NOVAMETRIX MEDICAL SYSTEMS INC, POS AM, 1995-10-18

NOVAMETRIX MEDICAL SYSTEMS INC
POS AM, 1995-10-18
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1995
REGISTRATION NO. 33-77872
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

NOVAMETRIX MEDICAL SYSTEMS INC.
(Exact name of small business issuer in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3845 06-0977422
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

ONE BARNES INDUSTRIAL PARK ROAD
WALLINGFORD, CONNECTICUT 06492
(203) 265-7701
(Address and telephone number of principal executive offices and
principal place of business)

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

WILLIAM J. LACOURCIERE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ONE BARNES INDUSTRIAL PARK ROAD
WALLINGFORD, CONNECTICUT 06492
(203) 265-7701
(Name, address and telephone number of agent for service)

COPIES TO:

THOMAS M. HAYTHE, ESQ.
HAYTHE & CURLEY
237 PARK AVENUE
NEW YORK, NEW YORK 10017
(212) 880-6000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.

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. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
SUBJECT TO COMPLETION, DATED
October 18, 1995

PROSPECTUS
1,319,940 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OF
NOVAMETRIX MEDICAL SYSTEMS INC.,
AND
55,000 REDEEMABLE CLASS A WARRANTS
AND
55,000 REDEEMABLE CLASS B WARRANTS
ISSUABLE UPON EXERCISE OF THE REPRESENTATIVE'S WARRANTS

As part of a public offering (the "Public Offering") completed in June
1994, Novametrix Medical Systems Inc. (the "Company" or "Novametrix") offered
and sold an aggregate of 550,000 Units (the "Units"), each Unit consisting of
two shares of its common stock $.01 par value (the "Common Stock"), one
redeemable class A Warrant (the "Class A Warrants") and one redeemable class B
Warrant (the "Class B Warrants"). Each Class A Warrant entitles the holder
thereof to purchase one share of Common Stock at an exercise price of $4.95 per
share at any time during a three-year period commencing on December 8, 1994.
Each Class B Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $5.85 per share at any time during a
five-year period commencing on December 8, 1994. The Class A Warrants and the
Class B Warrants are sometimes collectively referred to herein as the
"Warrants." The Common Stock, Class A Warrants and Class B Warrants comprising
the Units became separately tradeable on December 8, 1994. A total of 60,000
Class A Warrants were exercised in May 1995.

Each Class A Warrant is redeemable by the Company at a redemption
price of $0.05 per Class A Warrant at any time commencing December 8, 1995 on
30 days' prior written notice, if the average closing bid price per share of
the Common Stock as quoted on Nasdaq National Market ("NNM") equals or exceeds
$5.625 per share for any ten consecutive trading days ending within ten days
prior to the notice of redemption. Each Class B Warrant is redeemable by the
Company at a redemption price of $0.05 per Class B Warrant at any time
commencing December 8, 1996 on 30 days' prior written notice, if the average
closing bid price per share of the Common Stock as quoted on NNM equals or
exceeds $7.3125 per share for any ten consecutive trading days ending within
ten days prior to the notice of redemption. See "Description of Securities."

As part of the Public Offering, Keane Securities Co., Inc., the
representative of the underwriters (the "Representative"), received five-year
Warrants to purchase 55,000 Units (the "Representative's Warrants"). Each Unit
consists of two shares of Common Stock, one Class A Warrant and one Class B
Warrant.

The Common Stock is currently traded on NNM under the symbol NMTX.
The Class A Warrants and Class B Warrants are currently traded on NNM under the
symbols NMTXW and NMTXZ, respectively. On October 16 1995, the closing sale
price per share of the Common Stock, per Class A Warrant and per Class B
Warrant as quoted on NNM was $5 1/8 per share, $2 per Class A Warrant and $2
1/8 per Class B Warrant, respectively. See "Price Range Of Common Stock."
<PAGE> 3
THE COMPANY IS NOT MAKING THIS OFFERING IN CONJUNCTION WITH ANY
UNDERWRITER OR BROKER-DEALER.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION TO THE PUBLIC INVESTOR. SEE "RISK FACTORS."

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

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

THE DATE OF THIS PROSPECTUS IS __________, 1995
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus assumes no exercise of the
Representative's Warrants.

THE COMPANY

Organized in 1978, the Company is engaged in the business of
designing, developing, manufacturing and marketing monitors and sensors which
provide continuous and non-invasive measurements of a patient's blood gas
levels (oxygen and carbon dioxide) and respiratory mechanics (lung pressure,
flow and volume). The Company's current product line consists of the
following:

- Capnographs -- monitors which measure the level of exhaled
carbon dioxide.

- Pulse Oximeters -- monitors which measure arterial blood
oxygen saturation levels and pulse rates.

- Transcutaneous Blood Gas Monitors -- monitors which measure
oxygen and carbon dioxide levels through the skin.

- Respiratory Mechanics Monitors -- monitors which measure
pressure, flow and volume in a patient's airway and lungs.

- Reusable and disposable sensors and adapters, related
accessories and replacement parts.

With the advent of managed healthcare, the continuing cost containment
efforts which are pervasive in the healthcare industry and the continuing need
for accurate and safe measurement of critical medical information, the
Company's products satisfy healthcare providers' needs for medical devices
which provide clinical benefits and which contribute to the cost-effective
delivery of healthcare. Clinically, some of the Company's products provide a
safe and effective alternative to withdrawing blood in order to determine the
body's oxygen and carbon dioxide levels. The technique of withdrawing blood is
not only invasive, with the associated risks of infection and clotting, but
also involves intermittent sampling and delays associated with laboratory
analysis. The Company's products offer non-invasive,
<PAGE> 5
continuous monitoring and immediate information. Some of the Company's
products also promote cost-effective patient management thereby contributing to
a reduction in patient days in hospitals and a reduction in operating costs.
For example, the use of the Company's monitors and sensors can reduce the
number of expensive blood samples, while at the same time providing early
warning of a change in a patient's condition, which, if undetected, could lead
to complications and prolonged hospitalization. In addition, the Company's
reusable oxygen saturation sensors eliminate the use of more costly disposable
sensors. Finally, the Company's monitors facilitate better utilization and
control of expensive therapeutic procedures such as mechanical ventilation (use
of a respirator) often resulting in the cessation of ventilator usage at the
clinically appropriate and most cost-effective time.

The Company's blood gas and respiratory monitors incorporate what the
Company believes to be state-of-the-art proprietary technology developed by the
Company. This proprietary technology and, in many cases, patented technology
positions the Company to market its own stand-alone monitoring systems and to
enter into strategic relationships with other original equipment manufacturers
(OEM's) who market multi-parameter systems, ventilators and other non-competing
products incorporating the Company's electronics and sensors as modular
components. The Company believes that this dual marketing approach facilitates
the widest access to world markets and maximizes after-market sales of
disposable adapters and sensors, reusable components and replacement parts.

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<PAGE> 6
SECURITIES COVERED BY PROSPECTUS

An aggregate of 1,099,940 shares of Common Stock subject to the
Registration Statement which are issuable upon exercise of 549,940 Class A
Warrants and 550,000 Class B Warrants were sold to the public pursuant to the
Public Offering of Units, each Unit consisting of two shares of Common Stock,
one Class A Warrant and one Class B Warrant. In addition, as part of the
Public Offering, the Representative received the Representative's Warrants
which are exercisable to purchase 55,000 Units. The Public Offering was
completed in June 1994.

Each Class A Warrant entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $4.95 per share at any time during a
three-year period commencing on December 8, 1994. Each Class B Warrant
entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $5.85 per share at any time during a five-year period
commencing on December 8, 1994.

Each Class A Warrant is redeemable by the Company at a redemption
price of $0.05 per Class A Warrant at any time commencing December 8, 1995 on
30 days' prior written notice, if the average closing bid price per share of
the Common Stock as quoted on NNM equals or exceeds $5.625 per share for any
ten consecutive trading days ending within ten days prior to the notice of
redemption. Each Class B Warrant is redeemable by the Company at a redemption
price of $0.05 per Class B Warrant at any time commencing December 8, 1996 on
30 days' prior written notice, if the average closing bid price per share of
the Common Stock as quoted on NNM equals or exceeds $7.3125 per share for any
ten consecutive trading days ending within ten days prior to the notice of
redemption. See "Description of Securities."

The Common Stock is currently traded on NNM under the symbol NMTX.
The Class A Warrants and Class B Warrants are currently traded on NNM under the
symbols NMTXW and NMTXZ, respectively.

The following table describes the amount of Common Stock, Class A
Warrants and Class B Warrants outstanding as of September 29, 1995:

Common Stock Outstanding(1) . . . 5,879,547

Class A Warrants Outstanding. . . 549,940

Class B Warrants Outstanding. . . 550,000

Common Stock Outstanding
Assuming Exercise of All
Warrants(1)(2). . . . . . . . . 6,979,487

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

(1) Does not include (i) 584,700 shares reserved for issuance
under the Company's 1979, 1990 and 1994 Stock Option Plans
(the "Stock Option Plans") and

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under options to purchase shares of Common Stock issued to a
former consultant, of which 406,367 shares are issuable upon
exercise of outstanding options to purchase Common Stock at a
weighted average exercise price of $3.28 per share, (ii)
110,102 shares reserved for issuance under the Company's 1992
Employee Stock Purchase Plan (the "Stock Purchase Plan"),
(iii) 1,233,487 shares reserved for issuance upon the exercise
of certain currently exercisable warrants to purchase Common
Stock at a weighted average exercise price of $1.62 per share,
and (iv) 1,111,110 shares reserved for issuance pursuant to
the conversion of outstanding shares of the Company's Series B
Preferred Stock, $1.00 par value (the "Series B Preferred
Stock"). The 2,344,597 shares issuable pursuant to the
exercise of warrants and the conversion of Series B Preferred
Stock have been registered by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), for sale by
the holders thereof from time to time, and the Company has
effective registration statements covering issuances of shares
of Common Stock under its Stock Option Plans and the Stock
Purchase Plan. See "Management," "Shares Eligible for Future
Sale," "Description of Securities" and Consolidated Financial
Statements.

(2) Does not include an aggregate of 220,000 shares of Common
Stock (including 110,000 shares of Common Stock issuable upon
exercise of Warrants) issuable upon exercise of the
Representative's Warrants. See "Description of Securities"
and Consolidated Financial Statements.

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THE COMPANY

The Company was incorporated in Delaware in 1978. The Company's
corporate headquarters is located at One Barnes Industrial Park Road,
Wallingford, Connecticut 06492 and its telephone number is (203) 265-7701.
Unless the context otherwise requires, all references in this Prospectus to the
Company include its subsidiaries.

RISK FACTORS

THE COMMON STOCK COVERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION
DISCUSSED IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMPANY AND ITS BUSINESS.

PRIOR SUBSTANTIAL NET LOSSES AND PRIOR GOING CONCERN UNCERTAINTY. For
the fiscal years ended April 29, 1990 ("Fiscal 1990") and April 28, 1991
("Fiscal 1991"), the Company incurred substantial net losses and had
substantial working capital deficiencies and negative cash flows from
operations. The Company's deficiencies in working capital resulted from net
losses from operations in Fiscal 1990 and Fiscal 1991 and defaults under
long-term debt agreements existing at that time. At such time, these
conditions raised substantial doubt about the Company's ability to continue as
a going concern. However, the Company was profitable in the fiscal year ended
May 3, 1992 ("Fiscal 1992"), the fiscal year ended May 2, 1993 ("Fiscal 1993"),
the fiscal year ended May 1, 1994 ("Fiscal 1994"), the fiscal year ended April
30, 1995 ("Fiscal 1995") and the first three months of the fiscal year ending
April 28, 1996 ("Fiscal 1996"). The Company also improved its operations and
balance sheet during Fiscal 1993, Fiscal 1994, Fiscal 1995 and the first three
months of Fiscal 1996. There can be no assurance that the Company will remain
profitable or that sufficient capital will be available to it on commercially
reasonable terms, if at all, to sustain the Company's operations and growth.
See "Management's Discussion and Analysis or Plan of Operation" and
Consolidated Financial Statements.

HIGH DEGREE OF FINANCIAL LEVERAGE. On April 29, 1993, the Company and
NTC Technology Inc., a Delaware corporation which is a wholly-owned subsidiary
of the Company ("NTC"), entered into a First Amendment (the "First Amendment")
with Union Trust Company, now known as First Fidelity Bank ("First Fidelity"),
to the Third Amended and Restated Loan and Security Agreement dated August 29,
1991 (the "Third Amended Credit Agreement") with First Fidelity. First
Fidelity has been the primary lender to the Company since March 1978 and at
September 29, 1995, First Fidelity Incorporated, also a wholly-owned subsidiary
of First Fidelity Bancorporation, beneficially owned approximately 10.9% of the
Common Stock of the Company. See "Selling Securityholders." Under the First
Amendment, First Fidelity created a new term loan facility in the amount of
$3,400,000, $2,400,000 of which was used to reduce and prepay the principal
amount outstanding under the consolidated term

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loan created under the Third Amended Credit Agreement. On June 16, 1994,
simultaneously with the closing of the Public Offering, the Company amended its
agreement (the "Bank Agreement") with First Fidelity to restructure the terms
of the Company's term and line of credit loans. Under the Bank Agreement the
Company has a term loan in the principal amount of $2,500,000. The term loan
is payable in 60 equal monthly installments commencing July 1, 1994 and bears
interest at a base rate established by First Fidelity plus 1/2 of 1%. In
addition, the Company's line of credit was amended and restated as a revolving
credit facility against which the Company can borrow the lesser of a specified
borrowing base or $2,500,000 through August 1997. Interest on the revolving
credit facility accrues at a per annum interest rate of 2.5% over weekly LIBOR
rates. The Bank Agreement contains covenants which, among other things, limit
the Company's ability to incur additional debt and impose minimum working
capital, net worth and financial ratio requirements.

The Company is substantially dependent upon cash flow from its
operations to support its growth and to satisfy debt service and other
obligations. There is no assurance that the Company will be able to obtain
additional capital if needed, or that such capital, if available, will be
available on commercially reasonable terms. Any failure to have access to
adequate capital on commercially reasonable terms or to continue to generate
positive cash flow could have a material adverse effect on the Company's
business and financial position. See "Management's Discussion and Analysis of
Financial Condition or Plan of Operation" and Consolidated Financial
Statements.

EFFECT OF HEALTHCARE REFORM. Congress has proposed cost cutting
adjustments to the federal budget aiming in part at this country's current
healthcare delivery system, and in particular, Medicaid and Medicare reforms.
The move toward managed care has also already had a major impact on the
healthcare industry in the United States by accelerating the trend toward
shorter hospital stays and the use of outpatient facilities rather than
hospitalization and lowering annual cost increases for healthcare spending.
Additional cost saving changes could further impact hospitals, clinics and
other healthcare providers, which form the Company's customer base. These
possible changes could potentially reduce or further delay capital expenditures
by these providers, and could change the users and markets for the Company's
products. However, the acute care portion of a hospital (including the
operating room and intensive care unit) which is a significant market for the
Company's products should not be greatly affected by the trend toward the use
of outpatient facilities as such outpatient facilities generally care for
patients who are not critically ill. In addition, the trend toward managed
competition may improve sales of certain of the Company's non-disposable
products which provide substantial cost savings compared to similar disposable
products sold by its competitors, and may also improve sales of other Company
products that improve patient throughput and thereby result in shorter hospital
stays.

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The uncertainty associated with the ultimate direction of changes
within the healthcare system, if any, has caused some hospitals and other
healthcare providers to defer capital and other expenditures pending
clarification of the future direction of the healthcare industry. Although the
trend toward managed competition could have a positive impact on the Company's
business by providing increased coverage for medical procedures utilizing the
Company's products, thereby increasing demand for the Company's products, it is
not possible at this time to predict what, if any, further changes in
healthcare will occur. See "Business -- Regulation."

RAPID TECHNOLOGICAL CHANGES. The electronic medical instrumentation
industry is characterized by rapid technological changes and advances.
Although the Company believes that its products are technologically current,
the development of new technologies or refinements of existing ones could at
any time make the Company's existing products technologically or economically
obsolete. Although the Company is not aware of any pending technological
developments that would be likely to materially and adversely affect its
business or financial position, there can be no assurance that such
developments will not occur at any time. See "Business -- Products" and
"Competition."

PATENT INFRINGEMENT AND OTHER PROPRIETARY INFORMATION CONSIDERATIONS.
The electronic medical instrumentation industry is characterized by extensive
patent coverage and the continuing issuance of new patents. The Company holds
patents and has patents pending related to certain of the Company's products.
There can be no assurance, however, that any infringement by the Company of
existing or future patents will not materially and adversely affect the
Company's business and financial position.

In April 1989, an adverse decision (the "Initial BOC
Decision") was entered by the United States District Court for the District of
Connecticut (the "District Court") against the Company in an action commenced
by The BOC Group, Inc. ("BOC") alleging that the Company's manufacture and sale
of pulse oximeters infringed a patent held by BOC. Although the Initial BOC
Decision was ultimately overturned in January 1990 by the United States Court
of Appeals for the Federal Circuit (the "Court of Appeals") and the Company
subsequently prevailed in September 1990 in the District Court and in May 1991
in the Court of Appeals, at that time, the Initial BOC Decision finding patent
infringement by the Company materially and adversely affected the Company's
reputation and market position.

The Company relies on trade secrets and proprietary know-how,
which it will seek to protect, in part, by confidentiality agreements with
certain of its employees, suppliers and customers. However, there can be no
assurance that the Company's confidentiality agreements, when in place, will
not be breached or that the Company would have adequate remedies for any
breach. There can be no assurance that the Company's trade secrets or
proprietary know-how will not

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otherwise become known or be independently discovered by competitors. See
"Business -- Patents, Trademarks and Proprietary Rights."

EXTREMELY COMPETITIVE MARKET. The electronic medical instrumentation
industry is extremely competitive. The Company's competitors vary in size from
entities which are smaller than the Company to divisions or subsidiaries of
multinational corporations. There can be no assurance that the Company will be
able to compete successfully with its competitors, some of which also have
extensive production facilities, well-established marketing and service
organizations, recognized reputations in the electronic medical instrumentation
industry and also have far greater financial resources than the Company has or
will have in the foreseeable future. See "Business -- Competition."

In addition, although the Company believes its reputation in the
marketplace is being restored, the Company believes its credibility and market
position were severely damaged by the Initial BOC Decision and the perception
in the marketplace that the Company was in poor financial condition. See
"Business -- Patents, Trademarks and Proprietary Rights."

REGULATION. Certain of the Company's products are "devices" within
the meaning of a 1976 amendment to the Federal Food, Drug and Cosmetics Act.
Under the amendment, a manufacturer must obtain approval by the United States
Food and Drug Administration (the "FDA") of certain new devices before they can
be marketed in the United States. The approval process requires that the
safety and efficacy of such devices be demonstrated by the manufacturer to the
FDA. Under certain circumstances, the cost of obtaining such pre-marketing
approval may be high and the process lengthy, and no assurance can be given
that approval will be obtained. All of the products currently marketed
domestically by the Company requiring pre-marketing approval from the FDA have
been so approved.

