multiple orders for a substantial portion of its revenues. There can be no
assurance that the Company will obtain such multiple orders on a consistent
basis. During the fiscal year ended December 31, 1996, revenues from the
Company's six largest customers were $14.0 million, or 88.4%, of the Company's
revenues. During the fiscal year ended December 31, 1995, revenues from the
Company's three largest customers were $6.8 million, or 75.0%, of the Company's
revenues. To date, all orders from United States customers have been entirely
funded by the FAA, and the Company's largest sales contract to date, for 54 CTX
5000 systems, is with the FAA. There can be no assurance that such funding or
sales will continue in the future. The Company's inability to obtain sufficient
multiple orders or the failure of the FAA to continue such purchases or funding
would have a material adverse effect on the Company's business, financial
condition and results of operations. Moreover, the timing and shipment of such
orders could cause the operating results in any quarter to differ from the
projections of securities analysts, which could adversely affect the trading
price of the Common Stock. Losses arising from customer disputes regarding
shipping schedules, product condition or performance, or the Company's inability
to collect accounts receivable from any major customer could also have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Recent Developments."

8
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The sales process of the CTX 5000 is often protracted due to the lengthy
approval processes that typically accompany large capital expenditures. The
Company's revenues depend in significant part upon the decision of a government
agency to upgrade and expand existing facilities, alter workflows and hire
additional technical expertise in addition to procuring the CTX 5000, all of
which involve a significant capital commitment as well as significant future
support costs. The sales cycle of the CTX 5000 is often lengthy due to the
protracted approval process that typically accompanies large capital
expenditures and the time required to manufacture the CTX 5000 and install and
assimilate the CTX 5000. Typically, six to twelve months may elapse between a
new customer's initial evaluation of the Company's system and the execution of a
contract. Another three months to a year may elapse prior to shipment of the CTX
5000 as the customer site is prepared and the CTX 5000 is manufactured. During
this period the Company expends substantial funds and management resources but
recognizes no associated revenue. See "--Fluctuations in Operating Results,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction" and "--Quarterly Results of Operations."

PUBLIC AGENCY CONTRACT AND BUDGET CONSIDERATIONS

Substantially all of the Company's customers to date have been public
agencies or quasi-public agencies. In contracting with public agencies, the
Company is subject to public agency contract requirements which vary from
jurisdiction to jurisdiction and which are subject to budgetary processes and
expenditure constraints. Budgetary allocations for explosive detection systems
are dependent, in part, upon governmental policies which fluctuate from time to
time in response to political and other factors, including the public's
perception of the threat of commercial airline bombings. Many domestic and
foreign government agencies have experienced budget deficits that have led to
decreased capital expenditures in certain areas. The Company's results of
operations may be subject to substantial period-to-period fluctuations as a
result of these and other factors affecting capital spending. A reduction of
funding for explosive detection technology deployment could materially and
adversely affect the Company's business, financial condition and results of
operations. Future sales to public agencies will depend, in part, on the
Company's ability to meet public agency contract requirements, certain of which
may be onerous or even impossible for the Company to satisfy. In addition,
public agency contracts are frequently awarded only after formal competitive
bidding processes, which have been and may continue to be protracted, and
typically contain provisions that permit cancellation in the event that funds
are unavailable to the public agency. There can be no assurance that the Company
will be awarded any of the contracts for which its products are bid or, if
awarded, that substantial delays or cancellations of purchases will not result
from protests initiated by losing bidders. See "Business--Sales and Marketing."

LIMITED FIELD OPERATIONS; DEPENDENCE ON OPERATOR PERFORMANCE

As of March 1, 1997, 30 CTX 5000 systems had been shipped to twelve airports
in seven countries around the world. A majority of these units were installed
since January 1996, and the Company's customers have only limited experience
with the operation of the CTX 5000 in high-volume airport operations. Many of
the factors necessary to make the overall baggage scanning system a success,
such as the CTX 5000's integration with the baggage handling system, ongoing
system maintenance and the performance of operators, are beyond the control of
the Company. In particular, once the CTX 5000 identifies a threat, the operator
must make a determination whether the threat is actual or a false alarm and,
therefore, whether or not to allow the bag to continue onto the aircraft.
Unsatisfactory performance of operators can lead to reduced efficacy of the CTX
5000. The failure of the CTX 5000 to perform successfully in deployments,
whether due to the limited experience of the Company's customers with the CTX
5000, operator error or any other reason, may have an adverse effect on the
market's perception of the efficacy of the CTX 5000, which in turn could have a
material adverse effect on the Company's business, financial condition and
results of operations.

9
<PAGE>

LIMITED MANUFACTURING EXPERIENCE; MANAGEMENT OF GROWTH

As of March 1, 1997, the Company had produced a total of 36 CTX 5000 systems
and had not sustained then current production levels for any significant period
of time. As a result of the FAA's recent order of 54 CTX 5000 systems, the
Company is in the process of substantially increasing its rate of manufacture of
the CTX 5000, which has placed significant demands on the Company's management,
working capital and financial and management control systems. Failure to upgrade
the Company's operating, management and financial control systems when
necessary, or difficulties encountered during such upgrades, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The success of the increase in production capability will
depend in part upon the Company's ability to continue to improve and expand its
engineering and technical resources and to attract, retain and motivate key
personnel. The failure of the Company to establish such production capability or
to increase its revenues sufficiently to compensate for the increase in
operating expenses resulting from current or any future expansion would have a
material adverse effect on the Company's business, financial condition and
results of operations.

To accommodate the recent increase in the manufacturing rate, the Company
has entered into a lease for a new, substantially larger, manufacturing
facility. The ability of the Company to successfully transition its
manufacturing operation to this new facility is subject to a variety of factors,
including the ability to install appropriate equipment, adapt to a new working
environment, and quickly and efficiently move to the new facility. The
operations of this new facility will also require the Company to incur
substantially larger fixed costs than it has experienced in the past. Unforeseen
delays and complications that may arise in the transition to the new facility
which could interrupt the Company's manufacturing rate, failure of the FAA to
perform under the December 1996 purchase contract, or failure to maintain an
order rate sufficient to fully utilize this new manufacturing facility each
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Recent Developments,"
"--Manufacturing" and "--Facilities."

NO ASSURANCE OF CONTINUED CERTIFICATION; RISK OF CERTIFICATION OF COMPETING
TECHNOLOGIES; RISK OF CHANGING STANDARDS

The FAA has the responsibility for setting and maintaining performance
standards for explosive detection systems for all U.S. airlines, both in the
United States and abroad. The FAA Final Criteria for Certification of EDS,
published in September 1993, requires, among other things, a throughput of 450
bph for an explosive detection system. The Company's CTX 5000 unit currently has
been tested by the FAA at less than 450 bph and therefore has not been certified
as a single unit. The CTX 5000, when combined in a system consisting of two
units, was certified by the FAA in 1994. To date no other EDS has been certified
by the FAA. There currently is no requirement that U.S. airlines or airports (or
international airlines or airports) deploy FAA-certified explosive detection
systems or that U.S. airlines or airports (or most international airlines or
airports) deploy explosive detection systems at all. Should the standards be
lowered, resulting in other lower priced or higher throughput explosive
detection systems becoming certified, or should other competitive systems
otherwise become certified, the Company would lose a significant competitive
advantage. Under such circumstances, there can be no assurance that the
Company's product would be able to compete successfully with these systems.
Accordingly, the certification by the FAA of any competing EDS could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, should the FAA increase its certification
standards, there can be no assurance that the CTX 5000 would meet such
standards. See "Business--Industry Background."

The Company intends to continue to modify the CTX 5000 in an effort to make
throughput enhancements, cost reductions and other modifications to the CTX 5000
based upon the availability of adequate funds. Any such modifications or updated
versions of the CTX 5000 may require FAA approval in order to retain
certification or may require re-certification. There can be no assurance that
any such modifications will be approved or, if required, certified by the FAA,
and the failure to gain approval or certification for such products could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company believes that its long-term success will
depend in part upon the ability to manufacture an EDS that meets or

10
<PAGE>

exceeds the throughput standards of the FAA Final Certification Criteria without
being combined with another unit. See "Business--Product Development."

COMPETITION FOR FAA GRANTS

The U.S. Government currently plays an important role in funding the
development of EDS technology and sponsoring its deployment in U.S. airports. To
date the Company has received $8.0 million from FAA grants and contracts, and
expects to receive an additional $2.7 million for further throughput enhancement
and cost reduction activities in 1997. The Company is also aware that Lockheed
Martin Corporation was awarded a grant of approximately $8.7 million in January,
1996 from the FAA for the design and development of a CT-based EDS over a
two-year period. There can be no assurance that additional research and
development funds from the FAA will become available in the future or that the
Company will receive any such additional funds. Failure by the FAA to continue
to sponsor the Company's technology could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the grant to Lockheed Martin Corporation and any future grants to the Company's
other competitors may improve such competitors' ability to develop and market
high detection EDS technology and cause the Company's customers to delay any
purchase decisions, which could have a material adverse effect on the Company's
ability to market the CTX 5000 and on the Company's business, financial
condition and results of operations. See "Business--Product Development."

DEPENDENCE ON KEY PERSONNEL

The Company's performance depends in part on the expertise of certain
technical personnel with skills in the disciplines of x-ray physics, image
reconstruction and expert systems design. In addition, much of the Company's
proprietary technology is known only by certain technical employees and might be
unavailable should such individuals leave the Company. The number of scientists
qualified to perform the development required by the Company is extremely
limited. The Company also depends on the skills of certain key management
personnel. While the Company maintains key-man life insurance for Dr. Sergio
Magistri, its President and Chief Executive Officer, in the amount of $3.0
million, the Company does not maintain key person life insurance for any of its
other employees and has employment agreements with only four of its executive
officers, which agreements the employees may terminate at will. There can be no
assurance that these individuals will continue employment with the Company. The
loss of certain key personnel or failure of the Company to attract and retain
new key personnel, particularly as the Company seeks to expand, could materially
adversely affect the Company's business, financial condition and results of
operations. See "Management."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's performance depends in part upon its proprietary technology.
In the United States, the Company relies upon patents, copyrights and trade
secrets for the protection of the proprietary elements of the CTX 5000 and the
Company's CT technology. There can be no assurance, however, that the Company
could enforce such patents, trade secrets or copyrights. The Company has a
United States patent for automatic concealed object detection having a pre-scan
stage which expires in 2010 (the "Patent") but does not rely on the Patent.
There can be no assurance that the Patent would be effective in preventing
CT-based competition. In accordance with certain Federal Acquisition Regulations
included in the Company's development contract, dated September 27, 1991 (the
"FAA R&D Contract"), with the FAA, the United States Government has rights to
use certain of the Company's proprietary technology developed after the award of
the FAA R&D Contract and funded by the FAA R&D Contract. The U.S. Government may
use such rights to produce or have produced for the U.S. Government competing
products using the Company's CT technology. In the event that the U.S.
Government were to exercise these rights, the Company's exclusivity in supplying
the U.S. Government with certified CT-based explosive detection systems could be
materially adversely affected. Moreover, pursuant to 28 U.S.C. 1941, the U.S.
Government has the right to allow any entity to infringe a patent, trade secret
or copyright otherwise protected by federal law, and the aggrieved party can sue
only for royalties, not for injunctive relief. In the event that the U.S.
Government permits another entity to infringe on the Patent or the Company's
trade

11
<PAGE>

secrets or copyrights, the Company would be unable to prevent such infringement,
which may have a material adverse effect on the Company's competitive position
in the EDS market and on the Company's business, financial condition and results
of operations.

The Company generally enters into confidentiality agreements with each of
its employees, distributors, customers, and potential customers and limits
access to distribution of its software, documentation and other proprietary
information. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by others. Outside the United States, the time period for filing a
foreign counterpart of the Patent has expired, and the Company has not sought or
obtained patent protection (except to the extent of licenses held under patents
owned by Imatron, Inc.) and has relied to date primarily on software copyrights
and trade secrets for the protection of its proprietary technology. The absence
of a foreign counterpart to the Patent could adversely affect the Company's
ability to prevent a competitor from using technology similar to technology used
in the CTX 5000. There can be no assurance that the steps taken by the Company
to protect its proprietary technology will be adequate or that its competitors
will not be able to develop similar, functionally equivalent or superior
technology.

The Company in the past has received, and may from time to time in the
future receive, communications from third parties alleging infringements by the
Company or one of its suppliers of patents or other intellectual proprietary
rights owned by such third parties. There can be no assurance that any
infringement claims (or claims for indemnification resulting from infringement
claims against third parties, such as customers) will not be asserted against
the Company. If the Company's product is found to infringe a patent, a court may
grant an injunction to prevent making, selling or using the product in the
applicable country. Protracted litigation may be necessary to defend the Company
against alleged infringement of others' rights. Irrespective of the validity or
success of such claims, defense of such claims could result in significant costs
to the Company and the diversion of time and effort by management, either of
which by itself could have a material adverse effect on the business, financial
condition and results of operations of the Company. Further, adverse
determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities (including
treble damages in certain circumstances), or prevent the Company from selling
its products. If infringement claims are asserted against the Company, the
Company may seek to obtain a license of such third party's intellectual property
rights, which may not be available under reasonable terms or at all. In
addition, litigation may be necessary to enforce patents issued to or licensed
exclusively to the Company and protect trade secrets or know-how owned or
licensed by the Company and, whether or not the Company is successful in
defending such intellectual property, the Company could incur significant costs
and divert considerable management and key technician time and effort with
respect to the prosecution of such litigation, either of which by itself could
have a material adverse effect on the business, financial condition and results
of operations of the Company. See "Business--Intellectual Property and
Proprietary Rights."

INTERNATIONAL BUSINESS; FLUCTUATION IN EXCHANGE RATES; RISK OF CHANGE IN FOREIGN
REGULATIONS

The Company markets its products to customers outside of the United States
and, accordingly, is exposed to the risks of international business operations,
including unexpected changes in regulatory requirements, changes in foreign
control legislation, possible foreign currency controls, uncertain ability to
protect and utilize its intellectual property in foreign jurisdictions, currency
exchange rate fluctuations or devaluation, tariffs or other barriers,
difficulties in staffing and managing foreign operations, difficulties in
obtaining and managing vendors and distributors, and potentially negative tax
consequences. International sales are subject to certain inherent risks
including tariffs, embargoes and other trade barriers, staffing and operating
foreign sales and service operations and collecting accounts receivable. The
Company is also subject to risks associated with regulations relating to the
import and export of high technology products. The Company cannot predict
whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products in the future will be
implemented by the United States or any other country. Fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a

12
<PAGE>

particular country, leading to a reduction in sales or profitability in that
country. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

PRODUCT LIABILITY RISKS; RISK OF FAILURE TO DETECT EXPLOSIVES; AVAILABILITY OF
INSURANCE

The Company's business exposes it to potential product liability risks which
are inherent in the manufacturing and sale of explosive detection systems. There
are many factors beyond the control of the Company that could lead to liability
claims, such as the reliability of the customer's operators, the training of the
operators after the initial installation and training period, and the
maintenance of the units by the customers. For these and other reasons, there
can be no assurance that the units will detect all explosives hidden in the
luggage scanned. The Company does not believe that it would be liable for any
such claims, but the cost of defending any such claims would be significant and
any adverse determination may be in excess of the Company's insurance coverage.
Moreover, the failure of the CTX 5000 to detect an explosive would also result
in negative publicity which could have a material adverse effect on sales and
may cause customers to cancel orders already placed, either of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. Many of the Company's customers require the Company to
maintain insurance at certain levels. The Company currently has product
liability insurance in the amount of $150 million. There can be no assurance
that additional insurance coverage, if required by customers or otherwise, could
be obtained on acceptable terms, if at all.

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS

An element of the Company's strategy is to review acquisition prospects that
would complement its existing product offerings, augment its market coverage,
enhance its technological capabilities or otherwise offer growth opportunities.
Although the Company has no present understandings, commitments or agreements
with respect to any material acquisition of any businesses, products or
technologies, the Company may make acquisitions of businesses, products or
technologies in the future. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect the Company's
business, financial condition and results of operations. Acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention from
other business concerns, risks of entering markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. The Company's management has limited experience in assimilating
acquired organizations. No assurance can be given as to the ability of the
Company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.

CONCENTRATION OF OWNERSHIP; CONTROL BY MANAGEMENT

As of March 1, 1997, the Company's principal stockholder, HARAX Holding,
S.A. ("HARAX"), and its affiliates will hold approximately 35.2% of the
Company's Common Stock, and the present directors and executive officers of the
Company and their affiliates will, in the aggregate, beneficially own 17.8% of
the outstanding Common Stock, in each case including shares issuable pursuant to
stock options exercisable within 60 days of the date hereof. Consequently, HARAX
together with the Company's directors and executive officers, acting in concert,
will have the ability to significantly affect the election of the Company's
directors and have a significant effect on the outcome of corporate actions
requiring stockholder approval. In addition, HARAX, acting alone, will have the
power to significantly affect matters relating to the Company's affairs and
business. See "Principal and Selling Stockholders."

13
<PAGE>
ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to five million shares of preferred stock in one or more
series, to fix the rights, preferences, privileges and restrictions granted to
or imposed upon any wholly unissued shares of preferred stock, to fix the number
of shares constituting any such series, and to fix the designation of any such
series, without further vote or action by its stockholders. The rights of the
holders of Common Stock will be subject to, and may be materially adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. The Company has no present plans to issue shares of
preferred stock. In addition, in the event of certain transactions by which the
Company is acquired or becomes controlled by a single investor or group of
investors, the Board of Directors pursuant to the Company's Employee Stock
Purchase Plan, has discretion to provide that each right to purchase Common
Stock will be assumed or an equivalent right substituted by the successor
corporation, if any, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such transaction. Furthermore, the Company's Certificate of
Incorporation provides for a staggered board and does not permit stockholder
action by written consent, both of which may have the effect of delaying or
preventing changes in control or management of the Company. The Company also is
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which places restrictions on business combinations with certain interested
stockholders. The above factors, coupled with the concentration of ownership in
the directors and executive officers, could discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the holders of Common Stock might otherwise
receive a premium for their shares over then current prices, and may limit the
ability of such stockholders to cause or approve transactions which they may
deem to be in their best interests, all of which could have a material adverse
effect on the market price of the Common Stock offered hereby. See "Description
of Capital Stock-- Delaware Law and Certain Charter Provisions."