In the future, certain other classes of medical devices will
be required to comply with industry-wide performance standards with respect to
safety and efficacy, when these standards are promulgated by the FDA. The FDA
has not yet developed industry-wide performance standards with respect to the
safety and effectiveness of those products manufactured by the Company which
would be subject to such standards. When and if these standards are adopted,
the Company will be required to submit data demonstrating compliance with the
standards (during which period the Company may be permitted to continue to
market products which have previously been approved by the FDA).

There can be no assurance that the Company's products will
comply with the applicable industry-wide performance standards when and if
adopted or that the Company will receive the requisite approval to market any
of its future products. Any failure to receive approvals or non-compliance
with

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performance standards would have a material adverse effect on the Company's
business and financial position.

Various countries in which the Company markets its products
have regulatory agencies which perform functions comparable to the FDA. To
date, foreign regulations have not adversely affected the Company's business;
however, there can be no assurance that any such regulations will not have a
material adverse affect on the Company's business and financial condition in
the future. See "Business -- Regulation."

LIMITATION ON NET OPERATING LOSS CARRYFORWARDS. As of April 30, 1995,
the Company had net operating loss carryforwards ("NOLs") for financial and
federal income tax reporting purposes of approximately $14,825,000 of which
$10,250,000 expires in 2005, $4,200,000 expires in 2006 and $375,000 expires in
2007. Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), and Treasury Regulations promulgated thereunder, if a loss corporation
such as the Company has an "ownership change" within a designated testing
period, its ability to use its NOLs is subject to certain significant annual
limitations. Although the Company believes that consummation of the offering
contemplated hereby will not result in an ownership change for purposes of
Section 382, there can be no assurance that such an ownership change will not
occur in the future. The Company has no present intention, however, of issuing
additional stock, options or warrants which could result in an ownership
change.

DEPENDENCE ON KEY EMPLOYEES. The Company believes that its success
will be highly dependent upon its continued ability to attract and retain
skilled managers and engineering personnel, including its Chairman and Chief
Executive Officer, William J. Lacourciere. There can be no assurance that the
Company will be successful in hiring or retaining requisite managerial and
engineering personnel in the future. The Company has an employment agreement
with Mr. Lacourciere and has obtained a $1,500,000 key person life insurance
policy covering Mr. Lacourciere's life. The Company is the sole beneficiary of
such life insurance policy. See "Management."

DEPENDENCE ON SUPPLIERS OF COMPONENTS. Substantially all of the
components in the Company's products are manufactured by others and then
assembled by the Company. The Company's assembly operations require a variety
of electronic and mechanical components and supplies as well as specialized
assembly equipment. The Company has not experienced any interruption of
production or supplies of components or equipment. However, there can be no
assurance that the Company will continue to receive timely service or that the
Company would be able to find readily a substitute manufacturer if one or more
were needed on short notice. Interruption of the Company's sources of supply
or quality problems with supplied components would have a material adverse
effect on the Company's business and financial position. See "Business --
Production and Service."

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PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE. From time to time,
the Company is subject to product liability claims, suits and complaints
incidental to its business. These claims, suits and complaints are covered by
insurance policies maintained by the Company, subject to certain policy limits.
In addition, certain of the Company's OEM agreements require the Company to
maintain minimum levels of product liability insurance. The Company currently
maintains product liability insurance in the amount of $5,000,000 with a
$50,000 per occurrence deductible up to an aggregate annual deductible of
$250,000. The Company is not aware of any pending product liability claims,
suits or complaints the disposition of which, in the opinion of management,
would have a material adverse effect upon the Company's business, financial
position or liquidity. The Company, however, could be materially adversely
affected by successful product liability claims, and there can be no assurance
that the Company will have sufficient resources to satisfy any liability
resulting from claims not covered by existing insurance policies. See
"Business -- Product Liability and Insurance Coverage."

POSSIBLE ISSUANCE OF PREFERRED STOCK, ANTI-TAKEOVER PROVISIONS AND
RETENTION OF CONTROL. The Company is authorized to issue up to 1,000,000 shares
of preferred stock, $1.00 par value per share (the "Preferred Stock"). The
Preferred Stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the Board of Directors, without further
action by stockholders, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion and redemption rights and sinking fund provisions.
There are currently 50,000 shares of Series A Preferred Stock designated and no
shares of Series A Preferred Stock issued and outstanding, 100,000 shares of
Series B Preferred Stock issued and outstanding (20,000 shares of Series B
Preferred Stock have been previously converted). The future issuance of any
shares of Preferred Stock could adversely affect the rights of the holders of
the Common Stock, and therefore reduce the value of the Common Stock. See
"Description of Securities -- Preferred Stock."

In the event of certain defined takeover events (e.g., acquisitions of
20% or more of beneficial ownership of the outstanding Common Stock, tender
offers and mergers), pursuant to and subject to the provisions of a certain
preferred stock purchase rights plan adopted by the Company on March 10, 1989
and amended on October 31, 1990 and August 29, 1991 (the "Rights Plan"), the
holder of each share of Common Stock outstanding on March 23, 1989 is entitled
to purchase from the Company one one-hundredth share of Series A Preferred
Stock, at an initial price of $25.00 per one one-hundredth of such share,
subject to adjustment. Upon the issuance of shares of Series A Preferred
Stock, holders of shares of Series A Preferred Stock will be entitled to a
cumulative quarterly dividend of the greater of $1.00 per share or 100 times
the per share dividend declared on Common Stock and will have a liquidation
preference equal to the greater of $100.00 per share or 100 times the aggregate
amount per share distribution to the holders of

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<PAGE> 14
Common Stock. In addition, each share will have 100 votes and will vote
together with the Common Stock. See "Description of Securities."

In addition to the above-described Rights Plan, the Company's
Certificate of Incorporation contains provisions affecting certain stockholder
voting and other requirements. Generally, the provisions require (i) that
certain business combinations involving the Company and any beneficial owner of
20% or more of the outstanding voting securities of the Company be approved by
the holders of at least 80% of the Company's voting securities, unless certain
conditions, including a minimum price requirement, are satisfied, or unless the
Board of Directors has waived such conditions or has approved, prior to the
time such person became a 20% beneficial owner, the acquisition of such 20%
beneficial ownership position or the proposed business combination, (ii) that
any action taken by the Company's stockholders be taken at an annual or special
meeting held upon prior notice and pursuant to a vote (in addition, the
Company's By-laws contain a provision the effect of which is to prohibit the
stockholders of the Company from calling a special meeting without the approval
of the Board of Directors, thereby preventing stockholders, without such
approval, from initiating action other than at the Annual Meeting of
Stockholders) and (iii) the vote of not less than 80% of the Company's
outstanding voting securities to repeal, alter, amend or rescind the Company's
By-laws, any of the provisions described above and the provision with respect
to the division of the Board of Directors into classes described below. See
"Management."

The Certificate of Incorporation of the Company also provides for a
staggered board such that the Board of Directors is divided into three classes
(that is, Class A, Class B and Class C directors). The term of office of the
Class A directors of the Company will expire at the 1996 Annual Meeting of
Stockholders, the term of office of the Class B director of the Company will
expire at the 1997 Annual Meeting of Stockholders and the term of office of the
Class C directors of the Company will expire at the 1998 Annual Meeting of
Stockholders. At each such annual election of directors (and at each annual
election thereafter), directors will be chosen for a three-year term. See
"Management."

The overall effect of the above-described measures may be to
discourage or render more difficult the accomplishment of mergers or other
takeover or change in control attempts. To the extent that these measures have
this effect, removal of the Company's incumbent Board of Directors and
management may be rendered more difficult. Further, these measures may have an
adverse impact on the ability of stockholders of the Company to participate in
a tender or exchange offer for the Common Stock and in so doing diminish the
market value of the Common Stock. The Company is not aware of any proposed
takeover attempt or any proposed attempt to acquire a large block of Common
Stock.

RISK ASSOCIATED WITH FOREIGN SALES. Sales to foreign customers
constitute a significant portion of the Company's

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<PAGE> 15
total net sales. Sales of products and services in foreign countries
constituted 39%, 35% and 30% of the Company's total net sales for Fiscal 1995,
Fiscal 1994 and Fiscal 1993, respectively, and 37% and 38% of the Company's
total net sales for the three-month periods ended July 30, 1995 and July 31,
1994, respectively. The Company intends to continue to improve and expand its
sales efforts in countries worldwide and expects international sales to
continue to constitute a significant portion of the Company's total net sales.
Sales in foreign countries of electronic medical devices are subject to a
number of risks, including regulatory requirements, foreign currency
fluctuations, the imposition of tariffs and import and export controls, changes
in government policies (including United States policy toward these countries),
and other factors which could have a material adverse effect on the Company's
business and financial position. See "Business -- Sales, Marketing and
Customers."

NO PUBLIC TRADING MARKET FOR WARRANTS; TRADING VOLUME OF COMMON STOCK.
Although the Warrants are listed on NNM, the continuation of a public market
for the Warrants having the desirable characteristics of liquidity and
orderliness depends upon the presence in the marketplace of a sufficient number
of willing buyers and sellers at any given time, over which neither the Company
nor any market maker has any control. Accordingly, there can be no assurance
that a significant or any trading market for the Warrants will continue. In
addition, the trading volume for the Common Stock, as reported by NNM, averaged
33,141 shares per week during the four-week period ended September 29, 1995 and
persons holding Warrants may be unable to readily sell the Warrants or the
Common Stock underlying the Warrants at the time or price desired. See "Price
Range of Common Stock."

ADVERSE CONSEQUENCES ASSOCIATED WITH RESERVATION OR SALE OF
SUBSTANTIAL SHARES OF COMMON STOCK. The Company has reserved 1,319,940 shares
of Common Stock for issuance upon the exercise of the Warrants and the
Representative's Warrants. The Company has also reserved 2,344,597 shares of
Common Stock for issuance upon the exercise of certain currently exercisable
warrants and upon conversion of its Series B Preferred Stock. In addition, the
Company has reserved 584,700 shares for issuance under the Company's Stock
Option Plans and under options to purchase shares of Common Stock issued to a
former consultant and 110,102 shares for issuance under the Company's Stock
Purchase Plan. The price which the Company may receive for the Common Stock
issuable upon exercise of these warrants and options will, in all likelihood,
be less than the market price of the Common Stock at the time of such exercise.
Consequently, for the life of these warrants and options the holders thereof
will have the opportunity to profit from a rise in the market price of the
Common Stock.

The exercise of all or a substantial portion of the aforementioned
securities may also adversely affect the terms under which the Company could
obtain additional equity capital. In all likelihood, the Company would be able
to obtain additional equity capital on terms more favorable to the

12
<PAGE> 16
Company than those contained in the outstanding warrants and options at the
time the holders of such warrants and options choose to exercise them.
Further, should a significant number of the Company's outstanding shares of
Series B Preferred Stock, warrants and options be exercised, the resulting
increase in the number of shares of Common Stock outstanding would result in
substantial dilution (economic and voting) to the holders of Common Stock, and
if the shares of Common Stock obtained by conversion or exercise are offered
for sale in the public market, the resulting increase in the amount of the
Common Stock available may adversely affect the market price of the Common
Stock. The Company has an effective registration statement under the
Securities Act pursuant to which the Company has registered for sale by the
holders thereof from time to time an aggregate of 2,344,597 shares of Common
Stock heretofore issued and shares of Common Stock issuable upon exercise of
outstanding warrants and conversion of its Series B Preferred Stock. The
shares of Common Stock issued and issuable upon the exercise of options granted
under the Company's Stock Option Plans and Stock Purchase Plan have also been
registered under the Securities Act. See "Shares Eligible for Future Sale" and
"Description of Securities"."

POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common
Stock may be highly volatile. Factors such as quarter-to-quarter variations in
the Company's net sales, gross margins and earnings or adverse developments
affecting the Company's competitors or the electronic medical instrumentation
industry or healthcare industry in general could cause the market price of the
Common Stock to fluctuate significantly. In addition, in recent years the
stock markets have experienced significant price and volume volatility which
has affected the market prices of the stock of many companies but which has
often been unrelated to the operating performance of these companies. Such
volatility may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."

IMPROBABILITY OF DIVIDENDS. The Company has never paid a cash
dividend on the Common Stock and does not expect to pay any dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."

USE OF PROCEEDS

If all of the Warrants are exercised, the net proceeds to the Company
will be approximately $5,600,000. No assurance can be given that any or all of
the Warrants will be exercised. The use of any proceeds from the exercise of
the Warrants will depend on the amount received and the time of receipt, as
well as the discretion of management; however the Company intends to use the
net proceeds from the exercise of the Warrants first to repay indebtedness
outstanding under the Bank Agreement. Any proceeds remaining after all
indebtedness under the Bank Agreement has been repaid will be added to working
capital.

Under the Bank Agreement the Company has an outstanding term loan in
the principal amount of $2,500,000. The term loan is payable in 60 equal
monthly installments commencing July 1,

13
<PAGE> 17
1994 and bears interest at a per annum rate of the base rate established by
First Fidelity plus 1/2 of 1%. In addition, the Company has a revolving credit
facility pursuant to which the Company may borrow the lesser of a specified
borrowing base or $2,500,000 through August 1997. Interest on the revolving
credit facility accrues at a per annum interest rate of 2.5% over weekly LIBOR
rates.

Pending the application of the net proceeds, the Company will invest
the net proceeds in short-term interest bearing securities. Any additional
proceeds received upon exercise of the Representative's Warrants, as well as
income from the foregoing short-term investments, will be added to working
capital.

DIVIDEND POLICY

The Company has never paid a cash dividend on the Common Stock. The
payment of cash dividends in the future will depend upon the Company's
earnings, financial condition and capital needs and on other factors deemed
pertinent by the Board of Directors. It is the current policy of the Company's
Board of Directors to retain earnings to finance the operation of the Company's
business.

In addition, the Bank Agreement, the Securities Purchase Agreement
(the "Securities Purchase Agreement") dated August 29, 1991 between the
Company, First Fidelity and the other purchasers of the Company's Series B
Preferred Stock, $1.00 par value (the "Series B Preferred Stock"), and the
terms of the Company's Series B Preferred Stock contain, among other
provisions, various covenants restricting the Company's ability to pay cash
dividends to holders of the Common Stock. See "Risk Factors -- High Degree of
Financial Leverage," "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition or Plan of Operation" for information
concerning the Bank Agreement. See "Description of Securities" for information
concerning the Series B Preferred Stock.

14
<PAGE> 18
PRICE RANGE OF COMMON STOCK

The Common Stock trades on NNM under the symbol "NMTX." The following
table sets forth the range of high and low sales prices per share for the
Common Stock for Fiscal 1994 and Fiscal 1995 and the first and second quarters
of Fiscal 1996.

<TABLE>
<CAPTION>
High Sale Low Sale
--------- --------
<S> <C> <C>
FISCAL 1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4 1/2 $2 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1/4 3 1/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7/8 3 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3/4 4 1/4

FISCAL 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5 5/8 $4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3/8 5 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5/8 3 7/8
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3/8 4

FISCAL 1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6 1/4 $5
Second Quarter (through October 16, 1995) . . . . . . . . . . . . . . . . . . . . . . 5 1/2 4 5/8
</TABLE>

On October 16, 1995, the last sale price of the Common Stock, Class A
Warrants and Class B Warrants as reported on NNM was $5 1/8 per share, $2 per
Class A Warrant and $2 1/8 per Class B Warrant, respectively. As of October
16, 1995, there were 982 holders of record of the Common Stock, two holders of
record of the Series B Preferred Stock, two holders of record of the Class A
Warrants and two holders of record of the Class B Warrants.

15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
items of the Company's Consolidated Statements of Operations as a percentage of
the Company's net sales.

<TABLE>
<CAPTION>
As a Percentage of Net Sales
----------------------------
Three Months Ended Year Ended
------------------ ----------
July 30, July 31 April 30, May 1, May 2,
1995 1994 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold . . . . . . . 42.6 43.5 43.9 43.0 45.9
Research and product
development expense . . . . . . . 11.3 9.7 10.1 9.4 8.5

Selling, general and
administrative expense . . . . . 38.0 40.4 37.3 41.0 39.8
Interest expense . . . . . . . . . 1.2 2.3 1.5 3.3 4.2
Other (income) expense, net . . . . .4 .4 .3 (.3) 0.3

Income taxes . . . . . . . . . . . .1 - .2 - -
----- ----- ------ ----- ------
Net income . . . . . . . . . . . . 6.4% 3.7% 6.7% 3.6% 1.3%
===== ===== ====== ===== ======
</TABLE>

THREE MONTHS ENDED JULY 30, 1995 COMPARED TO THREE MONTHS ENDED JULY 31, 1994.

Operating results for the three-months ended July 30, 1995
compared favorably to the three months ended July 31, 1994. The Company
recorded net income of approximately $388,000 or $.05 per share on net sales of
approximately $6,080,000 for the three months ended July 30, 1995 compared to
net income of approximately $204,000 or $.03 per share on net sales of
approximately $5,495,000 for the first quarter of the prior fiscal year.

Net sales increased by approximately $585,000 or 11% for the
three months ended July 30, 1995 compared to the three months ended July 31,
1994. The year-to-year increase was primarily attributable to the growth of
domestic and international product sales and higher sales levels to OEM
customers who utilize the Company's technology in their monitoring systems.

Cost of products sold as a percentage of net sales for the
three months ended July 30, 1995 improved to 42.6% compared to 43.5% for the
three months ended July 31, 1994. The reduction in cost of products sold as a
percentage of net sales resulted from favorable product mix and higher labor
efficiencies.

Research and product development ("R&D") expenses increased by
approximately $151,000 or 28% for the three months ended July 30, 1995 compared
to the corresponding period of the prior fiscal year. The increase to over 11%
of net sales, was due primarily to higher levels of salaries and related fringe
benefits and outside professional services,

16
<PAGE> 20
$39,000 of which are non-recurring expenses. The Company expects R&D spending
to approximate 10% of net sales during the remainder of Fiscal 1996.

Selling, general and administrative ("S,G&A") expenses
increased by approximately $92,000 or 4% for the three months ended July 30,
1995 compared to the three months ended July 31, 1994. International selling
expenses which increased as a result of costs associated with additional sales
personnel and higher sales levels, were effectively offset by lower domestic
selling expenses in the quarter. Higher administrative expenses resulted
primarily from increased outside service costs, primarily recruiting fees,
insurance and shareholder reporting costs.

Interest expense for the three months ended July 30, 1995
decreased by approximately $49,000 or 40% compared to the corresponding period
of the prior fiscal year. The improvement resulted from a decrease in the
Company's bank debt as a result of the Public Offering consummated in June 1994
and scheduled principal payments.