VOLATILITY OF STOCK PRICE

Since the Company's initial public offering in April 1996, the price of the
Company's Common Stock has fluctuated widely, with sales on The Nasdaq SmallCap
Market ranging from, on a post-split basis, $4.63 to $17.75. See "Price Range of
Common Stock." Although the Company has applied to have the Common Stock
approved for quotation on Nasdaq National Market in connection with the Proposed
Underwritten Offering, there can be no assurance that such application will be
approved, or, if approved, that a more orderly and active trading market will
develop for the Common Stock or, if one does develop, that it will be
maintained. The market price of the shares of Common Stock, like that of the
common stock of many other high technology companies, is highly volatile. The
Company believes that factors such as the crash of TWA Flight 800, the Gore
Commission report and the entering into of the FAA contract for 54 CTX 5000
systems have greatly affected the fluctuation in the Company's Common Stock
trading price. In the future such events, as well as announcements of
technological innovations or new products by the Company or its competitors and
general market conditions, may have a significant effect on the market price of
the Common Stock. In addition, in recent years the stock market in general, and
the market for small capitalization stocks in particular, has experienced
extreme price fluctuations which have often been unrelated to the operating
performance of affected companies. Such fluctuations could adversely affect the
market price of the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of substantial amounts of Common Stock in the public market following
this Offering, such as is contemplated by the Proposed Underwritten Offering,
could have an adverse effect on the trading price of the Common Stock. As of
March 1, 1997, the Company had outstanding approximately 9,171,926 shares of
Common Stock assuming no exercise of options after December 31, 1996. Of the
shares outstanding, 3,911,942 shares, including the 479,318 shares offered
hereby, will be freely tradeable without restriction or further registration

14
<PAGE>

under the Securities Act, unless purchased by "affiliates" of the Company as
that term is defined in Rule 144 under the Securities Act. The remaining
5,259,984 shares of Common Stock outstanding are "restricted securities" as that
term is defined in Rule 144 and are available for immediate sale in the public
market subject, in certain cases, to the volume, holding period and other
restrictions of Rule 144.

The Company has entered into agreements with certain of its stockholders and
others pursuant to which such persons have the right to require the Company to
register up to an aggregate of 577,388 additional shares of Common Stock for
resale under the Securities Act. Of such shares, 397,388 are currently
outstanding and the remaining 180,000 shares are issuable upon the exercise of
currently outstanding warrants. See "Description of Capital Stock--Registration
Rights" and "Certain Transactions."

15
<PAGE>
USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.

PRICE RANGE OF COMMON STOCK

On April 23, 1996, the Common Stock commenced trading on The Nasdaq SmallCap
Market under the symbol "INVN". Prior to that date, there was no public market
for the Common Stock. The following table sets forth, for the periods indicated,
the high and low bid quotations of the Common Stock as reported on The Nasdaq
SmallCap Market giving effect to the Company's 2-for-1 stock split effected on
February 7, 1997 as if the stock split had occurred on April 23, 1996. These
over-the-counter quotations reflect inter-dealer prices, without retail markup,
markdown or commission, and may not necessarily represent the sales prices in
actual transactions.

<TABLE>
<CAPTION>
THE NASDAQ
SMALLCAP MARKET
------------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1996
Second quarter (from April 23, 1996).............................................. $ 6 5/8 $ 5 5/8
Third quarter..................................................................... 17 1/16 4 5/8
Fourth quarter.................................................................... 17 5/16 10 7/8

Fiscal 1997
First quarter (through March 21, 1997)............................................ $17 3/4 $13 5/8
</TABLE>

On March 21, 1997, the last sale price of the Common Stock on The Nasdaq
SmallCap Market was $15.75 per share. On March 1, 1997 there were 176
stockholders of record of Common Stock, and the Company believes its shares were
held beneficially by approximately 4,000 owners on such date. In connection with
the Underwritten Public Offering, the Company has made application for inclusion
of the Common Stock on the Nasdaq National Market.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock
and it is currently the intention of the Board of Directors not to pay cash
dividends in the foreseeable future. The Company plans to retain future
earnings, if any, to finance its operations. In addition, the Company's bank
credit facility prohibits the payment of dividends without the lender's consent.

16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth for the periods and the dates indicated
certain financial data which should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein. The statement of operations data for each of the three fiscal years in
the period ended December 31, 1996, and the balance sheet data at December 31,
1995 and 1996, are derived from the consolidated financial statements of the
Company which have been audited by Price Waterhouse LLP, independent
accountants, and are included elsewhere in this Prospectus. The statement of
operations data for the years ended December 31, 1992 and 1993 and the balance
sheet data at December 31, 1992, 1993, and 1994 are derived from audited
financial statements not otherwise contained herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ -- $ -- $ -- $ 9,066 $ 15,841
Cost of revenues......................................... -- -- -- 6,777 9,736
--------- --------- --------- --------- ---------
Gross profit........................................... -- -- -- 2,289 6,105
--------- --------- --------- --------- ---------
Operating expenses:
Research and development(1)............................ 744 1,424 1,582 1,940 2,785
Sales and marketing.................................... 242 520 664 1,866 2,976
General and administrative............................. 1,058 1,081 1,078 1,471 2,577
--------- --------- --------- --------- ---------
Total operating expenses............................. 2,044 3,025 3,324 5,277 8,338
--------- --------- --------- --------- ---------
Loss from operations..................................... (2,044) (3,025) (3,324) (2,988 (2) (2,233)(2)
Interest expense......................................... (162) (288) (410) (338) (1,511)(3)
Other income, net........................................ 10 6 7 34 172
--------- --------- --------- --------- ---------
Net loss................................................. $ (2,196) $ (3,307) $ (3,727) $ (3,292) $ (3,572)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share(4).................................... $ (0.50) $ (0.44)
--------- ---------
--------- ---------
Weighted average shares outstanding(4)................... 6,642 8,142

DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash..................................................... $ 562 $ 212 $ 2,241 $ 1,927 $ 2,363
Working capital (deficit)................................ (2,365) (4,759) (4,893) (3,477) 7,380
Total assets............................................. 1,804 1,950 4,646 7,316 15,256
Long-term liabilities.................................... -- -- -- 34 110
Total stockholders' equity (deficit)..................... (1,696) (3,983) (4,224) (2,522) 9,074
</TABLE>

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

(1) Net of amounts reimbursed by the FAA of $3,099,000, $1,518,000, $821,000,
$593,000, and $1,476,000, respectively, during 1992, 1993, 1994, 1995, and
1996. See Note 4 of Notes to Consolidated Financial Statements.

(3) The Company recorded a non-cash charge resulting from amortization of a
discount in connection with the Warrants in the amount of $1.3 million in
1996. See Note 6 of Notes to Consolidated Financial Statements.

(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to compute per share amounts.

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED
BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF THE COMPANY'S
SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND ANNUAL OPERATING
RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, INCLUDING THE LOSS OF THE
COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF ANY OF THE COMPANY'S SOLE
SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON LARGE ORDERS, CONCENTRATION
OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE
CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE
CUSTOMERS, AND THE RISKS RELATED TO THE COMPANY'S LIMITED MANUFACTURING
EXPERIENCE, AS WELL AS THOSE DISCUSSED IN "RISK FACTORS," IN "BUSINESS," AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

InVision designs, manufactures and markets an explosive detection system
based on advanced CT technology. The Company was formed in September 1990 to
design and develop the CTX 5000 and remained in the development stage through
December 1994. In June 1994, the Company received its first commercial order for
a CTX 5000 system from the Brussels International Airport in Belgium, and since
such time has received orders for a total of 87 systems, of which a total of 30
had been shipped as of March 1, 1997. For the fiscal year ended December 31,
1996, the Company had revenues of $15.8 million, and at March 1, 1997 had orders
in backlog in the amount of $55.0 million. See "Business--Backlog."

The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources to research
to enhance the performance, functionality and reliability of its CTX 5000
hardware and software. At March 1, 1997, the Company had 35 full-time employees
engaged in research and development activities, and also was using the services
of 8 specialized contract employees and consultants in this area. Beginning in
1991, total research and development expenditures by the Company have been
partially offset by amounts reimbursed by the FAA under development contracts
and grants. The Company believes that investment in research and development in
absolute dollars will increase substantially to meet its future needs regardless
of the level of funding received from the FAA. During the year ended December
31, 1996, the Company spent $4.3 million on research and development activities,
of which $1.5 million was funded by the FAA under development contracts and
grants. To the extent that FAA contract and grant receipts decline in the
future, research and development expenses borne by the Company would increase,
and the Company expects that its results of operations would be adversely
impacted. See "Risk Factors--Competition for FAA Grants."

The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. In the United States, the Company markets its CTX 5000 primarily
through direct sales personnel. Internationally, the Company utilizes both a
direct sales force and authorized agents to sell its products. During the years
ended December 31, 1996 and 1995, international sales represented 76.2% and
89.2%, respectively, of the Company's revenues. See "Risk Factors--International
Business; Fluctuation in Exchange Rates; Risk of Change in Foreign Regulations."

The sales cycle of the CTX 5000 is often lengthy due to the protracted
approval process that typically accompanies large capital expenditures and the
time required to manufacture the CTX 5000 and install and assimilate the CTX
5000. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's system and the execution of a contract.
Another three months to a year may elapse prior to shipment of the CTX 5000 as
the customer site is prepared and the CTX 5000 is manufactured. During this
period the Company expends substantial funds and management resources but
recognizes no associated

18
<PAGE>

revenue. See "Risk Factors--Dependence on Large Orders; Customer Concentrations;
Lengthy Sales Cycle" and "--Public Agency Contract and Budget Considerations."

The Company recognizes revenue on shipment unless extended acceptance
criteria exist, in which case revenue is recognized upon achievement of such
acceptance criteria. The Company typically requires significant customer
deposits and progress payments in advance of shipment on customer purchase
orders. Provision for estimated installation, training and warranty costs is
recorded at the time revenue is recognized. Systems typically carry a one-year
warranty.

RESULTS OF OPERATIONS

The following table sets forth certain income and expenditure items from the
Company's consolidated statement of operations expressed as a percentage of
revenues for the periods indicated. Information for 1994 has been omitted as the
Company did not recognize revenue in that year.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenues.................................................................. 100.0% 100.0%
Cost of revenues.......................................................... 74.8 61.5
--------- ---------
Gross profit............................................................ 25.3 38.5
--------- ---------
Operating expenses:
Research and development................................................ 21.4 17.6
Sales and marketing..................................................... 20.6 18.8
General and administrative.............................................. 16.2 16.3
--------- ---------
Total operating expenses.............................................. 58.2 52.6
--------- ---------
Loss from operations...................................................... (33.0) (14.1)
Interest expense.......................................................... (3.7) (9.5)
Other income, net......................................................... 0.4 1.1
--------- ---------
Net loss.................................................................. (36.3)% (22.6)%
--------- ---------
--------- ---------
</TABLE>

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

REVENUES. The Company's revenues are comprised of system revenues, which
include sales of the CTX 5000, accessories, installation and configuration, and
maintenance related to product support.

Revenues increased by 74.7% to $15.8 million in 1996 from $9.0 million in
1995. The increase in 1996 revenues is attributable to increased sales of the
CTX 5000, reflecting a 63.6% increase in unit shipments to 18 units in 1996 from
11 units in 1995 and, to a lesser extent, changes in product configuration
leading to an increase in the average selling price per unit and sales of add-on
products to current customers. There were no revenues recorded in 1994.

GROSS PROFIT. Cost of revenues primarily consists of purchased materials
procured for use in the assembly of the Company's products, as well as
manufacturing labor, overhead and warranty costs. In any given period the
Company's gross profit may be affected by several factors, including product
configuration, location of the installation, and complexity of integration into
various airport environments.

Gross profit increased by 167% to $6.1 million in 1996 from $2.3 million in
1995. Gross margins were 38.5% in 1996 and 25.3% in 1995. The increase in gross
margins was primarily caused by lower unit costs resulting from increased
manufacturing efficiency and reduced overhead cost per unit due to increased
volume, as well as changes in product configurations leading to an increase in
the average selling price. Increased operating

19
<PAGE>

efficiencies resulting from a larger installed base also reduced the average
cost of maintenance and warranty service. There was no gross profit in 1994.

RESEARCH AND DEVELOPMENT. Research and development expenditures consist
primarily of compensation paid to personnel engaged in research and development
activities, amounts paid for outside services, and costs of materials utilized
in the development of hardware products, including prototype units. All software
and hardware development costs are expensed as incurred. Beginning in 1991,
total research and development expenditures by the Company have been partially
offset by amounts reimbursed by the FAA under development contracts and grants.
The Company believes that investment in research and development in absolute
dollars will increase substantially to meet its future needs regardless of the
level of funding received from the FAA.

During 1996, 1995 and 1994, the Company was entitled to reimbursements of
$1.5 million, $0.6 million and $0.8 million, respectively, under research and
development contracts and grants from the FAA to develop and enhance the CTX
5000. Such reimbursements have been reflected as a reduction to research and
development expense in each period presented. Billings are rendered to the FAA
monthly on the basis of actual costs incurred.

Total research and development expenditures increased by 68.2% to $4.3
million in 1996 from $2.5 million in 1995 and by 5.4% in 1995 from $2.4 million
in 1994. Of these amounts, $1.5 million and $0.6 million, respectively, were
funded by research and development contracts and grants from the FAA in 1996 and
1995. As a percentage of revenues, total research and development expenditures
remained at approximately 27.3% for both 1996 and 1995. In 1996, the increase in
total expenditures reflects the effects of personnel additions, costs of
prototype development, efforts to increase throughput and develop systems for
more effective airport integration, and conceptual design.

SALES AND MARKETING. Sales and marketing expenditures consist primarily of
compensation paid to direct and indirect sales and marketing personnel, payments
to consultants, travel related to the sales process, and other selling and
distribution costs.

Sales and marketing expenditures increased by 59.5% to $3.0 million in 1996
from $1.9 million in 1995 and by 181% in 1995 from $0.7 million in 1994. As a
percentage of revenues, sales and marketing expenses declined to 18.8% in 1996
from 20.6% in 1995. The increased levels of expenditures in absolute dollars for
1996 and 1995 reflect increased selling costs associated with the higher unit
sales, including foreign travel, trade shows, public relations and commissions.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation paid to administrative personnel, including directors,
payments to consultants, professional service fees, and travel and other general
expenses.

General and administrative expenses increased by 75.2% to $2.6 million in
1996 from $1.5 million in 1995 and by 36.5% in 1995 from $1.1 million in 1994.
As a percentage of revenues, general and administrative expenses were 16.3% for
1996 and 16.2% for 1995. The increase in absolute dollars in 1996 reflects
increased costs of operating as a public company. In addition, the increases for
1996 and 1995 reflect additions to support capabilities required by the growth
in revenues and corporate headcount.

INTEREST EXPENSE. Interest expense increased to $1.5 million in 1996 from
$0.3 million in 1995 and decreased in 1995 from $0.4 million in 1994. Interest
expense in 1996 reflects the effect of $1.3 million of amortization of the fair
market value of warrants issued in connection with a bridge loan obtained in
December 1995. Interest expense during 1995 and 1994 resulted directly from
short-term debt outstanding during each period.

INCOME TAXES. At December 31, 1996 the Company had federal net operating
loss carryforwards of approximately $11.0 million available to reduce future
federal taxable income. The Company's net operating loss carryforwards expire
from 2005 to 2011. As a result of changes in ownership that occurred in the 1995

20
<PAGE>

financings, future utilization of certain of the Company's carryforwards are
limited to not more than approximately $0.5 million per year.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain consolidated statements of operations
data for the four fiscal quarters in each of the years ended December 31, 1995
and 1996. This data is unaudited but, in the opinion of the Company's
management, reflects all of the adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of this information in accordance
with generally accepted accounting principles. The operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 892 $ 2,520 $ 3,057 $ 2,597 $ 3,932 $ 3,555 $ 3,959 $ 4,395
Cost of revenues........... 658 1,685 2,088 2,346 2,453 2,188 2,232 2,863
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Gross profit............. 234 835 969 251 1,479 1,367 1,727 1,532
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Operating expenses:
Research and
development............ 351 412 521 656 595 481 615 1,094
Sales and marketing...... 222 464 571 609 597 638 758 983
General and
administrative......... 294 257 419 501 472 674 730 701
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Total operating
expenses............. 867 1,133 1,511 1,766 1,664 1,793 2,103 2,778
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Loss from operations....... (633) (298) (542) (1,515) (185) (426) (376) (1,246)
Interest expense........... (125) (95) (65) (53) (1,040)(1) (455)(1) (7) (9)
Other income, net.......... 12 7 11 4 10 51 61 50
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Net loss................... $ (746) $ (386) $ (596) $ (1,564) $ (1,215) $ (830) $ (322) $ (1,205)
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Net loss per share......... $ (0.12) $ (0.06) $ (0.09) $ (0.23) $ (0.17) $ (0.11) $ (0.04) $ (0.13)
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
Weighted average shares
outstanding............... 6,323 6,438 6,929 6,876 7,081 7,816 8,650 9,023
</TABLE>

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

(1) The Company recorded noncash charges of $0.9 million and $0.4 million in the
quarters ended March 31, 1996 and June 30, 1996, respectively, resulting
from amortization of a bridge loan warrant discount.

21
<PAGE>

The following table sets forth, as a percentage of revenues, certain
consolidated statements of operations data for the four fiscal quarters in each
of the years ended December 31, 1995 and 1996.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1995 1995 1995 1995 1996 1996 1996
----------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 73.8 66.9 68.3 90.3 62.4 61.5 56.4
----- ----- --------- ----- ----- ----- -----
Gross profit.................... 26.2 33.1 31.7 9.7 37.6 38.5 43.6
Operating expenses:
Research and development........ 39.3 16.3 17.0 25.3 15.1 13.5 15.5
Sales and marketing............. 24.9 18.4 18.7 23.5 15.2 17.9 19.1
General and administrative...... 33.0 10.2 13.7 19.3 12.0 19.0 18.4
----- ----- --------- ----- ----- ----- -----
Total operating expenses...... 97.2 45.0 49.4 68.0 42.3 50.4 53.1
----- ----- --------- ----- ----- ----- -----
Loss from operations.............. (71.0) (11.8) (17.7) (58.3) (4.7) (12.0) (9.5)
Interest expense.................. (14.0) (3.8) (2.1) (2.0) (26.4) (12.8) (0.2)
Other income, net................. 1.3 0.3 0.4 0.2 0.3 1.4 1.5
----- ----- --------- ----- ----- ----- -----
Net loss.......................... (83.6)% (15.3)% (19.5)% (60.2)% (30.9)% (23.3)% (8.1)%
----- ----- --------- ----- ----- ----- -----
----- ----- --------- ----- ----- ----- -----

DEC. 31,
1996
-----------
<S> <C>
Revenues.......................... 100.0%
Cost of revenues.................. 65.1
-----
Gross profit.................... 34.9
Operating expenses:
Research and development........ 24.9
Sales and marketing............. 22.4
General and administrative...... 15.9
-----
Total operating expenses...... 63.2
-----
Loss from operations.............. (28.4)
Interest expense.................. (0.2)
Other income, net................. 1.1
-----
Net loss.......................... (27.4)%
-----
-----
</TABLE>

The Company's quarterly revenues have fluctuated significantly in the past
and are expected to fluctuate significantly in the future. These fluctuations
are the result of a variety of factors, including the Company's delivery cycle,
variations in product configuration, timing of orders, and suitability of client
sites. The Company's cost of revenues fluctuates from quarter to quarter
consistent with fluctuations in such revenues. In addition, the Company's gross
margins may be affected by, among other factors, the configuration of systems
sold, the mix between system and add-on sales, and the breakdown between
domestic and international sales. During 1996, as the number of orders shipped
and associated revenues increased, the overall variability of the Company's
gross profits decreased.

The Company has experienced operating and net losses in each of the eight
fiscal quarters in the years 1995 and 1996. There can be no assurance that the
Company will become profitable on either a quarterly or annual basis. The
Company's past operating results have been, and its future operating results
will be, subject to fluctuations resulting from a number of factors, including
the timing and announcement of orders, delays in shipments caused by customer
readiness or integration issues, the timing of new or enhanced product offerings
by the Company or it's competitors, the mix between sales to domestic and
international customers, market acceptance of any new or enhanced version of the
Company's products, availability of key components, the availability of
manufacturing capacity, the Company's ability to rapidly increase production,
and fluctuations in demand driven by general conditions impacting the aviation
industry beyond the control of the Company. The Company's revenues in any period
are generally derived from a limited number of customers. The Company may also
choose to reduce prices or increase spending in response to competition or to
pursue new market opportunities, all of which may adversely affect the Company's
business, financial condition and results of operations. See "Risk
Factors--History of Losses; No Assurance of Profitability" and "--Fluctuations
in Operating Results."

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
private sales of $16.5 million of Preferred and Common Stock (of which $5.6
million represents indebtedness converted to equity), the sale of $9.5 million
of Common Stock in the Company's Initial Public Offering in April 1996, and $3.2
million of short-term borrowings. At December 31, 1996, the Company had $2.4
million in cash and no outstanding borrowings.

22
<PAGE>

In February 1997, the Company entered into two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings generally in an amount up to the lower of 80% of domestic
eligible accounts receivable or $4.5 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% at
December 31, 1996). The second agreement is partially guaranteed by the
Export-Import Bank of the United States and provides for maximum borrowings
generally in an amount up to the lower of the sum of 90% of eligible export
accounts receivable plus 70% of eligible raw materials and work-in-process
inventory designated for export customers or $4.5 million. Borrowings under this
agreement generally bear interest at the bank's prime rate plus 0.75% per annum
(9.00% at December 31, 1996). Borrowings under both agreements are secured by
all of the Company's assets. The agreements require that the Company maintain
certain financial ratios and levels of tangible net worth and profitability and
also prohibit the Company from paying cash dividends. Proceeds of loans under
both lines of credit may be used for general corporate purposes.

Cash used in operations was $9.4 million in 1996 and $2.0 million in 1995.
Net cash used in operations for 1996 was primarily due to the net loss of $3.6
million, a $5.3 million increase in accounts receivable and a $1.4 million
increase in inventories which were partially offset by a non-cash charge for the
amortization of the warrant discount of $1.3 million. For 1995, net cash used in
operations was due primarily to the net loss of $3.3 million and increases in
accounts receivable and inventories associated with increased manufacturing and
sales activities, which were partially offset by an increase in accounts payable
and accrued liabilities.

Net cash used in investing activities was $1.1 million in 1996 and $0.6
million in 1995, in each case due primarily to the purchase of property and
equipment. The Company anticipates spending approximately $2.0 million for
purchases of capital equipment and approximately $1.5 million for facility
improvements in connection with a move of the Company's principal executive
offices and manufacturing facility. The Company has no other significant capital
spending or purchase commitments other than normal purchase commitments and
commitments under leases.

Net cash provided by financing activities was $10.9 million in 1996 and $2.3
million in 1995. The increase in 1996 was due to $14.0 million in net proceeds
from issuances of Common Stock primarily associated with the Company's initial
public offering in 1996 which were partially offset by $3.2 million in net
repayments of short-term debt financing. Net cash provided by financing
activities in 1995 was due primarily to $1.2 million in proceeds from the
issuance of Preferred Stock and $1.0 million in proceeds from short-term debt
financing.

On March 14, 1997, InVision filed a registration statement with the
Securities and Exchange Commission in connection with the Proposed Underwritten
Offering of 3,125,000 shares of Common Stock. Of such shares 1,875,000 shares
are being offered by the Company and 1,250,000 shares are being offered by
certain selling stockholders not including Anaconda. The Company intends to use
the proceeds from the offering to purchase capital equipment and undertake
facility improvements, to fund research and development, and for working capital
and other general corporate purposes. The Company will not receive any proceeds
from the sale of Common Stock by the selling stockholders.

The Company believes that existing cash of $2.4 million as of December 31,
1996 and available borrowings under the Company's line of credit agreements,
together with the anticipated net proceeds from the Proposed Underwritten
Offering, will be sufficient to finance its working capital and capital
expenditure requirements for at least the next 12 months. If the Proposed
Underwritten Offering does not occur, the Company may need to seek alternative
sources of funding. There can be no assurance that any such additional funding
will be available to the Company on favorable terms or at all.

23
<PAGE>

BUSINESS

GENERAL

InVision is the worldwide leader in explosive detection technology. The
Company develops, manufactures, markets and supports an explosive detection
system for civil aviation security based on advanced CT technology. To date, the
Company's CTX 5000 is the only EDS to be certified by the FAA for use in the
inspection of checked luggage on commercial flights. Historically, the FAA has
been the leader in establishing standards for aviation security worldwide, and
the Company believes that airports around the world will migrate over time
towards security policies consistent with those of the FAA. As a result, the
Company believes that the CTX 5000 is well positioned to become the industry
standard. In December 1996, the Company received an order from the FAA for 54
CTX 5000 systems to be installed at the busiest U.S. airports. For the fiscal
year ended December 31, 1996, the Company had revenues of $15.8 million, and at
March 1, 1997 had orders in backlog in the amount of $55.0 million. As of March
1, 1997, 30 CTX 5000 systems had been shipped to twelve airports in seven
countries around the world.

The Company believes that the CTX 5000 is the only EDS capable of detecting
all types of explosives designated by the FAA to be a threat to commercial
aviation and that the CTX 5000 is superior to competing systems by virtue of its
advanced detection technology. The CTX 5000 is capable of capturing and
processing substantially more data than other explosive detection systems. The
Company believes that there are important technological advantages that lead to
the superiority of the CTX 5000 over systems of the Company's primary
competitors. By combining heightened levels of data capture and diagnosis
capabilities with simple user interfaces, the Company's CTX 5000 is capable of
providing high detection and low false alarm rates, as well as advanced threat
resolution capability and increased operator efficiency.

The Company's objective is to become the dominant provider of explosive
detection systems worldwide and to extend its expertise in EDS technology to
address broader applications. Specific elements of the Company's growth strategy
are to enhance its technological leadership, expand its sales and marketing
organization, leverage its detection technology expertise to enter new markets
for detection, and selectively pursue strategic relationships and acquisitions.

INDUSTRY BACKGROUND

MARKET SIZE. There are over 600 airports worldwide providing scheduled
service for an aggregate of over 2.5 billion passengers per year. Of these
airports, over 400 are located in the United States, 150 are in Europe, and 50
are in the Asia/Pacific region. According to a 1996 report issued by the
Aviation Security Advisory Committee, it will cost approximately $2.2 billion to
equip the 76 largest airports in the United States with certified explosive
detection systems.

THE TERRORIST THREAT. In recent years, increased incidents of bombings and
airline terrorism have contributed to an enhanced perception of the threat of
terrorism among the general public. According to a report of the

24
<PAGE>

President's Commission on Aviation Security and Terrorism dated August 4, 1989,
there were over 42 bombings against civilian aviation targets worldwide between
1975 and 1989. According to Time Magazine, there were 10,222 bombings in the
United States between 1983 and 1993. According to a CBS poll conducted in July
1996, the public perception of the threat of commercial aircraft bombings has
increased dramatically, and airline passengers have expressed a willingness to
pay more for airline travel and endure delays if such actions will decrease the
threat of successful airline bombings.

THE EVOLUTION OF EXPLOSIVE DETECTION TECHNOLOGIES. In the 1970's, in
response to hijackings, airports worldwide began to install x-ray systems to
screen carry-on baggage for weapons such as guns and knives. In response to the
implementation of this technology, terrorists in some cases adopted the tactic
of airline bombings. The effort to develop automated explosive detection
capabilities was first established in the late 1970's by the FAA and was
predicated on the application of conventional x-ray technology. However, until
the advent of certified explosive detection systems in 1994, the Company
believes that EDS technology remained largely inadequate. Following the bombing
of Pan American Flight 103 over Lockerbie, Scotland in December 1988, certain
European countries hastened to implement explosive detection capabilities based
upon then-existing technologies. In order to placate immediate public safety
concerns, these conventional systems were designed to process 100% of checked
baggage. However, these conventional systems were and continue to remain
deficient in that they are unable to reliably detect and identify all of the
types and amounts of explosives determined by the FAA to be a threat to civil
aviation.

Several advanced explosive detection technologies have been developed to
attempt to address the need for effective explosive detection. These systems
include CT, dual energy x-ray and trace detection. CT technology uses a source
of x-rays rotating around an object to create multiple two-dimensional images,
commonly know as "slices," of the density distribution of the object's cross
section and compares these density data to those of explosives. Dual energy
x-ray systems measure the x-ray absorption properties of a bag's contents at two
different x-ray energies to determine if any of the contents have the physical
characteristics of explosive materials. Trace detection equipment, known as
"sniffers," detect particulate and chemical traces of explosive materials
collected by an operator by wiping or vacuuming the bag under inspection. The
only explosive detection system to be certified by the FAA is the Company's CTX
5000, which is based on CT technology.

THE EMERGENCE OF WORLDWIDE STANDARDS AND FAA CERTIFICATION. Throughout the
history of civil aviation, the FAA has been a leader in setting the standards
for aviation security worldwide. In the 1970's, the FAA first established
standards for worldwide security by setting guidelines for screening of carry-on
baggage for guns and knives. These standards were subsequently mandated by the
United Nations for adoption by all of its member states, leading to the
installation of over 7,000 detection systems worldwide. Following the December
1988 bombing of Pan American Flight 103, the United States enacted the Aviation
Security Improvement Act of 1990 (the "Aviation Security Act"), in response to
which the FAA increased research and development funding for advanced explosives
detection technology. To date the FAA has spent approximately $150 million on
such activities.

In 1993, as required by the Aviation Security Act, the FAA adopted a
certification protocol regarding explosive detection systems for use on checked
baggage. The FAA certification process was developed to certify equipment that,
alone or as part of an integrated system, can detect under realistic air carrier
operating conditions the amounts, configurations and types of explosive material
which would be likely to be used to cause catastrophic damage to commercial
aircraft. To do so, the FAA contracted with the National Academy of Sciences to
establish a scientifically valid protocol for certification. The FAA also
consulted with a variety of public agencies, including the Federal Bureau of
Investigation and the Central Intelligence Agency. The result of this
collaboration was the establishment of a detection protocol which focuses on (i)
the categories of explosive substances to be detected, (ii) the probability of
detection by explosive category, (iii) the quantity of explosive that must be
detectable, (iv) the number of bags processed per hour, and (v) the maximum
acceptable false alarm rates by explosive. To date only one explosive detection
system, the Company's CTX 5000, has met the requirements of the protocol and has
been certified by the FAA. In order to meet the throughput criteria established
in the FAA protocol, the CTX 5000 was certified with two units operating in
parallel.

25
<PAGE>

IMPLEMENTATION OF MULTI-LEVEL SCREENING PROCESSES. As the capabilities of
EDS technology have evolved and worldwide detection standards have become more
pervasive, certain airports around the world have sought to augment their
detection capabilities by implementing various multi-level screening processes.
To date, two distinct processes have become most prevalent: a system first
implemented by the British Airport Authority (the "BAA Approach"); and a system
endorsed by the FAA (the "FAA Approach"). Prior to the development of certified
detection technology and in recognition of the deficiencies of existing x-ray
technology in providing comprehensive detection, certain European airports
adopted the BAA Approach, which consists of the use of several explosive
detection systems operating in series in order to attempt to increase detection
rates while maintaining throughput rates.

The FAA Approach was developed following the advent of certified detection
technology. Currently, the FAA Approach is comprised of a process of passenger
"profiling" combined with the use of certified EDS equipment for the detection
of explosives in baggage deemed to be high risk. Profiling involves an initial
determination of whether a particular passenger represents a high threat based
on certain decision criteria which are believed to be reasonable predictors of
risk. Based on this determination, a passenger's baggage may undergo a higher
level of investigation, which will in most cases involve the baggage being
screened with the use of certified EDS equipment. In contrast to the BAA
Approach, in which the effectiveness of the entire detection process is
dependent on technologies with greater emphasis on throughput than detection,
the FAA Approach is predicated on the use of high-detection technology and is
focused on the ability to accurately and effectively detect explosives and to
identify individuals believed to pose the greatest threat to civil aviation. The
Company believes that the FAA Approach, as it is currently being implemented at
major airports throughout the United States, will prove to be the more effective
process in reducing the dangers associated with the use of explosives against
civil aviation.

THE GORE COMMISSION. In response to the recent crash of TWA Flight 800 off
Long Island, New York in July 1996, President Clinton formed the White House
Commission on Aviation Safety and Security, chaired by Vice President Gore (the
"Gore Commission"), to review airline and airport security and oversee aviation
safety. The Gore Commission concluded that "the threat against civil aviation is
changing and growing, and that the federal government must lead the fight
against it" and recommended that "the federal government commit greater
resources to improving aviation security." The Gore Commission released its
initial report in September 1996, and in October 1996 the United States enacted
legislation which includes a $144.2 million appropriation for 1997 for the
deployment of explosives detection systems and other advanced security equipment
for use by air carriers and airport authorities. Of this amount, $52.2 million,
or 36.2%, was allocated to the purchase of certified CT technology.

THE INVISION TECHNOLOGY ADVANTAGE

The Company believes that the CTX 5000 is the only EDS presently capable of
reliably detecting all types of explosives designated by the FAA to be a threat
to commercial aviation and that the CTX 5000 is superior to competing systems by
virtue of its advanced detection technology.

The Company's CTX 5000 employs CT technology which was pioneered in the
medical field in the 1970's and enhanced for use in explosive detection by the
Company's engineers in the 1990's. As its principal detection vehicle, the CTX
5000 uses a source of x-rays rotating around an object to create two-dimensional
images of the density distribution of the object's cross section. These
cross-sectional images are commonly known as "slices." The CTX 5000 is capable
of rendering several contiguous slices of an object in order to optimize the
diagnostic sample-sets of an object. The data gathered from the slices is used
to measure the physical characteristics of objects by determining their linear
attenuation coefficients (density), morphology (shape), and granularity
(uniformity). Once measured, each characteristic is automatically compared,
using sophisticated composition algorithms, to a database of characteristics of
compounds used in explosive devices in order to render an initial diagnosis of
the object's threat. If an object is determined to contain the characteristics
of an explosive, additional slices of the object are collected in order to
determine the mass descriminates (quantity) of the threat. At this stage,
potential threats which cannot be cleared automatically by the CTX 5000 are
submitted to an

26
<PAGE>

operator for threat resolution. The operator is also presented with information
regarding the presence of detonators, power sources, proximity charges, metallic
objects and other characteristics of a potential bomb, and the suspicious
objects are highlighted in different colors.

The Company believes that there are three important technical
characteristics which lead to the superiority of the CTX 5000 over systems of
the Company's primary competitors, which are based on dual energy technology.
These characteristics are:

DATA QUALITY AND QUANTITY. Dual energy x-ray systems collect data from one
or two views of an object to determine the atomic number of materials
encountered during the scan. CT technology, with approximately 500 views per
slice, yields more data and is capable of measuring the density of an object.
While explosives have well defined density ranges which are generally distinct
from those of the contents of checked baggage, certain classes of explosives
have atomic numbers which are similar to those of many materials found in
checked baggage. As a result, the CTX 5000 is better able to distinguish between
explosives and the benign contents of checked baggage, resulting in higher
detection and lower false alarm rates.

THREE DIMENSIONAL DATA. CT technology's ability to render three dimensional
data concerning an object also contributes to its superior detection compared to
dual energy x-ray technology. By utilizing these data, CT technology is able to
map characteristics of an object, such as mass and density, regardless of the
object's position in the bag and the superposition of other objects. Dual energy
x-ray systems render only two dimensional data. As a result, if multiple objects
are superimposed over the potential explosive, the system's ability to calculate
the atomic number of the potential explosive is diminished. Given the inherent
limitations of the use of atomic numbers as a parameter for explosive detection,
this diminished capacity with regard to stacked objects is particularly
problematic.

ADVANCED THREAT RESOLUTION. Threat resolution refers to the process
following an alarm of determining whether checked baggage is safe or contains a
threat. Once an alarm occurs, the CTX 5000 presents its operators with images
and threat analysis tools that are unavailable in dual energy systems. For
example, the CTX 5000 simultaneously provides operators with both x-ray images
and CT images on separate screens. These data are cross-referenced with each
other to give the operator an overall image of a suitcase and detailed CT
information relating to the contents, and in particular relating to the
potential threat. In addition to the images, the CTX 5000 provides an abundance
of tools and data, designed to allow operators to determine whether a bag is a
threat requiring further action or is safe to clear to the plane. One of these
tools is the ability to take additional slices to provide more data and focus in
on the threat. In contrast, dual energy x-ray systems display a single x-ray
image of a potential threat and are not capable of providing additional
information to an operator who suspects that an explosive is present.

The Company believes that the strengths of the CTX 5000 with respect to
these three important technical characteristics were central to the CTX 5000
meeting the stringent FAA standards for certification and to gaining operational
acceptance by the commercial aviation industry. In addition, the Company
believes that the limitations of competing technologies with respect to these
important characteristics will limit these technologies' ability to attain the
high detection and low false alarm rates necessary to obtain FAA certification.
However, there can be no assurance that future technological innovations will
not enable these technologies to overcome these limitations. As the only EDS to
be certified by the FAA, the Company believes its CTX 5000 system is well
positioned to be the cornerstone of the advanced explosive detection process
being promoted by the FAA for implementation at airports around the world.