17
<PAGE> 21
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED MAY 1, 1994

Net sales increased by 16% to approximately $24,000,000 in Fiscal 1995
compared to net sales of approximately $20,800,000 in the prior fiscal year.
International revenue growth of 28% was the largest single contributing factor.
Sales of sensors and electronics to OEM's who utilize the Company's technology
in their systems, were responsible for approximately $1,400,000 of the growth
in overall sales revenues. Sales to domestic markets were 2% lower than sales
to these markets recorded in the prior fiscal year. The Company expects
continued improvement in international and OEM sales levels in the next fiscal
year, and domestic sales are also expected to strengthen as the result of
strategic changes implemented in the domestic sales effort.

Cost of sales as a percentage of net sales increased from 43% to 44%
when comparing the current fiscal year to Fiscal 1994, primarily due to the
higher international content of net sales reported. On-going quality and cost
reduction efforts, with significant contributions from both the manufacturing
and new product development areas, are expected to minimize any potential
impact on margins due to the continued growth of international sales as a
percentage of our overall revenues.

R&D expenses increased by 24%, to approximately $2,419,000 compared to
$1,954,000 reported in the prior fiscal year. This increase of almost $465,000
resulted primarily from higher levels of salaries and related fringe benefit
costs, supplies, and outside services associated with increased product
development efforts. Costs associated with providing new OEM customers with
technical development assistance, and increased depreciation expense associated
with higher levels of assets, also contributed to the year-to-year increase.

S,G&A expenses increased by 5% when comparing Fiscal 1995 expenses to
Fiscal 1994 expenses. Selling, marketing and service related administrative
costs accounted for 3% of the overall S,G&A increase as the result of increased
international selling expenses associated with the higher levels of sales
activities abroad, partially offset by a reduction in domestic selling and
marketing expenses. General and Administrative expenses accounted for the
remaining 2% due to increased accounting and reporting fees, and higher
insurance costs. The Company expects to commit additional resources toward
enhancing domestic hospital and non-hospital revenues in Fiscal 1996, as well
as supporting the increases in international sales activities.

Interest expense in Fiscal 1995 decreased by 46% compared to the prior
fiscal year due to the significantly lower debt levels as the result of the
Public Offering consummated in June 1994. Scheduled principal payments during
Fiscal 1995 also contributed to the lower debt levels, and should continue to
have a positive impact on interest expenses in Fiscal 1996.

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<PAGE> 22
Other expense (income), net, exclusive of the favorable $140,000
settlement of a contractual dispute in the prior fiscal year, increased by
approximately $9,000 compared to the prior fiscal year.

Income tax expense of $40,000 for Fiscal 1995 resulted from higher
taxable income levels compared to the prior year and was calculated on an
alternative minimum tax method after the utilization of a portion of the
Company's net operating loss carryforwards. As of April 30, 1995,
approximately $6,700,000 of net deferred tax assets have been recorded due to
temporary timing differences, business tax credits, and net operating loss
carry forwards. The realization of such deferred tax assets is dependent on
the Company's ability to generate sufficient future taxable income. As a
result of the cumulative loss position of the Company, there is insufficient
positive evidence to indicate that the deferred tax assets will be realized and
therefore a valuation allowance has been recorded as required.

YEAR ENDED MAY 1, 1994 COMPARED TO YEAR ENDED MAY 2, 1993

Results for Fiscal 1994 reflected the continued improvement in the
Company's operating results and compared favorably to Fiscal 1993. The Company
recorded net income for Fiscal 1994 of approximately $755,000 or $0.11 per
share compared to approximately $265,000 or $0.04 per share for the prior
fiscal year.

Net sales increased by approximately $900,000 or 5% for Fiscal 1994
compared to the prior year. A significant increase in international product
sales and improved domestic product sales were partially offset by a reduction
in OEM sales as compared to the prior fiscal year. The Company expected
initial shipments to additional OEM customers during Fiscal 1995 to further
enhance revenue growth.

Cost of products sold as a percentage of net sales improved to 43% for
Fiscal 1994 compared to 46% for the prior fiscal year which reflected
continuing improvements in the quality and cost basis of the Company's
products. The Company expected its on-going cost control and design
improvement efforts to have a favorable impact on future profitability.

R&D expenses increased by 16% for Fiscal 1994 compared to the prior
fiscal year primarily due to increased salaries and related fringe benefits and
higher levels of expenditures for development materials. The Company
anticipated further increases in spending levels for R&D during Fiscal 1995 to
approximately 10% of revenue in conjunction with its business plans.

S,G&A expenses increased by 8% during Fiscal 1994 compared to the
prior fiscal year. Sales and marketing related expenses increased by 15% for
Fiscal 1994 as compared to the prior fiscal year primarily due to increased
salaries and related fringe benefits, travel expenses, commissions on the
higher sales volume, and marketing development costs.

19
<PAGE> 23
These sales and marketing increases were partially offset by decreased service
and general and administrative expenses of 2% and 9%, respectively. The
reductions in service and general and administrative expenses resulted
primarily from cost control improvements and decreased outside legal and
financial costs.

Interest expense decreased by 16% for Fiscal 1994 compared to the
prior fiscal year. Reduced bank debt levels of approximately $1,400,000
resulting from scheduled principal payments were responsible for the
improvement.

Other expense (income), net, reflected other income of approximately
($75,000) for Fiscal 1994 compared to other expense of approximately $75,000
for the prior fiscal year. This decrease in net expenses of approximately
$150,000 compared to the prior year resulted from the reversal during the
second quarter of Fiscal 1994 of approximately $140,000 of expenses previously
recorded, due to the favorable settlement of a contractual dispute.

LIQUIDITY AND SOURCES OF CAPITAL

As of July 30, 1995, the Company's working capital increased to
$6,913,000 from $6,412,000 at April 30, 1995. The Company's current ratio
improved to 2.7 to 1 at July 30, 1995 from 2.5 to 1 at April 30, 1995 primarily
as a result of the Company's continued improvement in operating results. In
addition, the Company had $1,425,000 available for borrowing under its
revolving credit facility at both July 30, 1995 and April 30, 1995.

Approximately $107,000 of cash was provided by operations for the
three months ended July 30, 1995. Temporary increases in inventory resulting
from product mix associated with new product introductions and a decrease in
accrued expenses partially offset the approximately $611,000 of cash provided
from net income, after adding back non-cash expenses (depreciation and
amortization).

The Company anticipates continued improvement in its financial results
for the balance of fiscal 1996 and expects cash flow from operations to exceed
scheduled debt service requirements and planned investing activities, with the
surplus being applied to reduce the balance of the Company's revolving credit
facility. Management believes that cash provided by operations will support
its planned rate of growth and that additional funds, if required, will be
available from the Company's revolving credit facility or from other sources on
commercially reasonable terms.

During July 1995, the Company amended its revolving credit facility,
extending the expiration date to August 31, 1997 and modifying the interest
rate to LIBOR plus 2.5% (8.375% at August 31, 1995). Under the revised
agreement, borrowing continues to be limited to a maximum of $2,500,000 or 75%
of the Company's eligible accounts receivable, as defined. Furthermore, First
Fidelity has released the

20
<PAGE> 24
Company's patents and trademarks previously held as collateral for the
Company's debt obligations.

IMPACT OF INFLATION

The rate of inflation continues to have little, if any, impact on the
results of the Company. While management considers the possible effects of
inflation with respect to the future business plans of the Company, the rate of
inflation is not expected to have a material impact upon the growth of the
Company during Fiscal 1996.

BUSINESS

GENERAL

- Capnographs -- monitors which measure the level of exhaled
carbon dioxide.

- Pulse Oximeters -- monitors which measure arterial blood
oxygen saturation levels and pulse rates.

- Transcutaneous Blood Gas Monitors -- monitors which measure
oxygen and carbon dioxide levels through the skin.

- Respiratory Mechanics Monitors -- monitors which measure
pressure, flow and volume in a patient's airway and lungs.

- Reusable and disposable sensors and adapters, related
accessories and replacement parts.

BLOOD GAS MONITORS

Levels of oxygen and carbon dioxide in the blood are important
indicators of the condition of critically ill or injured patients. These
levels are particularly important to doctors, nurses, therapists and other
clinicians during anesthesia in the operating room, the assessment of a patient
in the emergency room, the monitoring of a patient in the intensive care unit
and recovery room and throughout respiratory therapy applications. Healthy
people have a normal range of oxygen and carbon dioxide levels in their blood,
lungs and other tissue. Also, depending on a person's size and age, there is a
range of normal airway and lung pressure, flow and volume levels. By
continuously monitoring these ranges, a change in a patient's status can be
detected at an early stage and modified before serious deterioration in

21
<PAGE> 25
a patient's condition occurs. In addition, if a patient's blood gas levels or
respiratory mechanics are outside their normal ranges, continuous monitoring
provides healthcare professionals with important information concerning the
progress of the medical treatment undertaken to bring them back within normal
ranges.

Until recent years, the only methods of determining the body's oxygen
and carbon dioxide levels involved invasive techniques of withdrawing blood
samples from a patient's artery and waiting for laboratory analysis of the
samples. The Company's products offer healthcare providers the alternative of
non-invasive, continuous and immediate measurement of oxygen and carbon
dioxide. The Company's blood gas monitoring products utilize three different
technologies, each of which is suitable for different applications.

CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal carbon
dioxide monitors) provide a continuous, non-invasive measurement and display of
the amount of carbon dioxide in each breath exhaled by the patient.
Clinically, end-tidal carbon dioxide levels have been correlated to a patient's
arterial blood carbon dioxide levels. Measurement of these levels provides a
simple, non-invasive method of estimating the carbon dioxide levels of the
patient. Applications for capnographs include (i) intubation verification, the
verification of the introduction of an airway tube into the trachea (air tube)
rather than the esophagus (food tube) and the verification of an open and
unobstructed airway; (ii) extubation detection, the disclosure of the
accidental dislodging from the trachea of an airway tube; (iii) ventilation
management through the disclosure of ventilator malfunctions and the proper
adjustment of mechanical ventilation to match a patient's condition and needs;
and (iv) verification of the effectiveness of cardio-pulmonary resuscitation
(CPR).

The Company's capnographs utilize a form of infrared spectrometry (a
method of analyzing gas content by measuring the amount of infrared energy
absorbed) developed by the Company to measure levels of expired carbon dioxide
throughout the patient's respiratory cycle. These monitors provide both a
graphical and digital display of carbon dioxide levels and respiratory rate.
The reliability and accuracy of capnography have made its use a rapid indicator
of proper and continuous intubation, obstructions in the airway and pulmonary
efficiency in eliminating carbon dioxide. In addition, end-tidal carbon
dioxide and respiratory rate measurements facilitate proper and cost efficient
ventilator use. In recognition of its accurate measurement of clinically
significant facts, as well as the added degree of safety that it affords
patients, capnography has been recommended for use in the operating room by the
American Society of Anesthesiologists and in the intensive care unit by the
Society of Critical Care Medicine.

The Company has two bedside capnographs which are portable devices:
the CAPNOGARD(TM), a lightweight, smaller

22
<PAGE> 26
capnograph (measuring approximately 3" high, 9" wide and 8" deep, and weighing
8 pounds), and the CO(2)SMO(TM), a combined capnograph and pulse oximeter which
is the same size as the CAPNOGARD(TM). These "mainstream" capnographs are
designed to take measurements at the patient's airway through infrared
measurement as compared to "sidestream" measurements of exhaled breath which
involves the drawing of samples through tubes connected to bedside monitors and
are susceptible to moisture and other secretion contaminants. Both models
utilize a new generation, durable and solid-state sensor developed by the
Company. These monitors also permit sampling on non-intubated patients. The
CAPNOGARD(TM) has a list sales price of approximately $7,500 and the
CO(2)SMO(TM) has a list sales price of approximately $9,500.

The Company has two larger mainstream capnographs, the Model 1260 and
the Model 7000A. The Model 1260 measures both end-tidal carbon dioxide levels
and a patient's respiratory rate. The Model 7000A combines these parameters
with arterial oxygen saturation and pulse rate measurements. Both models
utilize the Company's mainstream infrared spectrometry solid-state sensor and
incorporate training/diagnostic software packages in an easy to use,
menu-driven system. The Model 1260 has a list sales price of approximately
$4,500 and the Model 7000A has a list sales price of approximately $6,000.

PULSE OXIMETERS. The Company's pulse oximeters provide a continuous
and non-invasive measurement and display of pulse rate and arterial blood
oxygen saturation through the detection and measurement of infrared light
absorbed by hemoglobin in the blood. Reusable finger and multi-position
sensors (Y-Sensor(TM)) are available for adult, pediatric and neonatal
applications and eliminate the use of costly disposable sensors. Pulse
oximeters have been clinically demonstrated as safe, accurate and
cost-effective for the determination and trending of levels of blood oxygen
saturation and pulse rates. Applications for these monitors are widespread
since the level of oxygen in a patient's blood can be as important a vital sign
of a patient's condition as the patient's temperature, blood pressure,
respiratory rate and electrocardiogram. Pulse oximetry is used in many
departments of the hospital, including the operating room by anesthesiologists,
emergency rooms and intensive care units by nurses and respiratory therapists
and neonatal intensive care units by neonatologists. Additional applications
include inter- and intra-hospital transport situations and clinical
applications in surgical centers, doctors' offices and clinics during
out-patient procedures.

The Company has a family of pulse oximeters designed to meet the
individual needs of clinicians in a variety of settings. Each oximeter
utilizes the Company's reusable Superbright(R) sensors, which provide safe and
accurate results on all types of patients, including neonates (an infant less
than 28 days old) and poorly perfused patients (patients with insufficient
blood flow). Our full-featured oximeter, the OXYPLETH(R) provides high
visibility for the plethysmographic waveform (a graphic display of arterial
pulse, also known as a

23
<PAGE> 27
plethysmogram) through the use of digital technology combined with advanced
software developed by the Company. The Model 515A pulse oximeter provides many
of the advanced features of the OXYPLETH(R) with trending capability for up to
24 hours, but excludes the plethysmogram. The Model 515B (and Model 515C with
plethysmogram) pulse oximeters, introduced by the Company in 1995, utilize the
same basic technology and software as our more expensive models to provide the
same oxygen saturation and pulse rate information but with fewer available
added features.

This family of products also includes a battery operated handheld
pulse oximeter, the SPO(2)(check)(TM). Measuring approximately 6" high, 4"
wide and 1 1/2" deep and weighing less than 1 pound, this monitor's
light-weight design and portability permits wide applications such as use in
emergency transport situations, doctors' offices, clinics during outpatient
procedures and performance of spot checks on patients in all areas of the
hospital.

The Oxypleth has a list sales price of approximately $3,000 and the
Model 515A has a list price of approximately $2,500. The Model 515B, Model
515C and SPO(2)(check)(TM) have list sales prices of approximately $2,000,
$2,200 and $1,000, respectively.

TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous
(through the skin) blood gas monitors provide continuous and non-invasive
measurements of oxygen and carbon dioxide levels in the skin tissue of
patients. These monitors utilize dual parameter sensors attached to the
patient's skin surface to measure the amount of oxygen and carbon dioxide
diffusing through the skin. Based upon the magnitude of the diffusion of the
blood gas molecules, the monitor converts the sensor readings into a value
corresponding to the oxygen or carbon dioxide at the patient's skin surface and
displays the information on the monitor. Premature and other critically ill
newborn infants are the primary patients who benefit from the use of
transcutaneous monitoring. In view of their limited blood supply, frequent
invasive blood sampling has been recognized as traumatic and unsatisfactory for
these patients. The Company intends to continue to develop and enhance its
transcutaneous blood gas monitors for neonatal and adult use in intensive care
and vascular medicine applications.

The Company's Model 840 transcutaneous monitor utilizes a simple
menu-driven system which takes the user through automatic calibration
procedures, histogram (graphical representation of data collected over time)
and printout options. This monitor, which features a bright, vacuum
fluorescent digital display has a list sales price of approximately $6,500.

RESPIRATORY MECHANICS MONITORS

The Company's respiratory mechanics monitors provide a continuous and
non-invasive measurement of the pressure, flow

24
<PAGE> 28
and volume in a patient's airway, as well as measurements of other pulmonary
mechanics parameters. Optimal carbon dioxide elimination and arterial
oxygenation during mechanical ventilation require the clinical management of
the pressure, flow and volume of airway gases being administered. The
Company's respiratory monitors provide important data which allows therapists
to properly and efficiently administer ventilation therapy. Applications for
these monitors include the clinical management of the proper pressure and flow
of airway gases being delivered to a ventilated patient's lungs and the
measurement of the efficiency of the lungs, allowing therapists to wean a
patient from expensive mechanical ventilation to spontaneous breathing at the
clinically appropriate and most cost-effective time. Respiratory therapy and
critical care departments with patients requiring mechanical ventilation
currently represent the primary users of the Company's respiratory mechanics
monitors.

The Company's VenTrak(TM) monitor provides graphical monitoring of
airway flow, airway pressure and lung volume. It also has an ability to
perform waveform (graphical) analysis and to calculate a variety of physiologic
parameters relating to lung function which the Company believes were not
previously available on a continuous, non-invasive basis in the clinical
setting. This information provides a higher degree of safety during mechanical
ventilation and allows therapists to adjust ventilation to match a patient's
condition and to remove patients from ventilation at the clinically appropriate
and most cost-effective time. The VenTrak(TM) monitor has a list sales price
of approximately $9,400 to $13,000 depending on its configuration. The Company
also manufactures a respiratory monitor for mechanical ventilators under the
name PNEUMOGARD(R) Model 1200. The PNEUMOGARD(R) Model 1200 has a list sales
price of approximately $2,900.

The Company also maintains the exclusive rights for the commercial
manufacture and marketing of a disposable airway flow sensor which the Company
anticipates will replace those presently used in its respiratory mechanics
monitors upon completion of its development in Fiscal 1996. The Company
expects that this technology will lower its manufacturing costs for these types
of flow sensors and will improve the accuracy of information currently
obtainable from these monitors.

The Company's capnography and respiratory mechanics technologies
permit the Company to provide both continuous and non-invasive blood gas
monitoring and respiratory mechanics monitoring for patients on mechanical
ventilators.

SALES, MARKETING AND CUSTOMERS

The Company markets its products domestically and internationally
directly through salespersons and outside distributors to its customers, most
of which are hospitals, on a retail, purchase order basis. All of the
Company's blood gas and respiratory mechanics products are marketed primarily

25
<PAGE> 29
to hospitals for use in operating rooms, emergency rooms, intensive care units,
respiratory therapy departments, transport situations and in other departments
where critically ill or injured patients require monitoring. The Company also
expects to further increase its marketing efforts to physician groups and other
healthcare facilities such as nursing homes, surgical centers and outpatient
clinics.

The Company also markets its products directly to OEM's which
incorporate certain of the Company's products and technologies in the
manufacture of their own multi-parameter systems, ventilators and other
non-competing products. Generally, the Company sells its products to OEM
customers pursuant to long-term contracts which, in certain cases, provide for
the purchase of minimum quantities of products at specified prices. The
Company assembles the products to be sold to OEM customers and, generally, also
agrees to provide maintenance and replacement parts. Currently, the Company
has eight long-term agreements with OEM customers, and continues to seek
additional agreements with other OEM customers. There can be no assurance that
the Company will be successful in obtaining other long-term OEM contracts.