GROWTH STRATEGY

The Company's objective is to be the leading provider of explosive detection
systems worldwide and to extend its technology expertise to address broader
applications for detection. Specific elements of the Company's growth strategy
are to:

27
<PAGE>

ENHANCE TECHNOLOGICAL LEADERSHIP. The Company believes that its
technological capabilities provide it with a significant competitive advantage.
Accordingly, the Company considers research and development to be a vital part
of its operating discipline, and continues to make substantial investments to
enhance the performance, functionality and reliability of its CTX 5000 hardware
and software. Among the Company's priorities in enhancing its technological
capabilities are to increase throughput rates while maintaining certified
detection capability and to increase threat resolution capabilities. In 1996,
the Company spent $4.3 million (or 26.9% of revenues) for research and
development to improve the Company's technology.

EXPAND SALES AND MARKETING CAPABILITIES. The Company believes that its
sales and marketing capability is vital to achieving high levels of market
penetration for its systems. The objectives of the Company's sales force include
promoting broader acceptance for EDS technology worldwide and emphasizing the
importance of high detection rate EDS technology. Because sales cycles for the
CTX 5000 can be lengthy, the Company's sales and marketing efforts are focused
on developing and maintaining close working relationships with key management
personnel at regulatory authorities, airports and airport authorities worldwide.
As the market for certified explosive detection technology expands, the Company
intends to supplement its sales and marketing capability by adding sales
personnel in the U.S. and in Asia, enhancing customer support capabilities in
Europe through the addition of systems integration expertise, and continuing to
educate governmental entities worldwide about the benefits of certified
detection and the advantages of the CTX 5000.

LEVERAGE TECHNOLOGY EXPERTISE TO ENTER NEW MARKETS FOR DETECTION. The
Company believes that installations of advanced automated explosive detection
systems at airports will accelerate the adoption of this technology for
additional aviation applications such as screening of carry-on baggage and
trailer-mounted mobile units for inspections at remote location, as well as for
other security applications, including the detection of drugs, the protection of
government and private facilities, and the screening of mail. Since the amount
of government money spent in drug interdiction efforts far surpasses the amount
spent for the development of EDS technology, the Company believes that drug
detection applications afford significant market opportunities for the
application of the Company's certified detection technology. The Company
believes that its leadership in high detection technology will be a competitive
advantage as these markets develop.

PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS. From time to time the
Company reviews strategic relationship opportunities, including potential
acquisitions, that would complement its existing product offerings, augment its
market coverage, enhance its technological capabilities or otherwise offer
growth opportunities. The Company believes that the CTX 5000 is suited to the
integration of applications which are direct extensions of its strength in
explosive detection technology. Pursuant to this strategy, the Company has
entered a strategic relationship with EG&G Astrophysics for the development of
an explosive detection system based upon a combination of the CTX 5000 as it
currently exists and a pre-scanner based upon EG&G's x-ray scanning technology.
See "--Recent Developments."

PRODUCT DEVELOPMENT

The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources to research
and development to enhance the performance, functionality and reliability of its
CTX 5000 hardware and software. In particular, the Company recognizes the need
to improve certain of its system capabilities, specifically related to
throughput and gantry size, in order to accommodate the breadth of market
potential for EDS technology. At March 1, 1997 the Company had 35 full-time
employees engaged in research and development activities, and also was using the
services of 8 specialized contract employees and consultants in this area.
During the year ended December 31, 1996, the Company spent $4.3 million on
research and development activities, of which $1.5 million was funded by the FAA
under development contracts and grants. In order to fulfill the objectives of
its growth strategy, the Company intends to continue to invest heavily in
product development.

The Company's development efforts under the current FAA research grant are
primarily focused on increasing the speed (throughput) and decreasing the
manufacturing cost of the CTX 5000. The Company is also

28
<PAGE>

developing, in conjunction with the FAA, improvements to the user-interface,
inspection algorithms, and operator on-line testing techniques. See "Risk
Factors--Competition" and "--No Assurance of Continued Certification; Risk of
Certification of Competing Technologies; Risk of Changing Standards."

CUSTOMERS

In order to capitalize on the global opportunity for deployment of explosive
detection technology for civil aviation, the Company focuses on three important
markets: (i) installations at key U.S. airports, (ii) installations at new
airports under construction worldwide and (iii) installations at international
airports.

The following is a list of the airports which are employing the Company's
CTX 5000 technology or have a CTX 5000 on order as of March 1, 1997:

<TABLE>
<CAPTION>
AIRPORT LOCATION OPERATED BY
- ------------------------------------------ ------------------------ -------------------------------
<S> <C> <C>
John F. Kennedy International (2 units) New York, New York El Al Israel and United
Airlines
Hartsfield International (2 units) Atlanta, Georgia Delta Airlines
San Francisco International (1 unit) San Francisco, United Airlines
California
O'Hare International (1 unit) Chicago, Illinois United Airlines
Heathrow International (3 units) (1 UNIT) London, England British Airport Authority
Manchester International (10 units) Manchester, England Manchester Airport
Brussels National (1 unit) Brussels, Belgium Brussels Airport
Charles de Gaulle International (2 units) Roissy, France Direction Generale de
(1 UNIT) L'Aviation Civi le
Orly International (2 UNITS) Paris, France Direction Generale de
L'Aviation Civi le
Narita International (1 unit) Tokyo, Japan A distributor
Ben Gurion International (4 units) Tel Aviv, Israel Israel Airports Authority
Nino Aquino International (2 units) Manila, Philippines Northwest Airlines
Riyadh International (1 UNIT) Riyadh, Saudi Arabia A distributor
</TABLE>

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

ITALICIZED ITEMS DENOTE NUMBER OF UNITS ON ORDER BUT NOT YET SHIPPED.

In December 1996, as an extension of legislation enacted upon the
recommendation of the Gore Commission, the Company received an order for 54 CTX
5000 systems from the FAA. Under the terms of the FAA contract, these units are
to be installed during 1997 at America's busiest airports. As of March 1, 1997,
four of these systems have been installed. For reasons of security, the FAA will
not divulge the deployment schedule or locations of the remaining units at this
time. See "--Recent Developments."

The Company believes that customer service and support are critical to its
success and has committed significant resources to these functions. Accordingly,
the Company provides a high level of customer support to assist in the site
planning, installation and integration of the Company's products into its
customer's facilities in addition to field service for maintaining the
reliability of the Company's products once installed. The Company's service
organization includes customer service engineers, product application
specialists, operator training engineers and technical support engineers. As of
March 1, 1997 the Company had 14 individuals employed in customer service and
support roles. The Company typically hires and trains its own support staff
throughout the world rather than relying on third-party maintenance services. In
addition to providing a one year parts warranty, the Company offers fee-based
primary and back-up service contracts to its customers to provide system
maintenance, ongoing technical support, documentation, training and, under full
service contracts, periodic software releases.

The Company believes that operator qualification and training is as
important to the explosives detection process as the CTX 5000's automated
detection process. In this regard, the Company has developed and

29
<PAGE>

provides in depth operator training and testing as a critical component of each
sale and installation. See "Risk Factors--Limited Field Operations; Dependence
on Operator Performance."

SALES AND MARKETING

The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. As of March 1, 1997, the Company employed a total of eight people
in sales and marketing. In North America, the Company markets its CTX 5000
primarily through direct sales personnel, which as of March 1, 1996 consisted of
three individuals. Internationally, the Company utilizes both a direct sales
force and authorized agents to sell its products. As of March 1, 1997, the
Company had four direct international sales personnel broadly covering Europe,
Asia, and the Middle East and approximately 12 authorized agents representing
the Company in specific countries. In addition, in order to explore
opportunities in Japan, the Company has entered into a distributor agreement
with InVision Japan, a Japanese corporation owned 10% by the Company. For sales
through its authorized agents and distributors, the Company generally is
directly involved in developing proposal documents and negotiating contract
terms. During the fiscal years ended December 31, 1996 and 1995, international
sales represented 76.2% and 89.2%, respectively, of the Company's revenues. See
"Risk Factors--International Business; Fluctuation in Exchange Rates; Risk in
Change in Foreign Regulations."

Support for the direct and indirect sales representatives is provided by
product application specialists who assist in pre- and post-sale support. Such
support includes assistance in designing customer configurations, educating
customers on the system and technology and supporting the implementation and
integration process. In addition, the Company provides its sales representatives
with training, promotional literature, a multi-media presentation, videos and
competitive analysis.

The selling process often involves a team comprised of individuals from
sales, marketing, engineering, customer service and support, and senior
management. The team frequently engages in a multi-level sales effort directed
toward a variety of constituents, including government regulators, the local
airport operator or authority, systems and or conveyor integrators, individual
airlines and airline operating committees. The combination of the high average
selling prices, the time needed for various agencies to secure funding for
systems and the negotiation and execution of actual contracts leads to a typical
sales cycle lasting from six to twelve months, or more, from initial contact
with a customer. Often, local government regulators become involved in the sales
decision process or provide funds for the purchase. For repeat orders from
existing customers, the Company can often expedite the sales cycle by utilizing
existing contracts and contract extensions and thereby avoiding lengthy
procurement processes. See "Risk Factors--Dependence on Large Orders; Customer
Concentrations; Lengthy Sales Cycle" and "--Public Agency Contract and Budget
Considerations."

BACKLOG

The Company measures its backlog of system revenues as orders for which
contracts or purchase orders have been signed, but which have not yet been
shipped and for which revenues have not yet been recognized. The Company
includes in its backlog only those customer orders which are scheduled for
delivery within the next 18 months. The Company typically ships its products
within three to twelve months after receiving an order. However, such shipments
may be impacted by delays which occur in the delivery of components to the
Company or customers' readiness to accept delivery for reasons of site
preparation or otherwise. At March 1, 1997, the Company's system revenues
backlog was approximately $55.0 million, and at March 1, 1996, the Company's
system revenues backlog was approximately $6.5 million.

Substantially all of the Company's backlog as of March 1, 1997 is expected
to be shipped during the current fiscal year. Any failure of the Company to meet
an agreed upon schedule could lead to the cancellation of the related order.
Variations in the size, complexity and delivery requirements of the customer
order may result in substantial fluctuations in backlog from period to period.
The Company believes that it is important for competitive reasons and to better
satisfy customer requirements to reduce order lead times and expects that the

30
<PAGE>

Company's backlog may decrease on a relative basis over time. In addition, all
orders are subject to cancellation or delay by the customer and, accordingly,
there can be no assurance that such backlog will eventually result in revenues.
For these reasons, the Company believes that backlog cannot be considered a
meaningful indicator of the Company's performance on an annual or quarterly
basis.

MANUFACTURING

The Company seeks to focus its manufacturing resources on activities which
emphasize the Company's core competencies and distinctive value. The Company's
manufacturing operations consist primarily of: materials management; assembly,
test and quality control of parts and components subassemblies; and final system
testing. Using the Company's designs and specifications, subcontractors assemble
mechanical and electrical sub-components. The Company performs final assembly
and test of systems, including configuration to customers orders and testing
with current release software, prior to shipment. The Company's manufacturing
organization has expertise in mechanical, electrical, electronic and software
assembly and testing. In addition, because quality and reliability over the life
of the Company's products are vital to customer satisfaction and repeat
purchases, the Company believes its quality assurance program to be a key
component of its business strategy.

The Company generally purchases major contracted assemblies from single
source suppliers in order to ensure high quality, prompt delivery and low cost.
The Company reviews its single source procurements on a case by case basis and
began to qualify second sources for certain contracted assemblies in 1996. The
Company purchases components, materials and electro-mechanical subsystems from
single source suppliers pursuant to purchase orders placed from time to time in
the ordinary course of business and has no guaranteed supply arrangements with
such suppliers. Although to date the Company has not experienced any significant
delays in obtaining any of its single source assemblies, there can be no
assurance that the Company will not face shortages of one or more of these
systems in the future. See "Risk Factors--Dependence on Suppliers."

The Company outsources certain manufacturing processes, including standard
and build-to-print fabricated parts such as mechanical sub-assemblies, sheet
metal fabrication, cables and assembled printed circuit boards. This strategy
enables the Company to leverage product development, manufacturing and
management resources while retaining greater control over product delivery,
final product configuration and timing of new product introductions, all of
which the Company believes are critical to exceeding customer expectations.

The Company is currently producing approximately four systems per month and
has the capacity to accommodate production of over six systems per month in its
current facility. In February 1997, the Company entered into a lease agreement
for a new headquarters and manufacturing facility. The new facility is expected
to be outfitted for occupancy in June 1997. The new facility is expected to have
an initial capacity in excess of 15 systems per month. The Company's plans call
for production levels which may be in excess of its current facility's capacity.
Any delays in the availability of the new facility for the production of CTX
5000 systems could cause delays in shipments of such systems to customers, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Limited Manufacturing
Experience; Management of Growth" and "Business--Facilities."

RECENT DEVELOPMENTS

FAA PROCUREMENT CONTRACT. On December 24, 1996, the FAA awarded a $52.2
million contract to the Company for the purchase of 54 CTX 5000 systems to be
installed at major airports throughout the United States. This contract calls
for all 54 units to be delivered to airports by the end of 1997. In addition,
the government has the option to purchase up to 46 additional systems for 1998,
bringing the total purchase price under such contract, if such option is fully
exercised, to $110.9 million. The FAA may cancel this contract at any time and
for any reason, in which case the FAA would only be obligated to pay for units
delivered and to reimburse the Company for costs incurred and commitments made
by the Company in order to fulfill the contract.

31
<PAGE>

EG&G ASTROPHYSICS. In November 1996, the Company entered into a Research
and Development Agreement with EG&G Astrophysics ("EG&G") whereby an EG&G
affiliate invested $2.0 million in the Company and the parties agreed to attempt
to jointly develop and introduce to the EDS marketplace a system combining the
two companies' products into an automatic, high throughput, high detection
system. The terms of the agreement provide for the parties to equally fund and
jointly own the technology developed in the development program. Either party
may terminate the agreement for cause, or may terminate the agreement without
cause (which in certain cases would result in a penalty) on 60 days' notice.
This agreement terminates in May 1998. This alliance targets the furtherance of
the Company's strategy to increase throughput and provide a better solution than
multi-level detection systems currently in use in certain airports in the United
Kingdom and Asia which, the Company believes, represent a significant compromise
in detection and increase the cost and complexity of the baggage handling
system. There can be no assurance that the Company and EG&G will be able to
develop such an EDS in a cost-effective manner or at all.

COMPETITION

The market for explosive detection systems is intensely competitive and is
characterized by continuously developing technology and frequent introductions
of new products and features. The Company expects competition to increase as
other companies introduce additional and more competitive products in the EDS
market and as the Company develops additional capabilities and enhancements for
the CTX 5000 and new applications for its certified technology. Historically,
the principal competitors in the market for explosive detection systems have
been InVision, Vivid Technologies, Inc., EG&G Astrophysics, Thermedics Detection
Inc., and Barringer Technologies Inc. Each of these competitors provides EDS
solutions and products for use in the inspection of checked luggage, although to
date only the Company's CTX 5000 has been certified by the FAA. The Company is
aware of certain major corporations competing in other markets that intend to
enter the EDS market. In particular, in January 1996 Lockheed Martin Corporation
received a grant in the amount of approximately $8.7 million from the FAA for
the design and development of a CT-based EDS over a two-year period.
Announcements of currently planned or other new products may cause customers to
delay their purchasing decisions for EDS products, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Each of the Company's competitors may have substantially greater
financial resources than the Company. There can be no assurance that the Company
will be able to compete successfully with its competitors or with new entrants
to the EDS market.

32
<PAGE>

otherwise successfully compete in the EDS market for any of the above reasons
would have a material adverse effect on the Company's business, financial
condition and results of operations.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

33
<PAGE>

may be necessary to enforce patents issued to or licensed exclusively to the
Company and protect trade secrets or know-how owned or licensed by the Company
and, whether or not the Company is successful in defending such intellectual
property, the Company could incur significant costs and divert considerable
management and key technician time and effort with respect to the prosecution of
such litigation, either of which by itself could have a material adverse effect
on the business, financial condition and results of operations of the Company.

The Company also holds an exclusive, royalty-free, worldwide license from
Imatron (obtained in connection with the formation of the Company) under
Imatron's patents and know-how to develop, manufacture and sell (a) systems for
the inspection of mail, freight, parcels and baggage, and (b) compact medical
scanner products for military field applications. The Company, in exchange,
granted to Imatron an exclusive, royalty-free, worldwide license under the
Company's patent or future patents and know-how to permit Imatron to utilize
such technology in medical scanner products (other than compact medical scanner
products for military field applications). Imatron is a manufacturer of medical
scanning systems and holds a portfolio of CT patents.

While the Company believes that its intellectual property rights are
valuable, the Company also believes that because of the rapid pace of
technological change in the industry, factors such as innovative skills,
technical expertise, the ability to adapt quickly to new technologies and
evolving customer requirements, product support, and customer relations are of
greater competitive significance.

EMPLOYEES

As of March 1, 1997, the Company employed 127 people, of whom 35 were
primarily engaged in research and development activities, 22 in marketing and
sales, customer support and field service, 23 in manufacturing and 20 in
administration and finance. In addition, the Company utilized the services of 27
full-time consultants and temporary employees in 1996. Management believes that
the Company's relationship with its employees is good.

FACILITIES

The Company's principal administrative, marketing, development and
manufacturing facility is located in Foster City, California and consists of
approximately 27,000 square feet under a lease which expires in October 1998.
The Company has an option to extend the lease for one year. The base rent under
this lease is approximately $300,000 per year. In March, 1997 the Company
entered into a lease for new principal corporate offices and manufacturing
facilities in Newark, California, which consists of approximately 95,000 square
feet under a lease which expires in May 2007. The Company has an option to
extend the lease for five years. The initial base rent under this lease is
approximately $672,000 per year. The Company anticipates relocating to this new
facility upon completion of tenant improvements, currently scheduled for June
1997. Management believes that the new facilities will be sufficient to satisfy
the Company's administrative and manufacturing needs for the foreseeable future.

The Company's manufacturing facility is currently producing approximately
four systems per month and has the capacity to accommodate production of over
six systems per month. The new facility is expected to have a capacity in excess
of 15 systems per month before the implementation of activities for
manufacturing cycle time reduction and multiple shifts.

LEGAL PROCEEDINGS

From time to time, the Company may be involved in litigation, including
litigation relating to claims arising out of its operations in the normal course
of business. As of the date of this Prospectus, the Company is not a party to
any legal proceedings, the adverse outcome of which, in management's opinion,
individually or in aggregate would have a material adverse effect on the
Company's business, financial condition or results of operations.

34
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following sets forth certain information regarding the Company's
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
Dr. Sergio Magistri........... 44 President, Chief Executive Officer and Director
Sauveur Chemouni.............. 42 Vice President, Engineering
Curtis P. DiSibio............. 40 Vice President and Chief Financial Officer
David M. Pillor............... 42 Senior Vice President, Sales and Marketing
Dr. Fredrick L. Roder......... 49 Vice President, Federal Systems
Dr. Benno Stebler............. 44 Vice President, Manufacturing
Stephen Wolff................. 38 Vice President, Marketing & Product Development
Dr. Douglas P. Boyd(1)(2)..... 55 Director
Dr. Giovanni Lanzara(2)....... 57 Chairman of the Board
Dr. Bruno Trezza(1)........... 60 Director
</TABLE>

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

(1) Member of Audit Committee

(2) Member of Compensation Committee

DR. SERGIO MAGISTRI has served as President, Chief Executive Officer and
Director of the Company since December 1992. From June 1991 to November 1992, he
was a Project Manager with AGIE, Switzerland, a manufacturer of high precision
tooling equipment, responsible for all aspects of a family of new products for
high precision electro-erosion machining with sub-micron precision. From 1988 to
June 1991, Dr. Magistri was a consultant to high technology companies, including
FI.M.A.I. Holding, S.A. As a consultant to FI.M.A.I., Dr. Magistri was involved
in the formation of the Company and the development of its business plan and of
its technology. From 1983 to 1988, Dr. Magistri held various positions with
Imatron, Inc. ("Imatron"), a CT medical scanner company, including as an
Engineering Physicist and Manager of Advanced Reconstruction Systems, and
Director of Computer Engineering at Imatron. Dr. Magistri holds a degree in
Electrical Engineering and a doctorate in Biomedical Engineering from the Swiss
Institute of Technology, Zurich, Switzerland.

SAUVEUR CHEMOUNI joined the Company in 1990 as Manager and served from
January 1994 to September 1995 as Director of Engineering. He has served as Vice
President of Engineering since September 1995. From 1988 to 1990, he was with
Imatron, where he was instrumental in the development of the Company's original
EDS capability. From 1983 to 1988, he was the owner of a computer graphics
company. Mr. Chemouni holds a degree in physics and a Masters degree in Computer
Sciences from Supelec, Paris, France.

CURTIS P. DISIBIO has served as Vice President, Finance and Administration
of the Company since April 1991 and Chief Financial Officer since March 1993.
From 1980 to 1986, Mr. DiSibio worked in public accounting. In 1986 Mr. DiSibio
served as controller of Trilogy Systems Corporation ("Trilogy"), a development
stage mainframe computer company, and was involved in the sale of Trilogy's
operations to Digital Equipment Corporation. From 1987 to 1990, Mr. DiSibio held
various positions including Treasurer and Chief Financial Officer of ELXSI
Corporation, a publicly traded mini-super computer company which Trilogy had
acquired. Mr. DiSibio received a Masters degree in Business Administration
degree from Santa Clara University.

DAVID M. PILLOR joined the Company in July 1994 as Vice President, Sales and
Marketing, and has served as Senior Vice President, Sales and Marketing since
November 1995. From 1988 to July 1994, Mr. Pillor held various positions
including Area Sales Manager, National Sales Manager and Vice President of Sales
of Technomed International, a medical products company. Mr. Pillor holds a
Bachelor of Science degree in Chemistry from the University of Maryland.

DR. FREDRICK L. RODER has served as Vice President, Federal Systems, of the
Company since January 1997, following the acquisition of Imatron Federal
Systems, Inc. ("IFS") by the Company. From June 1991 to

35
<PAGE>

December 1996, he served as President of IFS and as Prime Contractor and
Principal Investigator on FAA research and development contracts. From 1986
until 1991, he served as Director, New Product Development, of Imatron. He holds
a Bachelor of Science degree in Physics from City College of New York, a Masters
degree in Physics from Yeshiva University and a doctorate in Nuclear Science and
Engineering from Catholic University of America.

DR. BENNO STEBLER joined the Company in May 1991 as Vice President,
Engineering, and has served as Vice President, Manufacturing, of the Company
since September 1995. From 1989 to 1991, Dr. Stebler served as Staff Engineer at
Toshiba America, a consumer electronics company. From 1986 to 1989, Dr. Stebler
served in various positions at Imatron including Software Manager of the Compact
Medical Scanner, a predecessor to the CTX 5000. Dr. Stebler holds a diploma of
Electrical Engineering and a doctorate in Biomedical Engineering from the Swiss
Institute of Technology, Zurich, Switzerland.

STEPHEN WOLFF joined the Company in 1990 first as Manager and then as
Director, Marketing & Product Development, and has served as Vice President,
Marketing & Product Development, of the Company since October 1995. From 1981 to
1990, Mr. Wolff held various positions at Science Applications International,
Corp., a government research contractor, including Project Coordinator for
development of a Prototype Thermal Neutron Analysis explosive detection system.
Mr. Wolff was also principal investigator for an FAA sponsored testing program
for weapons detection technology. Mr. Wolff holds a Bachelor of Science degree
in Chemical Engineering from Imperial College, London, England and a Masters
degree in Chemical Engineering from Stanford University.

DR. DOUGLAS P. BOYD served as a Director of the Company from September 1990
to December 1992, and since June 1993. Dr. Boyd was a founder of Imatron in 1981
and has held various positions at Imatron, and currently serves as its Chairman
of the Board and Chief Technology Officer. Dr. Boyd is an Adjunct Professor of
Radiology at the University of California, San Francisco.

DR. GIOVANNI LANZARA has served as a Director of the Company since September
1990 and as Chairman of the Board since March 1994. Since 1978, he has served as
a professor and President of the Transportation Engineering Department at the
University of Aquila, Rome, Italy. Dr. Lanzara has been President of the
International Center for Transportation Studies since 1987. Dr. Lanzara served
as director of Imatron from August 1993 to June 1996.

DR. BRUNO TREZZA has served as a Director of the Company since November
1993. Since 1974, he has served as a professor of economics at the University
"La Sapienza" in Rome, Italy. From 1980 to 1981, Dr. Trezza served as an
economic advisor to the Italian Prime Minister. From 1974 to 1983, he served as
a member of the Committee for Economic Planning of the Italian Ministry of
Planning. He has served as a director of several private companies and public
institutions in Italy.

The Board of Directors has set the size of the Board at five directors.
Since there are currently only four elected directors, a vacancy exists which
may be filled at the Board's discretion. Directors serve until the next annual
meeting of shareholders and until their successors are elected. Executive
officers serve at the discretion of the Board of Directors. See "--Employment
Agreements."

The Board of Directors has an Audit Committee and a Compensation Committee.
The functions of the Audit Committee include recommending to the Board the
retention of independent auditors, reviewing the scope of the annual audit
undertaken by the Company's independent auditors and the progress and results of
their work, and reviewing the financial statements of the Company and its
internal accounting and auditing procedures. The functions of the Compensation
Committee include reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain officers of the Company,
administering the Company's employee stock option plans, and considering such
other matters as may, from time to time, be delegated to the Compensation
Committee by the Board of Directors.

36
<PAGE>

Non-employee directors currently receive $1,200 per day in cash compensation
for their services as members of the Board of Directors and are reimbursed for
expenses incurred in connection with the performance of services as directors.
In addition, non-employee directors of the Company currently receive $1,200 per
day for each day of consulting services rendered to the Company not in
connection with their services as directors.

Aggregate consulting fees earned by directors of the Company were $136,280
in 1994, $115,800 in 1995 and $263,600 in 1996. During these years Giovanni
Lanzara (who earned $100,000 in 1994, $71,400 in 1995 and $117,600 in 1996) and
Bruno Trezza (who earned $104,400 in 1996) were the only individual directors
who earned consulting fees in excess of $60,000 in any individual calendar year.

EXECUTIVE COMPENSATION

The following table sets forth certain compensation earned by the Company's
Chief Executive Officer and the Company's other four most highly compensated
executive officers whose salary and bonus for the year ended December 31, 1996
exceeded $100,000 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES ALL
----------------------------------- UNDERLYING OTHER
NAME FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------------------------------- ----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Dr. Sergio Magistri................................ 1996 $ 136,666 $ -- -- $ --
President and Chief Executive Officer 1995 131,982(1) -- 63,272 10,000(1)
Curtis P. DiSibio.................................. 1996 111,250 34,750 -- --
Chief Financial Officer 1995 109,000 18,790 39,326 --
David M. Pillor.................................... 1996 110,000 117,603(2) -- --
Senior Vice President, Sales & Marketing 1995 100,000 117,790(2) 154,186 --
Dr. Benno Stebler.................................. 1996 116,000 37,876 -- --
Vice President, Manufacturing 1995 114,000 19,206 43,798 --
Sauveur Chemouni................................... 1996 104,478 33,000 -- --
Vice President, Engineering 1995 100,000 -- 51,848 --
</TABLE>

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

(1) Represents relocation expenses.

(2) Includes commission payments of $97,603 in 1996 and $70,790 in 1995; amount
in 1995 includes $47,000 related to orders received in 1994.

The Company has a policy of granting certain cash incentive awards to its
senior management based upon the achievement of certain performance goals. The
specific performance goals are determined by the Company's Board of Directors
and are designed to fairly reward senior management for significant positive
contributions to the Company.

RECENT OPTION GRANTS

The Company did not grant any stock options to its Named Executive Officers
during fiscal 1996.

OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

During the last fiscal year no options were exercised by the Named Executive
Officers. The following table sets forth information with respect to the number
of securities underlying unexercised options held by the

37
<PAGE>

Named Executive Officers as of December 31, 1996 and the value of unexercised
in-the-money options as of December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Dr. Sergio Magistri.................. 139,732 81,714 $ 2,221,726 $ 1,298,338
Curtis P. DiSibio.................... 50,788 14,895 $ 799,669 $ 230,146
David M. Pillor...................... 125,530 49,829 $ 1,969,076 $ 774,679
Dr. Benno Stebler.................... 58,004 15,054 $ 913,573 $ 231,831
Sauveur Chemouni..................... 45,590 20,092 $ 711,690 $ 309,416
</TABLE>

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

(1) Based on a per share price of $16.50, the closing price of the Common Stock
as reported on The Nasdaq SmallCap Market, minus the exercise price of the
option, multiplied by the number of shares underlying the option.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messrs. Magistri,
DiSibio, Pillor and Stebler which provide for salaries and other employment
terms. The agreements with Messrs. Magistri, DiSibio, Pillor and Stebler each
provide that if the Company terminates the employee's employment without cause,
the employee is entitled to a severance payment equal to his annual base salary
for six months. All of the employment agreements are terminable at the will of
either the employee or the Company, with or without cause. In each case,
termination by the employee requires two months notice to the Company.

401(K) PLAN

In January 1992, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering all of the Company's employees.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the annual limit prescribed by statute ($9,500 in 1996)
and contribute the amount of such reduction to the 401(k) Plan. The 401(k) Plan
does not provide for additional matching contributions to the 401(k) Plan by the
Company. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in numerous investment
options. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by employees to the 401(k) Plan, and
income earned on plan contributions, are not taxable until withdrawn, and so
that the contributions by employees will be deductible by the Company when made.

STOCK OPTION PLANS

EQUITY INCENTIVE PLAN

The Company's 1991 Stock Option Plan was adopted by the Board of Directors
and approved by the shareholders in May 1991. In March 1996, the 1991 Stock
Option Plan was amended and restated as the Equity Incentive Plan (the "Equity
Plan"). In December 1996 the Board of Directors approved an amendment to the
Equity Plan, subject to stockholder approval, increasing the number of shares
available thereunder by 640,000 shares. A total of 2,221,818 shares of Common
Stock have been reserved for issuance under the Equity Plan. The Equity Plan
provides for grants of incentive stock options, nonstatutory stock options,
stock bonuses, rights to purchase restricted stock, and stock appreciation
rights (collectively "Stock Awards") to employees (including officers and
employee directors) and consultants of the Company and its affiliates. The
Equity Plan is presently being administered by the Board of Directors, which
determines optionees and the terms of options granted, including the exercise
price, number of shares subject to the option and the exercisability thereof.

The terms of options granted under the Equity Plan generally may not exceed
ten years from the date of grant. Options granted under the Equity Plan to date
have been at the discretion of the Board and have typically

38
<PAGE>
vested at the rate of 25% of the shares subject to option at the end of the
first anniversary of the date of grant and 1/16th of such shares at the end of
each quarter thereafter. No incentive stock option may be transferred by the
optionee other than by will or the laws of descent or distribution. Incentive
stock options shall be exercisable during the lifetime of the person to whom the
option is granted only by such person. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the 30-day period
following such cessation (unless such options terminate or expire sooner by
their terms) or in such longer period determined by the Board of Directors.

Shares subject to Stock Awards (other than stock appreciation rights)
granted under the Equity Plan which have lapsed or terminated may again be
subject to Stock Awards granted under the Equity Plan. The Board of Directors
has the authority to effect, with the consent of affected holders, the
cancellation of outstanding Stock Awards under the Equity Plan in return for the
grant of new Stock Awards for the same or different number of Stock Awards with
an exercise price per share of 85%, 100% or, under certain circumstances, 110%
of fair market value of the Common Stock on the new grant date, with the shares
subject to the outstanding Stock Awards again becoming available for grant under
the Equity Plan. Upon any merger or consolidation in which the Company is not
the surviving corporation, all outstanding Stock Awards shall either be assumed
by the surviving entity or continue in full force and effect. If any surviving
entity refuses to assume or continue such Stock Awards or substitute similar
Stock Awards then such Stock Awards shall be terminated if not exercised prior
to such event.

As of December 31, 1996, approximately 246,000 shares of Common Stock had
been issued upon the exercise of options granted under the Equity Plan, options
to purchase approximately 1,141,000 shares of Common Stock at a weighted average
exercise price of $1.92 per share were outstanding and approximately 835,000
shares remained available for future option grants. The Equity Plan will
terminate on May 2, 2001 unless sooner terminated by the Board of Directors. To
date, no stock bonuses, restricted stock, or stock appreciation rights have been
granted under the Equity Plan.

1996 EMPLOYEE STOCK PURCHASE PLAN

In March 1996, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 300,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code. Under the Purchase
Plan, the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.

Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors for at least 20
hours per week and are employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year. Employees
who participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the Common Stock on specified dates determined by the Board of
Directors. The price of Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period except as provided in the terms of the offering, and
participation ends automatically on termination of employment with the Company.

In the event of certain transactions by which the Company is acquired or
becomes controlled by a single investor or group of investors, the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
if any, or the Board may shorten the offering period and provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to such transaction. The Purchase Plan will terminate in March 2006 unless
earlier terminated by the Board of Directors. The Board has the authority to
amend or terminate the Purchase Plan, subject to the limitation that no such
action may adversely affect any outstanding rights to purchase Common Stock. No
shares have been issued under the Purchase Plan in 1996.

39
<PAGE>
CERTAIN TRANSACTIONS

In connection with the formation of the Company, the Company issued 195,455
shares of Series A Preferred Stock to FI.M.A.I. in consideration for $650,000 in
cash and $1,500,000 in cancellation of indebtedness to Imatron and 195,455
shares of Series A Preferred Stock to Imatron in consideration for $250,000 in
cash and Imatron's licensing of certain technology to Imatron Industrial
Products, Inc., a joint venture between Imatron and FI.M.A.I., pursuant to the
Technology License Agreement, dated as of September 11, 1990 between the Company
and Imatron, Inc. (the "Technology Agreement"). In addition, in connection with
the formation of the Company, FI.M.A.I. entered into a Manufacturing and
Distribution Agreement dated as of September 11, 1990 (the "Distribution
Agreement") with which agreement appointed FI.M.A.I. as the exclusive
manufacturer, purchaser and distributor for the CTX 5000 in Europe. FI.M.A.I.
transferred its rights under the Distribution Agreement to ElectroParts and
HARAX in April 1995 in connection with the transfer from FI.M.A.I. to HARAX and
ElectroParts of FI.M.A.I.'s equity interest in the Company. In June 1995, the
Company issued 56,818 shares of Series D Preferred Stock to ElectroParts, S.A.
and 170,455 shares of Series D Preferred Stock to HARAX in exchange for the
cancellation of the Company's obligations under the Distribution Agreement.
FI.M.A.I.'s entire equity interest in the Company was transferred to
ElectroParts and HARAX who are affiliated with FI.M.A.I.

In July 1991, the Company entered into a Standby Financing Agreement with
FI.M.A.I. (the "Standby Financing") pursuant to which FI.M.A.I. agreed to
provide an equity investment in the Company of up to $3,000,000 and to guarantee
a line of credit for the Company of up to $3,000,000. From July 1991 to April
1994, FI.M.A.I. guaranteed approximately $3,000,000 in bank indebtedness and
purchased 151,515 shares of Series C Preferred Stock at a purchase price of
$19.80 per share or an aggregate of $3,000,000. In June 1994, the Company issued
802,957 shares of Series D Preferred Stock to FI.M.A.I. at a purchase price of
$3.74 per share or an aggregate purchase price of $3,000,000. The funds received
from the sale of the Series D Preferred Stock were used to pay down $3,000,000
of the Company's then current $5,300,000 outstanding under its line of credit
and to terminate FI.M.A.I.'s guarantee with respect to such amount. The Series D
Preferred Stock was issued to FI.M.A.I. on the same terms offered to all
investors in the Company's Series D Preferred Stock.

From July 1993 to November 1994, the Company borrowed approximately
$2,325,000 from HARAX at an interest rate of prime plus 1%. In May 1995, the
Company issued 649,434 shares of Series D Preferred Stock to HARAX at a purchase
price of $3.74 per share in exchange for the cancellation by HARAX of the
principal amount and interest of such indebtedness, or an aggregate purchase
price of $2,428,882.

HARAX and ElectroParts are participation holding companies that are
affiliated with FI.M.A.I. HARAX currently holds approximately 35.2% of the
outstanding equity of the Company. ElectroParts currently holds 5.9% of the
outstanding equity of the Company.

HARAX is controlled by Eugenio Rendo, who is a major stockholder of the
Company. Mr. Rendo is a senior executive of the Italimprese Group, a large,
privately-held conglomerate based in Italy. Mr. Rendo, like a number of other
senior executives of Italian corporations in recent years, has been charged in
Italy with bribery of public officials in connection with obtaining public
sector contracts. Mr. Rendo denies such allegations and is vigorously defending
himself in such matter. In particular, Mr. Rendo asserts that the payments made
by him which have been called into question were lawful contributions to a
political party and he denies that any favor or other improper benefit was
received in exchange. The proceedings with respect to such charges have been
relocated from Milan, Italy to Rome, Italy. No hearing or trial date has been
set with respect to such charges. Under Italian law, two trials must be held
before a conviction is obtained.