The Company employs a 19-person direct United States sales force and
also utilizes nine outside distributors in the United States to sell its
products. Typically, these distributors sell other medical instruments and
products, but do not sell products which compete directly with those offered by
the Company.

Internationally, the Company currently employs six sales and marketing
managers and has approximately 50 outside international distributors. The
Company markets its products in over 50 countries worldwide. The Company's
international net sales of products and services constituted 39%, 35% and 30%
of the Company's total net sales during Fiscal 1995, Fiscal 1994 and Fiscal
1993, respectively, and 37% and 38% of the Company's total net sales for the
three-month periods ended July 30, 1995 and July 31, 1994, respectively. The
Company is engaged in continuing efforts to improve and expand the
international distribution of its products and expects international sales to
continue to constitute a significant portion of the Company's total net sales.

Many of the countries into which the Company sells its products
require governmental approval for the sale of the Company's medical
instruments. In most countries which require approval, the approval process is
shorter than that in the United States and, generally, the Company shares the
costs associated with the approval process with its international distributors.
The Company believes it has all necessary approvals to sell the products which
it distributes internationally.

All of the Company's international sales are denominated in United
States dollars. However, the volume of export sales of the Company's products
may be affected by fluctuations in the rate of exchange of the United States
dollar for the

26
<PAGE> 30
currency of the country in which sales are made. The Company believes that
prior fluctuations in the strength of the United States dollar have had a
minimal impact on international sales of its products.

No customer accounted for more than 10% of the Company's net sales in
Fiscal 1995, Fiscal 1994 or Fiscal 1993 or for the three-month period ended
July 30, 1995.

Advertising of the Company's products consists primarily of displays
at medical meetings and trade shows. The Company also advertises in trade
journals and periodicals and cooperates in the publication of technical papers
written by medical authorities in areas relating to the Company's products.

RESEARCH AND DEVELOPMENT

The Company's research and development activities are devoted to the
design and development of new monitor and sensor technology and to the
development and enhancement of its existing products. The Company anticipates
offering new products in the future; however, there can be no assurance that
the Company will be successful in introducing new products in the near future.
With the advent of managed care and continuing healthcare cost containment
efforts, these research and development activities are focused on providing
technology and related products which measure and record medically necessary
information in a safe and cost-effective manner.

The Company's research and development activities presently are, and
during the foreseeable future are expected to be, devoted primarily to the
development and enhancement of the Company's existing products and technologies
and to the design and development of new products. For Fiscal 1995, Fiscal
1994 and Fiscal 1993, the Company incurred aggregate expenses of approximately
$6,055,000 for these activities. Approximately $2,419,000 was attributable to
Fiscal 1995, approximately $1,954,000 to Fiscal 1994 and approximately
$1,682,000 to Fiscal 1993. For the three-month periods ended July 30, 1995 and
July 31, 1994 the Company incurred research and development expenses of
approximately $685,000 and $534,000, respectively. All of the Company's
research and development activities are sponsored by the Company.

The Company's Cascadia Technology Division, located in Redmond,
Washington, is engaged principally in research and development. The research
and development portion of expenses related to this division are included in
the amounts stated in the preceding paragraph.

PRODUCTION AND SERVICE

Substantially all of the components in the Company's products are
manufactured by others and then assembled by the Company. The Company's
assembly operations require a variety

27
<PAGE> 31
of electronic and mechanical components and supplies, as well as specialized
equipment which the Company owns or leases.

The Company does not have any long-term contracts with any of its
suppliers and believes that the needed components and supplies are available
from alternate sources. The Company has not experienced any interruption of
production or deliveries of components, supplies or equipment. However, there
can be no assurance that the Company will continue to receive timely service or
that the Company would be able to find readily a substitute manufacturer if one
were needed on short notice. Interruption of the Company's sources of supply
or quality problems with the supplied components could have a material adverse
effect on the Company's business and financial position.

The Company provides maintenance service for its products through
service technicians who are employees of the Company and through independent
service representatives. The Company's products utilize modular components
which have been designed for maximum maintenance accessibility and ease of
removal for repair or replacement. The Company warrants its products against
defects in material and workmanship, including parts and labor, for one year or
more, except for certain non-capital items which the Company warrants for
shorter periods. The Company also offers extended warranty programs that may
be purchased by its customers. Historically, the Company's annual warranty
expenses have been immaterial.

BACKLOG

The Company's backlog of firm orders aggregated approximately
$4,180,000 as of July 30, 1995 compared to approximately $3,994,000 as of April
30, 1995. Except for orders pursuant to long-term OEM agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog at any time to be a meaningful indicator of future
sales.

PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS

The Company holds U.S. patents and has pending applications for two
additional U.S. patents. The Company's patents primarily cover its capnography
technology which the Company believes provide it with a competitive advantage
in the marketplace. Although the Company holds patents and has patents pending
related to certain of the Company's products, the Company does not believe that
its business as a whole is or will be materially dependent upon patent
protection of these products. However, the Company will continue to seek
patents as it deems advisable to protect its research and development and the
market for its products.

Due to extensive patent coverage in the medical electronics
instruments industry and the rapid rate of issuance of new patents, certain
components of the Company's products may involve infringement of existing
patents. The

28
<PAGE> 32
Company believes that any risks presently being assumed with respect to any
possible patent infringement are reasonable business risks similar to those
being assumed by other companies in the industry.

The Company is the owner of approximately 25 trademarks in the United
States including, Novametrix(R), CAPNOGARD(TM), CO(2)SMO(TM), Y-Sensor(TM),
SPO(2)(check)(TM), OXYPLETH(TM), SuperBright(TM), VenTrak(TM) and PNEUMOGARD(R).

The Company relies on trade secrets and proprietary know-how, which it
will seek to protect, in part, by confidentiality agreements with certain of
its employees, suppliers and customers. However, there can be no assurance
that the Company's confidentiality agreements, when in place, will not be
breached or that the Company would have adequate remedies for any breach.
There can be no assurance that the Company's trade secrets or proprietary
know-how will not otherwise become known or be independently discovered by
competitors.

As part of the Company's loan agreements with First Fidelity, the
Company granted a security interest to First Fidelity in substantially all of
its assets and entered into certain security arrangements with First Fidelity,
including the assignment of all of the Company's right, title and interest in
its patents and patent applications to First Fidelity to secure all of its
obligations owing First Fidelity. In July 1995, in conjunction with an
amendment to its revolving credit facility, First Fidelity released all of the
Company's patents, patent applications and trademarks as collateral and agreed
to reconvey to the Company title to the patents, patent applications and
trademarks.

COMPETITION

The electronic medical instrumentation industry is extremely
competitive. The Company considers the most significant competitive factors in
its industry to be product capability and performance (including reliability
and ease of use), price and terms of purchase, availability of prompt and
effective maintenance, and an ability to introduce new and improved products
with regularity. The Company believes that it competes effectively in each of
these areas.

While continuous, non-invasive blood gas monitors are presently
available from several of the Company's competitors, the Company believes that
its continuous, non-invasive blood gas monitors provide advantages over
currently available competing products in terms of accuracy, reliability and
versatility. The Company believes its respiratory mechanics monitors also
compare favorably with competitive models in terms of accuracy of measurement
and reliability of service. Additionally, the Company feels that what it
believes to be the technological superiority in size, performance, reliability
and durability of its new products provides it with a competitive advantage.

29
<PAGE> 33
The electronic medical instrumentation industry is characterized by
rapid technological changes and advances. Although the Company believes that
its products are technologically current, the development of new technologies
or refinements of existing ones could at any time make the Company's existing
products technologically or economically obsolete. Although the Company is not
aware of any pending technological developments that would be likely to
materially and adversely affect its business or financial position, there can
be no assurance that such developments will not occur at any time.

Although all of the Company's competitors do not market all of the
products which the Company markets, the Company estimates that it competes with
at least eight competitors. Such competitors vary in size from those which are
smaller than the Company to divisions or subsidiaries of multinational
corporations. There can be no assurance that the Company will be able to
compete successfully with its competitors, some of which also have extensive
production facilities, well-established marketing and service organizations and
recognized reputations in the electronic medical instrumentation industry and
also have far greater financial resources than the Company has or will have in
the foreseeable future.

PRODUCT LIABILITY AND INSURANCE COVERAGE

From time to time, the Company is subject to product liability claims,
suits and complaints incidental to its business. These claims, suits and
complaints are covered by insurance policies maintained by the Company, subject
to certain policy limits. In addition, certain of the Company's OEM agreements
require the Company to maintain certain levels of product liability insurance.
The Company currently maintains product liability insurance in the amount of
$5,000,000 with a $50,000 per occurrence deductible up to an aggregate annual
deductible of $250,000. The Company is not aware of any pending claims, suits
or complaints, the disposition of which, in the opinion of management, would
have a material adverse effect upon the Company's financial position, results
of operations or liquidity. The Company, however, could be materially
adversely affected by successful product liability claims, and there can be no
assurance that the Company will have sufficient resources to satisfy any
liability resulting from claims not covered by existing insurance policies.

REGULATION

The Company's products are subject to regulation in the United States
and in many of the foreign countries where the Company markets or seeks to
market its products.

Certain of the Company's products are "devices" within the meaning of
a 1976 amendment to the Federal Food, Drug and Cosmetics Act. Under the
amendment, a manufacturer must obtain approval by the FDA of certain new
devices before they can be marketed in the United States. The approval process

30
<PAGE> 34
requires that the safety and efficacy of such devices be demonstrated by the
manufacturer to the FDA. Under certain circumstances, the cost of obtaining
such pre-marketing approval may be high and the process lengthy, and no
assurance can be given that approval will be obtained. All of the products
currently marketed domestically by the Company requiring pre-marketing approval
from the FDA have been so approved.

In the future, certain other classes of medical devices will be
required to comply with industry-wide performance standards with respect to
safety and efficacy when these standards are promulgated by the FDA. The FDA
has not yet developed industry-wide performance standards with respect to the
safety and effectiveness of those products manufactured by the Company which
would be subject to such standards. When and if these standards are adopted,
the Company will be required to submit data demonstrating compliance with the
standards (during which period the Company may be permitted to continue to
market products which have previously been approved by the FDA).

There can be no assurance that the Company's products will comply with
the applicable industry-wide performance standards when and if adopted or that
the Company will receive the requisite approval to market any of its future
products. Any failure to receive approvals or non-compliance with performance
standards would have a material adverse effect on the Company's business and
financial position.

Underwriters' Laboratories, Inc. ("UL") has established safety
standards for patient-connective electrical apparatus. These standards, or
their equivalent, have been adopted as purchase specifications by many
hospitals. The Company has obtained UL or equivalent approval with respect to
certain of its products and has applied or intends to apply for approval with
respect to all its other products to which these standards apply. In addition,
state and municipal testing agencies have imposed similar standards with which
the Company's products sold in particular areas may be required to comply. The
Company does not believe that compliance with these state and municipal
standards will involve significant expense.

Various countries in which the Company markets its products have
regulatory agencies which perform functions comparable to those of the FDA. To
date, foreign regulations have not adversely affected the Company's business;
however, there can be no assurance that any such regulations will not have a
material adverse effect on the Company's business and financial condition in
the future.

While Congress has proposed cost cutting adjustments to the federal
budget aiming in part at this country's current healthcare delivery system, and
in particular, Medicaid and Medicare reforms, the immediate threat to
healthcare from government appears to have passed. The move toward managed
care has already had a major impact on the healthcare industry

31
<PAGE> 35
in the United States by accelerating the trend toward shorter hospital stays
and the use of outpatient facilities rather than hospitalization and lowering
annual cost increases for healthcare spending. Additional cost saving changes
could further impact hospitals, clinics and other healthcare providers, which
form the Company's customer base. These possible changes could potentially
reduce or further delay capital expenditures by these providers, and could
change the users and markets for the Company's products. However, the acute
care portion of a hospital (including the operating room and intensive care
unit) which is a significant market for the Company's products should not be
greatly affected by the trend toward the use of outpatient facilities as such
outpatient facilities generally care for patients who are not critically ill.
In addition, the trend toward managed competition may improve sales of certain
of the Company's non-disposable products which provide substantial cost savings
compared to similar disposable products sold by its competitors, and may also
improve sales of other Company products that improve patient throughput and
thereby result in shorter hospital stays.

The uncertainty associated with the ultimate direction of changes
within the healthcare system, if any, has caused some hospitals and other
healthcare providers to defer capital and other expenditures pending
clarification of the future direction of the healthcare industry. Although the
trend toward managed competition could have a positive impact on the Company's
business by providing increased coverage for medical procedures utilizing the
Company's products, thereby increasing demand for the Company's products, it is
not possible at this time to predict what, if any, further changes in
healthcare will occur.

EMPLOYEES

As of September 29, 1995, the Company had a total of 176 full-time
employees, consisting of 67 production personnel, 33 research and development
personnel, 61 sales, marketing and service personnel and 15 administrative,
managerial and financial personnel. None of the Company's employees is covered
by a collective bargaining agreement. The Company considers its relationship
with its employees to be satisfactory.

PROPERTIES

The Company's main plant and executive offices are located at One
Barnes Industrial Park Road, Wallingford, Connecticut, where the Company leases
30,000 square feet of office and production space under a five-year lease which
expired in September 1995. The lease provided for minimum annual rental
payments of $150,000. In addition, the Company is also required to pay for
repairs, property taxes and insurance relating to this facility. The Company
is currently finalizing an extension of the lease through May, 1996 which would
provide for minimum annual rental payments of $180,000. In May 1996, the
Company expects to relocate to a larger

32
<PAGE> 36
leased facility. The Company also leases approximately 6,000 square feet of
warehouse space at an adjacent site in Wallingford, Connecticut. The lease for
such space expired on October 31, 1992; however, the Company has continued to
occupy the space on a month-to-month basis for monthly rental payments of
$2,000. The Company believes that it can enter into new leases for adjacent,
equivalent space on commercially reasonable terms.

In addition, the Company leases a building in Redmond, Washington
containing approximately 7,000 square feet of floor space under a three-year
lease expiring in March 1997. This building is used primarily for research and
development with some manufacturing support. The lease provides for rental
payments of approximately $53,000 per year, plus taxes, insurance and other
expenses.

The Company believes that its facilities are well maintained, in good
operating condition and are adequate for its current needs.

LEGAL PROCEEDINGS.

From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's consolidated
financial position, results of operations or liquidity.

See also "Patents, Trademarks and Proprietary Rights" and "Products
Liability and Insurance Coverage" under "Item 1. Business."

33
<PAGE> 37
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The current executive officers and directors, their ages and their
positions held in the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William J. Lacourciere . . . . . . . . . . 56 Chairman of the Board, Chief Executive Officer, President and Director
Joseph A. Vincent . . . . . . . . . . . . . 44 Vice President Finance, Chief Financial Officer, Treasurer, Secretary and
Director
Leslie E. Mace . . . . . . . . . . . . . . 49 Vice President Engineering
Donald R. Gordon . . . . . . . . . . . . . 57 Director
Thomas M. Haythe . . . . . . . . . . . . . 56 Director
Michael J. Needham . . . . . . . . . . . . 54 Director
Photios T. Paulson . . . . . . . . . . . . 56 Director
Steven J. Shulman . . . . . . . . . . . . . 44 Director
</TABLE>

William J. Lacourciere has been Chairman of the Board of the Company
since September 1991, Chief Executive Officer since February 1991, President
since August 1986 and a director since October 1982. He served as Chief
Operating Officer from March 1983 to February 1991. Mr. Lacourciere served as
Executive Vice President from March 1983 to August 1986. From October 1982 to
March 1983, he served as Executive Vice President Marketing. From April 1980
to October 1982, Mr. Lacourciere served as Vice President Domestic Sales.

Joseph A. Vincent has been Vice President Finance of the Company since
August 1991, Treasurer since February 1991 and Chief Financial Officer and
Secretary since April 1990. He served as Controller from September 1984 to
April 1990. Mr. Vincent held various positions with Picker International, Inc.
(a manufacturer of medical diagnostic instruments and supplies) from August
1974 until he joined the Company in August 1983. Mr. Vincent has been a
director of the Company since February 1994.

Leslie E. Mace has been Vice President Engineering of the Company and
General Manager of the Company's Cascadia Technology Division in Redmond,
Washington since March 1991. He served as Vice President of the Company's
Cascadia Technology Division from May 1989 to March 1991. Mr. Mace served as
Vice President, Chief Operating Officer and Engineering Manager of Cascadia
Technology Corporation, a Washington corporation (research and development
company), from prior to 1988 to April 1989.

Thomas M. Haythe has been a member of the New York City law firm of
Haythe & Curley since prior to 1989. He is a director of Guest Supply, Inc.
(hotel guest room amenities and accessories), Isomedix Inc. (commercial
sterilization services), Westerbeke Corporation (marine engine products),
Ramsay Health Care, Inc. (provider of psychiatric healthcare services) and
Ramsay Managed Care, Inc. (provider of managed

34
<PAGE> 38
mental healthcare services). Mr. Haythe has been a director of the Company
since March 1978. See "Legal Matters."

Michael J. Needham has been President and Chief Executive Officer of
Simex Inc. (designer of entertainment attractions) since March 1991. He served
as President of Helix Investments Limited (venture capital fund) from prior to
1989 to February 1991. Mr. Needham has been a director of the Company since
August 1990 and served as a director of the Company from January 1980 to
November 1989.

Photios T. Paulson has been Vice President, bioAlliance, SA, a
privately-held French holding company, since January 1995; has served as
Chairman of bioMerieux Vitek Inc. (manufacturer of clinical diagnostic systems)
since July 1991. He has served as Senior Adviser -- Health Care Industry and
International Investment Banking, Prudential Securities Inc. (investment
bankers) since July 1987. Mr. Paulson has been a director of the Company since
July 1992.

Steven J. Shulman has been Executive Vice President of Value Health,
Inc. (provider of specialty managed care programs) since prior to 1989. He has
served as President and Chief Executive Officer of American PsychManagement,
Inc. (wholly-owned subsidiary of Value Health, Inc.) since October 1990. He
held various managerial positions at CIGNA Healthplan, Inc. (provider of group
life and health insurance, including managed care products) prior to 1989. Mr.
Shulman is a director of Value Health, Inc. and Ramsay Health Care, Inc. and
has been a director of the Company since November 1993.

The Board of Directors has a Stock Option Committee, whose members are
Messrs. Shulman, Haythe, Needham and Paulson, a Compensation Committee, whose
members are Messrs. Shulman, Haythe, Needham and Paulson, and an Audit
Committee, whose members are Messrs. Shulman and Haythe. The Stock Option
Committee administers the Company's Stock Option Plans and Stock Purchase Plan
and determines the persons who are to receive options under the Company's 1994
Stock Option Plan and 1990 Stock Option Plan, the number of shares to be
subject to each option and the other terms and conditions upon which options
under such plans are granted and made exercisable. The Compensation Committee
makes recommendations to the Board of Directors regarding compensation and
other benefits to be paid to key employees of the Company. The Audit Committee
is authorized to review the results of the auditors' examinations and make
recommendations with respect to accounting practices and procedures and
internal controls.

The Company's Certificate of Incorporation provides for the division
of the Board of Directors into three classes. The Class A directors of the
Company are Michael J. Needham, Steven J. Shulman and Joseph A. Vincent, the
Class B Director is Photios T. Paulson, and the Class C directors are Thomas
M. Haythe and William J. Lacourciere. Donald R. Gordon resigned as a Class B
Director of the Company effective August 15, 1994. The stockholders have
elected each class to serve for a

35
<PAGE> 39
full term of three years. If the number of directors is increased, the
increase will be apportioned among the classes so as to make all classes as
nearly equal in number as possible.

Executive officers serve at the pleasure of the Board of Directors.
In addition to their right to vote with holders of shares of Common Stock on
all matters to be voted on at a stockholders meeting, the holders of record of
the shares of Series B Preferred Stock, exclusively and as a class, have the
right to elect one director to the Board of Directors who is not a competitor
of, supplier to or customer of the Company or an affiliate of such a
competitor, supplier or customer. The holders of Series B Preferred Stock have
not yet exercised this right.

The Company has agreed that, at the request of the Representative,
until June 9, 1999, it will use its best efforts to cause one individual
designated by the Representative to be elected to the Company's Board of
Directors. To date, no person has been so designated by the Representative for
election as a director of the Company.

The directors and officers of the Company, other than Messrs. Haythe,
Needham, Paulson and Shulman, are active in its business on a day-to-day basis.
No family relationships exist between any of the directors and officers of the
Company.

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<PAGE> 40
EXECUTIVE COMPENSATION

The following tables set forth information for the fiscal years ended
April 30, 1995, May 1, 1994 and May 2, 1993 concerning the compensation of the
Company's Chief Executive Officer and other executive officers of the Company
whose total annual salary and bonus exceed $100,000 during the fiscal year
ended April 30, 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------- ----------------
Name and Fiscal All Other
Principal Position Year Salary Bonus Stock Options (#) Compensation (1)
------------------ ---- ------ ----- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
William J. Lacourciere 1995 $200,000 $25,000 30,000 $4,478
Chairman of the Board, 1994 166,346 0 0 3,126
President and Chief 1993 144,231 0 0 4,786
Executive Officer

Joseph A. Vincent 1995 100,000 15,000 20,000 2,651
Chief Financial 1994 100,000 0 0 1,916
Officer, 1993 84,731 0 10,000 2,352
Vice President Finance,
Treasurer and Secretary
</TABLE>

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

(1) Includes contributions made by the Company on behalf of the named
executive officers to the ESOP, the Company's 401(k) Plan and a term life
insurance plan.

The following table sets forth the grants of stock options to
the executive officers named in the Summary Compensation Table during the
fiscal year ended April 30, 1995.

OPTION GRANTS IN THE FISCAL YEAR ENDED
APRIL 30, 1995

<TABLE>
<CAPTION>
Number of % of Total
Securities Options Granted
Underlying Options to Employees in Exercise or
Name Granted (#) Fiscal Year Base Price ($/Sh) Expiration Date
- ----------------------- ------------------ --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
William J. Lacourciere 30,000(1) 13.3% $4.25 6/15/04
Joseph A. Vincent 20,000(1) 8.9% $4.25 6/15/04
</TABLE>

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

(1) Options are currently exercisable as to 33-1/3% of underlying
securities and will become exercisable as to 66-2/3% and 100% of
underlying securities on June 15, 1996 and June 15, 1997,
respectively.

37
<PAGE> 41
The following table sets forth the number and value of options held by
the executive officers named in the Summary Compensation Table at April 30,
1995. None of the executive officers named in the Summary Compensation Table
exercised any stock options during the fiscal year ended April 30, 1995.

FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities
Underlying Options at Value of In-the Money
April 30, 1995 Options at April 30, 1995(1)
-------------- -----------------------------

Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William J. Lacourciere 10,000 20,000 $ 11,250 $22,500
Joseph A. Vincent 48,334 16,666 157,709 24,166
</TABLE>

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

(1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price thereof. The value of
in-the-money options is determined in accordance with regulations of the
Securities and Exchange Commission by subtracting the aggregate exercise
price of the options from the aggregate year-end market value of the
underlying Common Stock.

STOCK OPTION PLANS

The Company currently maintains the 1994 Stock Option Plan (the "1994
Stock Option Plan") and the 1990 Stock Option Plan (the "1990 Stock Option
Plan"). Previously, the Company maintained the 1979 Stock Option Plan (the
"1979 Option Plan;" and, together with the 1994 Stock Option Plan and 1990
Stock Option Plan, the "Stock Option Plans"). The 1979 Stock Option Plan was
terminated effective November 30, 1990, although certain options granted under
the 1979 Stock Option Plan continue to be outstanding and exercisable. Under
the 1994 Stock Option Plan, as currently in effect, options to purchase up to
300,000 shares of Common Stock were reserved to be granted to key employees of
the Company or its subsidiaries or parent corporations, including officers and
directors, during the period ending May 31, 2004. Under the 1990 Stock Option
Plan, as currently in effect, options to purchase up to 200,000 shares of
Common Stock were reserved to be granted to key employees of the Company or its
subsidiaries or parent corporations, including officers and directors, during
the period ending November 30, 2000.

The Stock Option Plans are administered by the Stock Option Committee
of the Board of Directors (the "Committee"). The Committee determines the
persons who are to receive options under the 1994 Stock Option Plan and the
1990 Stock Option Plan and the number of shares to be subject to each option.
In selecting employees for options and determining the terms thereof under the
1994 Stock Option Plan and the 1990 Stock Option Plan, the Committee may take
into consideration any factors it may deem relevant, including present and
potential contributions to the success of the Company.

Each option granted under the 1994 Stock Option Plan and the 1990
Stock Option Plan, as well as options that were granted under the 1979 Stock
Option Plan, must be exercised

38
<PAGE> 42
within a period fixed by the Committee, which may not exceed ten years from the
date of the grant of the option or, in the case of incentive stock options
granted to any holder on the date of grant of more than 10% of the total
combined voting power of all classes of stock of the Company or of any
subsidiary, five years from the date of grant of the option. Options may be
made exercisable in whole or in installments, as determined by the Committee.

Options may not be transferred other than by will or the laws of
descent and distribution and during the lifetime of an optionee may be
exercised only by the optionee.

Under the 1994 Stock Option Plan, the 1990 Stock Option Plan and the
1979 Stock Option Plan, the exercise price may not be less than the market
value of the Common Stock on the date of grant of the option, in the case of
incentive stock options, or the tangible book value per share of the Common
Stock at the end of the fiscal quarter preceding the grant, in the case of
non-qualified stock options. In the case of incentive stock options granted to
any holder on the date of grant of more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary, the exercise
price may not be less than 110% of the market value of the Common Stock on the
date of grant. Unless designated as "incentive stock options" intended to
qualify under Section 422 (formerly Section 422A) of the Internal Revenue Code
of 1986, as amended (the "Code"), options which are granted under the 1994
Stock Option Plan, the 1990 Stock Option Plan and the 1979 Stock Option Plan,
are intended to be "non-qualified stock options." The exercise price may be
paid in cash, shares of Common Stock owned by the optionee, or a combination of
both.

In the event that the Board of Directors determines to grant options
to members of the Committee under the 1994 Stock Option Plan and the 1990 Stock
Option Plan, the maximum number of shares of Common Stock in the aggregate
which may be subject to options granted to all directors is 50,000 and 75,000,
respectively, and the maximum number of shares of Common Stock which may be
subject to options granted to each director is 50,000 and 10,000, respectively.
If options are granted to members of the Committee under the 1994 Stock Option
Plan and the 1990 Stock Option Plan, the exercise price of options granted to
directors may in no event be less than the fair market value of the Common
Stock on the date of grant of the options.

Options to purchase 99,467 shares of Common Stock are currently
outstanding under the 1979 Stock Option Plan, at a weighted average exercise
price of $1.71 per share, options to purchase 179,900 shares of Common Stock
are currently outstanding under the 1990 Stock Option Plan, at a weighted
average exercise price of $3.42 per share and options to purchase 122,000
shares of Common Stock are currently outstanding under the 1994 Stock Option
Plan, at a weighted average exercise price of $4.26 per share.

39
<PAGE> 43
The Company has agreed with the Representative pursuant to the
underwriting agreement executed in connection with the Public Offering that for
a three-year period ending June 8, 1997 the Company will not, without the
Representative's prior written consent, grant, issue or sell any option,
warrant or other right to purchase shares of Common Stock or other securities
of the Company convertible into or exercisable for shares of Common Stock (i)
at an exercise price less than the fair market value per share of Common Stock
on the date of grant, issuance or sale, as applicable, or (ii) to any holders
of five percent or more of the Common Stock, which holders are not directors,
officers or employees of the Company. In addition, the Company has agreed that
for a three-year period ending June 8, 1997 the Company will not grant, issue
or sell options or warrants to purchase Common Stock or to purchase other
securities of the Company which are convertible into or exercisable for shares
of Common Stock to directors, officers, employees or consultants of the
Company, individually, or as group, other than options, warrants and other
securities exercisable, convertible or exchangeable for not more than an
aggregate of 300,000 shares of Common Stock.

EMPLOYEE STOCK PURCHASE PLAN

The Stock Purchase Plan provides the Company's employees with an
opportunity to acquire shares of Common Stock at a discount through payroll
deductions. Under the Stock Purchase Plan, an aggregate of 150,000 shares of
Common Stock was initially available for purchase by eligible employees of the
Company, including directors and officers who are employees, through payroll
deductions over successive six-month offering periods. At present, 110,102
shares are reserved for issuance under the Stock Purchase Plan. The Stock
Purchase Plan is administered by the Committee. An employee is eligible to
participate in the Stock Purchase Plan after he has completed six months of
service with the Company and is employed for more than 20 hours per week or
more than five months per year. Participating employees may authorize the
Company to withhold up to ten percent of their compensation for the purpose of
purchasing shares of Common Stock under the Stock Purchase Plan, subject to the
limitation that no employee may purchase more than 1,000 shares of Common Stock
under the Stock Purchase Plan in any six-month offering period, or have more
than $10,000 withheld from his compensation for such purpose in any 12-month
period.

The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. The purchase
price of the Common Stock under the Stock Purchase Plan is 85% of the lower of
the last sales price per share of Common Stock reported on NNM on either the
first or last day of each six-month offering period.

Under the provisions of Section 423 of the Code, an employee who
elects to participate in the Stock Purchase Plan will not realize income at the
time of the offering or when the shares of Common Stock which he purchases are
transferred to him, and except as herein described, the Company will not

40
<PAGE> 44
be entitled to any deduction from income. If the employee retains the shares
transferred to him under the Stock Purchase Plan for more than two years from
the date of the offering of such shares and for more than one year from the
date of the transfer of such shares to him, or if he dies while owning such
shares, the employee will be required to include in income as compensation for
the year in which he disposes of such shares or dies an amount equal to the
lesser of (i) 15% of the fair market value of such shares on the offering date
of the offering period in which such shares were purchased by him, or (ii) the
excess of the fair market value of such shares at the time of disposition or
death over the purchase price. If, on the other hand, the employee disposes of
such shares within the aforesaid two-year or one-year periods, the employee
will be required to include in income as compensation for the year in which
such disposition occurs an amount equal to the excess of the fair market value
of such shares on the date of purchase over the purchase price and the Company
will be entitled to a deduction from income equal to the amount the employee is
required to include in income as compensation. Any gain or loss realized upon
a disposition, other than amounts treated as compensation as aforesaid, will be
treated as capital gain or loss.

EMPLOYMENT AGREEMENT

The Company has entered into an employment agreement with Mr.
Lacourciere. The term of the employment agreement commenced as of June 1, 1988
and is automatically extended on an annual basis, unless a notice of
non-extension is given by either party. The current term of the agreement, as
so extended, expires on December 31, 1995. The employment agreement provides
for an annual salary of $200,000, subject to increases based on increases in
the Consumer Price Index and additional increases at the discretion of the
Board of Directors. The agreement also provides, in the event of the
termination of Mr. Lacourciere's employment by the Company other than for
cause, for a cash payment to Mr. Lacourciere equal to three times his average
annual cash compensation during the five most recent taxable years of the
Company ending before the date of such termination, less $1,000. In the event
Mr. Lacourciere's employment with the Company is terminated at this time, such
termination payment would be approximately $500,000. In the event of the
occurrence of certain change of control events involving the Company without
the approval of the Board of Directors, Mr. Lacourciere may terminate his
employment agreement with the Company during the one-year period following any
such change of control event and such termination of employment would entitle
him to the same termination payment. In the event the Board of Directors
approves the change of control event, Mr. Lacourciere may terminate his
employment agreement with the Company during the one-year period following any
such change of control event; however, Mr. Lacourciere will not be entitled to
a termination payment.

41
<PAGE> 45
INDEMNIFICATION AND ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation contains a provision,
authorized by the General Corporation Law of Delaware (the "Delaware Law"),
which eliminates the personal liability of a director of the Company to the
Company or to any of its stockholders for monetary damages for a breach of his
fiduciary duty as a director, except in the case where the director breached
his duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized a payment of a dividend or
approved a stock repurchase in violation of Delaware corporate law, or obtained
an improper personal benefit.

The Company is governed by the provisions of Section 203 of the
Delaware Law, an anti-takeover law. In general, the statute prohibits a public
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 mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.

The Company's Certificate of Incorporation contains provisions
affecting certain stockholder voting and other requirements. Generally, the
provisions require (i) that certain business combinations involving the Company
and any beneficial owner of 20% or more of the outstanding voting securities of
the Company be approved by the holders of at least 80% of the Company's voting
securities, unless certain conditions, including a minimum price requirement,
are satisfied, or unless the Board of Directors by at least a majority vote of
all of its members had waived such conditions or had approved, prior to the
time such person became a 20% beneficial owner, the acquisition of such 20%
beneficial ownership position or the proposed business combination, (ii) that
any action taken by the Company's stockholders be taken at an annual or special
meeting held upon prior notice and pursuant to a vote (in addition, the
Company's By-laws contain a provision the effect of which is to prohibit the
stockholders of the Company from calling a special meeting without the approval
of the Board of Directors, thereby preventing stockholders, without such
approval, from initiating action other than at the Annual Meeting of
Stockholders) and (iii) the vote of not less than 80% of the Company's
outstanding voting securities to repeal, alter, amend or rescind the Company's
By-laws, any of the provisions described above and the provision with respect
to the division of the Board of Directors into classes.

The Company's Certificate of Incorporation provides for the division
of the Board of Directors into three classes which are each elected for a term
of three years and which

42
<PAGE> 46
have as nearly as possible one-third the total number of members of the Board
of Directors. A classified board means that it will be necessary to have two
separate votes at two stockholder meetings in order to change a majority of the
directors, even if the holders of a majority of the outstanding shares believe
that a change in the Board of Directors is desirable. See "Management --
Directors and Executive Officers and Directors."

The overall effect of the ability of the Board of Directors to issue
additional shares of Series A Preferred Stock without further action by the
Company's stockholders, as described below under "Description of Securities --
Preferred Stock" and the other measures described above, may be to render more
difficult the accomplishment of mergers or other takeover or change in control
attempts. To the extent that these measures have this effect, removal of the
Company's incumbent Board of Directors and management may be rendered more
difficult. Further, these measures may have an adverse impact on the ability
of stockholders of the Company to participate in a tender or exchange offer for
the Common Stock and in so doing diminish the market value of the Common Stock.
The Company is not aware of any proposed takeover attempt or any proposed
attempt to acquire a large block of Common Stock. The Delaware Law may also
discourage open market purchases of the Common Stock.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of September 29, 1995, certain
information concerning the beneficial ownership of the Common Stock by (i) each
person (including any "group" as that term is used in Section 13(d)(3) of the
Exchange Act) known by the Company to own beneficially more than 5% of any
class of the Company's outstanding voting securities, (ii) each director of the
Company, (iii) each executive officer identified on the Summary Compensation
Table and (iv) all executive officers and directors of the Company as a group.
Except as indicated in the footnotes to the table, all of such shares of Common
Stock are owned with sole voting and investment power.

43
<PAGE> 47
<TABLE>
<CAPTION>
Current Percentage of
Percentage of Shares of Class
Number of Shares Shares of Outstanding
Beneficially Class After Exercise
Name and Address Title of Class Owned(1) Outstanding of all Warrants
- ------------------------------------ -------------- ------------------ ------------- ---------------
<S> <C> <C> <C> <C>
Auric Partners Ltd. Common 765,166(2)(10) 11.7% 9.7%
7575 East Fulton Road Series B
Ada, MI 49355 Preferred 60,000(10) 60.0% 60.0%

First Fidelity Incorporated Common 716,182(3)(11) 10.9% 9.0%
55 Broad Street Series B
Newark, NJ 07102 Preferred 40,000(11) 40.0% 40.0%
William W. Nicholson Common 418,222(10) 7.1% 5.8%
7575 East Fulton Road
Ada, MI 49355
William J. Lacourciere Common 407,137(4) 6.6% 5.4%
One Barnes Industrial Park Road
Wallingford, CT 06492

Thomas M. Haythe Common 113,540(5) 1.9% 1.6%
237 Park Avenue
New York, NY 10017
Michael J. Needham Common 25,588(6) * *
Suite 501
151 John Street
Toronto, Ontario
Canada M5V 2T2

Photios T. Paulson Common 13,000(7) * *
738 Dakota Trail
Franklin Lakes, NJ 07417
Steven J. Shulman Common 5,000 * *
22 Waterville Road
Avon, CT
Joseph A. Vincent Common 54,146(8) * *
One Barnes Industrial Park Road
Wallingford, CT 06492

All directors and executive officers Common 652,737(4)(5) 10.3% 8.5%
as a group (seven persons) (6)(7)
(8)(9)
- ---------------
</TABLE>

* Less than one percent.

(1) Includes any shares that each named person is entitled to acquire
within 60 days, through the exercise of any option, warrant,
conversion right, or similar arrangement. These shares are deemed to
be owned and outstanding by such person individually, and by all
directors and officers as a group, for purposes of calculating the
number of shares owned and the percentage of class for each such named
person and the group, but are not deemed to be outstanding for
purposes of such calculations for any other named person.

(2) Includes 666,666 shares issuable upon the conversion of 60,000 shares
of Series B Preferred Stock.

(3) Consists of (i) 444,444 shares issuable upon the conversion of 40,000
shares of Series B Preferred Stock and (ii) 271,738 shares issuable
upon the exercise of currently exercisable warrants held by First
Fidelity Incorporated ("FFI"), a wholly owned subsidiary of First
Fidelity Bancorporation, which warrants will expire on May 23, 2000.
The Series B Preferred Stock and warrants were formerly held by First
Fidelity, formerly known as Union Trust Company, prior to its
acquisition by First Fidelity Bancorporation.