On October 13, 1994, the Company issued 3,818 shares of Series D Preferred
Stock to Louis Turpen in consideration of services previously rendered by Mr.
Turpen. Mr. Turpen served as a director of the Company from December 1992 until
June 1995.

40
<PAGE>
On November 11, 1994, the Company issued 5,455 shares of Series D Preferred
Stock to Lucio Lanza in consideration of services previously rendered by Mr.
Lanza. Mr. Lanza acted as Chairman of the Board of the Company from December
1992 until November 1993.

In October 1994, Dr. Sergio Magistri loaned the Company $50,000 for working
capital. In June 1995 the Company issued 13,368 shares of Series D Preferred
Stock to Dr. Sergio Magistri in exchange for the cancellation by Dr. Magistri of
such indebtedness.

In August 1996, Anaconda, the successor to Anaconda Partners, L.P.,
exercised Warrants to purchase 420,454 shares of Common Stock at an exercise
price of $4.40 per share and 58,864 shares of Common Stock at an exercise price
of $5.50 per share. The original Warrants were issued to Anaconda in connection
with a certain Bridge Loan and Security Agreement, dated as of December 28,
1995, entered into between the Company and Anaconda Partners, L.P. Also in
August 1996, LEO exercised a Warrant to purchase 34,090 shares of Common Stock
at an exercise price of $4.40 per share and 4,772 shares of Common Stock at an
exercise price of $5.50 per share. Such warrant was originally issued to
Anaconda Partners, L.P. and was subsequently transferred to LEO. In connection
with the Warrant issuance the Company agreed to register the offer and sale of
shares issuable upon exercise of the Warrants. In June 1996, the Company
registered the resale of such shares pursuant to a registration statement, which
registration statement is being amended hereby. This Prospectus covers the
shares issued to Anaconda. LEO sold its shares in August 1996.

On December 31, 1996, the Company issued 32,000 shares of Common Stock to
Fredrick L. Roder in consideration of all of the outstanding common voting stock
of Imatron Federal Systems, Inc.

The Company believes that the foregoing transactions were in its best
interests and were on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.

41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of February 15, 1997, and as adjusted to
reflect the sale of Common Stock offered hereby, by: (i) each person (or group
of affiliated persons) known by the Company to beneficially own 5% or more of
the Common Stock, including the Selling Stockholder; (ii) each director of the
Company; (iii) each Named Executive Officer; and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated below,
to the knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common stock, except to the
extent authority is shared by spouses under applicable law. The information set
forth in the table and accompanying footnotes has been furnished by the named
beneficial owners.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)
------------------------ BEING ------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ----------------------------------------------------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
HARAX Holding, S.A.(2)............................... 3,226,180 35.2% 0 3,226,180 35.2%
Eugenio Rendo(3)..................................... 3,226,180 35.2 0 3,226,180 35.2
ElectroParts S.A.(4)................................. 540,642 5.9 0 540,642 5.9
Mario Rendo(4)....................................... 540,642 5.9 0 540,642 5.9
HAKON Holdings, S.A.(5).............................. 485,474 5.3 0 485,474 5.3
Anaconda Opportunity Fund (6)........................ 479,318 5.2 479,318 0 0
Dr. Sergio Magistri(7)............................... 242,736 2.6 0 242,736 2.6
Sauveur Chemouni(8).................................. 53,632 * 0 53,632 *
Curtis P. DiSibio(9)................................. 56,974 * 0 56,974 *
David M. Pillor(10).................................. 141,873 1.5 0 141,873 1.5
Dr. Benno Stebler(11)................................ 64,429 * 0 64,429 *
Dr. Douglas P. Boyd(12).............................. 62,533 * 0 62,533 *
Dr. Giovanni Lanzara(13)............................. 534,421 5.8 0 534,421 5.8
Dr. Bruno Trezza(14)................................. 531,086 5.8 0 531,086 5.8
All directors and executive officers as a group (10
persons)(15)....................................... 1,756,359 17.8 0 1,756,359 17.8
</TABLE>

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

* Less than 1% of the outstanding Common Stock.

(1) Applicable percentage of ownership at February 15, 1997 and after this
Offering is based upon 9,169,185 shares of Common Stock outstanding.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes sole or shared voting or
investment power with respect to shares shown as beneficially owned. Shares
of Common Stock subject to options currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage ownership
of the person holding such options, but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) The business address for the named stockholder is 231, Val des Bons
Malades, Luxembourg-Kirchberg, Luxembourg L-2121.

(3) The business address for the named individual is Via de Notaris No. 3
Pairoli, Rome, Italy 00161. Consists solely of 3,226,180 shares held by
HARAX. Eugenio Rendo is the controlling stockholder of HARAX and is deemed
to beneficially own such shares.

(4) The business address for the named stockholder is 12 Avenue de la Liberte,
L-190 Luxembourg. Consists solely of 540,642 shares held by ElectroParts.
Mario Rendo is the controlling stockholder of ElectroParts and is deemed to
beneficially own such shares.

(5) The business address for the named stockholder is 2 Boulevard Royal,
Luxembourg.

(6) The business address for the named stockholder is c/o Anaconda Capital
Management, LLC, 730 Fifth Avenue, 15th Floor, New York, NY 10019.

(7) Includes 216,000 shares issuable pursuant to options exercisable within 60
days of February 15, 1997.

(8) Represents 53,632 shares issuable pursuant to options exercisable within 60
days of February 15, 1997.

(9) Represents 56,974 shares issuable pursuant to options exercisable within 60
days of February 15, 1997.

(10) Represents 141,873 shares issuable pursuant to option exercisable within 60
days of February 15, 1997.

42
<PAGE>

(11) Includes 400 shares held by Dr. Stebler's wife and 64,029 shares issuable
pursuant to options exercisable within 60 days of February 15, 1997.

(12) Includes 54,442 shares issuable pursuant to options exercisable within 60
days February 15, 1997.

(13) Includes 441,888 shares held by PASTEC Holdings, S.A. Giovanni Lanzara is
the controlling stockholder of PASTEC. Also includes 34,090 shares issuable
pursuant to options exercisable within 60 days February 15, 1997.

(14) Includes 485,474 shares held by HAKON Holdings, S.A. Bruno Trezza is the
controlling stockholder of HAKON. Also includes 45,612 shares issuable
pursuant to options exercisable within 60 days February 15, 1997.

(15) Includes 927,362 shares held by entities affiliated with certain directors
of the Company as described in footnotes 14 and 15 above and 703,327 shares
subject to options exercisable within 60 days February 15, 1997.

43
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.001, and 5,000,000 shares of Preferred Stock, par
value $0.001. As of March 1, 1997, 9,171,926 shares of Common Stock were
outstanding, held of record by 176 stockholders. No shares of Preferred Stock
are currently outstanding.

The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Amended Bylaws is a summary and is qualified in its entirety by the
provisions of the Amended and Restated Certificate of Incorporation (the
"Certificate") and Bylaws (the "Bylaws"), which have been filed as exhibits to
the Company's Registration Statement, of which this Prospectus is a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors and, as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone.

Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation and may have the effect of delaying,
deferring or preventing a change in control of the Company, which could have a
depressive effect on the market price of the Company's Common Stock. The Company
has no present plan to issue any shares of Preferred Stock.

WARRANTS

In connection with the Company's initial public offering, the Company issued
to Donald & Co. Securities, Inc. a warrant (the "Warrant") to purchase 180,000
shares of Common Stock at an exercise price of $6.60 per share. Such warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassification and consolidations and will become exercisable on April 23,
1997 and will expire on April 22, 2001.

44
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

Shareholders rights and related matters are governed by the Delaware General
Corporation Law, (the "Delaware Laws") and the Company's Certificate and Bylaws.

LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Certificate
contains certain provisions permitted under Delaware Law relating to the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law, or (iv) for any transaction from which the director derives an
improper personal benefit. These provisions do not limit or eliminate the rights
of the Company or any stockholder to seek non-monetary relief, such as an
injunction or rescission, in the event of a breach of director's fiduciary duty.
These provisions will not alter a director's liability under federal securities
laws. The Company's Certificate also contains provisions indemnifying the
directors and officers of the Company to the fullest extent permitted by
Delaware Law. The Company believes that these provisions will assist the Company
in attracting and retaining qualified individuals to serve as directors.

CERTAIN ANTI-TAKEOVER PROVISIONS. The Company is subject to the provisions
of Section 203 of the Delaware Laws, an anti-takeover law. In general, the
statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.

The foregoing provisions of the Delaware Law as well as the right of the
Board of Directors to designate the features of, and issue shares of, Preferred
Stock without a shareholder vote, and the staggered election of the Board of
Directors may tend to discourage attempts by third parties to acquire any
substantial ownership position in the Common Stock and may adversely affect the
price that such a potential purchaser would be willing to pay for the Common
Stock.

DIRECTORS-NUMBER, VACANCIES, REMOVAL AND NOMINATION. Pursuant to the
Certificate, the number of directors is determined by resolutions adopted by the
Board, which currently consists of four members. The authorized number of
directors is currently five. The Certificate provides that each director will
serve for a three-year term and that approximately one-third of the directors
are to be elected annually. Candidates for directors shall be nominated only by
the Board of Directors or by a stockholder who gives written notice to the
Company at least 20 days before the annual meeting. Between stockholder
meetings, the Board may appoint new directors to fill vacancies or newly created
directorships. The Certificate does not provide for cumulative voting at
stockholder meetings for election of directors. Stockholders controlling more
than 50% of the outstanding Common Stock can elect the entire Board of
Directors, while stockholders controlling 49% of the outstanding Common Stock
may not be able to elect any directors. A director may be removed from office
only for cause by the affirmative vote of a majority of the combined voting
power of the then outstanding shares of stock entitled to vote generally in the
election of directors. See "Management--Directors and Executive Officers."

RESTRICTIONS ON SPECIAL MEETINGS. The Company's Certificate requires that
any action required or permitted to be taken by stockholders of the Company must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Under the Bylaws, special meetings of
the shareholders may be called only by the President, the Chairman of the Board,
a majority of the directors, or the holders of record of 10% or more of the
Company's outstanding shares of stock entitled to vote at such meeting.

45
<PAGE>

This provision may impede a shareholder who wishes to require the Company to
call a special meeting of shareholders to consider any proposed corporate
action.

TRANSFER AGENT

The transfer agent for the Common Stock of the Company is Continental Stock
Transfer & Trust Company.

REGISTRATION RIGHTS

The holders of 397,388 shares of Common Stock and a warrant to purchase up
to 180,000 shares of Common Stock (collectively, the "Registrable Securities")
or their transferees, have certain rights with respect to the registration of
such shares under the Securities Act.

46
<PAGE>

PLAN OF DISTRIBUTION

The shares of Common Stock offered by the Selling Stockholder may be sold
from time to time to purchasers directly by the Selling Stockholder acting as
principal for its own account in one or more transactions at a fixed price,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Alternatively, the Selling Stockholder may from time to time
offer the Common Stock through underwriters, dealers or agents who may receive
compensation in the form of underwriting discounts, commissions or concessions
from the Selling Stockholder and/or the purchasers of shares for whom they may
act as agent. In addition, the shares of Common Stock may be pledged from time
to time by the Selling Stockholder to a lender to secure one or more loans, and
defaults under that loan or loans may result in the pledgee acquiring title to
some or all of the shares and selling them either directly or through
underwriters, dealers or agents. Sales may be made on The Nasdaq SmallCap Market
the Nasdaq National Market System (if the Company's application for listing
thereon in connection with the Proposed Underwritten Offering is approved) or in
private transactions.

In connection with the Proposed Underwritten Public Offering, the Selling
Stockholder, as well as each executive officer and director of the Company and
certain other securityholders of the Company, have agreed for a period of 120
days from the date of the Prospectus for the Proposed Underwritten Public
Offering (the "Lock-Up Period") not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock, or any securities convertible into or exchangeable for shares of Common
Stock, now owned or hereafter acquired directly by such holders or with respect
to which such holders have or hereinafter acquire the power of disposition
without the prior written consent of the lead underwriter, Robertson, Stephens &
Company LLC, which may, in its sole discretion and at any time or from time to
time, without notice, release all or any portion of the shares subject to the
lock-up agreements.

At the Selling Stockholder's request, Robertson, Stephens & Company LLC has
agreed to permit the Selling Stockholder to pledge some or all of the shares of
Common Stock to Bear Stearns Securities Corp. to secure a margin loan which loan
may be outstanding during the Lock-Up Period. In the event of a margin call or
default under this loan, Bear Stearns Securities Corp. could acquire title to
some or all these pledged shares and would be entitled to sell them to satisfy
the Selling Stockholder's obligation to it.

The Selling Stockholder and any underwriters, dealers, agents or pledgees
that participate in the distribution of the Common Stock offered hereby may be
deemed to be underwriters within the meaning of the Act and any discounts,
commissions or concessions received by them and any provided pursuant to the
sale of shares by them might be deemed to be underwriting discounts and
commissions under the Act.

In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.

Pursuant to an agreement with the Selling Stockholder, the Company will pay
substantially all of the expenses incident to the offering and sale to the
public of the Common Stock offered hereby, other than commissions, concessions
and discounts of underwriters, dealers or agents. Such expenses (excluding such
commissions and discounts) are estimated to be approximately $120,000.

In connection with the Proposed Underwritten Offering, certain underwriters
and selling group members (if any) who are qualified market makers on The Nasdaq
Stock Market may engage in passive market making transactions in the Common
Stock on The Nasdaq Stock Market in accordance with Rule 103 of Regulation M
under the Securities Exchange Act of 1934, as amended, during the business day
prior to the pricing of the Proposed Underwritten Offering before the
commencement of offers of sales of the Common Stock. Passive market makers must
comply with applicable volume and price limitations and must be identified as
such. In general, a passive market maker must display its bid at a price not in
excess of the highest independent bid for

47
<PAGE>

such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, Palo Alto, California.

EXPERTS

The consolidated financial statements as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and the regulations of
the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements, and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copies at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048; and 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, or from the Commission's Internet web site at http://www.sec.gov. In
addition, such materials also may be inspected and copied at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.

48
<PAGE>

INVISION TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2

Consolidated Balance Sheets as of December 31, 1995 and 1996............................................... F-3

Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996................. F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996................. F-5

Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and
1996..................................................................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

InVision Technologies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders' equity
(deficit) present fairly, in all material respects, the financial position of
InVision Technologies, Inc. and its subsidiary at December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

San Jose, California
February 20, 1997

F-2
<PAGE>
INVISION TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................................... $ 1,927 $ 2,363
Accounts receivable...................................................................... 735 5,987
Inventories.............................................................................. 3,413 4,810
Prepaid expenses......................................................................... 252 292
--------- ---------
Total current assets................................................................. 6,327 13,452
Property and equipment, net................................................................ 914 1,804
Other assets............................................................................... 75 --
--------- ---------
$ 7,316 $ 15,256
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable......................................................................... $ 3,035 $ 2,541
Accrued liabilities...................................................................... 1,217 1,020
Short-term debt.......................................................................... 2,260 --
Advances from stockholders............................................................... 200 --
Deferred revenue......................................................................... 3,082 2,443
Current maturities of obligations under capital lease.................................... 10 68
--------- ---------
Total current liabilities............................................................ 9,804 6,072
--------- ---------

Long-term obligations under capital lease, less current portion............................ 34 110
--------- ---------
Commitments (Notes 9, 11 and 12)

Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value; 5,000 shares authorized; 2,619 shares and
none issued and outstanding............................................................ 12,212 --
Preferred stock, $0.001 par value; 5,000 shares authorized; none issued and
outstanding............................................................................ -- --
Common stock, $0.001 par value; 20,000 shares authorized; 124 and 9,160 shares issued and
outstanding............................................................................ -- 9
Additional paid-in capital............................................................... 1,885 28,919
Deferred stock compensation expense...................................................... (692) (355)
Accumulated deficit...................................................................... (15,927) (19,499)
--------- ---------
Total stockholders' equity (deficit)................................................. (2,522) 9,074
--------- ---------
$ 7,316 $ 15,256
--------- ---------
--------- ---------
</TABLE>

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

F-3
<PAGE>
INVISION TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues.......................................................................... $ -- $ 9,066 $ 15,841
Cost of revenues.................................................................. -- 6,777 9,736
--------- --------- ---------
Gross profit.................................................................... -- 2,289 6,105
--------- --------- ---------

Operating expenses:
Research and development........................................................ 1,582 1,940 2,785
Sales and marketing............................................................. 664 1,866 2,976
General and administrative...................................................... 1,078 1,471 2,577
--------- --------- ---------
Total operating expenses...................................................... 3,324 5,277 8,338
--------- --------- ---------
Loss from operations.............................................................. (3,324) (2,988) (2,233)
Interest expense (including related party interest expense of
$90; $104; and $54)............................................................. (410) (338) (1,511)
Other income, net................................................................. 7 34 172
--------- --------- ---------

Net loss.......................................................................... $ (3,727) $ (3,292) $ (3,572)
--------- --------- ---------
--------- --------- ---------

Net loss per share (Note 2)....................................................... $ (0.50) $ (0.44)
--------- ---------
--------- ---------
Shares used in per share calculations (Note 2).................................... 6,642 8,142
</TABLE>

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

F-4
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (3,727) $ (3,292) $ (3,572)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................. 255 239 371
Amortization of bridge loan warrant expense................................... -- -- 1,330
Stock compensation expense.................................................... -- 369 489
Changes in assets and liabilities:
Accounts receivable......................................................... 163 (611) (5,252)
Inventories................................................................. (939) (1,887) (1,397)
Prepaid expenses............................................................ -- -- (34)
Other assets................................................................ (29) (135) --
Accounts payable............................................................ 618 2,219 (522)
Accrued liabilities......................................................... 121 915 (202)
Deferred revenues........................................................... 2,948 134 (639)
--------- --------- ---------
Net cash used in operating activities..................................... (590) (2,049) (9,428)
--------- --------- ---------

Cash flows from investing activities:
Acquisition of property and equipment........................................... (117) (590) (1,074)
--------- --------- ---------

Cash flows from financing activities:
Proceeds from short-term debt................................................... 2,250 1,000 1,000
Repayments of short-term debt................................................... -- -- (4,200)
Proceeds from capital lease financing........................................... -- 53 169
Repayments of capital lease financing........................................... -- (9) (35)
Proceeds from issuance of preferred stock....................................... 464 1,244 --
Proceeds from issuance of common stock, net..................................... 22 37 14,004
--------- --------- ---------
Net cash provided by financing activities................................... 2,736 2,325 10,938
--------- --------- ---------