(4) Includes (i) 304,078 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Lacourciere, the Chairman of the
Board, President and Chief Executive Officer and a director of the
Company, which warrants will expire on December 28, 1999, (ii) 5,534
shares held for the account of Mr. Lacourciere under the Employee
Stock Ownership Plan of the Company (the "ESOP"), (iii) 1,000 shares
issuable upon the exercise of Class A warrants and 1,000 shares
issuable upon the exercise of Class B warrants held by Mr.
Lacourciere, which warrants are currently exercisable and will expire
on December 8, 1997 and December 8, 1999, respectively, and (iv)
10,000 shares issuable upon the exercise of currently exercisable
options held by Mr. Lacourciere. Does not include 16,666 shares held
by the ESOP with respect to which Mr. Lacourciere, as co-trustee, has
shared voting and investment power.

(5) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Haythe, which warrants will expire on
December 31, 1997, (ii) 10,744 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Haythe, which warrants will
expire on March 10, 1999, (iii) 10,878 shares issuable upon the
exercise of currently exercisable warrants held by Mr. Haythe, which
warrants will expire on April 11, 2000, (iv) 15,995 shares issuable
upon the exercise of currently exercisable warrants held by Mr.
Haythe, which warrants will expire on November 30, 2000 and (v) 7,234
shares issuable upon the exercise of currently exercisable warrants
held by Mr. Haythe, which warrants will expire on November 30, 2000.
Does not include 16,666 shares held by the ESOP, with respect to which
Mr. Haythe, as co-trustee, has shared voting and investment power.

44
<PAGE> 48
(6) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Needham, which warrants will expire
on December 31, 1997, and (ii) 10,744 shares issuable upon the
exercise of currently exercisable warrants held by Mr. Needham, which
warrants will expire on March 10, 1999.

(7) Includes 10,000 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Paulson, which warrants will expire
on November 30, 2002.

(8) Includes (i) 2,854 shares held for the account of Mr. Vincent under
the ESOP, (ii) 200 shares issuable upon the exercise of Class A
warrants and 200 shares issuable upon the exercise of Class B warrants
held by Mr. Vincent, which warrants are currently exercisable and will
expire on December 8, 1997 and December 8, 1999, respectively, and
(iii) 48,334 shares issuable upon the exercise of currently
exercisable stock options held by Mr. Vincent. Does not include
16,666 shares held by the ESOP with respect to which Mr. Vincent, as
co-trustee, has shared voting and investment power.

(9) Includes (i) 1,251 shares held for the account of Leslie E. Mace, Vice
President Engineering of the Company, under the ESOP, (ii) 24,535
shares issuable upon the exercise of currently exercisable warrants
held by Mr. Mace, which warrants will expire on March 22, 2000, and
(iii) 5,333 shares issuable upon the exercise of currently exercisable
stock options held by Mr. Mace.

(10) Information as to the holdings of Auric Partners Ltd., a Michigan
limited partnership ("Auric"), and Mr. Nicholson is based upon a
report on Schedule 13D filed by such persons with the Securities and
Exchange Commission (the "Commission") and information provided to the
Company by Auric. Such report indicates that Amway Corp., a Michigan
corporation ("Amway"), is the general partner of Auric and that Mr.
Nicholson is a limited partner of Auric and an officer of Amway. Each
of Amway and Mr. Nicholson disclaims beneficial ownership of the
shares held by Auric. Each of Auric and Amway disclaims beneficial
ownership of the shares held by Mr. Nicholson. Each of Auric, Amway
and Mr. Nicholson also disclaims beneficial ownership of the shares
held by First Fidelity.

(11) Information as to the holdings of FFI is based upon a report on
Schedule 13D filed with the Commission by First Fidelity and Northeast
Bancorp, Inc., its parent corporation prior to the acquisition of
First Fidelity by First Fidelity Bancorporation. First Fidelity
Bancorporation may be deemed to be the indirect beneficial owner of
the shares held by FFI by virtue of its ownership of all of the stock
of FFI. Each of FFI and First Fidelity Bancorporation disclaims
beneficial ownership of the shares held by each of Auric and Mr.
Nicholson.

See "Description of Securities" for information concerning the terms
of the Company's capital stock, including voting rights.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding 6,979,487 shares of Common Stock,
including 549,940 shares of Common Stock issuable upon exercise of Class A
Warrants and 550,000 shares of Common Stock issuable upon exercise of the Class
B Warrants. In addition, as a result of the filing by the Company of a
registration statement under the Securities Act covering shares of Common Stock
heretofore issued and issuable under currently exercisable warrants and upon
conversion of outstanding shares of Series B Preferred Stock, a total of
2,344,597 shares of Common Stock will be freely tradeable without restriction
or further registration under the Securities Act in the event such warrants are
fully exercised and such shares of Series B Preferred Stock are fully
converted. In addition, the Company has effective registration statements
covering shares of Common Stock issuable under options issued under the Stock
Option Plans and shares of Common Stock issuable under the Stock Purchase Plan.
See "Description of Securities" and "Management -- Stock Option Plans and
Employee Stock Purchase Plan."

CERTAIN TRANSACTIONS

Thomas M. Haythe, General Counsel and a director of the Company, is a
member of the law firm of Haythe & Curley, the Company's general counsel. It
is expected that Haythe & Curley will continue to render legal services to the
Company

45
<PAGE> 49
in the future. See "Management," "Principal Stockholders" and "Legal Matters."

At September 29, 1995, FFI, a subsidiary of First Fidelity
Bancorporation, beneficially owned approximately 10.9% of the Common Stock.
First Fidelity Bank (formerly Union Trust Company), also a subsidiary of First
Fidelity Bancorporation, has been the primary lender to the Company since March
1978. See "Principal Stockholders," "Risk Factors -- High Degree of Financial
Leverage" and "Use of Proceeds".

DESCRIPTION OF SECURITIES

The Company's authorized capital stock consists of 20,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock, of which 50,000 shares
have been designated as Series A Preferred Stock and 120,000 shares have been
designated as Series B Preferred Stock. At September 29, 1995, 5,879,547
shares of Common Stock and 100,000 shares of Series B Preferred Stock were
issued and outstanding (including 40,000 shares of Redeemable Preferred Stock)
and held of record by 976 and two persons, respectively.

WARRANTS

In connection with the Public Offering the Company issued Warrants to
purchase 1,320,000 shares of Common Stock, including the Warrants issuable upon
exercise of the Representative's Warrants. The following is a brief summary of
certain provisions of the Warrants, but such summary does not purport to be
complete and is qualified in all respects by reference to the actual text of
the Warrant Agreement between the Company and Mellon Securities Trust Company
(the "Transfer and Warrant Agent"). A copy of the Warrant Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Additional Information."

Each Class A Warrant represents the right of the registered holder to
purchase one share of Common Stock at an exercise price of $4.95 per share at
any time during a three-year period commencing on December 8, 1994, subject to
adjustment (the "Class A Warrant Purchase Price"). The Class A Warrants will
be entitled to the benefit of adjustments in the Class A Warrant Purchase Price
and in the number of shares of Common Stock and/or other securities deliverable
upon exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger and in the event of
the issuance or the deemed issuance of Common Stock at a price per share less
than the fair market value (as defined in the Warrant Agreement) thereof on the
date of such issuance or deemed issuance. The foregoing anti-dilution
adjustment will not be applicable to (i) options, warrants or other rights to
acquire Common Stock outstanding on the date hereof, or the issuance of Common
Stock upon the exercise thereof, (ii) shares of Common Stock issued pursuant to
the Stock Purchase Plan or (iii) in certain circumstances, the issuance of
shares of Common Stock or options, warrants or other rights to acquire

46
<PAGE> 50
Common Stock, or the issuance of Common Stock upon the exercise thereof, in
connection with underwritten public offerings or acquisitions by the Company.
Subject to redemption, each Class A Warrant expires on December 8, 1997 (the
"Class A Warrant Expiration Date"). The Company may at any time extend the
Class A Warrant Expiration Date of all outstanding Class A Warrants for such
increased period of time as it may determine.

Each Class B Warrant represents the right of the registered holder to
purchase one share of Common Stock at an exercise price of $5.85 per share at
any time during a five-year period commencing on December 8, 1994, subject to
adjustment (the "Class B Warrant Purchase Price"). The Class B Warrants will
be entitled to the benefit of adjustments in the Class B Warrant Purchase Price
and in the number of shares of Common Stock and/or other securities deliverable
upon exercise thereof in the event of a stock dividend, stock split,
reclassification, reorganization, consolidation or merger and in the event of
the issuance or the deemed issuance of Common Stock at a price per share less
than the fair market value (as defined in the Warrant Agreement) thereof on the
date of such issuance or deemed issuance. The foregoing anti-dilution
adjustment will not be applicable to (i) options, warrants or other rights to
acquire Common Stock outstanding on the date hereof, or the issuance of Common
Stock upon the exercise thereof, (ii) shares of Common Stock issued pursuant to
the Stock Purchase Plan or (iii) in certain circumstances, the issuance of
shares of Common Stock or options, warrants or other rights to acquire Common
Stock, or the issuance of Common Stock upon the exercise thereof, in connection
with underwritten public offerings or acquisitions by the Company. Subject to
redemption, each Class B Warrant expires on December 8, 1999 (the "Class B
Warrant Expiration Date"). The Company may at any time extend the Class B
Warrant Expiration Date of all outstanding Class B Warrants for such increased
period of time as it may determine.

Under the provisions of the Warrant Agreement, each Class A Warrant is
redeemable by the Company at a redemption price of $0.05 per Class A Warrant at
any time commencing December 8, 1995 on 30 days' prior written notice, if the
average closing bid price per share of the Common Stock as quoted on NNM equals
or exceeds $5.625 per share, subject to adjustment for stock dividends, stock
splits, reclassifications, reorganizations, consolidations or mergers, for any
ten consecutive trading days ending within ten days prior to the notice of
redemption. Each Class B Warrant is redeemable by the Company at a redemption
price of $0.05 per Class B Warrant at any time commencing December 8, 1996 on
30 days' prior written notice, if the average closing bid price per share of
the Common Stock as quoted on NNM equals or exceeds $7.3125 per share, subject
to adjustment for stock dividends, stock splits, reclassifications,
reorganizations, consolidations or mergers, for any ten consecutive trading
days ending within ten days prior to the notice of redemption.

47
<PAGE> 51
If the Warrants are called for redemption, they must be exercised
prior to the close of business on the business day immediately preceding the
date of any such redemption or the right to purchase the applicable shares of
Common Stock will be forfeited.

The Warrants may be exercised at any time after December 8, 1994 upon
surrender of the Warrant certificate on or prior to the Class A Warrant
Expiration Date or Class B Warrant Expiration Date, as applicable (or earlier
redemption date), at the offices of the Transfer and Warrant Agent, with the
form of "Subscription Form" on the reverse of the Warrant Certificate completed
and executed as indicated, accompanied by payment of the full exercise price
(by cash or certified check payable to the order of the Transfer and Warrant
Agent) for the number of Warrants being exercised.

No holder, as such, of any Warrant shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock for any purpose
whatsoever until such Warrant has been duly exercised and the Class A Warrant
Purchase Price or Class B Warrant Purchase Price, as applicable, has been paid.

The Company has undertaken to use reasonable efforts to maintain the
effectiveness of a registration statement with the Commission with respect to
the Common Stock underlying the Warrants.

COMMON STOCK

The holders of Common Stock are entitled to one vote on all matters
submitted to a vote of stockholders. The Common Stock does not have cumulative
voting rights. Holders of Common Stock have no conversion, redemption or
preemptive rights. All outstanding shares of Common Stock are validly issued,
fully paid and non-assessable. In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, the holders of Common Stock will be
entitled to share ratably in its assets remaining after provision for payment
of creditors and after the liquidation preference of any Series A Preferred
Stock, Series B Preferred Stock or other Preferred Stock outstanding at the
time.

Subject to the rights of the holders of the Series A Preferred Stock,
the Series B Preferred Stock and any future holders of Preferred Stock issued
from time to time, the holders of the Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available for that purpose. The Company's ability to pay dividends is
restricted under the terms of certain loan agreements to which the Company is a
party. See "Dividend Policy."

PREFERRED STOCK

The Company is authorized to issue up to 1,000,000 shares of preferred
stock, $1.00 par value per share (the "Preferred Stock"). The preferred stock
may be issued in one or more

48
<PAGE> 52

series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. There are currently 50,000 shares of Series A
Preferred Stock designated and no shares of Series A Preferred Stock issued and
outstanding, and 120,000 shares of Series B Preferred Stock designated and
100,000 shares of Series B Preferred Stock issued and outstanding. The
issuance of any shares of Preferred Stock could affect the rights of the
holders of the Common Stock, and therefore reduce the value of the Common
Stock.

SERIES B PREFERRED STOCK. Holders of the Series B Preferred Stock are
entitled to receive out of funds legally available for that purpose, annual
cumulative cash dividends of $0.75 per share, payable quarterly in arrears when
and if declared by the Board of Directors. Dividends upon the Series B
Preferred Stock are cumulative and accrue whether or not declared by the Board
of Directors. Until all dividends accrued on any outstanding shares of Series
B Preferred Stock, whether or not declared, have been set apart and fully paid,
without interest, no cash dividends shall be made in respect of any other class
or series of capital stock of the Company, including, without limitation, the
Series A Preferred Stock and the Common Stock. The dividend rate may be
adjusted from $0.75 to $2.25 per share per annum in certain circumstances if
the Company breaches covenants made to the holders of the Series B Preferred
Stock in connection with the sale of the Series B Preferred Stock, including
the Company's agreement to effect and maintain the registration under the
Securities Act of all the shares of Common Stock issuable upon the conversion
of the shares of Series B Preferred Stock. In the event of the liquidation of
the Company, the holders of the Series B Preferred Stock are entitled to
receive payment of a preferential amount of $25.00 per share, subject to
adjustment, plus all dividends accrued and accumulated but unpaid before any
distribution is made to holders of the Series A Preferred Stock or the Common
Stock. The outstanding shares of Series B Preferred Stock are currently
convertible into an aggregate of 1,111,110 shares of Common Stock, subject to
adjustment, at an initial effective conversion price of $2.25 per share of
Common Stock. The 1,111,110 shares of Common Stock issuable upon the
conversion of Series B Preferred Stock have been registered under the
Securities Act by the Company for sale by the holders thereof. The Series B
Preferred Stock is subject to redemption by the Company for $25.00 per share,
subject to adjustment, plus all dividends accrued and accumulated but unpaid
through the redemption date.

Except as required by law, the holder of each share of the Series B
Preferred Stock has voting rights and powers equal to the voting rights and
powers of the Common Stock. The holders of the Series B Preferred Stock vote
together with the holders of the Common Stock as one class upon any matter
submitted to a vote of stockholders, except those matters

49
<PAGE> 53
required by law to be submitted to a class vote of the Series B Preferred
Stock. Currently, holders of shares of Series B Preferred Stock are entitled
to 11 votes per share of Series B Preferred Stock that they own. In addition,
the holders of record of the shares of Series B Preferred Stock, exclusively
and as a class, are entitled to elect by majority vote one member of the Board
of Directors, provided that such person is not a competitor of, supplier to or
customer of the Company or an affiliate of such a competitor, supplier or
customer. The holders of the Series B Preferred Stock have not yet exercised
this right.

The Board of Directors may not, without the consent of the holders of
at least 67% of the outstanding shares of Series B Preferred Stock, authorize
or increase the authorized Series B Preferred Stock or any additional class or
series of stock of the Company ranking prior to or on a parity with the Series
B Preferred Stock or amend, change or alter the Certificate of Incorporation of
the Company, as amended to date, so as to affect adversely the rights or
preferences of the Series B Preferred Stock or the holders thereof.

The Company has issued 40,000 shares of Series B Preferred Stock to
First Fidelity (the "Bank Preferred Shares") pursuant to the terms of the
Securities Purchase Agreement. The Bank Preferred Shares are now owned by FFI.
The Securities Purchase Agreement provides that in the event First Fidelity is
required by applicable law (and subject to certain other conditions, including
that First Fidelity seek all available extensions of time under applicable
regulatory provisions prior to requesting the Company to repurchase the Bank
Preferred Shares and that the Company be afforded the opportunity to find a
purchaser for the Bank Preferred Shares) to divest itself of the Bank Preferred
Shares, then the Company may be required to repurchase the Bank Preferred
Shares for $25.00 per share subject to adjustment, plus accrued and unpaid
dividends thereon (without interest). Accordingly, the Bank Preferred Shares
are classified as Redeemable Preferred Stock. If the Company is unable to pay
the required purchase price in cash, it is required to issue to First Fidelity
a three-year secured note for such amount and warrants to purchase up to
444,444 shares of Common Stock. See Consolidated Financial Statements.

SERIES A PREFERRED STOCK/PREFERRED STOCK PURCHASE RIGHTS PLAN. On
March 10, 1989, the Board of Directors adopted the Rights Plan and declared a
dividend distribution of one right (individually, a "Right" and, collectively,
the "Rights") for each share of Common Stock outstanding as of March 23, 1989.
Except as set forth below, each Right, when exercisable, entitles the
registered holder to purchase from the Company one one-hundredth share of
Series A Preferred Stock (individually, a "Preferred Share" and, collectively,
the "Preferred Shares"), at an initial price of $25.00 per one one-hundredth of
a Preferred Share, subject to adjustment. Holders of the Preferred Shares will
be entitled to a cumulative quarterly dividend of the greater of $1.00 per
share or 100 times the per share dividend declared on Common

50
<PAGE> 54
Stock. The Preferred Shares will have a liquidation preference equal to the
greater of $100.00 per share or 100 times the aggregate amount per share
distribution to the holders of Common Stock. Each share will have 100 votes
and will vote together with the Common Stock.

The Rights are not exercisable or transferable apart from the Common
Stock until the earlier to occur of (1) ten days following a public
announcement that a person or group of affiliated or associated persons have
acquired beneficial ownership of 20% or more of the outstanding Common Stock of
the Company or (2) ten business days following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer, the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of such outstanding Common Stock. Furthermore, if the
Company enters into certain consolidation, merger, combination or other
transactions where shares of Common Stock are exchanged for cash, property,
stock or securities of any other entity, each Right would entitle the holder
upon exercise to receive, in lieu of Preferred Shares, that number of shares of
common stock of the acquiring company having a market value of two times the
market value of the Preferred Shares. The Rights contain antidilutive
provisions, are redeemable at the Company's option, for $.01 per Right, and
expire on March 10, 1999. The Rights Plan is designed to protect stockholders
against unsolicited, coercive attempts to acquire control of the Company.

Currently, no shares of Series A Preferred Stock have been issued.

TRANSFER AND WARRANT AGENT

Chemical Mellon Shareholder Services, 111 Founders Plaza, East
Hartford, Connecticut 06108 (203) 282-3500, is the Transfer Agent, Warrant
Agent and Registrar for the Common Stock and Warrants.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon
for the Company by Haythe & Curley, New York, New York. Thomas M. Haythe, a
member of that firm, is General Counsel and a director of the Company and
beneficially owns 113,540 shares of Common Stock of the Company. See
"Management," "Principal Stockholders" and "Certain Transactions."
Additionally, Haythe & Curley has been issued warrants to purchase shares of
Common Stock of the Company in consideration of the prior deferral of certain
legal fees owed to Haythe & Curley by the Company.

EXPERTS

The consolidated financial statements of the Company at April 30, 1995
and May 1, 1994 and for each of the years ended April 30, 1995, May 1, 1994 and
May 2, 1993, appearing in this Prospectus and Registration Statement have been
audited by

51
<PAGE> 55
Ernst & Young LLP, independent auditors. Such consolidated financial
statements are included in reliance upon the report of Ernst & Young LLP
appearing elsewhere herein and in the Registration Statement given upon the
authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 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 copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Post-Effective Amendment
to Form SB-2 (the "Registration Statement") under the Securities Act. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules filed therewith. For
further information, reference is hereby made to such Registration Statement
and the exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees.

52
<PAGE> 56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets -- April 30, 1995 and May 1, 1994 . . . . . . . . . . . . . . . . . . . F-3

Consolidated Statements of Income -- For the Years Ended April 30, 1995, May 1, 1994 and
May 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Shareholders' Equity -- For the Years Ended April 30, 1995,
May 1, 1994 and May 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Consolidated Statements of Cash Flows -- For the Years Ended April 30, 1995, May 1, 1994
and May 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Unaudited Interim Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets -- July 30, 1995 and April 30, 1995 . . . . . . . . . . . . F-18

Condensed Consolidated Statements of Income -- Quarters Ended July 30, 1995 and
July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20

Condensed Consolidated Statements of Cash Flows -- Quarters Ended July 30, 1995 and
July 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21

Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-22
</TABLE>

F-1
<PAGE> 57

Report of Independent Auditors

Board of Directors
Novametrix Medical Systems Inc.

We have audited the accompanying consolidated balance sheets of Novametrix
Medical Systems Inc. as of April 30, 1995 and May 1, 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended April 30, 1995, May 1, 1994 and May 2, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Novametrix
Medical Systems Inc. at April 30, 1995 and May 1, 1994, and the consolidated
results of its operations and its cash flows for the years ended April 30,
1995, May 1, 1994 and May 2, 1993, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Hartford, Connecticut
July 26, 1995

F-2
<PAGE> 58
Novametrix Medical Systems Inc.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 272,033 $ 267,882
Accounts receivable, less allowance for losses of
$250,000 5,247,171 4,335,834
Inventories:
Finished products 1,247,541 1,433,821
Work in process 1,088,864 795,384
Materials 2,595,455 2,349,804
----------- -----------
4,931,860 4,579,009

Prepaid expenses and other current assets 106,440 387,483
----------- -----------
Total current assets 10,557,504 9,570,208

Equipment, less accumulated depreciation of $4,603,479
in 1995 and $6,504,159 in 1994 1,133,413 1,014,999

License, technology, patent and other costs, less accumulated
amortization of $2,691,005 in 1995 and $2,236,250 in
1994 4,915,064 4,685,475

----------- -----------
$16,605,981 $15,270,682
=========== ===========
</TABLE>

F-3
<PAGE> 59

<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 925,000 $ 733,333
Note payable to bank under line of credit 3,000,000
Accounts payable 1,662,950 1,245,259
Accrued expenses 1,557,798 1,794,407
Customer advances 654,400
------------- -------------
Total current liabilities 4,145,748 7,427,399

Long-term debt, less current portion 2,308,333 3,560,007

Redeemable Preferred Stock, at redemption and
liquidation value 1,000,000 1,000,000

Shareholders' equity:
Preferred Stock, $1 par value, authorized 1,000,000
shares: issued and outstanding - 100,000 shares
(less 40,000 shares redeemable), at liquidation value 1,500,000 1,500,000
Common Stock, $.01 par value, authorized 20,000,000
shares 61,365 48,827
Additional paid-in capital 26,239,685 22,012,966
Retained-earnings deficit (16,162,112) (17,691,479)
Deferred ESOP contributions (100,000)
Treasury stock (2,487,038) (2,487,038)
------------ ------------
9,151,900 3,283,276
------------- -------------
$ 16,605,981 $ 15,270,682
============= =============
</TABLE>

See accompanying notes.

F-4
<PAGE> 60
Novametrix Medical Systems Inc.

Consolidated Statements of Income

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
-------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net sales $24,032,101 $20,788,496 $19,888,304
Interest 11,303 7,904
----------- ----------- -----------
24,043,404 20,788,496 19,896,208

Costs and expenses:
Cost of products sold 10,555,530 8,943,945 9,135,024
Research and product development 2,418,652 1,954,308 1,681,634
Selling, general and administrative 8,978,052 8,514,359 7,907,861
Interest 372,867 696,396 831,992
Other expense (income), net 73,936 (75,232) 74,780
----------- ----------- -----------
22,399,037 20,033,776 19,631,291
----------- ----------- -----------
Income before income taxes 1,644,367 754,720 264,917

Income taxes - current 40,000
----------- ----------- -----------
Net income $ 1,604,367 $ 754,720 $ 264,917
=========== =========== ===========

Earnings per common share (primary and fully
diluted) $ .21 $ .11 $ .04
=========== ============ ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 61
Novametrix Medical Systems Inc.

Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------ -------- -----------
<S> <C> <C> <C> <C>
Year ended May 2, 1993:
Balance at May 3, 1992 4,466,824 $44,668 80,000 $ 2,000,000
Conversion of Preferred Stock 222,222 2,222 (20,000) (500,000)
Issuance of stock 84,263 843
Preferred Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- ------- ------- -----------
Balance at May 2, 1993 4,773,309 47,733 60,000 1,500,000

Year ended May 1, 1994:
Issuance of stock 109,397 1,094
Preferred Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- ------- ------- -----------
Balance at May 1, 1994 4,882,706 48,827 60,000 1,500,000

Year ended April 30, 1995:
Issuance of stock 1,253,827 12,538
Stock issuance costs
Dividends on Preferred Stock ($.75 a share)
Reduction of deferred ESOP contributions
Net income
--------- ------- ------- -----------
Balance at April 30, 1995 6,136,533 $61,365 60,000 $ 1,500,000
========= ======= ======= ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 62

<TABLE>
<CAPTION>
ADDITIONAL RETAINED-
PAID-IN EARNINGS DEFERRED ESOP TREASURY STOCK
------------------------
CAPITAL DEFICIT CONTRIBUTIONS SHARES AMOUNT TOTAL
----------- ------------ ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended May 2, 1993:
Balance at May 3, 1992 $21,330,886 $(18,546,116) $(300,000) (338,452) $(2,487,038) $ 2,042,400
Conversion of Preferred Stock 497,778
Issuance of stock 105,240 106,083
Preferred Stock issuance costs (38,600) (38,600)
Dividends on Preferred Stock ($.75 a share) (90,000) (90,000)
Reduction of deferred ESOP contributions 100,000 100,000
Net income 264,917 264,917
----------- ------------ --------- --------- ----------- -----------
Balance at May 2, 1993 21,895,304 (18,371,199) (200,000) (338,452) (2,487,038) 2,384,800

Year ended May 1, 1994:
Issuance of stock 156,001 157,095
Preferred Stock issuance costs (38,339) (38,339)
Dividends on Preferred Stock ($.75 a share) (75,000) (75,000)
Reduction of deferred ESOP contributions 100,000 100,000
Net income 754,720 754,720
----------- ------------ --------- --------- ----------- -----------
Balance at May 1, 1994 22,012,966 (17,691,479) (100,000) (338,452) (2,487,038) 3,283,276

Year ended April 30, 1995:
Issuance of stock 5,291,754 5,304,292
Stock issuance costs (1,065,035) (1,065,035)
Dividends on Preferred Stock ($.75 a share) (75,000) (75,000)
Reduction of deferred ESOP contributions 100,000 100,000
Net income 1,604,367 1,604,367
----------- ------------ --------- --------- ----------- -----------

Balance at April 30, 1995 $26,239,685 $(16,162,112) $ -- (338,452) $(2,487,038) $ 9,151,900
=========== ============ ========= ========= =========== ===========
</TABLE>

F-7
<PAGE> 63

Novametrix Medical Systems Inc.

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
-------------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,604,367 $ 754,720 $ 264,917
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 495,389 554,625 709,950
Amortization 481,237 444,750 383,295
Changes in operating assets and liabilities:
Increase in accounts receivable (911,337) (72,919) (580,035)
(Increase) decrease in inventories (352,851) (47,466) 309,612
Decrease (increase) in prepaid expenses
and other current assets 281,043 (282,525) 13,489
Increase in accounts payable 417,691 234,204 47,962
(Decrease) increase in accrued expenses (92,446) 7,414 390,681
Decrease in customer advances (297,600)
----------- ----------- -----------
Net cash provided by operating activities 1,923,093 1,592,803 1,242,271

INVESTING ACTIVITIES
Purchases of equipment (613,803) (431,572) (211,511)
Purchases of licenses, technology, patents
and other (710,826) (117,428) (358,466)
----------- ----------- -----------
Net cash used by investing activities (1,324,629) (549,000) (569,977)

FINANCING ACTIVITIES
Proceeds from borrowings 2,500,000 3,400,000
Principal payments on borrowings (6,460,007) (1,299,996) (4,778,395)
Principal payment on customer advance (654,400)
Proceeds from sales of Common Stock, less
issuance costs 4,095,094 118,756 67,483
Dividends on Preferred Stock (75,000) (75,000) (90,000)
----------- ----------- -----------
Net cash used by financing activities (594,313) (1,256,240) (1,400,912)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 4,151 (212,437) (728,618)

Cash and cash equivalents at beginning of year 267,882 480,319 1,208,937
----------- ----------- -----------
Cash and cash equivalents at end of year $ 272,033 $ 267,882 $ 480,319
=========== =========== ===========
</TABLE>

See accompanying notes.

F-8
<PAGE> 64
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements

April 30, 1995

1. ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of Novametrix Medical
Systems Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany accounts and transactions are eliminated in
consolidation.

REVENUE RECOGNITION AND PRODUCT WARRANTY COSTS

Revenues from sales are recognized when products are shipped. The Company
generally warrants its products against defects for up to one year; costs
related thereto are recognized as incurred and are not material to the Company's
financial statements.

INVENTORIES

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

EQUIPMENT

Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives of the assets using the straight-line
method.

CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less when
purchased are considered cash equivalents.

LICENSE, TECHNOLOGY, PATENT AND OTHER COSTS

License, technology, patent and other costs are stated at cost, less
accumulated amortization. Amortization is computed by the straight-line method
over periods ranging from 3 to 17 years. The Company reviews license,
technology, patent and other costs for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. If such impairment indicators are present, the Company recognizes
a loss on the basis of whether these amounts are fully recoverable from
projected discounted cash flows of the related product.

F-9
<PAGE> 65
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Deferred income taxes are provided for temporary differences between the tax and
financial reporting bases of the Company's assets and liabilities based on
enacted tax rates applicable to the periods in which the differences are
expected to reverse.

EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")

The Company has a noncontributory ESOP which covers substantially all employees.
The Company is required to contribute sufficient cash to the ESOP trust for it
to repay the ESOP note payable (the "ESOP guarantee") plus interest thereon and
specified expenses. Expense attributable to the ESOP is recognized based on the
required contributions and amounted to $122,018 in 1995, $121,536 in 1994 and
$146,554 in 1993. Actual interest incurred on ESOP debt was $8,733 in 1995,
$12,932 in 1994 and $21,824 in 1993.

ESOP shares are allocated annually to eligible employees based on compensation.
At April 30, 1995, 131,144 shares held by the ESOP were allocated to eligible
employees. ESOP shares not yet allocated to participants are treated as
outstanding for the purpose of computing earnings per share.

PER SHARE AMOUNTS

Earnings per common share amounts were computed by dividing net income by the
weighted-average number of shares of Common Stock and dilutive common stock
equivalents outstanding during the year. Common stock equivalents consist of the
Company's Preferred Stock, stock options, warrants and shares subscribed under
the Company's employee stock purchase plan. The computations of dilutive common
stock equivalents are based on the if-converted method for the Preferred Stock
and on the treasury stock method for the other common stock equivalents using
the average market price for the primary earnings per share computations and the
higher of average or year-end market price for the fully diluted earnings per
share computations. The weighted-average number of common shares and equivalents
for the primary and fully diluted earnings per share computations are 7,649,946
and 7,768,843, respectively, for 1995, 6,596,111 and 6,629,430, respectively,
for 1994 and 6,240,024 and 6,248,864, respectively, for 1993.

RECLASSIFICATION

Certain amounts in the 1994 balance sheet have been reclassified to conform with
the 1995 presentation.

F-10
<PAGE> 66
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

2. DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994
-------------- -----------
<S> <C> <C>
Notes payable restructured June 16, 1994 $4,118,340

Term loan to bank $2,083,333

Note payable to bank under revolving credit agreement 1,075,000

ESOP guarantee 75,000 175,000
---------- ----------
3,233,333 4,293,340

Less current portion 925,000 733,333
---------- ----------
$2,308,333 $3,560,007
========== ==========
</TABLE>

On June 16, 1994 the Company amended and restructured its notes payable to bank
(see Note 3). The Company's aggregate notes payable of $4,118,340 at May 1, 1994
were paid from the proceeds of a public offering and the issuance of a
$2,500,000 term loan to bank. The term loan is payable in monthly installments
of $41,667, plus interest at the bank's base rate plus 1/2% (9.5% at April 30,
1995) through June 1, 1999.

The Company's revolving credit agreement limits borrowing to a maximum of
$2,500,000 or 75% of the Company's eligible accounts receivable, as defined, and
bears interest at the bank's base rate plus 1/4% (9.25% at April 30, 1995). In
July 1995 the agreement was amended, extending the expiration date to August 31,
1997 and changing the interest rate to the London Interbank Offering Rate
("LIBOR") plus 2.5% (8.56% at April 30, 1995). Furthermore, the bank has
released the Company's patents and trademarks previously held as collateral
against the Company's debt obligations.

The Company's ESOP guarantee is payable in quarterly installments of $25,000
plus interest at 83% of the bank's lending rate, as defined, through January
1996.

Under the terms of the revolving credit agreement, term loan and ESOP guarantee,
the Company is required to maintain certain financial ratios and minimum levels
of working capital and net worth, and is restricted, among other things, from
the payment of dividends on Common Stock, new borrowing, capital expenditures
and mergers.

F-11
<PAGE> 67
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

2. DEBT (CONTINUED)

Aggregate annual maturities of long-term debt at April 30, 1995 are as follows:
1996--$925,000; 1997--$500,000; 1998--$1,225,000; 1999--$500,000 and
2000--$83,333.

Substantially all tangible assets are pledged as collateral for the notes
payable to bank and ESOP guarantee; substantially all cash and cash equivalents
are on deposit with the bank.

The Company paid interest of $374,971 in 1995, $659,794 in 1994 and $787,351 in
1993.

3. CAPITAL STOCK

The Preferred Stock is issuable in one or more series. The Board of Directors
of the Company is authorized to establish, among other things, the rate of
dividends payable, redemption rights and voting rights prior to issuance.

The Company has authorized 1,000,000 shares of $1.00 par value Preferred Stock
of which 50,000 shares are designated as Series A (none issued) and 120,000
shares are designated as Series B. The Preferred Stock, Series B carries a
liquidation preference of $25.00 per share (together with all accrued but
unpaid dividends) and an annual cumulative dividend of $.75 a share payable
quarterly in arrears. (The dividend is increased to $2.25 if certain covenants
are not met.) The recordholders of Preferred Stock, Series B are entitled to
elect by majority vote one member of the Board of Directors.

Of the 100,000 shares of Preferred Stock, Series B outstanding at April 30,
1995, 40,000 of such shares are held by the Company's primary lender,
redeemable by the Company under certain circumstances, convertible into 444,444
shares of the Company's Common Stock and stated at their redemption and
liquidation value as "Redeemable Preferred Stock." The remaining 60,000 shares
of Preferred Stock, Series B outstanding at April 30, 1995 are convertible into
666,666 shares of the Company's Common Stock and are stated at their
liquidation value.

At April 30, 1995 there are 3,767,603 preferred share purchase rights
outstanding. Each right entitles the registered holder to purchase one
one-hundredth of a share of Preferred Stock, Series A, for $25.00 upon the
occurrence of certain specified "takeover" events. The rights are redeemable
and exchangeable only in certain specified circumstances. As of April 30, 1995,
no takeover events had occurred and no rights were exercisable.

F-12
<PAGE> 68
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

3. CAPITAL STOCK (CONTINUED)

On June 16, 1994, the Company completed a public offering for 550,000 "units"
with each unit consisting of two shares of Common Stock, and one redeemable
Class A Warrant and one redeemable Class B Warrant. The units were subsequently
split into their component parts on December 8, 1994. Each Class A Warrant is
exercisable into one share of Common Stock at an exercise price of $4.95. Each
Class B Warrant is exercisable into one share of Common Stock at an exercise
price of $5.85. Net proceeds of approximately $3,893,000 were used to reduce
the Company's indebtedness (see Note 2) and for financing working capital
needs. If the offering and resulting net reduction in the Company's
indebtedness had occurred at the beginning of fiscal year 1995, net income
would have increased by approximately $39,000 and earnings per share would have
been unchanged at $.21.

During fiscal 1995, 26,821 shares of common stock were issued in settlement of
$144,163 of technology purchase costs previously accrued.

4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS

Activity relating to the Company's stock option plans follows:

<TABLE>
<CAPTION>
1979 PLAN 1990 PLAN 1994 PLAN TOTAL
--------- --------- --------- -----
<S> <C> <C> <C> <C>
Year ended May 2, 1993:
Outstanding options at May 3, 1992 285,618 48,000 333,618
Granted 50,000 50,000
Exercised ($1.00 to $2.00 per share) (20,932) (1,667) (22,599)
Cancelled (19,100) (1,333) (20,433)
------- ------- -------
Total shares under option at May 2, 1993 245,586 95,000 340,586

Year ended May 1, 1994:
Exercised ($1.00 to $2.00 per share) (40,101) (6,600) (46,701)
Cancelled (11,000) (11,000)
------- ------- -------
Total shares under option at May 1, 1994 194,485 88,400 282,885

Year ended April 30, 1995:
Granted 103,000 122,000 225,000
Exercised ($1.00 to $2.00 per share) (64,018) (10,000) (74,018)
Cancelled (20,500) (20,500)
------- ------- ------- -------
Total shares under option at April 30, 1995 109,967 181,400 122,000 413,367
======= ======= ======= =======
</TABLE>

F-13
<PAGE> 69
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)

Additional data relating to the stock option plans at year-end follows:

<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994 MAY 2, 1993
-------------- ----------- -----------
<S> <C> <C> <C>

Range of option prices $1.00 TO $4.375 $1.00 to $8.00 $1.00 to $8.00

Number of shares as to which options
were exercisable 171,700 228,552 203,486
</TABLE>

At April 30, 1995, options for 178,333 shares have been authorized but not yet
granted under the 1990 and 1994 stock option plans. In addition, an
outstanding stock option for 5,000 shares granted to an outside consultant is
exercisable at $5.75 per share and expires on April 8, 1996.