Net increase (decrease) in cash for the period.................................... 2,029 (314) 436
Cash at beginning of period....................................................... 212 2,241 1,927
--------- --------- ---------
Cash at end of period............................................................. $ 2,241 $ 1,927 $ 2,363
--------- --------- ---------
--------- --------- ---------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................................................... $ 319 $ 220 $ 233
--------- --------- ---------
--------- --------- ---------

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of common stock upon conversion of preferred stock..................... $ -- $ -- $ 12,212
Issuance of Series D preferred stock upon the conversion of short-term debt and
accrued interest.............................................................. $ 3,000 $ 2,604 $ --
Warrants issued in connection with bridge loan financing........................ $ -- $ 740 $ 590
Issuance of common stock in connection with acquisition of subsidiary........... $ -- $ -- $ 85
</TABLE>

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

F-5
<PAGE>
INVISION TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
CONVERTIBLE DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
-------------------- ---------------------- PAID-IN COMPENSATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL EXPENSE DEFICIT
--------- --------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 586 $ 4,900 32 $ -- $ 25 $ -- $ (8,908)
Issuance of Series D preferred
stock........................... 926 3,464 -- -- -- -- --
Exercise of common stock
options......................... -- -- 26 -- 22 -- --
Net loss.......................... -- -- -- -- -- -- (3,727)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1994...... 1,512 8,364 58 -- 47 -- (12,635)
Issuance of Series D preferred
stock........................... 789 2,948 -- -- -- -- --
Issuance of Series D preferred
stock to stockholders for
distribution rights............. 227 -- -- -- -- -- --
Issuance of Series E preferred
stock........................... 91 900 -- -- -- -- --
Deferred stock compensation....... -- -- -- -- 1,061 (1,061) --
Amortization of deferred stock
compensation.................... -- -- -- -- -- 369 --
Issuance of warrant............... -- -- -- -- 740 -- --
Exercise of common stock
options......................... -- -- 66 -- 37 -- --
Net loss.......................... -- -- -- -- -- -- (3,292)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1995...... 2,619 12,212 124 -- 1,885 (692) (15,927)

Issuance of common stock pursuant
to initial public offering, net
of expenses..................... -- -- 2,070 2 9,530 -- --
Conversion of preferred stock to
common stock upon completion of
initial public offering......... (2,619) (12,212) 6,106 6 12,206 -- --
Deferred stock compensation....... -- -- -- -- 152 (152) --
Amortization of deferred stock
compensation.................... -- -- -- -- -- 489 --
Issuance of warrant............... -- -- -- -- 590 -- --
Exercise of common stock
options......................... -- -- 122 -- 84 -- --
Exercise of common stock
warrants........................ -- -- 518 1 2,318 -- --
Issuance of common stock pursuant
to EG&G agreement............... -- -- 184 -- 1,974 -- --
Issuances of common stock
primarily pursuant to
acquisition of subsidiary....... -- -- 36 -- 180 -- --
Net loss.......................... -- -- -- -- -- -- (3,572)
--------- --------- --------- --- ----------- ------------- ------------
Balance at December 31, 1996...... -- $ -- 9,160 $ 9 $ 28,919 $ (355) $ (19,499)
--------- --------- --------- --- ----------- ------------- ------------
--------- --------- --------- --- ----------- ------------- ------------

<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31, 1993...... $ (3,983)
Issuance of Series D preferred
stock........................... 3,464
Exercise of common stock
options......................... 22
Net loss.......................... (3,727)
-------------
Balance at December 31, 1994...... (4,224)
Issuance of Series D preferred
stock........................... 2,948
Issuance of Series D preferred
stock to stockholders for
distribution rights............. --
Issuance of Series E preferred
stock........................... 900
Deferred stock compensation....... --
Amortization of deferred stock
compensation.................... 369
Issuance of warrant............... 740
Exercise of common stock
options......................... 37
Net loss.......................... (3,292)
-------------
Balance at December 31, 1995...... (2,522)
Issuance of common stock pursuant
to initial public offering, net
of expenses..................... 9,532
Conversion of preferred stock to
common stock upon completion of
initial public offering......... --
Deferred stock compensation....... --
Amortization of deferred stock
compensation.................... 489
Issuance of warrant............... 590
Exercise of common stock
options......................... 84
Exercise of common stock
warrants........................ 2,319
Issuance of common stock pursuant
to EG&G agreement............... 1,974
Issuances of common stock
primarily pursuant to
acquisition of subsidiary....... 180
Net loss.......................... (3,572)
-------------
Balance at December 31, 1996...... $ 9,074
-------------
-------------
</TABLE>

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

F-6
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--THE COMPANY:

InVision Technologies, Inc. ("InVision," or the "Company") is the worldwide
leader in explosive detection technology. The Company develops, manufactures,
markets and supports an explosive detection system ("EDS") for civil aviation
security based on advanced computed tomography ("CT" or "CATScan" technology).

Formed in 1990, InVision exited the development stage in 1995 upon the first
commercial sales of its product, the CTX 5000 explosive detection system. The
CTX 5000 is sold to airport and regulatory authorities and airlines throughout
the world.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiary, Imatron Federal Systems, Inc.,
acquired in December 1996. All significant intercompany transactions and
accounts have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

STOCK SPLIT

Share information for all periods presented has been retroactively adjusted
to reflect a 1-for-11 reverse stock split of Common Stock and Preferred Stock
effected on March 15, 1996, and a 2-for-1 Common Stock dividend effected on
February 7, 1997.

REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment unless extended
acceptance criteria exist, in which case revenue is recognized upon completion
of such acceptance criteria. Provision for estimated installation, training and
warranty costs is recorded at the time revenue is recognized.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which range from one to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of their useful lives or the terms of
the leases.

In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Accordingly, the Company evaluates the recoverability
of its assets when events and changes in circumstances indicate that such
amounts may not be recoverable. The Company determines the recoverability of the
carrying amount of each intangible asset by reviewing the following factors: the
undiscounted value of expected operating cash flows in relation to its net
capital investment, the estimated useful or contractual life of the intangible
asset, the contract or product supporting the intangible asset, and in the case
of purchased technology, the Company periodically reviews the

F-7
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

recoverability of the asset value by evaluating its products with respect to
technological advances, competitive products and the long-lived asset impairment
losses.

DEFERRED REVENUE

Deferred revenue arises from advance payments received from customers for
systems to be delivered within the next year.

INCOME TAXES

The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to operations as incurred.
Contractually reimbursable costs for certain research and development activities
are reflected as a reduction to research and development expense in the period
the related costs are incurred (Note 4).

SOFTWARE DEVELOPMENT COSTS

To date, the period between achieving technological feasibility and the
general availability of software included in the Company's product has been
short and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.

STOCK COMPENSATION

The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation" (see Note 8).

EXPORT SALES AND CONCENTRATION OF CREDIT RISK

The Company markets its systems both internationally and domestically.
Product sales by geographic region are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Europe (primarily United Kingdom)......................................... $ 6,578 $ 7,488
United States............................................................. 975 3,766
Pacific Rim............................................................... 863 2,062
Middle East............................................................... 650 2,525
--------- ---------
$ 9,066 $ 15,841
--------- ---------
--------- ---------
</TABLE>

F-8
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company limits the amount of credit exposure of cash balances by maintaining
its accounts in a high credit quality financial institution. Except for the
Federal Aviation Administration contract (see Note 3), the Company's standard
credit policy requires prepayment of up to 50% prior to shipment on all sales.
To date, the Company has not experienced any material credit losses and
accordingly has not recorded an allowance for doubtful accounts at December 31,
1995 or 1996. The Company's revenues are denominated in U.S. dollars. At
December 31, 1996, two customers accounted for 59% and 18% of total accounts
receivable. Significant customers which represented 10% or more of revenues for
the respective periods were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Customer A...................................................... 51% 22%
Customer B...................................................... 12% --
Customer C...................................................... 11% --
Customer D...................................................... -- 13%
Customer E...................................................... -- 12%
Customer F...................................................... -- 12%
Customer G...................................................... -- 16%
Customer H...................................................... -- 13%
</TABLE>

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of Common
Stock and common equivalent shares, when dilutive, from stock options and
warrants (using the treasury stock method). Pursuant to Securities and Exchange
Commission Staff Accounting Bulletins, Common Stock and common equivalent shares
issued by the Company during the 12-month period prior to the Company's initial
public offering consisting of convertible preferred stock (using the
if-converted method), and stock options and warrants (using the treasury stock
method) have been included in the calculation as if they were outstanding for
all periods prior to and including March 31, 1996, even though their effect is
antidilutive. Historical net loss per share amounts have not been presented in
1994 because such amounts are not deemed meaningful due to the significant
changes in the Company's capital structure that occurred in connection with the
initial public offering.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to be consistent with the
1996 presentation.

NOTE 3--FEDERAL AVIATION ADMINISTRATION (FAA) CONTRACT:

In December 1996, the Company entered into a contract with the Federal
Aviation Administration ("FAA" and the "FAA Contract") to deliver fifty-four
(54) CTX 5000 systems to various airports in the United States beginning in
January and ending in December 1997. The minimum amount due from the FAA under
this contract, including all related products and associated installation and
support services, is $52.2 million. The Company will invoice and collect
progress payments while systems are being manufactured in an amount equal to 80%
of manufacturing costs incurred. The balance will be invoiced and collected
after delivery and installation of each system.

F-9
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--FEDERAL AVIATION ADMINISTRATION (FAA) CONTRACT: (CONTINUED)

The number of systems deliverable under the FAA contract during 1997 exceeds
the total number of systems manufactured by the Company to date. The Company has
determined that its existing manufacturing facilities are inadequate to meet its
obligation to deliver 54 systems under the FAA Contract and, accordingly, has
entered into a lease agreement for new primary operating facilities including
new manufacturing facilities (see Note 12). The Company believes that these new
facilities will be adequate to meet its current delivery obligations.

NOTE 4--RESEARCH AND DEVELOPMENT CONTRACTS:

The Company has been awarded various research and development contracts and
grants by the FAA to share in the costs of developing and enhancing the
Company's product. During 1994, 1995 and 1996, the Company was entitled to
reimbursements of $821,000, $593,000 and $1,476,000, respectively, under these
contracts and grants. Such reimbursements have been reflected as a reduction to
research and development expense in each period presented. Billings are rendered
to the FAA monthly on the basis of actual costs incurred. At December 1995 and
1996, the related receivable balance from the FAA was $17,000 and $331,000,
respectively.

NOTE 5--BALANCE SHEET COMPONENTS (IN THOUSANDS):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accounts receivable:
Billed.................................................................. $ 388 $ 5,026
Unbilled................................................................ 347 961
--------- ---------
$ 735 $ 5,987
--------- ---------
--------- ---------

Inventories:
Raw material and purchased components................................... $ 1,853 $ 3,003
Work-in-process......................................................... 779 1,331
Finished goods.......................................................... 781 476
--------- ---------
$ 3,413 $ 4,810
--------- ---------
--------- ---------

Property and equipment:
Machinery and equipment................................................. $ 868 $ 1,400
Self constructed assets................................................. 606 1,140
Furniture and fixtures.................................................. 71 160
Leasehold improvements.................................................. 73 145
--------- ---------
1,618 2,845
Less accumulated depreciation and amortization.......................... (704) (1,041)
--------- ---------
$ 914 $ 1,804
--------- ---------
--------- ---------
</TABLE>

Self-constructed assets are manufactured by the Company for use in system
testing and support, and include the cost of parts and materials, and an
overhead allocation. The Company depreciates self-constructed assets over their
respective estimated useful lives which range from three to five years.

F-10
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--BALANCE SHEET COMPONENTS (IN THOUSANDS): (CONTINUED)

At December 31, 1995 and 1996 the Company had $53,000 and $222,000,
respectively, of capitalized lease equipment and related accumulated
amortization of $6,000 and $39,000, respectively.

<TABLE>
<S> <C> <C>
Accrued liabilities:
Warranty reserves........................................ $ 695 $ 645
Accrued employee compensation............................ 327 311
Other.................................................... 195 64
--------- ---------
$ 1,217 $ 1,020
--------- ---------
--------- ---------
</TABLE>

NOTE 6--SHORT-TERM DEBT:

At December 31, 1995, $2,000,000 of short-term debt was outstanding
representing all of the funds available under a line of credit agreement with a
bank. Interest accrued under the line of credit agreement at a rate of prime
plus 1%. The rate in effect at December 31, 1995 was 9.75%. All amounts
outstanding under this line of credit agreement were repaid in May 1996, and the
line of credit agreement was subsequently terminated.

In December 1995, the Company entered into a $2,000,000 Bridge Loan
Agreement (the "Bridge Loan") with a lender. Under the agreement, the Company
borrowed $1,000,000 in December 1995, and an additional $1,000,000 in February
1996. Principal outstanding under the agreement was secured by all assets of the
Company. The Bridge Loan was repaid in full on May 1, 1996, in accordance with
its terms.

In connection with the Bridge Loan, the lender received the Bridge Loan
Warrants described in Note 7, below. The aggregate fair value of the Bridge Loan
Warrants, as determined at their respective dates of issuance, was $1,330,000.
Such value represents a discount that was amortized as a financing cost over the
period that the Bridge Loan was outstanding.

At December 31, 1995, certain of the Company's stockholders had advanced
$200,000 directly to the Company. Interest accrued at prime plus 1%. This
advance was repaid in December 1996.

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT):

COMMON STOCK

In November 1996, the Company issued 183,750 shares of unregistered Common
Stock to EG&G International Ltd. at $10.88 per share, reflecting a 10% discount
from the market price of the Company's Common Stock in connection with the
signing of a Research, Development and License Agreement (Note 11). Net proceeds
totaled $1,974,000. These shares will be registered at the request of the
shareholder upon the earlier of a public offering by the Company resulting in
net proceeds of at least $10,000,000 or November 1997.

In April 1996, the Company issued 1,800,000 shares of Common Stock at $5.50
per share in conjunction with the Company's initial public offering ("IPO").
Proceeds to the Company, net of discounts, commissions and offering expenses,
totaled $8,211,000. In May 1996, the underwriters exercised their over-allotment
option to purchase 270,000 additional shares of Common Stock for total net
proceeds to the Company of $1,321,000. Proceeds from the IPO were used primarily
to repay short term debt, reduce outstanding accounts payable and to provide
working capital for the Company.

F-11
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)

In connection with the Company's IPO, Donald & Co. Securities Inc., the
underwriter, received, under the terms of the underwriting agreement, four-year
warrants to purchase 180,000 shares of the Company's Common Stock at a price of
$6.60 per share commencing April 23, 1997.

PREFERRED STOCK

In conjunction with the Company's IPO, all outstanding Convertible Preferred
Stock converted to Common Stock. As of December 31, 1996, there were 5,000,000
shares of Preferred Stock authorized and no shares were issued and outstanding.
The Board of Directors is authorized to issue Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, and number of
shares constituting any series or the designation of such series, without
further action or vote by the Company's stockholders.

WARRANTS

In connection with the Bridge Loan, the company issued three-year warrants
to purchase 63,636 and 227,272 shares of Common Stock in 1995 at $5.50 and $4.40
per share, respectively, and 227,272 shares of Common Stock at $4.40 per share
in 1996. The Bridge Loan warrants were exercised in full at various times during
the month of August 1996, with the Company receiving net proceeds from the
exercise of $2,319,000.

NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS:

1996 EQUITY INCENTIVE PLAN

In March 1996, the Board of Directors approved the amended and restated 1991
Stock Option Plan, which was renamed the 1996 Equity Incentive Plan. The 1996
Equity Incentive Plan provides for the granting of incentive stock options and
non qualified stock options for the purchase of up to an aggregate of 2,221,818
shares of the Company's common stock by officers, employees, consultants and
directors of the Company. The Board of Directors is responsible for
administration of the 1996 Equity Incentive Plan. The Board of Directors
determines the term of each option, option exercise price, number of shares for
which each option is granted and the rate at which each option is exercisable.
Options granted under the 1996 Equity Incentive Plan generally vest over a four
year period.

Incentive and non qualified stock options may be granted at an exercise
price per share of not less than 85% of the fair value per common share on the
date of the grant (not less than 110% of the fair value in the case of holders
of more than 10% of the Company's voting stock). Options granted under the 1996
Equity Incentive Plan generally expire ten years from the date of the grant
(five years for incentive stock options granted to holders of more than 10% of
the Company's voting stock).

F-12
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)

In December 1994, the Company repriced all outstanding options in order to
reconstitute the option pool as a result of the dilutive effect on common stock
of the issuance of Series D Preferred Stock during the year. The outstanding
options were cancelled and new options were issued at an exercise price of $0.55
per share, which represented the fair value of common stock as determined by the
Board of Directors. Cumulative vesting percentages applicable to the cancelled
options were given to the regranted options.

In connection with grants of stock options to employees and directors in
1995 and 1996, the Company recorded $1,061,000 and $152,000, respectively, of
deferred compensation representing the difference between the deemed fair value
of the Company's Common Stock and the exercise price at the date of grant. Of
such amounts, $369,000 and $489,000 were recorded to expense in 1995 and 1996,
respectively. The remaining $355,000 is being amortized over the remaining
vesting period of the related options.

Transactions under the 1996 Equity Incentive Plan are summarized as follows
(in thousands except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period.................... 234 $ 1.23 383 $ 0.57 1,190 $ 0.82
Granted............................................. 402 0.63 896 0.92 150 9.13
Exercised........................................... (26) 0.61 (66) 0.55 (122) 0.69
Canceled............................................ (227) 1.36 (23) 0.96 (77) 0.85
--- ----- ---------
Outstanding at period end............................. 383 0.57 1,190 0.82 1,141 1.92
--- ----- ---------
--- ----- ---------
Options exercisable at period end..................... 202 0.58 384 0.56 643 0.80
--- ----- ---------
--- ----- ---------
Weighted average grant date fair value of such options
granted during the year.............................. $ 4.04
---------
---------
Weighted average grant date fair value of options
granted during the year at exercise prices below
market prices........................................ $ --
---------
---------
</TABLE>

F-13
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)

The following table summarizes information about employee and director stock
options outstanding at December 31, 1996 (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ----------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------------------------------------------------- ------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$0.55................................................ 479 7.9 $ 0.55 356 $ 0.55
$1.10................................................ 512 8.8 1.10 287 1.10
$3.30................................................ 9 9.0 3.30 -- --
$4.40................................................ 15 9.2 4.40 -- --
$5.50................................................ 28 9.4 5.54 -- --
$10.50............................................... 7 9.8 10,50 -- --
$11.25............................................... 41 10.0 11.25 -- --
$11.88............................................... 50 9.9 11.88 -- --
--
-----
1,141 8.5 1.92 643 0.80
--
--
-----
-----
</TABLE>

FAIR VALUE DISCLOSURES

Had compensation cost for options granted in 1995 and 1996 under the
Company's 1996 Equity Incentive Plan been determined based on the fair value at
the grant dates, as prescribed in FAS 123, the Company's net loss and pro forma
net loss per share would have been as follows (in thousands except per share
amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net loss:
As reported.......................................................... $ (3,292) $ (3,572)
Pro forma............................................................ (3,330) (3,665)
Pro forma net loss per share:
As reported.......................................................... $ (0.50) $ (0.44)
Pro forma............................................................ (0.50) (0.47)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.89% to 6.00% for options granted during the year ended
December 31, 1995 and 5.19% to 6.38% for options granted during the year ended
December 31, 1996; weighted average expected option term of five years for both
periods; and a volatility rate of 65%.