The Company has an employee stock purchase plan expiring on December 31, 2002
for which 150,000 shares of Common Stock have been reserved. As of April 30,
1995, 31,492 shares of Common Stock had been issued under this plan.

The Company has redeemable Class A and Class B Warrants outstanding covering an
aggregate of 1,100,000 shares from the public offering completed on June 16,
1994 (see Note 3) and warrants for 55,000 units issued to the principal
underwriter (with each unit consisting of two shares of Common Stock, one Class
A Warrant and one Class B Warrant). The Company has also granted warrants to a
group of officers and directors, its general counsel, principal lender, key
employees and an investment firm to purchase shares of the Company's Common
Stock. Data relating to warrants outstanding at April 30, 1995 follows:

<TABLE>
<CAPTION>
YEAR RANGE OF NUMBER OF SHARES COVERED BY
WARRANTS GRANTED EXERCISE PRICES OUTSTANDING WARRANTS
---------------- --------------- ---------------------
<S> <C> <C>
1988 $2.625 to $5.58 78,763
1989 $2.625 to $3.49 42,976
1990 $.89 to $1.81 666,953
1991 $1.84 163,043
1992 $.93 to $2.25 267,073
1993 $2.625 10,000
1995 $4.125 to $5.85 1,393,179
---------
2,621,987
=========
</TABLE>

F-14
<PAGE> 70
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

4. STOCK OPTIONS, STOCK PURCHASE PLAN AND WARRANTS (CONTINUED)

The warrants were granted at prices which equaled or exceeded the market price
of the Company's Common Stock at the date of grant. The warrants expire at
various dates from September 30, 1995 through June 20, 2004, and all but
220,000 shares are currently exercisable. During 1995, an aggregate of 37,128
shares were exercised at prices ranging from $.89 to $1.81 per share.

At April 30, 1995, there were 4,448,305 shares of Common Stock reserved for
issuance for: 1) the exercise of options and warrants; 2) purchases through the
Company's employee stock purchase plan; and 3) the conversion of Preferred
Stock.

5. CONTINGENCIES

The Company is a party to various legal proceedings incidental to its business.
Management believes that none of these legal proceedings will have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.

During 1994, the Company reached a favorable settlement of an outstanding
contractual dispute, which resulted in the reversal of approximately $140,000
($.02 per share) of expenses previously accrued. Such amount is included in
other expense (income), net.

6. BUSINESS AND SIGNIFICANT CUSTOMERS

The Company considers that its products comprise a single business segment
within the medical instruments industry. The Company had export sales as
follows:

<TABLE>
<CAPTION>
WESTERN HEMISPHERE
EUROPE (OTHER THAN THE U.S.) ASIA OTHER TOTAL
------- --------------------- ---- ----- -----
<S> <C> <C> <C> <C> <C>
1995 $4,183,032 $2,083,169 $2,428,293 $593,821 $9,288,315
1994 3,321,319 1,720,458 1,689,934 498,608 7,230,319
1993 2,220,376 1,704,046 1,450,102 501,469 5,875,993
</TABLE>

No one customer accounted for more than 10% of net sales in 1995, 1994 or 1993.

F-15
<PAGE> 71
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

7. LEASES

The Company leases its plant and office facilities and certain equipment under
noncancellable operating leases. Future minimum lease payments under these
leases as of April 30, 1995 to their expiration follow:

<S> <C>
1996 $239,368
1997 113,648
1998 3,975
--------
$356,991
========

</TABLE>
Total rental expense under operating leases was $376,059 in 1995, $425,825 in
1994 and $473,335 in 1993.

8. INCOME TAXES

The components of the Company's deferred income tax accounts follow:

<TABLE>
<CAPTION>
APRIL 30, 1995 MAY 1, 1994 MAY 3, 1993
-------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Tax credits $ 526,671 $ 522,685 $ 544,128
Net operating loss carryforwards 5,255,267 6,480,015 6,478,897
Inventories - valuation allowance
and other 665,629 567,691 780,805
Other 227,051 172,036 146,509
---------- ---------- ----------
Total deferred tax assets 6,674,618 7,742,427 7,950,339
Valuation allowance for deferred
tax assets 6,652,586 7,732,477 7,926,524
---------- ---------- ----------
22,032 9,950 23,815
Deferred tax liabilities 22,032 9,950 23,815
---------- ---------- ----------
Net deferred tax $ - $ - $ -
========== ========== ==========
</TABLE>

F-16
<PAGE> 72
Novametrix Medical Systems Inc.

Notes to Consolidated Financial Statements (continued)

8. INCOME TAXES (CONTINUED)

A reconciliation between the Company's effective tax rate and the U.S. federal
income tax rate is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed tax expense at the expected statutory
rate $ 559,000 $ 256,000 $ 90,000
State taxes, net of federal effect 2,000 2,000 1,000
Alternative minimum tax 40,000
Permanent items -- net effect 3,000 13,000 15,000
Utilization of net operating loss carryforwards (564,000) (271,000) (106,000)
--------- ---------- ---------
$ 40,000 $ - $ -
========= ========== =========
</TABLE>

At April 30, 1995 the Company had net operating loss carryovers for federal
income tax reporting purposes of approximately $14,825,000, of which
$10,250,000 expires in 2005, $4,200,000 expires in 2006 and $375,000 expires in
2007. The Company has unused research and other tax credits of approximately
$527,000 at April 30, 1995 which expire in varying amounts between 1996 and
2009. Such credits will be reflected in operations when realized. The Company
also has approximately $1,904,000 in state net operating loss carryforwards of
which $1,550,000 expires in 1996, $284,000 expires in 1997, and $70,000 expires
in 1999.

The realization of deferred tax assets is dependent on the Company's ability to
generate sufficient future taxable income. Because of the cumulative loss
position of the Company, there is insufficient positive evidence to indicate
that deferred tax assets will be realized. Therefore, a valuation allowance has
been recorded.

The amount of the net operating loss carryovers and credits for federal income
tax purposes which may be used in any future year may be limited under the
provisions of the Tax Reform Act of 1986. Also, a portion of the net operating
loss carryforward for federal income tax reporting purposes is attributable to
stock options, the tax benefit of which will be reflected as an adjustment to
additional paid-in capital when realized.

Income taxes paid in 1995, 1994 and 1993 were not significant.

F-17
<PAGE> 73
NOVAMETRIX MEDICAL SYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
ASSETS JULY 30, 1995 APRIL 30, 1995
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS

Cash and cash equivalents $ 269,102 $ 272,033

Accounts receivable, less
allowance for losses of $250,000 5,258,887 5,247,171

Inventories:
Finished products 1,223,452 1,247,541
Work in process 1,159,834 1,088,864
Materials 2,891,108 2,595,455
----------- -----------
5,274,394 4,931,860

Prepaid expenses 114,944 106,440
----------- -----------
TOTAL CURRENT ASSETS 10,917,327 10,557,504

EQUIPMENT 5,834,378 5,736,892
Accumulated depreciation (deduction) (4,699,264) (4,603,479)
----------- -----------
1,135,114 1,133,413

LICENSE, TECHNOLOGY, PATENTS AND OTHER 7,642,866 7,606,069
Accumulated amortization (deduction) (2,814,559) (2,691,005)
4,828,307 4,915,064
----------- -----------
$16,880,748 $16,605,981
=========== ===========
</TABLE>

See accompanying notes.

F-18
<PAGE> 74
NOVAMETRIX MEDICAL SYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JULY 30, 1995 APRIL 30, 1995
- ------------------------------------ ------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion long-term debt $ 900,000 $ 925,000
Accounts payable 1,666,238 1,662,950
Accrued expenses 1,438,102 1,557,798
------------ ------------

TOTAL CURRENT LIABILITIES 4,004,340 4,145,748

LONG-TERM DEBT, less current portion 2,183,333 2,308,333

REDEEMABLE PREFERRED STOCK, at
redemption and liquidation value 1,000,000 1,000,000

SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
authorized 1,000,000 shares, 100,000
issued and outstanding (less 40,000
shares redeemable), at liquidation
value 1,500,000 1,500,000

Common Stock, $.01 par value,
authorized 20,000,000 shares,
issued 6,211,999 at July 30 1995,
and 6,136,533 at April 30, 1995,
including 338,452 Treasury shares 62,120 61,365

Additional paid-in capital 26,410,688 26,239,685

Retained-earnings deficit (15,792,695) (16,162,112)

Treasury stock (2,487,038) (2,487,038)
----------- ------------
9,693,075 9,151,900
------------ ------------
$ 16,880,748 $ 16,605,981
============ ============
</TABLE>

See accompanying notes.

F-19
<PAGE> 75

NOVAMETRIX MEDICAL SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JULY 30, 1995 JULY 31, 1994
-------------- -------------
<S> <C> <C>
Net sales $ 6,080,509 $ 5,495,063

Costs and expenses:
Cost of products sold 2,590,268 2,392,142
Research and product development 685,253 534,421
Selling, general and administrative 2,312,332 2,220,126
Interest 74,822 124,227
Other expense 21,667 19,973
---------- ----------
5,684,342 5,290,889
---------- ----------
INCOME BEFORE INCOME TAXES 396,167 204,174

Income taxes - current 8,000
---------- ----------
NET INCOME $ 388,167 $ 204,174
========== ==========

Per common share amounts:

Primary $ .05 $ .03
========== ==========
Fully diluted $ .05 $ .03
========== ==========

Average common shares outstanding:

Primary 8,096,077 7,349,425

Fully diluted 8,096,077 7,368,713
</TABLE>

See accompanying notes.

F-20

<PAGE> 76
NOVAMETRIX MEDICAL SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 388,167 $ 204,174
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation 98,260 108,276
Amortization 124,599 122,277
Changes in operating assets and liabilities
Increase in accounts receivable (11,716) (185,237)
Increase in inventories (342,534) (93,558)
(Increase) decrease in prepaid expenses (8,504) 175,961
Increase (decrease) in accounts payable 3,288 (88,498)
(Decrease) increase in accrued expenses (144,696) 301,169
--------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 106,864 544,564

INVESTING ACTIVITIES
Purchases of equipment (99,961) (190,476)
Purchases of license, technology, patents and other (37,842) (367,245)
--------- -----------
NET CASH USED BY INVESTING ACTIVITIES (137,803) (557,721)

FINANCING ACTIVITIES
Proceeds from borrowings 2,500,000
Principal payments on borrowings (125,000) (5,785,007)
Principal payment on customer advance (654,400)
Dividends on Preferred Stock (18,750) (18,750)
Net proceeds from sales of Common Stock 171,758 3,977,759
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,008 19,602

(DECREASE) INCREASE IN CASH AND _________ ___________
CASH EQUIVALENTS (2,931) 6,445

Cash and cash equivalents at beginning of period 272,033 267,882
--------- -----------
Cash and cash equivalents at end of period $ 269,102 $ 274,327
========= ===========
</TABLE>

See accompanying notes.

F-21
<PAGE> 77
NOVAMETRIX MEDICAL SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JULY 30, 1995

NOTE 1 -- BASIS OF PRESENTATION

The condensed consolidated financial statements of Novametrix Medical
Systems Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended July 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending April 28,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included herein.

NOTE 2 -- PER SHARE AMOUNTS

Common stock equivalents consist of the Company's Preferred Stock, stock
options, warrants and shares subscribed under the Company's Employee Stock
Purchase Plan. The computation of dilutive common stock equivalents is based on
the if-converted method for the Preferred Stock and on the treasury stock
method for the other common stock equivalents using the average market price
for the primary earnings per share computations and the higher of average or
period-end market price for the fully diluted earnings per share computations.

NOTE 3 -- CONTINGENCIES

The Company is a party to various legal proceedings generally incidental
to its business. Management believes that none of such legal proceedings will
have a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.

F-22
<PAGE> 78
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN 1,319,940 SHARES OF COMMON
AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY STOCK,
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AND 55,000 REDEEMABLE CLASS A
THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH WARRANTS AND 55,000 REDEEMABLE
THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH CLASS B WARRANTS ISSUABLE UPON
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON EXERCISE OF THE REPRESENTATIVE'S
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS WARRANTS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES NOVAMETRIX MEDICAL SYSTEMS INC.
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN --------------------
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE PROSPECTUS
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE AS OF
WHICH INFORMATION IS FURNISHED.
--------------------

, 1995
--------------- ----------
</TABLE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Price Range of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 79
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses in connection with the
registration of the securities hereunder.

<TABLE>
<S> <C>
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Accounting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Copying expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,000
=======
</TABLE>

ITEM 26. EXHIBITS.

The Exhibits required to be filed as part of this Registration
Statement are listed in the attached Index to Exhibits.

II-1
<PAGE> 80
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
the requirements for filing on Form SB-2 and has authorized this Post-Effective
Amendment No. 1 to this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Town of Wallingford, and the
State of Connecticut on the 18th day of October, 1995.

NOVAMETRIX MEDICAL SYSTEMS INC.

By /S/ William J. Lacourciere
------------------------------
William J. Lacourciere
Chairman of the Board,
President and Chief
Executive Officer

In accordance with the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 1 to this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ William J. Lacourciere Chairman of the Board, October 18, 1995
- ------------------------------- President, Chief Executive
William J. Lacourciere Officer and Director

*
- -------------------------------- Vice President-Finance October 18, 1995
Joseph A. Vincent Principal Financial and
Accounting Officer
and Director

*
- -------------------------------- Director October 18, 1995
Thomas M. Haythe

*
- -------------------------------- Director October 18, 1995
Michael J. Needham

*
- -------------------------------- Director October 18, 1995
Photios T. Paulson

*
- -------------------------------- Director October 18, 1995
Steven J. Shulman

* /S/ William J. Lacourciere
------------------------------------
William J. Lacourciere
Attorney-In-Fact
</TABLE>

II-2
<PAGE> 81
CONSENT OF INDEPENDENT AUDITORS

The Consent of Independent Auditors is contained as Exhibit 23(a) to
the Registration Statement.

II-3
<PAGE> 82
CONSENT OF COUNSEL

The Consent of Haythe & Curley is contained in its opinion filed as
Exhibit 5 to the Registration Statement.

II-4
<PAGE> 83
INDEX TO EXHIBITS

5 - Opinion of Haythe & Curley

11 - Statement re: Computation of Per Share Earnings

23(a) - Consent of Ernst & Young LLP, Independent Auditors

23(b) - Consent of Haythe & Curley (included in Exhibit 5)

E-1

<PAGE> 1

EXHIBIT 5

Haythe & Curley
237 Park Avenue
New York, New York 10017

October 18, 1995

Novametrix Medical Systems Inc.
One Barnes Industrial Park Road
Wallingford, Connecticut 06492

Dear Sir or Madam:

We have acted as counsel for Novametrix Medical Systems
Inc., a Delaware corporation (the "Company"), in connection with Post-Effective
Amendment No. 1 to its Registration Statement on Form SB-2, as amended (No.
33-77872) (collectively, the "Registration Statement"), filed by the Company
under the Securities Act of 1933, as amended, with respect to (1) 1,209,940
shares of common stock, $.01 par value, of the Company (the "Common Stock")
issuable upon exercise of (i) 604,940 redeemable Class A Warrants of the
Company (the "Class A Warrants") and (ii) 605,000 redeemable Class B Warrants
of the Company (the "Class B Warrants;" and together with the Class A Warrants,
the "Warrants") and (2) 110,000 shares of Common Stock of the Company issuable
upon exercise of the warrants issued and sold by the Company to Keane
Securities Co., Inc. (the "Representative's Warrants").

In connection with the Registration Statement, we have
examined such records and documents and such questions of law as we have deemed
necessary or appropriate for purposes of this opinion. On the basis of such
examination, we advise you that in our opinion:

(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware; and

(2) The Common Stock issuable upon the exercise of the
Warrants and the Representative's Warrants has been duly and
validly authorized and, when issued in accordance with resolutions
heretofore adopted by the board of directors of the Company, will
be duly and validly issued, fully paid and nonassessable.
<PAGE> 2
Novametrix Medical Systems Inc. -2- October 18, 1995

To the extent that matters of fact are involved in the
conclusions expressed in the foregoing opinion, such opinion is based upon
certificates of executive officers of the Company and upon certificates of
public officials. All of the foregoing certificates are, to the extent that we
have relied upon them as aforesaid, in form and substance satisfactory to us.

We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to us under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statements.

Very truly yours,

HAYTHE & CURLEY

<PAGE> 1
EXHIBIT 11
NOVAMETRIX MEDICAL SYSTEMS INC.

STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
-------------------- -----------------------------------
07-30-95 07-31-94 04-30-95 05-01-94 05-02-93
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares
of Common Stock outstanding 5,851,621 5,104,322 5,591,536 4,504,865 4,184,671

Net effect of dilutive common stock
equivalents (1) 2,244,456 2,245,103 2,058,410 2,091,246 2,055,353

Total weighted average number of
shares of Common Stock and
dilutive common stock equivalents ---------- ---------- ---------- ---------- ----------
outstanding 8,096,077 7,349,425 7,649,946 6,596,111 6,240,024
========== ========== ========== ========== ==========

FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares
of Common Stock outstanding 5,851,621 5,104,322 5,591,536 4,504,865 4,184,671

Net effect of dilutive common stock
equivalents (1) 2,244,456 2,264,391 2,177,307 2,124,565 2,064,193

Total weighted average number of
shares of Common Stock and
dilutive common stock equivalents ---------- ---------- ---------- ---------- ----------
outstanding 8,096,077 7,368,713 7,768,843 6,629,430 6,248,864
========== ========== ========== ========== ==========

NET INCOME $ 388,167 $ 204,174 $1,604,367 $ 754,720 $ 264,917

Per common share amounts:
Primary $ .05 $ .03 $ .21 $ .11 $ .04

Fully Diluted $ .05 $ .03 $ .21 $ .11 $ .04
</TABLE>

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

(1) Earnings per common share amounts were computed by dividing net income by
the weighted average number of shares of Common Stock and dilutive common
stock equivalents outstanding during the period. Common stock equivalents
consist of the Company's Preferred Stock, stock options, warrants and
shares subscribed under the Company's employee stock purchase plan. The
computation of dilutive common stock equivalents are based on the
if-converted method for the Preferred Stock and on the treasury stock
method for the other common stock equivalents using the average market
price for the primary earnings per share computations and the higher of
average or period-end market price for the fully diluted earnings per
share computations.

<PAGE> 1

Exhibit 23(a)

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 26, 1995, in Post-effective Amendment No. 1 to the
Registration Statement (Form SB-2 No. 33-77872) and related Prospectus of
Novametrix Medical Systems Inc. for the registration of 1,319,940 shares of
Common Stock and 55,000 redeemable Class A Warrants and 55,000 redeemable Class
B Warrants.

ERNST & YOUNG LLP

Hartford, Connecticut
October 17, 1995