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in March 1996. A total of 300,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of December 31, 1996, no
shares have been issued under the Purchase Plan.

F-14
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--COMMITMENTS:

The Company leases facilities and equipment under non-cancelable leases
expiring at various times through 2000. Future minimum lease payments under
these leases at December 31, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASE LEASE
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997................................................................. $ 370 $ 89
1998................................................................ 286 89
1999................................................................ -- 37
--- ---
$ 656 215
---
---
Less amount representing interest................................... (37)
---
Present value of capital lease obligation........................... 178
Less current portion................................................ (68)
---
Long term capital lease obligation................................ $ 110
---
---
</TABLE>

Rent expense for 1994, 1995 and 1996 was $252,000, and $289,000 and
$328,000, respectively.

NOTE 10--INCOME TAXES:

As a result of the losses generated during 1994, 1995 and 1996 the Company
has recorded no provision for income taxes and therefore a reconciliation of the
federal statutory rate to the effective rate is not meaningful.

Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards....................................... $ 2,810 $ 4,256
Credit carryforwards................................................... 750 877
Depreciation and amortization.......................................... 31 (103)
Accrued expenses....................................................... 380 490
Other.................................................................. 199 60
--------- ---------
Gross deferred tax assets.............................................. 4,170 5,580
Deferred tax asset valuation allowance................................. (4,170) (5,580)
--------- ---------
Net deferred tax assets................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>

The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based upon currently available evidence including its
prior history of losses, that some portion or all of the deferred tax assets
will not be realized.

At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $10,969,000 available to reduce future federal
and state taxable income. The Company's net operating loss carryforwards expire
from 2005 to 2011. The tax benefit of the net operating loss and credit
carryforwards may be limited due to the impact of the Tax Reform Act of 1986.
Events which may cause the tax benefit to be limited include, but are not
limited to, a cumulative stock ownership change of more than 50%, as defined,
over a three-

F-15
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--INCOME TAXES: (CONTINUED)

year period and the timing of utilization of various tax benefits carried
forward. As a result of changes in ownership that have occurred, future
utilization of certain of the Company's carryforwards will be limited to
approximately $500,000 per year. Accordingly, the balance of net operating loss
carryforwards at December 31, 1996 has been adjusted to reflect the limitation.

NOTE 11--RELATED PARTY TRANSACTIONS:

In November 1996, the Company entered into a Research, Development and
License Agreement with EG&G Astrophysics, an affiliate of EG&G International
Ltd. Under the terms of this agreement, the Company and EG&G Astrophysics are
each committed to contribute up to $1,000,000 to fund a joint research and
development effort to develop an explosive detection system with enhanced
capability for reliable detection of explosives at higher rates of through-put
than the Company's existing system. Any new technology developed in connection
with the research and development effort will be jointly owned. The agreement
terminates in May 1998. As of December 31, 1996, the Company has made no
expenditures related to its commitment under this agreement.

The Company was originally formed as a joint venture arrangement between
Imatron, Inc. ("Imatron", a publicly traded company in the U.S.) and F.I.M.A.I.
Holding, S.A. ("FIMAI", a Luxembourg corporation). In connection with the
formation of the Company, the Company and FIMAI entered into a Manufacturing and
Distribution Agreement (the "Distribution Agreement") which appointed FIMAI as
the exclusive manufacturer, purchaser and distributor for the Company's CTX 5000
systems in Europe. At December 31, 1994, the Company had obtained a temporary
consent from FIMAI for the Company to manufacture and sell the CTX 5000 in
Europe. In April 1995, FIMAI transferred all of its shares of the Company to
HARAX Holding, S.A. ("HARAX," a Luxembourg Corporation) and ElectroParts
Holding, S.A. ("ElectroParts," a Luxembourg Corporation). Both Harax and
ElectroParts have significant common ownership with FIMAI. As a consequence of
the transfer of ownership, FIMAI's rights under the Distribution Agreement were
transferred to HARAX and ElectroParts.

In June 1995, the Company issued 58,818 and 170,455 shares of Series D
Preferred Stock to ElectroParts and HARAX, respectively, in exchange for the
cancellation of the Distribution Agreement. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 48, this transaction is valued at zero,
the historical cost basis of the Distribution Agreement to ElectroParts and
HARAX.

During 1995 and 1996, the Company paid $116,000 and $264,000, respectively
to certain of the Company's directors for professional and/or consulting
services. In May 1995, the Company issued 649,434 shares of Series D Preferred
Stock to HARAX in satisfaction of $2,429,000 of indebtedness. In June 1995, the
Company issued 13,368 shares of Series D Preferred Stock to an officer of the
Company in satisfaction of $50,000 in indebtedness.

NOTE 12--SUBSEQUENT EVENTS:

The Board of Directors has authorized the Company to file a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933 to sell Common Stock of the Company in a public offering.

F-16
<PAGE>
INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS: (CONTINUED)

NEW FACILITY LEASE

In February 1997, the Company entered into a new lease for its future
primary operating facility. The Company plans to relocate to the new facility in
mid- 1997 upon the completion of tenant improvement construction. The lease
covers an initial ten year term and includes a five year renewal option. The
initial rental rate of $672,000 per year increases annually to $1,326,000 in
year ten. The Company plans to sub-lease its current primary operating
facilities subsequent to its relocation. Based on current market rental rates
for similar facilities, the Company estimates that sub-lease rental rates will
not be less than the Company's existing rental rate for the remainder of the
lease term.

LINE OF CREDIT

In February 1997, the Company entered into two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings generally in an amount up to the lower of 80% of eligible
domestic accounts receivable or $4.5 million. Borrowings under this agreement
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% at
December 31, 1996). The second agreement is partially guaranteed by the
Export-Import Bank of the United States and provides for maximum borrowings
generally in an amount up to the lower of the sum of 90% of eligible export
accounts receivable plus 70% of eligible raw materials and work-in-process
inventory designated for export customers or $4.5 million. Borrowings under this
agreement generally bear interest at the bank's prime rate plus 0.75% per annum
(9.00% at December 31, 1996). Borrowings under both agreements are secured by
all of the Company's assets. The agreements require that the Company maintain
certain financial ratios and levels of tangible net worth and profitability and
also prohibit the Company from paying cash dividends. Proceeds of loans under
both lines of credit may be used for general corporate purposes.

F-17
<PAGE>
[INVISION LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Common Stock being registered. All the amounts
are estimates except for the registration fee and the Nasdaq listing fee.

<TABLE>
<S> <C>
Registration fee.................................................. $ 1,161
Nasdaq listing fee................................................ 2,591
Printing and engraving expenses................................... 40,000
Legal fees and expenses........................................... 32,000
Accounting fees and expenses...................................... 40,000
Miscellaneous..................................................... 4,248
---------
Total......................................................... $ 120,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and agents to the fullest extent
permitted by Delaware law.

The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since January 1994, the Registrant has sold and issued the following
unregistered securities:

(1) In January 1994 the Company issued 50,505 shares of Series C
Preferred Stock to FI.M.A.I. in exchange for the cancellation by FI.M.A.I.
of indebtedness totalling $1,000,000.

(2) In June 1995, the Company issued 56,818 shares of Series D
Preferred Stock to ElectroParts and 170,454 shares of Series D Preferred
Stock to HARAX in exchange for the cancellation of exclusive manufacturing
and distribution rights in Europe.

(3) In June 1994, the Company issued 917,015 shares of Series D
Preferred Stock to an aggregate of 11 investors at a purchase price of $3.74
per share or an aggregate purchase price of $3,429,636.

(4) In May 1995, the Company issued 741,502 shares of Series D
Preferred Stock to an aggregate of 10 investors at a purchase price of $3.74
per share or an aggregate purchase price of $2,773,217.

(5) On October 13, 1994, the Company issued 3,818 shares of Series D
Preferred Stock to Louis Turpen pursuant to a termination agreement with Mr.
Turpen.

II-1
<PAGE>
(6) On November 11, 1994, the Company issued 5,455 shares of Series D
Preferred Stock to Lucio Lanza pursuant to a termination agreement with Mr.
Lanza.

(7) On June 10, 1995 the Company issued 13,368 shares of Series D
Preferred Stock to Dr. Sergio Magistri in exchange for the cancellation by
Dr. Magistri of $50,000 in indebtedness.

(8) In August 1995, the Company issued 33,636 shares of Series D
Preferred Stock to ElectroParts Holding, S.A. at a purchase price of $3.74
per share or an aggregate purchase price of $125,800.

(9) On December 28, 1995, the Company issued a Warrant to Anaconda to
purchase an aggregate of 518,180 shares of Common Stock, 454,544 of which
were exercisable at a price of $4.40 per share and 63,636 of which were
exercisable at a price of $5.50 per share.

(10) On December 29, 1995 the Company issued 90,909 shares of Series E
Preferred Stock to Kay's Corporation at a price of $9.90 per share.

(11) In April 1996, Anaconda transferred a portion of the Warrant
originally issued to Anaconda in December 1995, to LEO. The Company canceled
the original Warrant issued to Anaconda in the amount of 518,180 shares and
issued two new warrants to Anaconda and LEO for 479,318 shares and 38,862
shares, respectively. Both Anaconda and LEO exercised their respective
warrants in August 1996.

(12) On July 1, 1996, the Company issued 4,546 shares of Common Stock to
Scot Land in consideration of a three-way release among himself, the Company
and the Italimprese Group.

(13) On November 12, 1996, the Company issued 183,750 shares of Common
Stock to EG&G International, Ltd. at a price of $10.88 per share.

(14) On December 31, 1996, the Company issued 32,000 shares of Common
Stock to Fredrick L. Roder in consideration of all of the outstanding common
voting stock of Imatron Federal Systems, Inc.

The sales and issuances of securities described in paragraphs 1 through 14
above were made to "Accredited Investors" as such term is defined under Rule 501
of the Securities Act and were therefore deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and Rule 506 of the
Securities Act.

Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following is a list of exhibits filed as a part of this
Registration Statement:

3.2+ Bylaws of Registrant.

4.1 Reference is made to Exhibits 3.1 and 3.2.

4.2+ Representative's Warrant Agreement.

5.1 Opinion of Cooley Godward LLP.

10.1+ Technology License Agreement, dated September 11, 1990, by and between the Registrant and Imatron, Inc.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.2+ Stockholders Agreement for the Formation of the Registrant, dated as of August 13, 1990, between
Imatron and FI.M.A.I and Amendment, dated as of September 7, 1990, as amended by the Termination
Agreement, dated as of December 9, 1992 among the Registrant, FI.M.A.I and Imatron.

10.3+ Lease, dated as of May 20, 1992, as amended May 4, 1995, between the Registrant and BVY Group.

10.4+ Registrant's Equity Incentive Plan, dated March 9, 1996.

10.5+ Registrant's 1996 Employee Stock Purchase Plan, dated March 9, 1996.

10.6+ Warrant to Purchase Stock pursuant to the Bridge Loan Financing Agreement, dated as of December 28,
1995, by and between the Registrant and Anacondona Partners, L.P.

10.7+ Standby Financing Agreement, dated as of July 26, 1991, by and between the Company and FI.M.A.I.

10.8+ Investor Rights Agreement, dated as of December 29, 1995, by and between the Registrant and Kay's
Corporation.

10.9* Lease, dated as of February 11, 1997, between the Registrant and WHLNF Real Estate L.P.

10.10* Purchase Agreement, dated as of December 24, 1996, between the Registrant and the U.S. Federal Aviation
Administration.

10.11* Stock Purchase Agreement, dated as of November 12, 1996, between the Registrant and EG&G International,
Ltd.

10.12* Stock Purchase Agreement, dated as of December 31, 1996, between the Registrant and Fredrick L. Roder.

10.13* Loan and Security Agreement, dated as of February 20, 1997, between the Registrant and Silicon Valley
Bank.

10.14* Export-Import Bank Loan and Security Agreement, dated as of February 20, 1997, between the Registrant
and Silicon Valley Bank.

10.15 Export-Import Promissory Note, dated February 20, 1997, between the Registrant and Silicon Valley Bank.

10.16* Intellectual Property Security Agreement, dated as of February 20, 1997, between the Registrant and
Silicon Valley Bank.

10.17* Key Employee Agreement, dated April 21, 1994, between the Registrant and Curtis P. DiSibio.

10.18* Key Employee Agreement, dated April 22, 1994, between the Registrant and Sergio Magistri, and amendment
thereto, dated October 16, 1995.

10.19* Key Employee Agreement, dated March 1, 1996, between the Registrant and David M. Pillor.

10.20* Key Employee Agreement, dated April 21, 1994, between the Registrant and Benno Stebler.

11.1* Statement of computation regarding per share earnings.

23.1 Consent of Price Waterhouse LLP.

23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.

25.1** Power of Attorney
</TABLE>

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

(+) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-380) or amendments thereto and incorporated herein by reference.

II-3
<PAGE>

* Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-23413) or amendments thereto and incorporated herein by reference.

** Previously filed.

(b) Financial schedules are omitted because they are not required, are not
applicable or the information is included in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution as previously disclosed in the registration statement or any
material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial BONA
FIDE offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Foster
City, County of San Mateo, State of California, on the 24th day of March 1997.

INVISION TECHNOLOGIES, INC.

By: /s/ SERGIO MAGISTRI
-----------------------------------------
Sergio Magistri
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

/s/ SERGIO MAGISTRI President, Chief Executive March 24, 1997
- ------------------------------ Officer and Director
Sergio Magistri (Principal Executive
Officer)

/s/ CURTIS P. DISIBIO Vice President and Chief March 24, 1997
- ------------------------------ Financial Officer
Curtis P. DiSibio (Principal Financial and
Accounting Officer)

* Director March 24, 1997
- ------------------------------
Douglas P. Boyd

* Director March 24, 1997
- ------------------------------
Giovanni Lanzara

* Director March 24, 1997
- ------------------------------
Bruno Trezza

*By: /s/ SERGIO
MAGISTRI
- ------------------------------
Sergio Magistri,
ATTORNEY-IN-FACT

II-5

<PAGE>
EXHIBIT 5.1

<TABLE>
<S> <C> <C>
San Francisco,
ATTORNEYS AT LAW CA
415 693-2000
Menlo Park, CA
Five Palo Alto
Square 415 843-5000
3000 El Camino Real San Diego, CA
Palo Alto, CA 619 550-6000
94306-2155 Boulder, CO
Main 415 843-5000 303 546-4000
Fax 415 857-0663 Denver, CO
March 24, 1997 303 606-4800
http://www.cooley.com

ROBERT L. JONES
(415) 843-5034
InVision Technologies, Inc. [email protected]
3420 East Third Avenue
Foster City, CA 94404

Ladies and Gentlemen:
</TABLE>

You have requested our opinion with respect to certain matters in connection
with the filing by InVision Technologies, Inc. (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission covering the offering for resale of 479,318 shares of the
Company's Common Stock (the "Shares"), with a par value of $0.001, owned by
Anaconda Opportunity Fund.

In connection with this opinion, we have examined the Registration Statement,
the Company's Certificate of Incorporation and Bylaws, as amended, and such
other documents, records, certificates, memoranda and other instruments as we
deem necessary as a basis for this opinion. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof, and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and the related Prospectus, will be validly issued, fully paid, and
nonassessable.

We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement.

Very truly yours,

COOLEY GODWARD LLP

/s/ Robert L. Jones_______
Robert L. Jones

<PAGE>

EXHIBIT B

REVOLVING PROMISSORY NOTE
(EXPORT-IMPORT LINE)

4,500,000 Santa Clara, California
February 20, 1997

FOR VALUE RECEIVED, the undersigned, InVision Technologies, Inc. (the
"Borrower"), promises to pay to the order of Silicon Valley Bank ("Bank"), at
such place as the holder hereof may designate, in lawful money of the United
States of America, the aggregate unpaid principal amount of all advances
("Advances") made by Bank to Borrower under the terms of this Note, up to a
maximum principal amount of Four Million Five Hundred Thousand Dollars
($4,500,000). Borrower shall also pay interest on the aggregate unpaid
principal amount of such Advances at the rates and in accordance with the
terms of the Export-Import Bank Loan and Security Agreement between Borrower
and Bank of even date herewith, as amended from time to time (the "Loan
Agreement") on the nineteenth day of each month after an Advance has been
made. The entire principal amount and all accrued interest shall be due and
payable on February 19, 1998, or on such earlier date, as provided for in the
Loan Agreement.

Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the
continuing exclusive right to apply any and all such payments against the
then due and owing obligations of Borrower as Bank may deem advisable. In the
absence of a specific determination by Bank with respect thereto, all
payments shall be applied in the following order: (a) then due and payable
fees and expenses; (b) then due and payable interest payments and mandatory
prepayments; and (c) then due and payable principal payments and optional
prepayments.

Bank is hereby authorized by borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each
payment or prepayment of principal of each such Advance received by Bank; it
being understood, however, that failure to make any such endorsement (or any
errors in notation) shall not affect the obligations of Borrower with respect
to Advances made hereunder, and payments of principal by Borrower shall be
credited to Borrower notwithstanding the; failure to make a notation (or any
errors in notation) thereof on such books and records.

Borrower promises to pay Bank all reasonable costs and reasonable
expenses of collection of this Note and to pay all reasonable attorneys' fees
incurred in such collection or in any suit or action to collect this Note or
in any appeal thereof. Borrower waives presentment, demand, protest, notice
of protest, notice of dishonor, notice of nonpayment, and any and all other
notices and demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note, as well as any applicable statute of
limitations. No delay by Bank in exercising any power or right hereunder
shall operate as a waiver of any power or right. Time is of the essence as to
all obligations hereunder.

37.

<PAGE>

This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrower with respect to all obligations
hereunder.

This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the State of California,
excluding conflicts of laws principles.

38.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 20, 1997,
relating to the consolidated financial statements of InVision Technologies,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP

San Jose, California
March 24, 1997